In Greek Mythology, Procrustes (who’s name means ‘The Stretcher’) the son of Poseidon, lured weary travelers from Athens to Eleusis to stay with him where he would fit them to his iron bed. He would stretch those too short to fit his bed and amputate the legs of those too long. Procrustes continued his reign of terror until Theseus traveling the same route killed Procrustes, by convincing him to fit himself to his own bed.
A Procrustes bed is used as a modern analogy of an “arbitrary standard by which exact conformity is required“. It has been used as comparisons in literature, math and computer science. In his 2010 book, ‘The Procrustes Bed: Philosophical and Practical Aphorisms’, Nassim Taleb says that it is not only that many times we try to fit into wrong boxes, but that the emphasis is on the box rather than the object. He also points out the danger of overestimating or under estimating variables as in Modern Portfolio Theory that uses risk assessment like Bell Curve distribution sigmas to gauge investment pairing and balancing. In a sense, Modern Portfolio Theory is a Procrustes Bed as it lops off 3rd or 4th sigma risk as inconsequential, only to find out later as we have with recent financial crises, those variables played a greater role.
A Procrustes Bed analogy of government policy can be made in areas like health care, education and other areas where centralized government tries to create solutions. As Procrustes would stretch his shorter victims and amputate his taller ones, government health care policy would give more health care to the healthy and less to the very sick. Individuals with health care needs ‘out of the bed’ of protocol would either have to look for it on the private or black market while the healthiest would be required an annual exam and other benefits that they don’t want. The same could also apply regarding cost sharing as healthy and unhealthy would be in the bed with the same premiums. Alternative care options which even now are generally only available to those with discretionary income, might under government health care be outlawed or even more expensive. Those who have the money might be joining those already fleeing other nation’s government health care, like a Danny Williams former Canadian MP who flew to Miami, FL for a heart procedure a few years back.
The Procrustes Bed of public education as it exists today is particularly cruel. I’d refer to an earlier article on a brief history of US education, that was loosely state regulated, decentralized and adaptable to different regions of the country and even up until the early 20th century was local and neighborhood focused. Today education is highly centralized through the Dept of Education, federal mandates and state enticements of money and credits to cash strapped states. Public school children are at the mercy of every new lab project coming through teacher colleges like Columbia, that weigh priorities of traditional skills of reading, writing, arithmetic and critical learning against socialization and tolerance which was John Dewey’s goal in the early 20th century, who believed changes in societies have to start in the classrooms. But the experiments are failing dramatically as US test scores have plummeted against other nations and the US has even pulled out of some competition.
If these experiments in healthcare, education and other non-delegated state powers had been done on a decentralized state by state basis as was the original system, the failures would have been isolated, less impacting nationally and successful models would be adapted in other states.
The Procrustes Bed can be applied in so many areas where federal government in particular creates arbitrary policy with rigid compliance. There is almost a unanimous conclusion that something is wrong in Washington, DC, while some consider the government as being ineffective and needs to be ‘fine tuned’, most believe it is doing too much and needs to do less.
As a fitting (pun intended) end of the mythological story, Procrustes is done in by his own device. Wouldn’t a fitting end to an uncontrollable and runaway federal government be a Procrustes Bed of Constitutional measures?
Statists, Governmentalists, Collectivists for over a century now have lured weary citizen travelers journeying through life, into the secure and comfortable bed of federal government powers to solve all problems, only to find out too late the limits it put on individual freedom. There is an inverse relationship between Government and Individual Liberty – as government power increases, individual liberty decreases. The framers of the Constitution understood the natural process of government was to grow and that it needed to be limited through constitutional restraint.
Are there Theseus’ in Washington or in state governments who can lure the Federal Government back into the bed of constitutional restraint so we can once again ‘fit it’ so it functions as was intended as a protector of individual liberties and not as a provider of rights and services?
Christopher M. Mahon, Editor
NOW, THEREFORE, it is hereby ordered that, before the filing of any notices, or taking
of any testimony or adjudication of or finding on any issues of fact or law herein, and without
this Order constituting an admission or denial by Citigroup of any allegation made or implied by
the Board of Governors in connection with this matter, and solely for the purpose of settling this 4
matter without a formal proceeding being filed and without the necessity for protracted or
extended hearings or testimony, pursuant to sections 8(b)(1) and (3) of the FDI Act (12 U.S.C.
§§1818(b)(1) and 1818(b)(3)), Citigroup and its institution-affiliated parties shall cease and
desist and take affirmative action as follows:
Source of Strength
1. The board of directors of Citigroup shall take appropriate steps to fully utilize
Citigroup’s financial and managerial resources, pursuant to section 38A of the FDI Act
(12 U.S.C. § 1831o-1) and section 225.4(a) of Regulation Y of the Board of Governors (12 C.F.R.
§ 225.4(a)), to serve as a source of strength to each of the Banks, including, but not limited to,
taking stepsto ensure that each of the Banks complies with the Consent Orders issued by their
respective banking agency supervisors and any other supervisory actions taken by their respective
banking agency supervisors.
2. Within 60 days of this Order, Citigroup’s board of directors shall submit to the
Reserve Bank an acceptable written plan to continue ongoing enhancements to the board’s
oversight of Citigroup’s firmwide compliance risk management program with regard to
compliance with BSA/AML Requirements. The plan shall describe the actions that the board of
directors has taken since the Consent Orders became effective and will take to improve
Citigroup’s firmwide compliance risk management with regard to BSA/AML Requirements,
including, but not limited to, ensuring that such compliance risk is effectively managed across
Citigroup, including within and across business lines, support units, legal entities, and
jurisdictions in which Citigroup and its subsidiaries operate. The plan shall, at a minimum,
address, consider, and include: 5
(a) Funding for personnel, systems, and other resources as are needed to
operate a BSA/AML compliance risk management program that is commensurate with the
compliance risk profile of the organization and that fully addresses the organization’s
compliance risks on a timely and effective basis;
(b) policies to instill a proactive approach throughout the organization in
identifying, communicating, and managing BSA/AML compliance risks;
(c) measures to ensure adherence to approved BSA/AML compliance
policies, procedures, and standards, and ensure the timely completion of related projects and
(d) measures to ensure the resolution of BSA/AML-related audit, compliance
reviews, and examination findings.
Compliance Risk Management Program
3. Within 60 days of this Order, Citigroup shall submit an acceptable written plan to
the Reserve Bank to continue to improve the governance, structure, and operations of the
compliance risk management program with regard to BSA/AML Requirements and the
regulations issued by the Office of Foreign Assets Control of the United States Department of
the Treasury (“OFAC”) (31 C.F.R. Chapter V). The plan shall, at a minimum, address, consider,
(a) The structure and composition of Citigroup’s compliance committees and
a determination of the optimum structure and composition needed to provide adequate oversight
of Citigroup’s firmwide compliance risk management;
(b) enhanced written policies, procedures, and compliance risk management
(c) the independence and authority of the compliance functions and related
(d) the duties and responsibilities of the heads of compliance for global
business lines, the BSA/AML global program, and legal entities, as applicable, including the
reporting lines within Citigroup, and between Citigroup and its business lines and legal entities;
(e) a process for periodically reevaluating staffing needs in relation to the
organization’s compliance risk profile, and management succession planning for key compliance
(f) the scope and frequency of compliance risk assessments;
(g) measures to ensure compliance and improve accountability within
business lines and legal entities and their respective compliance functions;
(h) procedures for the periodic testing of the effectiveness of the compliance
risk management program;
(i) consistency with the Board of Governors’ guidance regarding Compliance
Risk Management Programs and Oversight at Large Banking Organizations with Complex
Compliance Profiles, dated October 16, 2008 (SR 08-8); and
(j) the findings and recommendations of the consultant engaged by Citibank
pursuant to Article V of Citibank’s Consent Order with the OCC.
BSA/AML Compliance Program
4. Within 90 days of this Order, Citigroup shall complete a review of the
effectiveness of Citigroup’s firmwide BSA/AML compliance program (the “BSA/AML Review”)
and prepare a written report of findings and recommendations (the “BSA/AML Report”). The
BSA/AML Review shall, at a minimum, address, consider, and include: 7
(a) The structure of Citigroup’s firmwide BSA/AML compliance program,
including reporting lines and taking into account the functions that Citigroup performs for the
Banks and Citigroup’s other subsidiaries;
(b) standards for BSA/AML compliance that apply on a firmwide basis,
including business lines and legal entities;
(c) the duties, responsibilities, and authority of Citigroup’s chief BSA/AML
compliance official, including reporting lines within Citigroup and from Citigroup’s business lines
and legal entities to the chief BSA/AML compliance official;
(d) communication of BSA/AML-related roles and responsibilities across the
(e) coordination among corporate BSA/AML compliance and the BSA/AML
compliance functions of the Banks, Citigroup’s other subsidiaries, and business lines;
(f) processes for monitoring business line and legal entity compliance with
Citigroup’s BSA/AML policies and procedures and BSA/AML requirements;
(g) policies, procedures, and processes, including, but not limited to, those for
identifying and investigating suspicious activity, and for filing suspicious activity reports;
(h) the scope and frequency of reporting with respect to BSA/AML compliance
within Citigroup, at a minimum, to senior management and board committees, as well as between
Citigroup and its business lines and legal entities;
(i) BSA/AML-related risk assessments;
(j) measures to ensure that any BSA/AML compliance functions, including,
but not limited to, transaction monitoring and suspicious activity reporting, that are performed by 8
Citigroup’s nonbank subsidiaries for the Banks or the Edge Act corporation are performed to meet
(k) independent testing within Citigroup entities subject to BSA/AML
(l) training; and
(m) the findings and recommendations of the consultant engaged by Citibank
pursuant to Article V of Citibank’s Consent Order with the OCC.
5. Within 120 days of this Order, the board of directors of Citigroup shall review the
BSA/AML Report and shall submit an acceptable written plan to the Reserve Bank that includes a
description of the specific actions that Citigroup will take to continue to strengthen the
management and oversight of Citigroup’s firmwide BSA/AML compliance program, taking into
account the requirements of the appropriate federal or state supervisor of Citigroup’s functionally
6. Within 30 days after the end of each calendar quarter following the date of this
Order, the board of directors of Citigroup or an authorized committee thereof shall submit to the
Reserve Bank written progress reports detailing the form and manner of all actions taken to secure
compliance with this Order, a timetable and schedule to implement specific remedial actions to be
taken to address the recommendation in the Report, and the results thereof.
Approval and Implementation of Plans
7. (a) Citigroup shall submit written plans that are acceptable to the Reserve
Bank within the applicable time periods set forth in paragraphs 2, 3, and 5 of this Order. 9
(b) Within 10 days of approval by the Reserve Bank, Citigroup shall adopt the
approved plans. Upon adoption, Citigroup shall promptly implement the approved plans and
thereafter fully comply with them.
(c) During the term of this Order, the approved plans shall not be amended or
rescinded without the prior written approval of the Reserve Bank.
8. All communications regarding this Order shall be sent to:
(a) Jonathan Polk
Senior Vice President
Federal Reserve Bank of New York
33 Liberty Street
New York, New York 10045
(b) Kevin L. Thurm
Chief Compliance Officer
399 Park Avenue
New York, New York 10022
9. Notwithstanding any provision of this Order to the contrary, the Reserve Bank
may, in its sole discretion, grant written extensions of time to Citigroup to comply with any
provision of this Order.
10. The provisions of this Order shall be binding upon Citigroup and its institutionaffiliated parties, in their capacities as such, and their successors and assigns.
11. Each provision of this Order shall remain effective and enforceable until stayed,
modified, terminated, or suspended in writing by the Reserve Bank. 10
12. The provisions of this Order shall not bar, estop, or otherwise prevent the Board
of Governors, the Reserve Bank, or any other federal or state agency from taking any other
action affecting Citigroup, the Banks, any nonbank subsidiary of Citigroup, or any of their
current or former institution-affiliated parties and their successors and assigns.
By Order of the Board of Governors effective this 21st day of March, 2013.
CITIGROUP INC. BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
Federal Reserve releases information highlighting their January FOMC meeting. They see moderate growth with the goal of ‘maximum employment with price stability’. Fed will maintain fed funds rate 0-.25% as long as unemployment remains over 6.5% and report projects inflation stable over next couple years in a 2% range. The committee also has decided to,
“continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”
Release Date: March 20, 2013
For immediate release
Information received since the Federal Open Market Committee met in January suggests a return to moderate economic growth following a pause late last year. Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy has become somewhat more restrictive. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.
The President last week was challenged by Congress to be specific in its ‘Drone Policy’ and other military permissible actions on US soil. Through Attorney General Eric Holder, he admitted it was ‘inappropriate’ and after Senator Rand Paul’s 13 hour filibuster of CIA Director nominee John Brennan, admitted in a letter the next day, “It has come to my attention that you have now asked an additional question: ‘Does the President have the authority to use a weaponized drone to kill an American not engaged in combat on American soil?’ The answer to that question is no.”
Was the President’s answer adequate enough and by what authority is that ‘NO’ tied to?
Senator Paul framed the issue in the first hour of the filibuster, “If there’s a gentleman or a woman with a grenade launcher attacking our buildings or our Capitol, we use lethal force. You don’t get due process if you’re involved with actively attacking us, our soldiers or our government. You don’t get due process if you’re overseas in a battle shooting at our soldiers. But that’s not what we’re talking about. The Wall Street Journal reported and said that the bulk of the drone attacks are signature attacks. They don’t even know the name of the person. A line or a caravan is going from a place where we think there are bad people to a place where we think they might commit harm and we kill the caravan, not the person. Is that the standard that we will now use in America?”
“I will speak today until the President responds and says no, we won’t kill Americans in cafes; no, we won’t kill you at home in your bed at night; no, we won’t drop bombs on restaurants. Is that so hard?”
Senator Paul’s response to AG Holder’s letter the day after the filibuster was ‘Hooray!’ as he felt that those who staged the filibuster received the answer they were looking for and the American people are better off in hearing it. But while the Administration was dragged from ‘inappropriate’ to ‘No’, and there may even be an implied constitutional principle rather than arbitrary power that makes that decision, it is vague at best.
“Having unlimited power; uncontrolled or unrestricted by law; despotic; tyrannical: an arbitrary government.”
John Locke, a seventeenth century philosopher that some refer to as the ‘Father of Classical Liberalism’ who’s ideas the founding era fathers called upon in creating the US Constitution said, “This freedom from absolute, arbitrary power, is so necessary to, and closely joined with a man’s preservation, that he cannot part with it”. The mortal sin of government is arbitrary power, while a government restrained by law (constitution) will survive.
This has been the history of the United States, even while constitutional boundaries have been slowly broken down and powers arbitrarily assumed by Washington have become more prevalent, the ‘SS America’ though her belly full with assumed authority in Washington still navigates and protects its precious cargo and passengers to some degree. But what transpired last week is very important in understanding the condition and restoration needed to right this Republic.
While the week started out very interesting as Washington rarely does, ‘aired its dirty laundry’ it became even more so as Senators John McCain and Lindsay Graham criticized Senator Paul and his colleagues that staged the filibuster the next morning. Senator McCain called some of Paul’s comments ‘Ridiculous’ and said, “So we’ve done a, I think, a disservice to a lot Americans by making them believe that somehow they’re in danger from their government They’re not. But we are in danger. We are in danger from a dedicated, longstanding, easily replaceable leadership enemy that is hellbent on our destruction. And this leads us to having to do things that perhaps we haven’t had to do in other more conventional wars.”
Senator Graham added a rebuke and challenge to why now, “We should be talking about it. I welcome a reasoned discussion. But to my Republican colleagues, I don’t remember any of you coming down here suggesting that President Bush was going to kill anybody with a drone.”
To help Senator Graham’s memory, there were those in Congress (not many GOP) that criticized the Patriot Act and violations of FISA (Foreign Intelligence Surveillance Act) in unwarranted monitoring of emails and cell phone calls as there was a great public shift in tolerance at the time to give up personal freedoms for security. Many of the legislative and executive actions back then have paved the way for more aggressive legislation that could possibly violate state non delegated power and personal liberties like due process today. NDAA 2012 is a good example of that as around 20 states are in the process of creating resolutions and laws to ‘nullify’ it.
Senator Rand’s response to McCain and Graham was, “They are on the wrong side of history on this one. They believe that war is everywhere and there kind of with the President who believes there’s no geographic limitations. They also say that the laws of war apply, what the laws of war apply means is that you don’t get Due Process and I can understand that in a battlefield, you don’t read Miranda Rights, if you are shooting at me, we kill you. But they say America’s a battlefield and that’s a huge mistake. If we bring what is in effect Marshall Law to America, Americans will be really upset. These are the same people (McCain and Graham) that want to detain American citizens indefinitely without a trial.”
While to the ‘untrained eye’ these last few days may seem like a lot to do about nothing and they may automatically tune out politics or just can’t see drone strikes or other military actions on American soil. But consider, in ‘broad daylight’ we have an administration that can only muster up ‘inappropriate’ to describe the act of the federal government killing Americans without due process and many in Congress berating the questioners. If this is the response in public, what could happen in the ‘Fog of War’? Isn’t it important to tie these arbitrary powers to law and a system of authorization?
While filibusters are unique in that they happen infrequently, the filibuster by Senator Rand Paul and others was unique in that it called for less federal military intervention which we haven’t heard from in more than six decades. Interesting, a filibuster in 1917 by Republicans to kill pro-intervention into World War 1 was defeated by senate Democrats through cloture at the urging of President Woodrow Wilson.
Up until the early 1950s, many conservatives were non-interventionists and the ‘Old Right’ was committed to restraining executive powers until the late 1960s when neoconservatives began to endorse interventionism in opposition to the USSR.
The Right were generally dragged kicking and screaming into both world wars and as McCain et al demonstrated this past week, neoconservatives are having a very difficult time justifying the precious lives of our children, the destruction of important military assets and the sacrifice of individual liberty in a futile effort to buy off world support through aid and occupation and the pretense of security at home through paternalism.
As Ecclesiastes 1.9 says, “There’s nothing new under the sun.” What has been done is being done and whether it’s Conservative or Progressive ideology that you think is ‘new’, you are mistaken my friend.
But there is a ‘Plumbline’, a measuring stick that allows these old ideas to be rehashed and it protects liberty in the process. It’s the US Constitution, which says ‘No’ to federal power except for which has been specifically delegated and ‘Yes’ to the states for all other non delegated power.
James Madison writing in Federalist Papers 10 warned against the loss of personal freedoms in a ‘centralized government’, “A pure democracy can admit no cure for the mischiefs of faction(s) (special interests).. Hence it is, that democracies have ever been found incompatible with personal security or the rights of property; and have, in general, been as short in their lives as they have been violent in their deaths”.
Missing from the President’s and AG Holder’s response, as well as the media coverage and the critics of the filibuster is the US Constitution and a discussion of the limits of government power under it. Washington as we know it HAS TO live under arbitrary power to consolidate more power and the money that goes with it. For Individual Liberty to prevail and a healthy society as a result, constitutional authority must be reestablished.
To be blunt, it is the ‘Rand Pauls’ and Ron Wydens (sole Democratic Senator to speak at filibuster) whose job it is to dismantle (not change) Washington and it is the state legislatures around the nation whose job it is to resurrect State Authority in order to bring back Constitutional alignment.
Christopher M. Mahon, Editor
Christopher Mahon is the Editor of Ambidextrous Civic Discourse, ‘Where the Right and Left meet’; a place where you can find information about economics, philosophical and political issues that challenge those on the ‘right’ or the ‘left’ on what works best in society. At ACD you can find articles, essays and book classics on the subjects mentioned above that contrast differences like Keynesian vs. Classical Economics or the function of government – Negative vs. Positive Liberty. Please peruse our Library and videos. Chris has a Masters in Accounting and Financial Management. Learn more at – www.ambidextrouscivicdiscourse.com
As the President and Congress face Sequestration, an imposed cut on spending increases of roughly 2% which would amount to $42 billion in FY 2013 according to the CBO (Congressional Budget Office). Most would agree that cutting 2% out of their home budget is no fun, as evenings out and other discretionary spending would suffer but it wouldn’t warrant the reactions coming from the Media, the President and other politicians in Washington.
Some have argued against federal spending cuts and would say the more important issue is a ‘balanced budget’ and that raising taxes would be the better way to accomplish this, as you can pinpoint those taxes toward the wealthier class of citizens. Economists like Paul Krugman of the NYTimes go even further by inferring that private and government spending in the economy make no difference and that he could argue that money in government hands can be ‘invested’ more fairly. Free market believers on the other hand would make the point that Laissez-faire “an economic environment in which transactions between private parties are free from tariffs, government subsidies, and enforced monopolies, with only enough government regulations sufficient to protect property rights against theft and aggression,” is more efficient, less fragile and as a result of competitive markets allows for success, failure and the reallocation of resources to their most productive positions.
Today, if you are in the ‘Middle Class’ you might be expecting something from Washington as both parties in the 2012 election out did themselves in making promises to this class of people.
In two recent studies by Harvard Professors, they show that levels of public spending affects private markets and the economy in a negative way, (maybe Harvard Economic chairman Greg Mankiw is making some influence in the pro-Keynesian college curriculum). In the studies ”Large changes in ﬁscal policy: taxes versus spending“, Alberto Alesina and Silvia Ardagna and “Do Powerful Politicians Cause Corporate Downsizing?” Lauren Cohen, Joshua Coval, and Christopher Malloy (all of Harvard Business School), the ‘public versus private economy’ is taken into consideration on how they perform and interact. In the ‘Large Changes’ study, they look at OECD countries (Organisation for Economic Co-operation and Development) from 1970-2007 and identified periods of austerity where government was slashed and periods when government grew in proportion to the private market. While there has been criticism of the study, the study supports the Classical Market (Laissez-faire) concept that less government intrusion leaves the private market to ‘self regulate’, while isolating failures (which become systemic in centralized/government dominated markets) and through competition, creative models result that are more efficient and tailored to consumers’ wants and needs. In the second study, they track politicians in the US Congress that become Chairpersons or influential leaders of their party and whether or not that affects the amount of federal spending that flows to their home state and the effects of that spending. The study finds that there’s an almost 50% increase in federal spending that flows to the home state of the Congressman and that the change in public:private ratio (increase in public) has a dramatic negative influence on the state’s private industries with layoffs and economic slow downs resulting many times. In the first study, when public spending has been cut, and there were some isolated incidences of initial slowdowns, vibrant growth has followed. The argument being made by the White House and some in Congress is that if you cut federal spending the ‘fragile US recovery’ will stall. Many believe this has already happened and that the opposite should prove true that if you cut federal spending, putting more money in the hands of the individual and the private market, and if Washington gives clear signals to the credit markets and private capital sitting on the sidelines that Washington will ‘stand down’, that sustainable recovery is more probable.
Over the last Eighty years, Washington has built an intricate ‘Welfare and Warfare’ system that provides regulation and subsidizes to almost every area of society through business, individual and foreign aid. “Government spending at the start of the 20th century was less than 7 percent of GDP. It vaulted to almost 30 percent of GDP by the end of World War I, and then settled down to 10 percent of GDP in the 1920s. In the 1930s spending doubled to 20 percent of GDP. Defense spending in World War II drove overall government spending over 50 percent of GDP before declining to 22 percent of GDP in the late 1940s. The 1950s began a steady spending increase to about 36 percent of GDP by 1982. In the 1990s and 2000s government spending stayed about constant at 33-35 percent of GDP, but in the aftermath of the Crash of 2008 spending has jogged up to 40 percent of GDP.” USGovernmentSpending.com
While many Conservatives have warned of a growing ‘Socialization’ of US society through federal domestic intervention into commerce, education, family and other areas of civilian life that in their view ‘robs personal freedoms’, Progressives have warned about a growing military complex as a result of protecting the US against terrorism abroad and more recently even domestically as we ‘hunt down’ homegrown terrorists. The US has been transformed from a predominantly ‘private society’ where most transactions happen without government intervention to a ‘mixed society’ where a considerable amount of daily transactions (direct and indirect) include government influence.
Washington has proved what the founding era fathers feared, that the nature of federal power and spending is to grow and that they can’t police themselves. There are only two likely outcomes:
One is given in this illustration by Stan Druckenmiller a former ‘well heeled’ Hedge Fund Manager, ”The bond market is the banker for the federal government. Imagine if you will, your banker comes to you and you’re making $40,000/yr and lends you money at zero interest – no cost. Later, after you’re in debt $5 million, they realize, ‘He’s making $40,000 and has $5 million in debt!’ Suddenly your interest rate goes to 16% and carrying cost goes through the roof. That’s what will happen to the US government over the next 10 years, and it will happen suddenly like Greece. Greece was in good shape in 2010.” The market eventually gets it’s revenge.
The second, is happening but slowly as several states for various reasons (anti-NDAA and Gun Control legislation for example) are standing up to federal power that the states believe violate constitutional authority and are reclaiming those powers to protect their citizens. As Lincoln era legislation was passed in the 1860s: National Banking Acts, Legal Tender, Morrill Grants (education) and railway acts (early corporate cronyism) intended to nationalize power for a greater purpose of the ‘American Experience’ which was followed years later by FDR New Deal federal expansion of power as mentioned earlier in the article, popular sentiment has started to change as Americans are looking for relief and protection from a capricious federal government that it is out of control.
After World War 1, Presidents Warren Harding and Calvin Coolidge were met in 1920 with one of the worst Depressions in history as prices fell almost 20% (Wholesale by more than 36%). Some blamed it on returning troops from the war, others on monetary policy as interest rates were almost doubled and even some blamed gold and the anticipation of inflation (Federal Reserve policies). Harding and Coolidge cut federal spending by more than 20%, considering government spending a burden on the private market, and the devastating depression of 1920 lasted approximately 18 months. Economists will point to the austerity cuts of the 1920s and Laissez-faire policies of Coolidge as the path to follow, while some instead will point to the aggressive spending of the New Deal era as the better solution for today. Keep in mind that the 1929 depression didn’t show ‘green shoots’ until 1937 and the stock market took 25 years to recover to its pre-crash levels.
The real question is more philosophical and goes to the core of Platonic and Hobbesian differences. Plato illustrated three classes of citizens in his Republic: A ‘Ruler’ class, ‘Warrior’ class and ‘Worker’ class. Washington today has become that Ruler class, while the courts and law enforcement could be the Warrior class and all others fall into the Worker class. Hobbes believed that ‘all men were created equal’ in the sense of potential and ability of each man to find life, liberty and to pursue happiness. In that philosophy our Declaration of Independence was forged and won, the US Constitution was built upon this principle that ‘men’ can find their way and through the voluntary and free association and exchange in the marketplace society is regulated and healthy, while government can play a small part in a negative position (stands down) to defend man’s property and individual liberties. These rights remain with man until man forfeits those rights when taking them from another. Which will we choose going forward?
Even if we took the advice of Coolidge and the studies mentioned above seriously and were able to make substantial cuts in federal spending and a robust recovery resulted; wouldn’t we find ourselves in jeopardy again as soon as the next crisis appears and the federal government steps in? In order to solve our spending problems we need to be fiscally responsible and we need to mend our Constitutional Fence.
Tell us what you think.
Christopher M. Mahon, Editor
Jerome Powell, board member of the Federal Reserve teed up his speech on ‘too big to fail’ At the Institute of International Bankers 2013 Washington Conference, Washington, D.C. on March 4, 2013 by saying, “In broad terms, these reforms (Dodd-Frank) seek to eliminate the expectation of bailouts in two ways–by significantly reducing the likelihood of systemic firm failures, and by greatly limiting the costs to society of such failures. When failures are unusual and the costs of such a failure are modest, the expectation at the heart of too big to fail will be substantially eliminated. My focus today is principally on the second of these two aspects of reform–containing the costs and systemic risks from failures, a goal being advanced by work to create a credible resolution authority.”
Powell who was appointed to the position May of 2012 and served as an Assistant Secretary and as Undersecretary of the Treasury under President George H.W. Bush and had worked for the Carlyle Group 1997-2005 graduated from Princeton and received his law degree from Georgetown went on to say,
“It is worth noting that too big to fail is not simply about size. A big institution is “too big” when there is an expectation that government will do whatever it takes to rescue that institution from failure, thus bestowing an effective risk premium subsidy. Reforms to end too big to fail must address the causes of this expectation.”
Powell remembering back to the Savings and Loan debacle, goes on to justify Fed intervention, “It happened in January 1991, at a time of great stress in the financial system and the broader economy, and only days after 45 depository institutions in the region had been closed and 300,000 deposit accounts frozen. My Treasury colleagues and I joined representatives of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board in a conference room on a Sunday morning. We came to understand that either the FDIC would protect all of the bank’s depositors, without regard to deposit insurance limits, or there would likely be a run on all the money center banks the next morning–the first such run since 1933. We chose the first option, without dissent.”
Powell believes that between the capitalization requirements in Basel III and the new oversights produced through Dodd-Frank of creating a ‘Single Port of Entry’ and a ‘Living Will’ type liquidation through Orderly Liquidation Authority (OLA) which he describes as similar to the bankruptcy process, that a banking systemic failure is less likely and that generally the financial markets are healthier today as a result.
“Under single point of entry, the FDIC will be appointed receiver of only the top-tier parent holding company of the failed financial group. Promptly after the parent holding company is placed into receivership, the FDIC will transfer the assets of the parent company (primarily its investments in subsidiaries) to a bridge holding company. Equity claims of the failed parent company’s shareholders will be wiped out, and claims of its unsecured debt holders will be written down as necessary to reflect any losses in the receivership that the shareholders cannot cover. To capitalize the bridge holding company and the operating subsidiaries, and to permit transfer of ownership and control of the bridge company back to private hands, the FDIC will exchange the remaining claims of unsecured creditors of the parent for equity and/or debt claims of the bridge company. If necessary, the FDIC would provide temporary liquidity to the bridge company until the “bail-in” of the failed parent company’s creditors can be accomplished.”
Critics of the OLA and other Dodd-Frank legislation say that basically the legislation promotes further Moral Hazard and ‘enshrines the taxpayer’ in the bailout process. In addition, it firmly places the federal government in the position of ‘choosing winners and losses’ as JP Morgan did himself during the Bank Panic of 1907, settling grudges and eliminating competition.
The ‘Living Will’ legislation requires ‘too big to fail’ entities to create a financial/legal document that outlines how the entity should be liquidated in case of ‘death’. Kind of like today’s Medical Proxies where care and decisions are given to someone else (receivership). It’s ironic that ‘end of life’ decisions, medical (Affordable Care Act) and financial (Dodd-Frank) all are ending up in the control of the federal government.
It was noted above that Mr Powell worked for the US Treasury prior to the Fed Reserve position which is fairly common and some view as producing a myopic view of financial problems and solutions. In addition, his work at Carlyle in Global investments reinforces the potential to maintain the status quo of a centralized financial system rather than alternatives that would diversify and minimize ‘long tail’ risks and systemic failure. As with many of our problems today, more government stands in the way of market solutions that allow failure that is not systemic, that is productive and the process reallocates resources to their more efficient uses rather than sophisticated ‘Crony Capitalism’.
To read the speech by Jerome Powell in its entirety.
Please share your thoughts with us and comment below. Thanks.
Christopher M. Mahon, Editor
In the 1939 Frank Capra fictional movie classic, ‘Mr Smith Goes To Washington’, we find after the death of a US Senator named Samuel Foley of a western state, the Governor of that state Governor Hubert “Happy” Hopper through pressure from his children appoints their Boys Club leader Jefferson Smith played by Jimmy Stewart to ‘go to Washington’ and take on the corruption and to build a boy’s park in his home state. Unfortunately for Mr Smith, being wet behind the ears and not knowing the harsh realities of the Belt Way and how favors and projects are bought and paid for, his efforts are challenged; as his colleague, also of the same state, senior Senator Joseph Pain played by Claude Rains and a powerful media magnate Jim Taylor who ‘runs the state’ plot Mr Smith’s demise through accusations of fraud and self aggrandizement in stealing the Boy’s Club money.
While Mr Smith is vindicated to some extent at the end of the film as the political graft of his state’s senior Senator Paine and media magnate Taylor is exposed, still you turn the movie off thinking that nothing really changes in Washington, DC.
I highly recommend the movie to our younger generation, and while it is in Black & White (for some reason that’s a ‘deal breaker’), you’ll enjoy it very much. But let’s modernize this story for today and address what most think – that ‘nothing really changes’ in Washington. Whether it’s a new President every four or eight years or even a grassroots movement like in 2010 when the GOP picked up many Congressional House and Senate seats, the frustration of most is the same as they see continued: budget deficits, US debt, and monetary policy that Washington uses to unconstitutionally over promise on yet more social, economic and foreign policy intervention at the expense of the Individual.
Enter Ron Paul stage left, arguably a ‘modern day Jefferson Smith’. While Paul raises the volume of conversation on both sides of the aisle and can even dominate a family dinner conversation; love, hate or ambivalence toward him, most would agree he has been consistently promoting the dynamics of applying the original meaning of constitutional limited powers, that there are specific delegated powers that belong to the federal (General) government and the non delegated powers belong to the states, municipalities and the Individual.
Representative Paul, retired last month and while we could discuss his failure/success in passing ‘constitutional’ federal legislation, he was known as ‘Dr NO’ where Washington tried to pass overreaching legislation that tread on state non delegated powers and he brought a voice to the forefront of the need to get back to limited government. Like Smith in the movie, Paul was marginalized by government collusion, insider deals and ‘Greater Good’ promises of national security, healthcare for all, and equality for the good of the ‘General Welfare’.
While it is important to send Congressmen to our US Capitol that understand and will vote pro-Constitution in an effort to protect Individual Liberties, it is even more important to send them to the state houses to resist federal overreach into non delegated powers.
Federal policies like the National Defense Authorization Act, Affordable Care Act and new federal Gun Control legislation are generally written in Washington and while they include invitations to special interest groups that can have influence in ‘authoring’, getting behind and supporting the legislation, the bill drafting rarely include the states or citizen groups of which they will have the greatest impact. The good news is that many states are standing up to these bills that while well intended, take away the non delegated powers of the states and create unintended results as have been seen through education, retirement, healthcare and employment.
The founding generation understood that limited enumerated federal power and all other power left to the states protected against a fragile and monolithic government structure that would be impervious to change and market dynamics. To paraphrase David Brooks, his recent comments on Meet The Press regarding the Newtown, CT shooting and federal gun control bills, “‘in New York City there’s literally a police station around the corner, a few minutes away, while in a small town in Wyoming, it could take 45 minutes to an hour if you are lucky..’” Brooks was emphasizing the differing needs and wants throughout the country and that to create ‘one size fits all’ policies are not practical and can be counterproductive.
Robert Natelson of the Goldwater Institute writing in The Original Constitution (2010), “One of the great achievements of the federal convention (1787) was the idea of dual sovereignty. Previously, people had conceived as sovereignty as an attribute always located in some one place. The Framers, however, drafted a document that divided sovereignty between states and federal government—or more precisely between the American people as a whole and subsets of the American people operating through their state governments.” Natelson goes on to use the Ratifiers’ understanding of what they were signing as delegates of the Colonies (States) at the time. He digs into rare documents of the colonial conventions that expose their fear of a runaway federal government that would eventually create one sovereign government and the rights of the people would be lost. While the states and local governments had the power to create or support churches, currency and covenants on how to live, they did not want that falling into the hands of a ‘General Government’.
Unfortunately for the signers it wouldn’t be long before those constitutional lines would be challenged as both Virginia and Kentucky in 1799 created resolutions written by Madison and Jefferson in opposition to the Alien and Sedition Act in part but also as the seeds of a monolithic process were already at work as the Federal Government proposed that they could regulate their own power through their three branches of Government. These resolutions were a wakeup call that the states had sovereign powers and that it was within their constitutional rights to defend them.
Madison warned, “Though clothed with the pretext of necessity, or disguised by arguments of expediency, may yet establish precedents which may ultimately devote a generous and unsuspicious people to all the consequences of usurped power.” Big Government if sold properly galvanizes a constituency of a majority over a minority only when the states shirk their responsibilities.
At the website Tenth Amendment Center, you can see which states have started to resist federal overreach into the non delegated powers of the states. Between ‘Health Freedom Acts’, Nullification, No Medicare Expansion and outright Rejection there are more than 40 states involved in resisting federal power in the Affordable Care Act. There are 17 states currently in different stages of nullifying the National Defense Authorization Act (NDAA 2012) legislation that allows the federal government to violate Due Process rights and potentially to commandeer state resources without state authorization.
Unfortunately, these success stories of the States standing up for their rightful powers and responsibilities are not covered on national news outlets and there is an obvious need for more resources and involvement in each state to resist a growing federal government and its overreach into state non delegated powers.
If, like after watching the 1939 classic ‘Mr Smith Goes To Washington’ you find yourself saying, “What can I do? Can there really be change?” The answer is yes but it’s not in Washington politics but at your State House or in your local legislative District. The powers of Nullification, Interposition and other Article V tools have lain dormant for years, but today is the day for states to take action. Get involved by getting local in your politics. You can find out what’s going on in your state by visiting the Tenth Amendment Center.
For years Wall Street and Washington has siphoned off our ‘best and brightest’ to concentrate power, isn’t it time through the sovereign powers of the states to diffuse Washington’s unconstitutional stranglehold on society?
Christopher M. Mahon, Editor
A very interesting exchange on Foxnews Sunday with Chris Wallace as Karl Rove, one of the panelists is asked about recent comments from Talk Radio host Mark Levin who said, “He’s also up there with that stupid little third grade white board of his, with his fourth-grade writing style, talking about how they committed $30 million to Tea Party candidates. Bring on your little white board. We’re ready!”
Levin, like many other media critics, grassroots Republican Party groups like the Tea Party are still hurting from the devastating loss the party suffered in 2012 and who blame Rove in part with supporting nominees and a ‘runaway platform’ after the convention last August that many states, local districts and the grassroots like the Tea Party didn’t support.
Karl Rove, a ‘Republican Strategist’ has been involved with the political process since 1968 and has worked with mostly ‘modern traditional’ Republican candidates whose policies generally support a large military footprint and supply side business incentives. Rove has played a part in both George H and George W Bush campaigns and other campaigns like Ronald Reagan’s.
Rove has been in the news lately when it was announced earlier this year that he was starting up the Conservative Victory Project, which is described on Wikipedia as, “the prominent Republican political activist, and the super-PAC American Crossroads. Its purpose was to support “electable” conservative political candidates for political office in the United States. The effort was prompted by embarrassing failures of several Tea Party and independent conservative candidates in the elections of 2012. The project has been strongly criticized by some other conservative activists.”
Rove goes on to make the point later in the Foxnews show, “Right. And our (Conservative Victory Project) object is, to avoid having stupid candidates who can’t win general elections, who are undisciplined, can’t raise money, aren’t putting together the support necessary to win a general election campaign, because this money is too difficult to raise to be spending it on behalf of candidates who have little chance of winning in a general election.” Wallace then goes on to ask this question to Bob Woodward, “Bob, what does it say about the Republican Party when you have Karl Rove stepping in there to say we have got to try to police those Republican primary voters — I mean, it’s part of the process, I’m not saying there is anything wrong with that, but they are trying to police who Republican primary voters are going to pick to go up against Democrats (interrupted).. and let me just finish the question. And, when you have Marco Rubio, who is pretty conservative and a Tea Party favorite giving the Republican response and the Tea Party thinks they have to have somebody else to give a response to the response?” Woodward then responds, “My last book is going to be called “Some People Never Go Away,” and Karl is going to get his own chapter (LAUGHTER) because he never goes away.”
Woodward goes on to point out, “I think the problem in the Republican Party is really not money. I think they’ve got lots of it. I think it is – theory of the case, why are we here, what is our message, how to connect to the real world and this idea about 30 million here, we’re going to do that, I think is the wrong track…you’re going to set yourself up as a kind of politburo, vetting these candidates …I mean the whole theory of Republicanism is to let the local state or a district decide.”
Is Karl Rove or other party advocates needed to sift out ‘unelectable’ candidates or can that be done through the ‘primary marketplace’ (as Rand Paul suggested) or from the ground up through local and district support for candidates and issues? If Rove is a problem is he merely a symptom of a greater problem that lies at the feet of the Republican National Committee (RNC)?
Many have tried to pin down a reason for the GOP’s victory in the 2010 election results: An economy in crisis, a rejection of Obama and the Tea Party and other grassroots movements that were calling for ‘limited government’ and ‘fiscal responsibility’. While incumbents were fair game, it was generally a big year for Republicans. Among record turnout, the GOP saw increased numbers in most categories and young people in particular.
The college students that were turning out for Tea Party and other grassroots movements that centered on ‘Liberty’, ‘Limited Government’ and the Constitution seemed to strike a chord with the message. But then they saw their candidate Ron Paul vilified and marginalized in both the news media and the debates. The issues that were important to them – limiting federal power, free markets, keeping federal government out of social issues and a ‘constitutional compass’ weren’t taken seriously. But they were told, even though their candidate was battered and bruised all was not for nothing as the Convention in August (2012) would show that they were heard loud and clear and that some of those issues would make it onto the RNC platform.
In ‘RNC Rule 12: The Death of The GOP?’ during the RNC Convention last year I wrote about the latest RNC rule change to control the national platform. “The RNC Rule 12 that was enacted yesterday gives the ability of the GOP establishment in Washington the power to change rules and regulations quickly to destabilize grassroots movements that have less funds and influence in order to centralize power and the platform. Tea Party-type fires will be extinguished way earlier and if you happen to be in a majority interest today, good luck when the majority changes tomorrow due to special interest winds – platform will follow favor and money. Any creative grassroots movement going forward unfortunately will occur outside the GOP brand.”
The history of the Republican Party starts in 1854. The history of the RNC starts in 1856, launched with the goal of equal representation throughout the states through one representative from each state. The idea was that through local and diverse representation the people would be heard and constitutional liberty would be protected and ideas and solutions would germinate locally and arrive in Washington to create a national platform. As years have passed that representation has changed and power has moved from the rural and urban locales to Washington, DC. Ironically, Woodward unlike some of the GOP panelists picked up on that.
If the Republican Party can solve their problem of representation and the irresistible urge to centralize power in Washington, maybe that can be reflected in their national platform that puts the authority of the Constitution first in governing under the delegated powers and protecting the non delegated powers that were to remain in the states. Is the fate of the ‘Grand Ole Party’ the fate of a Nation?
Christopher Mahon, editor
Erskine Bowles and Alan Simpson of the President’s National Commission on Fiscal Responsibility and Reform which released a budget proposal on December 1, 2010, proposed $4 billion in deficit cuts and to a balance budget by 2035, Congressman Paul Ryan(R) was also on that committee and came out with his own plan that proposed to eliminate the US deficit in 30 years and to reduce the US debt, the 2012 version passed the House along party lines in 2011. Unfortunately nothing passed the Senate and nothing made it to the President’s desk to sign.
The new Bowles-Simpson plan is a little lighter as it would cut $2.4 billion over 10 years, cutting $600 billion from Medicare and Medicaid, $600 billion from new tax deductions and tax revenues, while $1.2 Billion in discretionary spending would be cut. It would also consider changes to slow increases in Social Security and other federal retirement payouts.
Last night at an Arizona Maricopa County Legislative District meeting, US Congressman David Schweikert(R), former Committee Member on Financial Services, shared his frustration in solving the budget and deficit problem and spoke of the urgency of a budget and how four years without one has meant no formal financial decisions made and that borrowed money goes to post budget commitments or status quo which compounds many financial problems within government.
Schweikert also hinted at a ‘news making’ tax policy announcement to be released by the GOP later this month, that would be ‘Flat tax’ in nature and could be a game changer in the Sequestration drama. Could mortgage interest, 179 deductions (accelerated depreciation) for business be on the table? Would GE (years ago paid no taxes on profit) or Face Book this year have to ante up? Schweikert believes this will force the Democrats to have to use logic and numbers in approaching spending and not emotional appeal to the public that he says quite frankly has been working.
The skeptic in me thinks this may be more of another stall to kick the can down the road a few more months for another ‘financial cliff’ or sequestration crisis. We’ll see.
Christopher M. Mahon, Editor
Federal Reserve Governor Elizabeth A. Duke spoke At the Southeastern Bank Management and Directors Conference at the University of Georgia today commenting on the state of and future of the Community Banking system. In her speech this morning she said, “Just as the seeds of a crisis are often sown in earlier boom times, strength can be forged during the tough times that follow a crisis. As we did in the early 1990s, bankers and regulators today have learned from the lessons of the crisis and are determined not to repeat the mistakes of the past.”
She also refers to the 1991 Savings & Loan crisis and the federal banking regulations that followed. “I hear from a lot of community bankers who are concerned that the community banking model might not survive. Many paint a picture so bleak that they see only personal retirement or sale of the bank as viable strategies. I completely understand how tiring it is to fight a financial crisis and survive a deep recession followed by a weak recovery only to confront what seems to be a tsunami of new regulations.
I felt all of those same emotions in 1991. I was a community banker then. We had survived the savings and loan crisis with some bruises, but we were still standing. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) had been followed by the Federal Deposit Insurance Corporation Improvement Act (FDICIA) in 1991. I had more new regulations stacked on my desk than I had employees in the bank. My bank had just reached the $100 million mark in total assets through the purchase of two branches from a failing thrift. Even more daunting for me personally, was the sudden death of my bank’s chief executive officer (CEO), leaving me as the new CEO. Frankly, I didn’t know how I was going to tackle all that lay in front of us. But those dark days in 1991 were followed by 15 years of exceptionally strong performance for all banks, including my own. And those experiences–the good and the bad–give me confidence in predicting a bright future for community banking today.”
What she fails to recognize is the affect that interest rate and monetary policy manipulation have on ‘less regulated’ and ‘less centralized’ entities like credit unions and other community banks. The supply of credit and the understanding of risk in evaluating the underwriting process is greatly skewed.
She goes on to say, “The Consumer Financial Protection Bureau (CFPB) recently released final rules defining “qualified mortgages” that include safe harbors for mortgages that meet specific loan term and pricing criteria, including certain balloon loans made by community banks in rural or underserved areas.2 At the same time, they issued a new proposal that contains additional community bank exceptions, as well as a question about the treatment of loans to refinance balloon payments on mortgages that community banks may already have on their books.3 Noting that smaller institutions have already demonstrated that they generally do a good job of servicing the loans they originate and that the investments necessary to meet the requirements would be unduly onerous for institutions that service a small number of loans, the CFPB also exempted most community banks from many of the provisions of new servicing requirements.4 I think such exceptions are especially important because, as I discussed in a recent speech and will touch upon later in my remarks, Federal Reserve research has shown that (1) community banks are important lenders in the mortgage market, (2) those mortgage loans represent a significant portion of community bank lending, and (3) community banks are quite responsible in their practices.”
These recent changes and the capricious nature of government in general and Federal Reserve policy specifically stalls capital on the sideline as investor groups are hesitant to make long term commitments while government has the power to change policy almost at any moment.
For the complete text of Board Governor Duke’s address or additional FRB publications click here
Christopher M. Mahon, Editor
We live in a time of furious federal legislation that assaults constitutional integrity that limits government power through the specific delegated (enumerated) powers that the states have granted to the Federal Government. Unfortunately like in the late 18th century and as we are finding out today, pragmatic attempts at solving socio-economic ills lead to attempts to violate these protections. If the lofty competitive universities of today and yesteryear teach anything, it’s that the ‘ends justify the means’ and as Plato mapped out in his Republic, there is an elite group that has been bred, taught and primed to lead and govern all men. They reside in Washington but power share through government-business relationships on Wall Street and other places that reinforce that power arrangement.
In the Virginia Legislature, January 23rd, 1799 addressing their concerns over the federal Alien and Sedition Acts of 1798 and its ambitious attempt to solve what the ‘Nationalists’ of their time perceived as an immigration problem, they passed law that violated state sovereignty for a ‘Greater Good’; and in Thomas Wood’s book, Nullification: How To Resist Federal Tyranny in the 21st Century’, and his quote below, tell me if this doesn’t sound like the recent battle that Arizona had through SB 1070 and where the Constitution speaks regarding state and federal powers or some of the federal legislation coming from Washington regarding NDAA, Gun and most recent Immigration legislation that contains ‘unpacked’ language that potentially violate ‘Due Process’ and other rights for expediency:
“If a suspicion that aliens are dangerous, constitutes the justification of that power exercised over them by Congress then a similar suspicion will justify the exercise of a similar power over natives (citizens); because there is nothing in the Constitution distinguishing between the power of a state to permit the residence of natives and aliens. It is, therefore, a right originally possessed, and never surrendered, by the respective states, and which is rendered dear and valuable to Virginia, because it is assailed through the bosom of the Constitution, and because her peculiar situation renders the easy admission of artisans and laborers an interest of vast importance. But this bill contains other features, still more alarming and dangerous. It dispenses with the trial by jury; it violates the judicial system; it confounds legislative, executive, and judicial powers; it punishes without trial; and it bestows upon the President despotic power over a numerous class of men. Are such measures consistent with our constitutional principles? And will an accumulation of power so extensive in the hands of the executive, over aliens, secure to natives (citizens) the blessings of republican liberty?”
This is a time that Edmund Burke would point to in his often quoted, “All it takes for evil to prevail is for good men to do nothing.” If you want to get involved, going to Washington is not necessary and in most cases nonproductive. Rather, find your local political party affiliation meeting or look for a social connection on FaceBook, Meetup, etc where you can join forces on issues that should concern you. The ‘Tenth Amendment Center’ has an excellent tracking page for different issues and great articles, please visit it and get informed on how you can help in your state. Many states are in different phases of drafting legislation to thwart federal overreach, so get up off the couch or from your well warmed chair at Starbucks and get involved. It’s time to stand up for your family, your community and your state to keep government powers diffused, competitive and effective in protecting (not granting) the rights of each individual.
The market itself, unencumbered by federal intervention and minimally by state and local government, in its free and voluntary social and economic associations and transactions that marginalizes the ‘bad actors’, is the best system we have to safeguard the liberty of each and every one of us, and is at the heart of what the founding era Patriots believed and created.
Christopher M. Mahon, Editor
On the heels of the Sandy Hook shooting, New York State becomes the first to issue new gun legislation. “The Secure Ammunition and Firearms Enforcement Act, or SAFE Act, gives New York the toughest gun laws in the nation and touches on the mental health issues that both pro-gun and anti-gun activists say should be part of any new legislation.“
Many pro and anti-gun control advocates saw New York’s decision as a model for the President and Federal legislation, which he just signed moments ago as Executive Orders, which include: Mental Health requirements, Universal Background Checks, restore ban on military style (restrict manufacturing) and 10 round limit on magazines, tougher laws on sale of guns (possibly enforced by BATF) and federal funding to ‘put more cops back on streets’. But here’s where it gets both historically interesting and potentially dangerous for individual liberties and the unintended consequences that always follow in the wake of federal intervention into markets.
The Second Amendment that has been quoted by both sides of the gun control issue is unfortunately sorely misunderstood. Part of the Bill of Rights, the second amendment like the other amendments address specific rights based on natural (Divine) law that restricts federal power and emphasizes the delegated and non-delegated powers between the federal government and the states. The Bill was in part due to Virginia and other states that needed better clarification that protected state sovereignty and also two colonies that hadn’t ratified the Constitution yet, North Carolina and Rhode Island weren’t convinced that state sovereignty was protected by the document well enough. The Bill was proposed in Congress September 25, 1789 and North Carolina later that year ratified the Constitution and Rhode Island (the last to ratify) in June 1790. Regarding the Bill of Rights, most ratified the Bill through 1791 with, Massachusetts, Georgia and Connecticut ratifying in 1939 as part of the Bill of Rights sesquicentennial celebrations.
Does the 2nd Amendment (Bill of Rights) have power over all government or specifically written to restrict federal power?
The founding era framers and ratifiers feared that what they were creating in a document to protect individual liberty and to limit the power of the state would later be destroyed through ‘unpacking’ its language and interpretation. Words like ‘Welfare’ which defined the proportionality of the ‘Benefit Principle’ and restricted federal power and not the egalitarian intentions to ‘create equality’; or ‘Commerce’ which had a narrow intent in refereeing state interrelationships and not the broad interventionist meaning of today, which would undermine a federative republic and dissolve into a centralized system of Monarchy/Democracy, from which they fled from earlier.
In creating the Bill of Rights, left on the writers’ floor was proposed language from James Madison, “No state shall violate the equal rights of conscience, or the freedom of the press, or the trial by jury in criminal cases.” In some ways this language (while not all encompassing) was uncharacteristic of Madison who in Federalist Papers #39, very adeptly laid out the balance of power (sovereignty) between federal and national governments inferred in the Constitution. The avoidance in the final Bill drafted of the language was purposeful as they understood both the importance of a federal government that oversaw conflicts between the states and the involvement of the states in foreign relations, but they also saw the value of a decentralized system (federation) of government in the states and municipalities that had their own charters/constitutions, closer to the people in handling social and economic issues that go hand in hand. David Brooks of the NYTimes recently on a Sunday talk show commenting on gun control said that the needs of a small rural town in Wyoming are different than the needs in New York City. In NYC a police station is literally around the corner, while in rural Wyoming they may arrive in an hour.
It was understood early on that the Bill of Rights, like the Constitution, specifically addressed federal power and not the States. Even up until 1833 in Barron v. Baltimore, the Supreme Court specifically ruled that the Bill of Rights provided “security against the apprehended encroachments of the general government—not against those of local governments.” But unfortunately that all changed with a Civil War, an Amendment and new courts. In 1925 in Gitlow v. New York, the Supreme Court ruled that the 14th Amendment allowed that the Bill of Rights applied to the states as well. What the founding era generation feared was starting to unfold, as America headed toward a centralized Democracy, monolithic, fragile and impervious to competition or change.
A Constitutional Republic that was created to protect the liberties of the individual and the market for free and voluntary association and exchange which leads to social cooperation is being replaced by a Platonic society of visionaries and experts in a centralized government that plans for social cooperation through limiting the freedoms of the individual and focusing on ‘collectives’ and managing markets toward outcomes instead. That’s why an issue like gun control makes sense to the latter: ‘limit the freedom of the individual in order to create a better outcome of ‘less gun violence’ and a ‘better society’. What they don’t account for is the unintended consequences that result instead. Rather, the founding era if they could speak to us from their graves would say, ‘Government closer to the people works better’ and that gun control legislation at lower levels of government (in a decentralized system) even when they fail can be profitable as failure is cast aside while success can be adopted by others. Also, there’s different needs and wants in Texas versus New York.
Finally, there is good news. As with other federal infringements like the Affordable Care Act and the changes in the National Defense Authorization Act (2012) many states are taking positions of resisting the effects on state sovereignty. Through pragmatic state actions that can be interpreted as ‘Nullification’, ‘Interposition’ or there’s even been discussion of ‘Article V’ Convention of the States as in the Founding Era period as states rushed back then to protect the Constitution and it’s integrity that they created. If gun rights are to be infringed upon, the states (their constitutions permitting) can experiment with that and we’ll all benefit indirectly, but a federal government which uses the ‘if we can save one life’ straw dog argument to promote a collective equality or freedom is way, way, way out of bounds and should be challenged by the states.
Christopher M. Mahon, Editor
While I’m not a professional fly fisherman, I have slept at a Holiday Inn Express. I’m obviously joking and appreciate Holiday Inn’s commercials. But I was on a trip last year with a couple of fly fishermen and I’ve been in a social gathering where the sport has been discussed.
What has stood out to me is the hypnotic stare and elevated excitement as the stories unfold of catching fish and the different techniques. The interesting thing is to hear about the fly lures they put at the end of their fishing rods depending upon the type of fish they are after. Some look like literal flies, while others like worms or mimic the environment where they hang out. You almost can’t see the hook hiding behind the design. Also they’ll tell you where to wade – ‘over by that rock’ or in ‘deeper current’ in determining ‘best location’ for different fish.
Politics is very much similar to this. The hypnotic stare and elevated conversations that can happen around a holiday table, bar or even a senior citizen centers as you and I give our opinions and expertise on what Washington needs to do and what the important issues are; which of course generally run along side our particular proclivities: Pro Life/Pro Choice, Education, Social Security, Entitlements, Social Issues, Defense, etc.
Both the national Republican and Democrat parties like professional fly fishermen also choose specific fly lures (issues) and look to wade in specific areas of our nation in order to find you and I and ‘hook’ us, drag us into their boat or box to be filet, gutted and cooked later on. OK enough word pictures, I’m hoping you’re following this.
Except for Defense and squabbles that arise between the states and the states and foreign entities in which the Federal Government takes on the role of agent, all the issues above were intended to be functions of the states/colonies and even more importantly the function of a free market. A central system becomes monolithic, fragile and resistant to ideas and change; and when (not if) failure results it is catastrophic. Decentralized systems (the states retaining most powers) on the other hand, allows for competitive models to social and economic problems, failure is actually beneficial as unproductive resources are reallocated and success is imitated. Also, democracy can exist in the lower levels of government as the potential for homogeneity and similar interests are more likely ‘closer to the ground’ than at ’40,000 ft in Washington’.
When you and I drool like a fish and leap for nationalizing social issues of banning drugs, homosexuality or economic issues of ‘tax the rich’, wealth redistribution, universal healthcare or promises of better government Social Security and Medicare we really are leaping for a disguised hook of central government control of our lives that will limit individual freedom and just like the mirage of the hook will never deliver the promises made. It’s the free market of voluntary association and exchange that best accomplishes the goals (proclivities) you seek. Even in the controversial areas of Drugs, Marriage and even Abortion (which I believe is murder at some point) should be decided at the state, local and personal levels as was the intent of the Constitution. The Constitution delegated very few powers to the federal government but the feds have usurped more power through our weakness in seeing our beliefs ‘nationalized’.
In the movie ‘Finding Nemo’ the warning was to watch out for the nets that the commercial fishermen lowered from their boats. But for some it was irresistible as they swam into captivity. You and I MUST resist the ‘captivity’ of more central power even if the mirage seems so real.
I think my new slogan for 2013 is, ‘Don’t Get Hooked!’, and if you are currently dangling from a GOP or Democrat party promise of Equality, Justice, World Peace or whatever your proclivity, I hope that you can set yourself free. This starts by understanding the ratifiers intent in the US Constitution and why a ‘runaway’ federal government is dangerous to Liberty.
Christopher M. Mahon
As America returns to work today, nursing hangovers, fatigue and wincing at FaceBook pictures, so Washington and the media return to figure out what exactly happened in the wee hours of the night of the ‘Fiscal Cliff’.
If the Chinese Zodiac proclaimed 2012 the ‘Year of the Dragon’, politically it was the ‘Year of the Donkey’ as Progressives and the Democrat Party celebrates a pretty good year: Affordable Care Act upheld by SCOTUS, a vanquished GOP Presidential candidate, winning most national congressional challenges and a potential budget deal (sequestration aside) that raises taxes on 77% of Americans and virtually no spending cuts.
As we entered into 2012 and considered the consumer confidence level, unemployment, debt and a sluggish economy it seemed more likely the ‘Year of the Elephant’ but, that was a year that wasn’t. Just as Tony Romo or a Mark Sanchez were able to clutch defeat from the hands of victory, so at the beginning of 2013 after approving what one analyst called a ‘Hobson’s Choice’ in the budget bill in the midnight hours closing out the year, GOP politicians run for cover, and the Republican Party ponders not only it’s future but also it’s purpose.
Contrary to Jay Leno’s skit ‘Jaywalking’ where Leno asks people questions about current news and other topics in public areas around Los Angeles and get answers like: ‘Abraham Lincoln was the first President’ or are stumped when asked, ‘What color is the White House?’; the ‘Man on the Street’ is a lot smarter and intuitive regarding what’s pertinent to his/her world and what is on their life’s ‘windshield. While they find most of Washington irrelevant, they will make the necessary adjustments to react to a ‘Gamed system’. Welfare recipients will stay on Welfare regardless of any public condemnation because the math tells them that the effort expended through employment has no net benefit than receiving cash and benefits through government subsidies. But it is not only the individual who is intuitively smarter than Washington, it is the small employer groups too. As they watch big business, industry groups and unions cut deals in Washington through their invitations to K Street, the smaller business owner/investor seeks out shelter and creative accounting to avoid paying growing levels of tax and regulations. Just today I witnessed a conversation on a social network of avoiding the Affordable Care Requirements and increases in payroll taxes by creating ‘Independent Contractor’ (1099) relationships with their current employees. Even under reporting revenues is becoming increasingly morally acceptable.
In an article in the NYTimes by columnist Maureen Dowd, The Man Who Said ‘Nay’ that references Senator Michael Bennet’s (D-CO) tough decision to part with his party’s support of the last minute budget deal in the Senate. Bennet says, “The burden of proof has to shift from the people who want to change the system to the people who want to keep it the same,” he said. “I think if we can get people focused to do what we need to do to keep our kids from being stuck with this debt that they didn’t accrue, you might be surprised at how far we can move this conversation.
“Washington politics no longer follows the example of our parents and our grandparents who saw as their first job creating more opportunity, not less, for the people who came after. My mother’s parents were refugees from Warsaw who came here after World War II because they could rebuild their shattered lives. But the political debate now is a zero-sum game that creates more problems than solutions.”
While we can understand Senator Bennet’s frustration in Washington as power and the game goes back and forth from one side of the table to the other with little accomplished, as the GOP wins in certain years (1968, 1980, 2000) while the Democrats win in other years (1992, 2008, 2012). The frustration of the ‘Jaywalker’, small business owner, ‘Man on the Street’ is that power and choice remains in Washington and that ever increasing Federal power and potential to intervene into his/her life further is readily apparent with no evidence of abatement.
Washington power elites scoff at individuals and small businesses as they tin foil and duct tape their lives around the latest Federal Laws that threaten to encroach their personal liberties, threatening fines and incarceration; meanwhile there’s a growing resentment around the country as more and more are figuring out that the ‘Utopian Promises’ of both parties aren’t being delivered, only excuses and demands for more money and more control. The Right’s promise of a ‘Moral America’ and a better ‘World Order’ through laws like Defense of Marriage Act, stronger Drug enforcement and foreign Military intervention has wrung at best hollow while the unintendeds are readily apparent. The same is true on the Left as Progressivism of the late nineteenth century through private initiatives like: the Settlement Houses, Mutual Aid and other private charities went a long way to solving social problems as workable solutions were funded and others either adapted or failed. However, this drastically changed as Progressivism became entrenched and made it’s home in the political process; the idea was, what works on a local level in Chicago, should work on an even grander scale through Washington. Of course the disappointment and failure of this theory continues to come home to roost as Progressive goals of Education, Poverty and Equality continue to be missed with the excuse: ‘More money and control needed’.
The good news going into 2013 is that just as people outside of Washington go about their business and figure ways to ‘creatively’ cope and adjust to overreaching policies in Washington, so the States are becoming more proactive in the process. Controversial concepts like: Nullification, Interposition and Article V Conventions are being bantered about more and more. While even more encouraging is that many states are actually exercising those powers, as Michigan’s state house approved 151-0 to not comply with NDAA 2012 that allows for the Federal government to commandeer state resources and many states refuse to create an Insurance Exchange as required by the Affordable Care Act and draw up language in their state’s charter/constitution to prevent further federal intervention.
A year from now how will we close out 2013? Will it be the ‘Year of the Elephant (GOP) or the Donkey (Democrats)? Or could this be the ‘Year of the Eagle (Individual Liberty) through state initiatives and individual’s who refuse to comply with federal mandates, taxes and regulations?
Wishing you a great year!
Christopher M. Mahon, Editor
As we finish out 2012 we can reflect on ‘the year that was’ like a Time Magazine expose or as the media outlets are doing even as I write this. But as we look back and take an account, shouldn’t we look forward and apply what we’ve learned?
To be sure it was an interesting year as the President won reelection fairly handily and the GOP was hit hard with a loss that the political consultants are having a hard time reconciling, let alone explaining.
We had a devastating hurricane on the east coast where too many lost their lives and many more their homes, cars and even today remain homeless. On the positive side of Sandy, which unfortunately is less reported, we saw so many step up and volunteer their time, finances and expertise in helping their neighbors. Even fire fighters from Louisiana who were at the receiving end of a fire truck and volunteers when they went through Katrina in 2005, returned the favor and flew into NYC to help with the disaster. Also unreported is the under performance of Federal aid and programs like FEMA which dropped the ball during Katrina and by all accounts today have dropped the ball in Sandy as well.
There was the Sandy Hook Elementary School shooting that tragically left 27 dead, including 20 children, 7 adults, including the shooter himself (suicide).
While we point out these tragic events, there were obviously many more we haven’t mentioned but there were also exponentially even more positive events and ‘average day’ occurrences that are left out by the media and quite frankly taken for granted by you and I. Contrary to what the media reports: food, clothing, work and play is for the most part readily available and that even with market distorting intervention from government that has lead to higher unemployment, prices and an unacceptable quality of education and level of poverty, the reality is for most of us the markets adjust and allow for volunteer (free market) exchange and association that allows for a ‘robust’ society and continued higher quality of life. Is political change needed? Absolutely. Has government failed us and morphed into a centralized system that is resistant to change and more prone to monolithic ideology? Again – absolutely.
The funny thing about human nature is that most of us are inherently critical and like to voice our ’2 cents’ worth of criticism. Whether it’s ‘giving advice’ to our spouse or children from our lounge chairs about how to perform housework, yard work or even just to scream at Tony Romo and the Dallas Cowboys with beer in hand, we all subscribe to being ‘Amateur Critics’ to some degree. Even regarding how society works or doesn’t and the role of government and what we think about the political system, most of us are more than willing to voice our opinion about political parties, personalities and Washington in general.
We’ve often heard that, ‘if you are not part of the solution, you are part of the problem’ or that ‘you can’t complain unless you’ve participated in the process’ with the idea that you and I should be engaged in creating a better society rather than only complaining about what we have.
Here’s a suggestion for the New Year that will cost you time and resources – Volunteer.
First, find out what you find yourself complaining (criticizing) about most. If it’s ‘those blood sucking welfare recipients’ then volunteer your time at a food bank or charity like Salvation Army where they give out clothing, economic and housekeeping advice. If education (or lack there of), offer to volunteer at your local schools: tutoring, mentoring or even as a crossing guard – get involved. If you are ‘rupturing blood vessels’ over politics and the inefficiencies (in your mind) of government then volunteer your time to go to local district meetings like precinct committees where you’ll find out that most there would welcome you as there hasn’t been a continuous flow of ‘new blood’ and unfortunately many of these groups are bogged down in myopic self examination and could benefit from greater diversity and fresh ideas.
There’s a Bible verse, Luke 6.68 “give, and it will be given to you. Good measure, pressed down, shaken together, running over, will be put into your lap.” While our motivation shouldn’t be self aggrandizement and Ayn Rand if she were alive might criticize you for being ‘altruistic’, the reality is that as you invest your time and resources, like any investment there will be a return; and part of that return comes back to us in the experiential knowledge we gain, the character changes that happen and the valuable process of becoming ‘other person centered’ and as the Bible suggests – ‘a servant to all’.
We at Ambidextrous Civic Discourse wish you a Happy New Year and an enriched 2013, full of life, love and contentment which I have personally found through Jesus Christ.
Christopher M. Mahon, Editor
The recent shootings in CT this past week has brought to the forefront the call for new Federal Gun Control legislation to ‘Criminalize’ certain types of gun ownership. Will the cost of removing further personal liberties of the Individual and the rise of centralized federal power be effective in diminishing firearm deaths? Has it been effective in the ‘Drug War’ or Alcohol Prohibition of the Past? As I write this article this morning, 10 were shot in Chicago, a city with some of the toughest anti-gun laws, but a city that remains one of the most violent in gun injuries and deaths.
In a Cato Institute Study, Alcohol Prohibition was a Failure, of 1920s Prohibition, they found the federal law besides being an infringement on Individual liberty was quite ineffective in what it set out to do: Reduce Alcohol related deaths and the social ills that are associated with the freedom to imbibe alcohol and that the unintended consequences were horrifically worse. Organized crime, prostitution and other social maladies prospered under the well meaning legislation. The Temperance Movement supported by churches, mutual aid societies and government proved to be a disaster and was later rescinded in 1933.
Arguably the Drug War a much larger war than Alcohol Prohibition is at least if not more unsuccessful as Billions of dollars and half the prison population full of ‘drug offenders’ lay society’s resources wasted and the ‘unintendeds’ of a border war, hybrid drugs that kill and the increase in ancillary social maladies are the byproduct. This begs the question, “What would society look like with harsh Federal Gun legislation that ‘Criminalizes’ gun ownership?”
There are two assumptions that many people make about government and social problems in arriving at a ‘Remedy’. The first is that in taking a position against using Federal power (either through a strict Constitutional interpretation or pragmatic position that lower levels of government like the States can do it more effective) means that you are sympathetic to what is perceived to be a social ill or cause like in the case of marriage, drugs and lifestyle choices. The other assumption is that laws and public policies are built around that the individual will obey the laws and there won’t be unintended consequences that result from government intervention.
Both of these assumptions are wrong and history has shown the unintended consequences are terrible. When the ‘Free Market’ is violated by government intervention, the values in that marketplace will be distorted as in the case of Alcohol Prohibition which due to lack of supply (the demand while reduced somewhat due to legislation was still high enough to create a market) sent prices soaring and both an underground and ‘illegal’ supply resulted and a para-industry was born – Bootlegging. The same is true today for drugs, again the assumption is law will eliminate demand and solve the social problems but the unintended is that behavior adapts to circumvent the law as happens with federal regulations over business or even tax legislation and the cost to comply or not.
Unfortunately, if harsh federal gun criminalization is the answer to this past week’s horror, the result will not only be the steady stream of Drugs and Prostitution over our borders but firearms as well, and just as we’ve seen the awful hybrids of alcohol (moonshine) and today’s dangerous drugs (Meth, Ecstasy) that result from prohibition as users want the ‘biggest bang for the buck’, can you imagine the potency of firearms that will be available in your neighborhoods and schools in the near future?
The Second Amendment was part of the Bill of Rights, 12 (10 ratified) Amendments over federal powers to protect the natural rights of individual liberty and property and to answer the concerns of the holdout colonies/states yet to ratify the Constitution. It is very important to understand that the Second Amendment didn’t apply to state powers, those powers are delegated through the states’ Constitutions. So each state or municipality if their constitution permits can pass legislation whether it will help or not.
While there will always will be social maladies among us, the best way to handle them are through the ‘friction’ of the marketplace and when deemed necessary by local government where there is the potential for greater homogeneity, cooperation and the potential to maintain greater individual liberty.
Let’s be ready for what Rahm Emmanuel says, “Don’t let a good crisis go to waste” and for federal government to infringe on personal freedoms (for a greater good), instead let clearer heads and rational thinking rule the day.
Christopher M. Mahon, Editor
The shooting in Newtown, CA December 14th 2012 was heart breaking as families and a nation have been grieving.
Unfortunately, while many focus on the incident in consoling those who’ve lost so much and examining the security and whether procedures were followed correctly, others are using the ‘crisis’ as opportunity to push a polemic agenda of more (or less) government involvement.
As our country’s founders understood that the ‘natural process of Government was to grow’, this is particularly cogent when a ‘crisis’ occurs. But how do we as Individuals and citizens of municipalities, states and a Federal Government sleep at night knowing that we could be at the mercy of the next crisis which through well meaning public policies could further limit our freedoms for a ‘Common Good’?
While many understand that the Constitution was designed with two systems of government in mind, Federal and State powers, there is disagreement on what powers each possess. Does Federal trump State and if there is belief that the Federal or a State has ‘overstepped’ and abused it’s power as in the recent conflicts with ‘Obamacare’ or in Arizona’s battle with SB1070 on immigration, who or where is the governing body to make an impartial decision on which party is correct?
Thomas Woods writes in his book ‘Nullification: How To Resist Federal Tyranny in The 21st Century’, “When the Constitution was ratified, the people were assured that it established a government of limited powers (primarily related to foreign policy and the regulation of interstate commerce), that the states retained all powers not delegated to the new government, and that the federal government could exercise no additional powers without their consent, given in the form of constitutional amendments. This is not a peculiarly conservative or libertarian reading of the historical record. This is the historical record.”
Today, we see many States resisting what they perceive as Federal overreach in prescribing policies for social and economic ills through Washington. Almost thirty states have either said no to creating Insurance Exchanges or have taken a wait and see approach regarding ‘Patient Protection and Affordable Care Act (2010)’ (Obamacare) and just this week Michigan’s House voted unanimously to defend itself against NDAA 2012 which it deems unconstitutional regarding the commandeering of State assets. Add to that the Sheriff Initiative Act and other individual States acting through ‘assumed’ Nullification powers have decided on their own not to enforce certain Federal laws.
Washington and many in the media challenge the constitutional legitimacy of Nullification and it’s even more evil sister ‘Secession’. For the last eighty years the universities have taught that these issues were decided through Civil War and subsequent court precedent. However, Robert Natelson in his 2010 book, ‘The Original Constitution’ approaches the split powers of the Federal and State governments slightly different as he draws upon what the ‘Founders-era’ intents were and their understanding of law, reason and the dialogue of the state conventions that the ‘Ratifiers’ understood when signing the Constitution.
Natelson, brings out an important question that would help to define better the relationship of the States and Federal governments and the proper recourse when Federal power abuses the States as many have come to believe is happening today. While ‘Nullification’ is the buzz on twitter and other social networks, Natelson takes us through the Founders-era understanding of the Constitution and how the states defended their sovereign powers through ‘Article V Conventions’ which were different than a ‘Constitution Convention’; Article V allows for specific issues and text to be addressed while not jeopardizing the whole document. He points out, “To be sure, the question of whether there was an “American people as a whole”—or only the peoples of separate states—has been the subject of much debate. Some contend that the Constitution created merely a compact (contract) among the thirteen states—or, more precisely, a compact among thirteen separate political societies. According to this “compact theory,” each of those societies gave up certain aspects of sovereignty to the federal government, retaining the rest. Advocates of this theory point out that the states ratified through individual conventions. Some have employed the compact theory to argue that if the federal government breaks the terms of the contract by exceeding its powers, the states have the right to void (“nullify”) the offending federal actions or even secede from the union. Others argue that the Constitution was less an interstate compact than a popular grant—that is, a grant from the American people of certain powers to the new central government. Powers not given to the central government and already lodged in the respective state governments remained there. What was left was retained by the people. Advocates of this theory contend that ratification by state conventions was merely a concession to practicality, not to imply that states were the parties (or at least not the only parties) to the Constitution.”
As dark clouds of economic and social crisis’ gather, the threat of the abuse of Federal power looms but the silver lining in those clouds is that many States are becoming proactive in blocking what they perceive as harmful and unconstitutional Federal legislation through Nullification and Interposition which has historical precedent, but will the real war engage when we define the relationships of the States and Federal government as Mr. Natelson has suggested, through ‘Compact Theory or Direct Grant’?
Christopher M. Mahon, Editor
For those of us old enough to remember ‘Supply-side’ Economics during the Reagan years can appreciate the nostalgia as it is being bandied about in the media as either an economic pariah or last hope in solving the ‘Fiscal Cliff’. In some ways as most other public policies for either party, this is the other side of the tennis match for Republicans.
The two economic philosophies at play in the budget/tax/spending negotiations is ‘Demand-Side’ economics or Keynesianism (John Maynard Keynes) that the Democrats believe if you stimulate demand by putting money in the consumers’ hands you can spend your way out of a recession. The other philosophy as mentioned earlier is ‘Supply-Side’ economics that believes if you instead put money through tax breaks, credits, subsidies in the producers hands that they will produce more product and presumably less expensive which will in turn cause the consumer to show up in the marketplace.
Both of these philosophies and economic principles are flawed and here are some reasons why:
First, the presumption that belies these beliefs is that government can manage the complexities of the market and has the knowledge of both how much and what the market needs and what the demands and wants are from the consumer.
Second, neither system accounts for malinvestment and human behavior responses, that results from market intervention and neither allows for the correction that the market provides which leads to a healthier economy.
Third, both systems and beliefs are latched onto by the parties precisely because they support the need for larger government that oversees all market activity, rather than the federal government playing a more passive and negative position that ‘stands down’ until the freedoms of the individual and the markets are violated. The private sector through competition, success and yes – failure, does a much better job in regulating economic activities and where necessary states and local government could get involved with the Fed as a far away ‘watch dog’ mostly interceding where there’s disputes between the states. The recessions and depressions of the past where there were no centralized banking or financial systems saw failure but they were decentralized, diffused for the most part and allowed for the market to clear resources more efficiently.
Finally, the `Fiscal Cliff’ and the choice in solutions offer an interesting dialogue regarding ‘Tax Cuts, Credits and Deductions’. As was mentioned earlier, Supply-Side uses incentives through tax cuts but also credits and deductions to pass money through to Producers and Higher Income Earners with the philosophy that they would do better with it than the consumer. So a $2,000 car purchase credit would make consumers show up at the local dealerships or a mortgage deduction on Schedule A would make consumers purchase homes. This month around the nation, clients are showing up in Accountants’ offices seeing what new equipment needs to be purchased in order to take advantage of ‘Section 179’ deduction, which allows for certain asset purchases to accelerate depreciation as a ‘onetime expense’ instead of over the life of the asset.
The problem with Section 179 and other deductions is that it creates malinvestments, as market dynamics are temporarily thwarted through government planning and intervention. Just like you and I show up at Costco and buy tins of stuff we don’t need or over purchase, when this is done collectively it leads to malinvestments. Businesses misread the market and see demand rise so they build bigger facilities (tying into long term debt) and start to hire. This can be seen through the housing market crisis as consumers and investors purchased homes, builders built, lender lent, as prices skyrocketed and lost their fortunes as the market (which it always does) brought correction. Both the builders and purchasers suffered greatly as they signed onto long term debt agreements while both prices and demand were artificially inflated. Unfortunately the government which created the mess rather than allowing for the market to clear, thinks it has another solution.
Of course we haven’t touched on spending which is a function of the size of government and should be constitutionally aligned and restrained but that’s for another article. Tax Policy in general should be based on a low (flat) rate, with no deductions or incentives which distorts the markets as we’ve seen. If the GOP could understand this and present lower marginal rates for individuals and corporations but the elimination or phase out of deductions this would go a long way to signaling to the marketplace that a capricious runaway government has been at least for now restrained. This would free up capital on the sidelines (which there’s a lot of) to consider risk and long term investments once again.
Tell us what you think.
Christopher M. Mahon, Editor
In an article in the Wall Street Journal, In European Crisis, Iceland Emerges as an Island of Recovery Charles Forelle describes an unlikely phenomena, a national recovery inspite of the EU crisis. But why isn’t the media covering it more and everyone talking about it?
“In 2008, Iceland was the first casualty of the financial crisis that has since primed the euro zone for another economic disaster: Greece is edging toward a cataclysmic exit from the euro, Spain is racked by a teetering banking system, and German politicians are squabbling over how to hold it all together. But Iceland is growing. Unemployment has eased. Emigration has slowed.”
The Iceland dilemma was well covered in 2008 as we witnessed bank runs and young people fleeing the country for other opportunities; but today the reverse is happening, the young are returning, businesses are humming and jobs are more plentiful. Now, don’t be mistaken, this is a ‘European style’ recovery where inflation is high and there’s still substantial debt costs, but it is a very positive scenario in a bleak region as Greece teeters on solvency while the EU caves to lending it more money and other nations like Spain are close behind.
“Iceland—with its own currency, its own central bank, its own monetary policy, its own decision-making and its own rules—had policy options that euro-zone nations can only fantasize about. Its successes provide a vivid lesson in what euro countries gave up when they joined the monetary union. And, perhaps, a taste of what might be possible should they leave.”
In some ways Iceland and Greece’s problems could be compared to California and other state hampered budgets in the US and bond defaults and bankruptcies at local levels. Where Iceland made a bold move to allow the banks ‘to fail’ and had its own currency (whether wise or not) to devalue, the reality is that it gave clear signals to investors and the market what its intentions were – less government intervention and the allowance for clearance of malinvestments and resources.
That rescue, in turn, weighed on the financial system. But unlike Ireland, for example, Iceland let its banks fail and made foreign creditors, not Icelandic taxpayers, largely responsible for covering losses.
Iceland also imposed draconian capital controls—anathema to the European Union doctrine of open financial borders—that have warded off the terrifying capital and credit flights that hit Greece, Ireland and Portugal, and now test Spain and Italy.
While Iceland is an unusual example of financial recovery of a nation and as their 320,000 citizens is a very small sampling to apply across broader populations, that’s just it; what works there may or may not work here or other places. Financial systems that are centralized are inherently vulnerable to monolithic elements of corruption, fragility and fatal failure. Failure of a city does not have the effect of a gigantic centralized structure, though tragic and harmful just the same. But competitive elements and options are open in a decentralized system that are closed off to a centralized one.
Finally, is the reason you won’t hear this success story on the nightly news, the Daily Show or Colbert because it exposes the real villain in our financial and social problems – government itself?
Policies and Philosophies like Keynesian Economics and Plato’s Utopia which elevate collectivism and government as the underpinning of social harmony grabs the attention of the powerful, while the importance of the Individual and that the ‘inequalities’ in society itself create opportunities for real social cooperation are discarded quickly as nonsense or fairy tales. The true ‘Romantics’ in US history were not the writers of a Constitution who designated limited power to the Federal government and those who followed in defending the restraint of centralized federal powers but instead the believers in a Utopian society and Nationalism, where through a benevolent government all are equal but none are free.
Christopher M. Mahon, Editor
Is Jamie Foxx a poet but he just don’t know it?
Apparently many on the ‘Right’ are taken back by Jamie Foxx’s prophetic irony on Soul Train last night. The State has supplanted Religion and the Individual him/herself as the answer to their problems. While the GOP points a finger to Democrat (Progressive) Income Redistribution, the four fingers of Social Engineering, Supply Side Stimulus, Military Adventurism and Monetary Easing are pointing back.
The GOP suffered a substantial loss this year, when considering the Obama administration’s past four years of economic and social planning failures (including Obamacare) it should have been a successful political year of not only winning the Presidency but the Senate as well and additional seats in the House. But instead of ‘soul searching’ and finding where there was ‘brush fires’ of enthusiasm, the GOP is doing what it chided the Democrats for doing after their losses to the Bush administration, “It’s not the explaining your message better, IT’S THE MESSAGE!”
What is interesting and telling is, while the Democratic Party’s local chapter meetings are stock full with young doe-eyed believers who are brain washed through the Universities and Celebrity endorsements that are ‘Coool’, the GOP meetings are thinning quickly as the well over sixty crowd dies off with few youth in their ranks. If the GOP did an honest assessment they would find the ‘brush fires’ of not only young but the aged as well in the Liberty movement that wants to see a true ‘beat back’ of federal power. They were disappointed in the party for the bank bailout in 2008, they dislike the overreach into the powers of the states by the GOP on social issues such as drugs, marriage and abortion (murder mostly state issue) and they are questioning the wisdom and apparent failure of the near 70 year ‘Neoconservative experiment’ in military expansion and US intervention that overreaches into the sovereignty of nations.
There is a prevalent lie going through both parties and it goes like this: “If you want to ‘Decriminalize’ Federal Drug Law you’re condoning Drugs” or “If you are not in favor of a Federal Law for ‘Equal Wages for Women (or substitute any class of people here)’ you’re against women (minorities) being paid equal wages”. This is a lie, whether it is expressed by the Left or the Right to support their particular proclivity: Abortion, Drug Prevention, Education, Poverty, etc. The best regulator of behavior and protecting against the ‘Bad actors’ is the marketplace itself and where deemed necessary government closer to the ‘ground’: family, community, municipalities and state governments that are exposed to competition and the free movement of private resources. Unfortunately the seeds of ‘Hamiltonian Nationalism’ have matured very well in both parties and the ‘Duopolistic’ political system in general.
James Madison in Federalist Papers #10 and #51 warned against the abuses of factions (Special Interests) but also explained why in a free market or through the colonies (states) and competitive markets they could be very useful. When Special Interests are centralized and managed through federal powers the unintended consequences are great and the freedoms lost are even greater.
A Left Wing or Right Wing ‘State Messiah’ is not the answer but a turning back to Divine/Natural Law and the Constitution is. While the Constitution was designed to restrain using Federal power to intervene into social and economic causes, it allowed for much latitude at the state and municipal levels to experiment.
It is for our elected officials in Washington and at the state levels to protect the defined boundaries of Federal power in the Constitution but unfortunately come election time, there’s no ‘Special Interest’ money for that.
Tell us what you think?
Christopher M. Mahon, Editor
In Obama’s Soak-the-’Rich’ article in Cato Institute, the writer Daniel J. Mitchell says,
“Tax Hikes are Worse than the Fiscal Cliff
America actually will fall off two fiscal cliffs in January, but only one of them is bad. The good fiscal cliff is the so-called sequester, which is the inside-the-beltway term for automatic spending cuts. These aren’t really spending cuts, just reductions in the growth of spending. If the sequester takes place, total federal spending will climb by $2 trillion over the next 10 years instead of $2.1 trillion. But anything that restrains the growing burden of government spending is a good idea, so a small step is better than nothing.
The bad fiscal cliff is the automatic tax hike, which exists because the 2001 and 2003 tax cuts are scheduled to expire at the end of the year. This means higher tax rates for all taxpayers, as well as increased double taxation of dividends and capital gains.”
What many economists and politicians don’t recognize is that there is a difference between money saved or spent in the private sector versus the public sector and the ‘unintended consequences’ of behavioral changes by the individual and the marketplace as a result of public policies that increase taxes, create more regulations and which usually means tax avoidance and spending decisions that are short term and counterproductive.
Unfortunately, as government does with most ‘hard political decisions’, politicians in Washington after much saber rattling will compromise on the important decisions of redefining the role of the Federal government and making some significant spending cuts and policy changes in Defense, Social Security, Medicare and other entitlement programs that for the most part should be remanded back to the states. Instead there will be a mirage of spending decreases from the baseline budget as mentioned earlier and there will be a phase out of tax deductions at an income level of $250,000 or so, which like the AMT was never bracketed or indexed and eventually inflated its way into the ‘Middle Class’ where most of the money is. As a result the market response will be to hide more income and investment strategies that moves more capital into the ‘shadow economy’ and overseas.
This past week in a ‘Farewell to Congress’ retiring Rep. Ron Paul took some time to reflect on his 40 year contribution to raising a warning of abusive federal power, “Dependence on our government is the worst it has been in US history..Why does the changing of parties and politicians not change policies, could it be that both parties are essentially the same?..Real Patriotism is challenging the government (and your party) when it’s wrong.”
While we appreciate past generations like those who grew up during the Great Depression and fought in WW2 and Tom Brokaw nicknamed the ‘Greatest Generation’. With deference to that generation, I believe the Greatest Generation is ahead of us, growing up before our eyes, rejecting today’s Historicism being taught of our past and embracing instead the original underpinnings of Individual Liberty that were forged in the US Constitution and which sailed a great Republic.
Hip Hip Hurrah for Elections and Representation! The Status quo won again and as Rep. Ron Paul slips out of public office, will there be a GOP or Democrat party that realigns itself to the Constitution and will there be new voices crying in the wilderness, “This is the way to Liberty, Walk Ye in it!” or are we inevitably headed down the slippery slope of more centralized government?
Christopher M. Mahon, Editor
In the movie ‘The Wizard of Oz’ a book written by L. Frank Baum and first published in 1900, there’s a scene at the end of the story in which the main character Dorothy Gale from Kansas is trying to get back home unsuccessfully only to be told that she had the answer all the time, it was the ‘Silver Slippers’ (Ruby Red in the movies, Silver in Novel) on her feet. As the US wraps up contentious elections that after billions of dollars produced a ‘Status quo’ result with maybe even more centralized government power and less Individual Liberty there’s been expressions of great disappointment and radical talk of secession. As of this writing the White House website that invites petitions has fulfilled requests from all 50 states petitioning for ‘secession from the Union’. It harkens back to the Civil War movie classic, ‘Gone With The Wind’ and Rhett Butler bidding his abusive relationship with Scarlett good bye after she asked, “Where will I go? What will I do?”, he retorts, “Quite frankly my dear, I don’t give a damn.”
Some in the media have pointed out that we’ve become a ‘divided society’ with the Left expressing it in racial terms that a ‘White Majority’ no longer exits and what has been traditional, cultural and acceptable in the past will no longer, going forward. While many on the Right see it more as an attack on the traditional values that have governed the nation since its inception. Where both groups come together ironically is on the legitimacy of Secession, a State leaving the Union, which they believed is not possible.
Much of today’s anti-Secession belief held in the minds of leadership in Washington, the media and taught in the Universities stem from the result of the Civil War and SCOTUS rulings in the aftermath. In ‘Texas v. White’ 1869, the court ruled over the sale of US Bonds and in their decision (for expediency) determined that unilateral ‘ordinance of secession’ is ‘absolutely void’.
The irony of this ruling in the wake of Postbellum Reconstruction is that the US through it’s States (Colonies) less than a century earlier ‘Declared their Independence’ and seceded from Great Britain. Are there within this sacred doctrine the seeds for secession? Declaration of Independence:
“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.—That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed,—That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.”
Anti-secessionists might argue, “Well OK, but theoretically you would need the consent of the majority of the nation (governed) and the consent of the Federal government.” This is where the Constitution and its design speaks and if you wonder why many in Washington today emphatically call America a ‘Democracy’ rather than a Republic you can see why it is important and not semantics. A lot happened as a result of the Civil War to not only suppress ‘rebellious States’ but also to attempt to redefine the structural design of our Republic and ‘States’ Rights’. In Federalist Papers #39, Madison eloquently sums up at the end of the publication the design and powers of the States in relation to the Federal government. If you recognize the sovereign powers of the States as originally determined, you can see that each state can through democratic vote, if you will, decide to secede. But if instead, partly as the result of war plunder that the States no longer have those sovereign powers and are in effect agencies of the Federal Government, then you would side with the anti-secessionists.
“The fact is that our Union rests upon public opinion, and can never be cemented by the blood of its citizens shed in civil war. If it cannot live in the affections of the people, it must one day perish. Congress possesses many means of preserving it by conciliation, but the sword was not placed in their hand to preserve it by force.” James Buchanan, State of Union Dec 3 1860
Former President Thomas Jefferson, in a letter to William Crawford, Secretary of War, under President James Madison, on June 20, 1816: “In your letter to Fisk, you have fairly stated the alternatives between which we are to choose : 1, licentious commerce and gambling speculations for a few, with eternal war for the many ; or, 2, restricted commerce, peace, and steady occupations for all. If any State in the Union will declare that it prefers separation with the first alternative, to a continuance in union without it, I have no hesitation in saying, ‘let us separate’. I would rather the States should withdraw, which are for unlimited commerce and war, and confederate with those alone which are for peace and agriculture.”
Secession seems antiquated and more of a theory than ever practiced, this isn’t really true, from Australia to Malaysia to Yugoslavia, it is well documented and numerous in history (While I don’t recommend Wikipedia for research it can be a good start or lookup). In 1990, after free elections, the Lithuanian SSR declared independence. Other SSRs followed and consequently the Soviet Union collapsed. (Wikipedia)
While Secession is a serious matter and like War a last resort, it is an important tool of the State just like its other underused relative ‘Nullification’. “The natural progress of things is for liberty to yield, and government to gain ground.” – Thomas Jefferson to Edward Carrington, Paris, May 27, 1788.
I don’t want to take too much time here in this article on Nullification and would like to expand on it in a separate article as it is arguably the most important tool of the States in fighting federal encroachment. During the ‘Nullification Crisis’ in the 1830s South Carolina refused to support the federal tariff act and used Nullification as a tool to protect its citizens and their businesses, eventually the Federal Government capitulated with a compromise. This has happened in more recent times like with national ID legislation through uniformity of Driver’s Licenses which are regulated through the states; the Feds have attempted to coop that power but states have nullified these efforts through noncompliance, the Feds like in the past when forced to lay their cards on the table have passed (bluffed). It will be interesting to see how Nullification plays a part in recently passed state laws on Marriage and Marijuana (which are legitimate powers belonging to the states), and the `roll out’ of Obamacare ‘Insurance Exchanges’ in the States. It is vital that you play a part in contacting your state representatives to fight against creating exchanges that compromise state power and to see how vulnerable the program is and what you can do visit `Obamacare is Still Vulnerable’. Also, future elections of state representatives will become even more important. For a very good exploration of Nullification I recommend a book by Thomas Woods of the Mises Institute, ‘Nullification: How To Resist Federal Tyranny in The 21st Century”.
Here’s a different perspective on your vote and government power, “Voting, however, is at best, an inefficient instrument for self-defense, and it is far better to replace it by breaking up central government power altogether.” Murray Rothbard
If States were to take their proper roles in ‘regulating federal power’ in light of the limited powers ascribed to it under the US Constitution there would be much less conflicts between factions (special interest) which Madison while proposing factions as good and serving a vital purpose, warned against their abuses when enforced through centralized government (Federalist Papers 10, 51) and not exposed to competitive forces.
Individual Liberty and social cooperation are threatened by an unregulated Federal public sector and need to be met head on by State Nullification challenges regularly where Federal policies and law tread into State domain, and when all else fails Secession.
Christopher M. Mahon, Editor
So what do you get when you combine an eleven year 9/11 hit on an American Embassy where you lose 4 lives, implications of moral failure by two well respected military leaders in Central Command in the Middle East, add in a female confidant with military experience who’s writing a book on one of the Generals and has access to sensitive information (some of which has been found on her computer) and add in another woman who hosts social soirees to support the troops, happens to be of Middle Eastern origins (Lebanon) and is involved with the other General? A great mystery book or Harlequin Romance? 50 Shades of Washington? Or are we about to see centralized corruption that will take down years of well respected and time honored military heroism but in the process expose what our founding fathers warned, that centralized systems of government lead to nefarious and egregious acts that result from unlimited and unchecked power?
Besides the affair and stunning fall from grace of General David Petraeus and his lover and biographer Paula Broadwell, we find out this morning that current in command General John Allen has been linked to a possible affair with Jill Kelley a socialite in Tampa, FL and that the nominating process for him to replace General Petraeus would be put on hold.
These new revelations come to light as we find out that an unnamed FBI agent and friend of Jill Kelley’s reported harassing emails from Paula Broadwell to Mrs Kelley accusing her of hitting on General Petraeus. The unnamed FBI agent is also under scrutiny as it has been found out that he sent inappropriate emails to Mrs. Kelley, including shirtless pictures.
Questions have been raised since this story first broke just a few days after the election as to whether this was a cover up to protect the election results but also regarding General Petraeus’ position on the video that was being initially promoted as the cause of the Libya, Benhgazi attack, when it was found out that the CIA knew very early that the attack was most likely premeditated and trained forces were involved.
The addition of Jill Kelley into the story makes it even more intriquing as her family originally from Lebanon, settled in Philadelphia in the 1970s where her and her twin sister Natalie Khawam lived. The story gets more interesting as General Petraeus had written a recommendation to the courts regarding a custody battle for Khawam’s 4 year old son in which Khawam was being evaluated as ‘psychologically unstable’. Khawam often accompanied her sister Jill in her Socialite events and planning.
While this story continues to unfold, and with the elections still fresh in our minds, many media pundits explain the tea leaves of the past election as ‘Americans want bigger government’ but this should make us take pause as big isn’t always better and centralized, monolithic systems are prone to fragility and fatal errors.
While the GOP licks it wounds and some flee what they perceive as a ‘sinking ship’, the son of the ‘Father of NeoConservatism’ (Irving Kristol), Bill Kristol says on FoxNews Sunday November 11, 2012:
“The leadership in the Republican Party and the leadership in the conservative movement has to pull back, let people float new ideas…Let’s have a serious debate. Don’t scream and yell when one person says, ‘You know what? It won’t kill the country if we raise taxes a little bit on millionaires.’ It really won’t, I don’t think…I don’t really understand why Republicans don’t take Obama’s offer to freeze taxes for everyone below $250,000 — make it $500,000, make it a million…Really? The Republican Party is going to fall on its sword to defend a bunch of millionaires, half of whom voted Democratic and half of them live in Hollywood?”
While holding the line on taxes by the GOP might be a Pyrrhic victory at best, Kristol’s and other Conservative’s budging on tax policy (increasing) but giving no leeway on social and foreign policy issues belies a much larger problem. Punting on tax policy keeps the ball on the field of big government (federal), while giving up social policies to the states and shrinking US foreign policy engagements and footprint loses the ball from Washington and federal central planning as the canvass.
The history of the GOP is that of having it’s origins in the Progressive movement and it’s nature is to believe in ‘big government’. So while they Mea culpa on increasing taxes which is big government, it still keeps the federal government ball in play; while the GOP leadership resist inevitable changes in social and foreign policies, as states ratify marijuana and marriage laws and the public and US monetary conditions scream for changes in foreign policy. More taxes stays within the auspices of federal power, while decreases in military engagements and on social issues decrease federal power.
The Conservative and Progressive movements today are twin sons of different mothers. Birthed in the late nineteenth century postbellum and with different ‘step dads’ of both parties (in and out of office) siring along the way. The real question and the true sign of GOP capitulation is whether RNC Washington leadership is willing to discuss the purpose and limits of federal power going forward and welcoming Constitutionalists, Libertarians and Classical Conservatives in the vein of Edmund Burke to the table, who believe strongly in the individual and the free market to regulate not only economic values but social values as well.
In Federalist Papers, 10, 39 and 51 Madison eloquently expressed the limited powers of the federal government and the sovereignty of the states. Madison also gave instruction that while factions (special interests) could be dangerous to Individual Liberties, that in a competitive market both private and public (between the states) it allowed for the best ideas and solutions to step forward, failures to be isolated with it’s resources best reallocated and for ‘bad actors’ to be marginalized.
The question today might be asked by John Kennedy’s favorite poet Robert Frost in the 1920 classic ‘The Road Not Taken’,
“Two roads diverged in a wood, and I— I took the one less traveled by, And that has made all the difference.”
The road of ‘Limited, decentralized and constitutional government’ which protected Liberty rather than creating Utopian outcomes was more traveled earlier in US history but the path is today overgrown and distrusted by most in power and in the Universities; can party leadership turn with courage and determination down this path once again? Is there a post-Tea Party Movement waiting in the wings instead?
Please, tell us what you think.
Christopher M. Mahon, Editor
Even in ‘red states’ like Arizona and Florida, results of Democrat wins are still trickling in. As of this writing it looks like Alan West has lost his reelection bid.
The knee jerk reaction of Hamiltonian Conservatives who bring in federal power for their own proclivities and ‘Damn the Constitution’, has to change.
No one likes a bully, whether it’s a Liberal or Conservative.
US Neoconservatism as a world dominant solution (proselytizing of American Excellence) tried over and over again (50+ yrs) is like the NY Yankees thinking they’re going to win the series with ARod, it’s a failed policy and the unintended consequences continue to mount; and Conservatism’s brand of morality has just as much unintended consequences as Progressive values when ‘Weaponized’ by federal power.
The genius of the Constitution was (and should be again) the limited role of the federal government to Article 1 Section 8 (20 planks) with limited interpretations of the ‘Supremacy and Commerce Clauses’, and most importantly leaving all other power to the states to fail or succeed, but not ‘fatally’ as would happen at the federal level. The great social issues of our day Abortion (murder), marriage (lifestyles), drugs, etc should be decided at the state and local levels which follows the wisdom of the Constitution that decentralization protects liberties better and you find greater chance of representative government closer to ground. Our financial systems should be deregulated and decentralized (as before) to protect against moral hazard, cronyism and centralized system failure. The USD should compete in a freer market that would determine true value and protect us against inflation and remove the printing press from Washington.
We are finding that women, Latinos, Independents, Libertarians and even ‘white’ men are walking away from the GOP in greater numbers, the answer is not what Karl Rove and Washington pundits are calling for, “reach out (cater) to these groups for greater constituencies” like the Democrats, because we can’t compete at that level and freedom and big government solutions are mutually exclusive.
The Tea Party and Liberty movements that started after the banking bailout of 2008 point us in the best direction, these were groups of volunteers (thousands), organically organized for the greatest good – Individual Liberty. The Democrats ‘ground game’ is what beat the GOP: there are more registered Democrats than Republicans and through union organizers, special interest that pounded the pavement, they got the vote out, because the workers had a stake in the election. Literally thousand upon thousands who perceived (and were told) their very livelihood and dependence was the State took to the streets and the polling booths. It was as Jefferson and Hamilton (who agreed on very little) would say (paraphrased), “When the voters recognize that the public treasury has become a public trough, they will send to Washington not persons who will promote self-reliance and foster an atmosphere of prosperity, but rather those who will give away the most cash and thereby create dependency.” You can’t compete with that by promising an end to Terrorism and a quasi-Just society through lifestyle prohibitions and abortion regulated at federal levels – butter beats guns, hands down.
We are at 1854 all over again, and as splinter groups like the ‘Free Soilers’ and most of the Whigs walked away from their party due to a prevailing issue of it’s time the Kansas Nebraska Act (Slavery/State Sovereignty), so the prevailing issue of our day which limits all citizens, ‘Individual Liberty’ (self determination and to be left alone) that an unyielding government wishes to suppress; will the outcome be a ‘revamped’ GOP party or will the party like the Whigs be remembered by school children in history books?
Tell us what you think?
Christopher M. Mahon, Editor
As the dust settles this morning from election 2012, the Democratic Party celebrates a decisive victory, the Republican Party licks it’s wounds, and Independents and Libertarians still sleep in cots outside the political process.
While Prognosticators who got it wrong come up with the ‘Whys’, here’s some thoughts going forward for the GOP and more importantly the grassroots movements that started with a cry out for Liberty and back to the Constitution.
What Americans basically decided last night was that sending our young men and women onto foreign soil to die and government as a moral agent in our personal lives was worse than taking our hard earned wages and redistributing them to someone else in benefits and entitlements.
The irony was that the same reason the GOP told you to support the ‘lesser of two evils’ the nation decided right or wrong that the President was just that: kinder, gentler and surprisingly, more able to handle the financial crisis which when you dig down, includes factoring in military expenditures that the GOP refuses to recognize.
When you consider the win by the President and the DNC it is pretty impressive:
Barack Obama: 50% 303 (most likely FL too: 332)
Mitt Romney: 48% 206
House: Dems most likely +8
Senate: Dems most likely +2
At the risk of saying ‘I told you so’, I personally foresaw this coming over the past two years and have written about it but knew it was fait accompli after the RNC August convention of this year when ‘Rule 12′ was enacted and the two years of grassroots work at the state and local levels by party line GOP, libertarian and even independent voters who aligned with the Tea Party movement were cast to the side for a Washington-style backroom deal that was carved out on K Street with special interest groups.
When reading the Tea Leaves however, one needs to be careful to not fall into the same Neoconservative/Religious Right dogma, “The country is heading to hell in a handbag and Islam will take over America”. When you consider the historic ballot initiatives in several states that approved marijuana and gay marriages, one might become very discouraged and interpret these results as a hedonistic society headed to the brink, rather than a response to government intrusion into the personal lives of Americans. The Federal ‘Defense of Marriage Act’ is unconstitutional and an awful law that allows a national government to reach into the most intimate part of each of our lives and further divides us as a nation. Social mores are much more effectively defined in the private marketplace between individuals and by state and local governments closer to the ground, where necessary. The same is true of Marijuana laws, that it is at the state level where authorized powers set by the Constitution reside to regulate drugs as was true of alcohol. If the GOP or a third party gets behind the rational process of decriminalization (not condoning) at the federal level it would be a courageous feat of ending the savage border brutality and the unintended consequences of more than half our prison population locked up for drugs. See Cato Institute’s article, ‘Alcohol Prohibition Was A Failure’ for further insight.
So where do we go from here? I personally would like to ‘throat punch’ the ‘GOP face painters’ who teased Ron Paul supporters with juvenile retorts like, “Paulbots”, but that’s for another day, maybe a few beers and a dark alley.
Just as in 1854 when the nation was settling into a two party system of the Whigs and Democrats with a few splinter groups residing in different states like the ‘Free Soilers’ of New York that splintered off of the Whigs because of slavery, there arose a large enough issue in the Kansas Nebraska Act, which extended slavery into more territories, that there was a birth of a new political party. The question today is can the Grand Old Party find her roots in freedom as it did back then? Then it was to free a race of people unjustly treated, even stripped of the most basic personal liberties to not only own property but being treated as property themselves. Today, unfortunately ‘we’ve come a long way baby’ and through government mischief the Constitution has been turned on its head from an important document of ‘Original Intent’ that limits government, ‘Thus far and no further!’ to a ‘living document’ that regulates man and his freedoms.
Like Jefferson who understood the annoyances and inconveniences that comes with Liberty as people make poor choices in life, those choices are ably offset in the private social and economic marketplace through the friction of voluntary association and exchange rather than a government ‘managed society’ that we find ourselves in today.
Do you really believe that less government in regulating drugs or lifestyle choices will result in more drug use or an increase in alternative lifestyle choices? If that reasoning were true, then with ever increasing government intervention, wouldn’t we see less of it today? If Homosexuality is practiced by less than 10% of our population then why is it a bellwether issue come election time? Because fair minded individuals will come to the support of those being suppressed by government. So if you want more of something then go right ahead and subsidize it or let government regulate it.
Will a new message and direction rise from the embers of the GOP’s defeat in 2012? Today, pundits are rehashing a bad night and like the Democrats after their trouncing in 2010, convincing themselves it wasn’t their message of ‘big government that regulates morals at home and spreads American Democracy abroad’, but the consumer of the message and maybe their strategy in explaining it.
Partly as a result of the banking bailouts of 2008 which most Americans realized was flat wrong and unjust and the ever growing entitlements and unfunded liabilities, there was a spontaneous uprising for less government and re-examining the role of federal power within the restraints of the Constitution that lead to victories in 2010. There were threatening propositions like: ‘Audit The Fed’, sending education and other federal programs back to the states, redefining our military role in the world that threatened both party’s positions and constituents. This movement was eventually hijacked by the GOP and discarded in August at the convention like a prom date. Who will it be that takes up the mantle of Individual Liberty and limited government going forward? While it took a Civil War and Postbellum legislation that redefined the Federal role as more central and powerful and has lead us to where we are today, let’s hope it doesn’t take another war to remove those powers.
Christopher M. Mahon, Editor
After a feisty two year run partially as a result of the 2008 bank bailout, several Federal Reserve Stimuli, ‘Monetary Twisting’ and crisis level debt and deficits (unfunded wars, social programs) the 2010 elections produced a backlash against Washington and more government solutions – leaving them on their heals. However, the Tea Party and other grass roots movements within the GOP have met their Waterloo through Rule 12 in August that allows the Republican National Committee (RNC) to call their own ‘audibles’ in order to derail the messy process of state and grassroots challenges. While the RNC (as the DNC) ‘negotiated at the bargaining table with special interests and a banking cartel, insiders (from both parties) spoke quietly with their concerns of an ‘Audit the Fed’ movement, entitlement reforms or the ‘silver bullet’ of State Rights that protects their citizens from a capricious Federal Government. Whichever party wins next month, leadership in both parties are resting easier as to use a Pat Buchanan phrase, “The peasants with pitchforks” for now have gone back to their villages. But where does the movement(s) go from here?
In an article in Reason Magazine, ‘Ron Paul: Man of the Left’ Brian Doherty suggests that as the Right has closed the door to true reform is the Left more of a possible avenue to see it happen?
In the article, Doherty who followed Ron Paul’s campaign this past year compares some of the ‘over the top’ rhetoric of the Occupy Movement to Libertarian and constitutional ideology and ideas held by Paul, the Tea Party and other grassroots movements. What he found was, that even far flung leftist ‘green behind the ears’ young people were open to constitutional restraints that protect liberty and limit federal encroachment. Where the struggle persists however with the Left, was in the Progressive Model of Income Redistribution.
Even in comparisons to President Obama, “Paul thinks it’s inherently illegitimate to arrest people for actions that harm only themselves. The Obama administration has deported a record number of illegal immigrants. Paul mocks border walls as essentially un-American. Obama presided over enormous bailouts of the nation’s largest financial institutions, and his economic planning team has been largely run by Wall Street insiders. Ron Paul is opposed to what both he and the Occupiers call “crony capitalism.” Even the president’s signature legislative accomplishment, ObamaCare (which Paul opposed), forces millions of people to buy health insurance from the very corporations progressives claim to despise.”
Obama, despite his rhetoric, has strengthen the Patriot Act, allowed NDAA 2012 and on the eve of St Patrick’s Day tightened up the ‘National Preparedness Act’ through Executive Order. “Civil liberties and peace are the issues that first made some leftist hearts beat faster when contemplating this curious Old Right congressman. Obama has started new wars unauthorized by Congress and greatly expanded a civilian-killing drone program. Paul opposes drones, calls for an immediate end to all our overseas wars, and wants the U.S. military to withdraw from the world. By taking these positions, Paul has done more than even leftist icon Noam Chomsky to normalize discussion of U.S. foreign policy as the behavior of a criminal empire rather than that of the world’s great defender of liberty.”
The question for the Constitutional and Liberty Movements going forward is ‘where is the ground more fertile’? The Left’s ‘Wall’ that needs to collapse like East Germany’s is both Income Redistribution and Government’s role in social welfare, while the Right’s is Military Interventionism and a preference for centralized banking. Because the Right’s predilection of a ‘Patriotism’ woven military policy of foreign intervention has a basis in defense, they might be hard won to limit that endeavor, while the Left and their penchant for redistribution and welfare might be easier to accept those ‘Great Experiments’ done at a State and Local level rather than the Federal, as the genius of constitutional restraint and decentralization allows for success, failure, reallocation and a robust society. To paraphrase Karl Popper, ‘Society from the ground up is rational, from the top down is not.’
Christopher M. Mahon, Editor
While most would agree that Governor Romney did a ‘smack down’ to President Obama and Jim Lehrer, did the design of constitutional restraint of government and Individual Liberty suffer a ‘smack down’ as well? While both candidates agreed on more than they disagreed, were the disagreements more on the application of federal power rather than if it has a legitimate (constitutional) function at all (education, healthcare, retirement, etc)?
Both candidates would maintain universal healthcare (Romney would replace Obamacare), federal powers over education and retirement, and strong military footprint overseas. Regarding balancing the budget: both would work off baseline budgeting that calls ‘cuts’, slow down in future growth, which never leads to debt elimination. In Reason Magazine Nick Gillespie’s article, ‘Romney Won the Debate, But Will the Country Lose?’ Gillespie notes where we lose freedom and choices as Americans:
“Last night’s presidential debate between Democratic incumbent Barack Obama and Republican challenger Mitt Romney was far more substantive and wonky than most watchers would have ever predicted. More important, given Romney’s strong showing and nearly complete domination of Obama,…At the same time, and despite multiple attempts by the moderator of the debate and the participants themselves to stake out radically different visions of the role of government, Obama and Romney were far more similar than different when they talked policy. That’s bad news for the country.”
While the President was caught on a tape several years ago saying he favored ‘Redistribution’ it shouldn’t come as a shock; Progressives in the Democrat party for years have favored social engineering policies and tax policies to accomplish a ‘fairer’ society as an outcome. If there is a shock at all it is that the GOP has favored ‘Redistribution’ policies of their own.
Ironically, President Obama is a byproduct of the Progressive journey from post-Civil War Settlement Houses and Community Organizing centered in the largest cities (particularly Chicago) that advocated for inner city immigrant groups to feed them and teach them to read, write and basic economics. The process started out localized through philanthropic means by the children of the industrialists of the day like the Du Ponts, Carnegies and Vanderbilts; even Jane Addams the co-founder of the Hull House came from a wealthy family. Her father John Huey Addams was an Agricultural businessman with large land holdings. He was a founding member of the Republican Party and a friend of Abraham Lincoln’s.
One can argue that Obama has ‘GOP’ in his bloodline; and that’s the bigger point, the past 150 years has been a progression in not only ‘big government’ but ‘big business’ and ‘welfare’ (the evolution of the settlement house movements) interests that are protected by both parties through government policies that no longer protect access or individual freedom but provide outcomes through government intervention.
While Democratic style takes from the high income earners and redistributes in the form of welfare, education, healthcare and other benefits to the ‘lower rung’ of society and manages business through regulations, GOP style rewards behavior through tax credits and deductions (Filing status, Exemptions, EIC, Mortgage Deductions etc) that is to influence moral decisions, to ‘create a better outcome’ for society. Either way both are outcome based and interventionist in their application and of course as we’re finding out today that whether military, agricultural, economic, monetary or tax policy intervention, it leads to distorted outcomes and unintended consequences as individuals and business entities with their private capital will respond to those policies by protecting themselves.
Policies that come out of Washington are more and more being drawn up on K Street through lobbyists of the largest corporations who contrary to public opinion favor federal regulations, taxes and fees as it protects their market share, and costs are passed along to the consumer who has less choice in the matter due to government intervention that limits competition. Both parties just like US foreign policy of ‘favored nation’ status have their own ‘favored Corporations or Industry’ status and promote those interests and demand support from those receiving the benefits.
In our current 2012 Elections environment the GOP and the Dems in their campaign rhetoric throw off ‘talking points’ and hyperbole to draw the differences but it seems more and more like two identical sock puppets who’s only distinction is one is on the ‘Right’ hand while the other is on the ‘Left’.
The flames of ‘Individual Liberty’ and ‘limited government’ that has been expressed through grassroots movements over the past few years and the protests of the abuse of ‘big government’ and ‘big business’ that cohort together may have been marginalized and silenced for now, but eventually will like water find it’s way through what seems like a nonporous political system.
The reason I’m sure of that is the response of both parties this summer as the roughly 30 state GOP parties in particular expressed those ‘grassroots’ preferences and wanted them represented in the national platform, but were eventually nullified at the national level in Washington through Rule 21 and other party manuevers for the GOP and the same is being considered in the Dem party as well. What will become more and more apparent is that ‘great ideas’ and grassroots movements just as in other less competitive markets will go elsewhere to plant their seeds and eventually we’ll see an erosion of the two party system which will diffuse factions while giving individual liberty a greater chance.
Christopher M. Mahon, Editor
“One of these days you’re going to have to decide which side you’re on.”
“If you saw Atlas, the giant who holds the world on his shoulders, if you saw that he stood, blood running down his chest, his knees buckling, his arms trembling but still trying to hold the world aloft with the last of his strength, and the greater his effort the heavier the world bore down upon his shoulders – What would you tell him?”
I…don’t know. What…could he do? What would you tell him?”
Many in Europe said it would never come to this, whereby the European Central Bank would buy the bonds of countries like Spain and Italy who have the potential of going down the road of other debt ridden EU nations with rising borrowing costs and the inability politically to cut spending.
In a NYTimes article this morning, Central Bank Sets Bond Plan Meant to Ease Euro Debt Peril “We will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area,” Mario Draghi, ECB President said at a news conference. “The euro is irreversible.”
While such programs will be managed by other EU governing bodies, the ECB will have the power to make decisions on which nations, bonds and the terms for the transactions. They will most likely have a monitoring mechanism to keep track of bond performances as well.
“By forcing governments to impose fiscal discipline on each other and remake their economies along lines dictated by the E.C.B., power will inevitably drift from national capitals to Brussels and Frankfurt.”
The E.C.B. will buy bonds with maturities of three years or less, and it will maintain a policy of ‘Sterilization’ at least initially, where they will match the buying and removing from circulation in their portfolio in order to minimize inflationary affects.
Mr. Draghi said that the vote for the bond buying policy was not a unanimous vote by the board as Jens Weidmann, president of the Bundesbank was the lone dissenting vote, he warned that this was a bad course to head down as nations become more dependent upon ‘cheaper financing’ and relieves the pressure of real spending cuts.
German chancellor, Angela Merkel, expressed similar concerns and cautioned that a continued move to a more rigidly defined and centralized EU system, that both Germany and the UK fought against at the EU’s inception, is a potential threat to national sovereignty.
One can’t help but draw the comparisons to the US Federal Reserve system, a central bank created in 1913, which has stepped more and more into the role of ‘Lender of Last Resort’ who also has potentially similar hard decisions as city and state governments face rising borrowing costs and spending while decreases in revenues. A few cities in California have recently declared bankruptcies.
Recently over a discussion of the function of government with a good friend of many years we came to a crossroad as he expressed how he didn’t understand my ‘faith’ in Laissez-faire, a marketplace with little to no government regulation. While I think it is a legitimate concern as there are potential abuses in all relationships and transactions including the marketplace, my response back should have been, “While I understand your concerns with individuals taking advantage of one another, I don’t understand your ‘faith’ in government to ‘make it right’ and not to be exponentially more abusive as power is concentrated in the hands of a few and they have the force, law and money to do as they will.”
Whom should we fear more, the millionaire across town who can use his money and influence to deny me and a limited number of other people access or the government with unchecked power that can confiscate our wealth, send our children to war and deplete our livelihoods for a Utopian vision? Even the billionaires we read about have limited powers until they hook that power to government influence and coercion.
There are two assumptions made by both the ‘Left’ and the ‘Right’. The Left believes it has a natural ‘Altruistic’ compass while the Right believes it has a ‘Moral’ compass built in. So that both believe if they as a collective are heading the ship of ‘big government’ that even if for a greater good they need to steer into the cliffs of suppressing Individual Liberties they have the internal fortitude to not destroy the ‘Ship America’. Unfortunately this is either a lie or extremely arrogant and naive.
While my friend’s question ‘how do you have faith in Laissez-faire?’ is difficult to answer because historically societies have had government structure to varying degrees; the settling of the ‘Wild, Wild West’ and the ‘Free Banking Era’ are two good examples to consider in US history. We’ve been lied to by Hollywood and Historians regarding western expansion and the violence it entailed, a study ‘The Not So Wild, Wild West’ by Montana State University Economics Department shows the opposite to be true; the settlements of the western states were a safer place than almost all our major cities today as well as many suburbs. What was unique is that it mostly was settled through private contract law rather than government systems.
Even law enforcement was through private means as they hired Sheriffs and Deputies directly or through contracts like the Pinkerton Services who pursued many ‘outlaws’ like Jesse James. Cattlemen and Frontier Associations and Fraternities were formed out of common interests (voluntarily) to negotiate property rights and easement agreements.
Laissez-faire “is an economic environment in which transactions between private parties are free from tariffs, government subsidies, and enforced monopolies, with only enough government regulations sufficient to protect property rights against theft and aggression.”
Private banking with less government regulation and less centralization of power historically has also worked better. While there were banking crisis’ prior to today’s US centralized banking system, they were generally smaller and the market was quicker to dissolve failures, realign malinvestment and reallocate assets and labor more efficiently. The ‘Panic of 1819′ which was in part due to monetary expansion and debt from the War of 1812 and all other Panics that followed were due to violations of market principles and where economic conditions were less regulated by government the time period for adjustment and recovery was shorter as the market cleared bad investment while determining value. The ‘Free Banking Era’ of 1836-1864 is a bit of a misnomer as there was state regulations at the time but there was competition in the currency market and between banks regulated by the states. During economic growth some banks took greater risks going off species (gold, silver, etc) and offering more competitive portfolio returns and investors bought those risks. When the economy slowed and the market corrected many of the banks who took risk went under and the investors holding those risks took the losses as well. But with less government intervention, the losses, valuations and reallocation of assets was orderly and recovery was quicker. When you consider more recently the history of US banking and Currency laws and the degree of federal intervention since the Bank Panic of 1907 which led up to the Federal Reserve Act of 1913, the last century of centralized banking reveals economic and monetary crises of a monolithic system that lacks competition and is supported by ‘too big to fail’ versus a decentralized system of competitive banks and currencies that allowed for market failure and correction with the latter evidencing more stability. Even as recently as last week Federal Reserve Governor Jerome Powell described the new ‘Single Port of Entry’ provision and ‘Living Will’ that charter banks determine ahead of time to go through a bankruptcy-like procedure that basically enshrines the taxpayer as on the hook for the cost.
Here’s a ‘Jenga’ exercise we should play from time to time. If our Jenga pieces are government structure to maintain a society to protect freedom, how many pieces of today’s government can we dismantle without it falling apart? How many pieces of federal government have centralized power in Washington and created a monolithic system that is impervious to change and fragile to systemic failure? It’s amazing in the game how many pieces we can remove but I think most would be surprised how much of government we can remove that has only gotten in the way, distorted values and restrained the liberties of the Individual. The US Constitution is a good plumb line and starting point.
Christopher M. Mahon, Editor
This morning in Jackson Hole, WY, Ben Bernanke, Federal Reserve Chairman laid out plans to provide new policy initiatives to stimulate the economy. In an article in the NYTimes, Fed Chairman Pushes Hard for New Steps to Spur Growth by Binyamin Appelbaum, Bernanke says, ” It is important to achieve further progress, particularly in the labor market,” Mr. Bernanke said in his prepared remarks. “Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”
While Bernanke didn’t announce specific policy avenues or dates, he did mention asset purchases like treasuries and mortgage-back securities. A recent FOMC meeting minutes suggested, “Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.”
In addition to asset purchases the Fed is also considering even more aggressive actions of cutting interest rates on reserves held by the Fed for the banks which could influence the push of more liberalized credit and money into the market and the Fed is also considering targeting low-cost funding for particular sectors of the economy like housing.
Bernanke quoted a study which suggested that past stimulus has helped, “finding the combined effect of the Fed’s three rounds of asset purchases raised output by 3 percent and increased employment by 2 million jobs.” Although other studies and monetary theory suggests that monetary intervention may produce a temporary stimulative affect, but in the long run it distorts interest rates and other prices in the markets which causes malinvestment leading to further economic troubles.
Christopher M Mahon, Editor
The NYTimes Editorial today criticized the ‘lack of honesty’ in Paul Ryan’s RNC convention speech last night. “Mr. Ryan, who rose to prominence on the Republican barricades with a plan to turn Medicare into a voucher system, never uttered the word “voucher” to the convention. He said Medicare was there for his grandmother and mother, but neglected to say that he considers it too generous to be there in the same form for future grandmothers (while firmly opposing the higher taxes on the rich that could keep it strong). He never mentioned his plan to abandon Medicaid on the doorstep of the states, or that his budget wouldn’t come close to a balance for 28 years.”
The editorial goes on to say, “The reasons for that are clear: Details are a turn-off, at a boisterous convention or apparently in a full campaign. A New York Times poll last week showed that the Medicare plan advocated by Mr. Ryan and Mitt Romney was highly unpopular in the swing states of Florida, Ohio and Wisconsin. As soon as voters find out that the Republicans plan to offer retirees a fixed amount, they disapprove, clearly preferring the existing system.”
The NYTimes should remember the old adage, “for every finger you point there are 4 pointing back”. While it is true that Ryan didn’t mention ‘vouchers’ and specifics on how a transition to a better system would work (assuming that it is best for the federal government to manage Medicare, which is debatable and probably unconstitutional aligned to ‘original intent’), the article doesn’t point out the Ryan plan either, only to distort and hype what it perceives as ‘negatives’ in the eyes of the elderly.
The Ryan plan would like other plans being offered by GOP members create an ‘age line’ of 55, which would give seniors the choice to continue on their current plan or to go to a voucher type system to choose a plan and to participate in choosing their health care options. Below age 55 would go on the new plan, a similar plan that corporate America offers as well as Congress and the President participate in.
The rhetoric on both sides of the isle and both sides of the political ideology of Government vs Private solutions can’t avoid the economic realities of not only ‘Government Healthcare’, but ‘Government Retirement’ programs through public employee union pensions and Social Security’s as well who’s day of reckoning has arrived too.
Outcome based benefit programs create liabilities for employers (government) today for a future promised benefit tomorrow. The plan, whether pension or health care is actuarially ‘made whole’ each year and as the internal calculations in the plan change (mortality, morbidity, interest rate) the plan requires more or less contribution each year. Unfortunately, the discipline for the plan administrator (employer) to segregate and maintain the reserves to fund the promises has always been a problem and the long term costs of the plan make them prohibitive.
In the late 1980s corporate America started to address the funding and cost problems of their pension plans by moving to ‘Defined Contribution’ plans which work almost the reverse of ‘Defined Benefit’ (outcome based) plans. Instead of defining a benefit in an ‘unknown’ future and creating ‘unfunded liabilities’ they define a contribution based on current factors like a percentage of salary, and make the contribution today removing the potential for unfunded liabilities in a commitment to pay out benefits tomorrow and instead bring the employee into the decision making and risk bearing on his/her future.
At some level this will need to happen because ‘business as usual’ or even worse a burdensome redistribution through taxes on the productive members of society will produce a much worse outcome. The framers had it correct and as Madison described the US in Federalist Papers #39 as a ‘mix’ of a Federal and National system, the intent was to leave to the states the great social experiments like how we treat our elderly and sick and to very much limit federal powers (National) to the well defined enumerated powers of Article 1.8. The tearing down of federalist boundaries within the Constitution over the past 150 years has led to the most profound loss of Individual Liberty and government mischief, a price we can longer afford.
Christopher M Mahon, Editor
Over 30 years ago after having a spiritual encounter I went back to the church my family, as Irish Catholics had been associated with for years. I proceeded to ‘bubble over’ with enthusiasm and how I felt the creator through Jesus Christ had brought me into a new relationship with Him. I must have talked nonstop for over an hour after which the priest said to me, “Chris, what you are looking for you will not find here.”
I’ve told that story for years and as you can imagine, I’ve received different responses, some “well that’s to be expected” and others “the Church isn’t like that”. To the Catholic Church’s credit from what I hear from family members, friends and associates who are Catholic, they tell me of how the church today emphasizes personal relationship with Christ more than ever.
That memory came to mind today as I observe the smoke clearing from the RNC Rule 12 established yesterday which consolidates power into the RNC and virtually closes the door to future grassroots movements that start outside (and not adopted) of Washington.
In some ways that Priest did me a favor, as I pursued that personal relationship and other relationships through Bible, prayer and different church and small groups. If he were still living, I should actually thank him.
In the same way as the Priest answered me and my enthusiasm, hasn’t the RNC answered the enthusiasm of the Tea Party, Liberty and Small Government movement within the GOP state party planks that have drawn in old and young alike who believe in decentralized government and the Constitution to protect against unregulated government? I believe they said to us yesterday, “What you are looking for, you will not find here.”
The RNC Rule 12 that was enacted yesterday gives the ability of the GOP establishment in Washington the power to change rules and regulations quickly to destabilize grassroots movements that have less funds and influence in order to centralize power and the platform. Tea Party-type fires will be extinguished way earlier and if you happen to be in a majority interest today, good luck when the majority changes tomorrow due to special interest winds – platform will follow favor and money. Any creative grassroots movement going forward unfortunately will occur outside the GOP brand.
You say “How do you know that?”
Centralized power into the hands of a few, particularly through government which consolidates the ‘ability to take money and use force’ leads to fragility and monolithic structures that consume the freedoms of the Individual to produce a common outcome; a system which eventually leads to dismantlement or collapse as ideas and interests (factions) seek homes elsewhere. In a political party this becomes readily apparent as the door is shut unless you come bearing influence and money.
The ‘democratic process’ in Washington with a two party system that represents ‘the people’ is more like the 2 wolves and a sheep as the wolves fight over how to cook the sheep for the next meal.
Our framers warned against the potential of an ‘unconstitutional’ government that would develop out of self interests (factions) and political proclivities.
In 1854 many abandoned the Whig and Democratic parties to join the Free Soilers, Abolitonists and other groups seeking liberty or a voice and the Republican party was born.
Today’s Republican party in some ways have blown an opportunity to bring unity and allow the competitive ideas and experiments of the states to the forefront; but instead like the ‘chalice drinkers’ preceding Indiana Jones (who chose the lowly wooden cup), chose instead the haughty high road of power to the humble road of servant leadership. As Rule 12 helps to consolidate RNC power and silences many voices outside of Washington, maybe the GOP has done it’s constituents a favor in saying in affect, “What you are looking for you will not find here.”
Christopher M. Mahon, Editor
In an article in Reason Magazine ‘Romney and Ryan Would Return Us to the Bush Years‘ Andrew Napolitano points out that a Romney presidency could result in loss of individual liberties through similar legislation like The Patriot Act, NDAA 2012 and executive orders to continue waging ‘War on Terror’ overseas and on our own shores over this past decade since 911. Would a Romney-Ryan ticket return us to Bush Administration policies of ‘Keeping America safe by fighting terrorism abroad, while preemptively going after it on our streets too? Napolitano makes the point that four more years of Obama could lead to unconstitutional legislation as in the Roosevelt Administration of the 1930s.
Napolitano highlights the failure of both parties to wage war on the US debt, pointing out that the causes are different but the answer is more federal spending, “The federal government has a debt of $16 trillion. We have that debt because both political parties have chosen to spend today and put the burden of paying for the spending onto future generations. The debt keeps increasing, and the feds have no intention of paying it off. Every time the government has wanted to increase its lawful power to borrow since World War II, members of Congress and presidents from both parties have permitted it to do so.”
Napolitano and many Conservatives finding their ‘classical’ roots are turning to the US Constitution for sobriety and answers to what should be the limits of federal power. The question in this election is, should we vote for the lesser of bad government or are there alternatives?
“I am a firm believer that the Constitution means what it says. The federal government can only do what the Constitution authorizes it to do. The modern-day Republican and Democratic Parties have made a shambles of that principle. Nevertheless, I understand the “anybody but Obama” urge among those who fear his excesses, as do I. Obama has killed innocents, altered laws, rejected his oath to enforce the law faithfully, and threatened to assault the liberty and property of Americans he hates and fears.
Even though Ryan is a smart and humble and likeable man who was once a disciple of Ayn Rand on economics, as am I, the Republicans want the Bush days of war and spending beyond our means and assaults on civil liberties to return. The Bush years were bad for freedom; without them, we would not have had an Obama administration.”
In ‘Money, Method, and the Market Process’ Ludwig Von Mises wrote, “The socialists of Eastern Germany, the self-styled German Democratic Republic, spectacularly admitted the bankruptcy of the Marxian dreams when they built a wall to prevent their comrades from fleeing into the non-socialist part of Germany.” If the East German wall stood as a testament to the failure of German Socialism, then maybe Obamacare and the strict participation into other government managed services like Public Education, Social Security and Medicare stand as a testament to US Socialism failure of the FDR administration and subsequent policymakers who built upon it.
Of course today’s US Socialism is more subtle and genteel as it uses the weapons of regulation, fees and taxes instead of direct public ownership to coerce participation and to make alternative choices punitive.
To be fair, both parties do it. There are GOP socialists as well as Democratic ones, who believe in government support (subsidies) of particular industries (companies) and managing behavior that their policymakers and intelligentsia believe are appropriate for the Utopian common good.
The headline going into the fall election isn’t ‘Romney vs Obama’, that was the safe bet; the headline is the ‘Big Win’ by the national GOP, which marshaled corporate and social activist contributions to defeat those looking for change in party positions. DC GOP policies of a ‘Managed business environment’, ‘Federal power to manage social value goals’ and the continued ‘War on Terrorism’ was on the ‘primary voting block’ over the past year. Some wanting to realign the GOP party to Constitutional principles and others, Libertarian or even more to the Right than the current party positions, but going into the fall it looks like the national party has survived.
Unfortunately for Mises, he did not see the day when the German wall would be torn down, hopefully for us and our children we’ll see the day when the social experiments of a government managed society in education, health care, retirement and even as it dangerously careens into more intimate areas like what we eat and lifestyle choices, we’ll see inroads in the 21th Century that allow Individual Liberty and markets to choose.
Government as Washington warned was a `fearful master’and as Jefferson also suggested, that it’s `nature was to grow’; the US Constitution was designed to limit federal powers and restrain it’s natural encroachment into state sovereignty. Those voices have been silenced for now in the 2012 election, the question going forward is where and when will they surface again in the form of party representation. The Whigs died in the mid-nineteenth century giving rise to the Republican party, will another party rise to replace a current one or will as Nick Gillespie suggests in a coauthored book, ‘Declaration of Independents’ see the death of a `duopolistic’ party system.
Christopher M. Mahon, Editor
Nevada this Saturday July 14th is an important day regarding the GOP nomination process but you haven’t heard that while tuning into FoxNews or other GOP influenced media mouthpieces. If Ron Paul wins Saturday’s race, he will qualify as a nominee in the Tampa convention and will have a speaker’s spot at the event. Some like MSNBC are calling it Ron Paul’s Last Stand. There has been a boat load of national GOP and Romney campaign money directed into Nevada to prevent that from happening.
While the Tea Party movement with its clarion call of ‘limited government’ and focus on Individual Liberty that resulted in a spectacular gain for the GOP in 2010 and initially embraced by the national GOP in Washington, has been slowly divided, conquered and marginalized by the party today; Libertarians, Independents and ‘free market’ fundamentalists are treated carefully but with a watchful eye of suspicion. The national party today is designed like a sports team to win elections no matter what. Special interests that will support GOP candidates are favored over what many in Washington consider ‘non-money raising’ issues like limited government and the Constitution as a plumb line. The liberties of the Individual which are protected by the Constitution fall just as easily through the GOP cracks of a greater Utopian good of a moral society or a society protected against terrorism as they do through Democrat ones of equality and justice like, universal health care.
This is not to say that the national party has scored an uncontested victory even if it seems like they spike the ball on FoxNews every week. There are several states partly as a result of Paul’s candidacy most recently and the Tea Party movement over the past few years that has activated interest at the grass roots to participate in local politics through precinct and delegate involvement. The result has been a healthy friction between the state/local GOP and the national party in deciding economic, social and defense policies, and choosing candidates.
The national GOP in Washington doesn’t like it however and in some states are looking to bypass the state party and go directly to the voter; while the active participation of some in local politics could have much greater influence on their neighbors, family and friends. As in the last line in Casablanca Sam says, “Louis, I think this is the beginning of a beautiful friendship”, so the GOP, in a more market driven manner might just illustrate to our nation the answer to our problems. One can only hope.
Christopher M. Mahon, Editor
The original ‘Pledge of Allegiance’ was written in 1892 by Francis Bellamy (1855–1931), who was a Baptist minister, a Christian socialist, and the cousin of socialist utopian novelist Edward Bellamy (1850–1898). Part of his intent was to bring the progressive movement to recognize a ‘new’ Americanism that could be unified behind a symbol and choose the Flag. He wanted to include the ideas of social equality and a common fraternity as goals of this new progressive nation in the pledge but felt that his associates wouldn’t allow it as they didn’t believe in equality for women and African-Americans. The ‘under God’ was added years later in 1954 by President Eisenhower.
The original salute, which was called the Bellamy Salute was done with an outstretched hand with palms down and finished with palms up; this was done in schools and for patriotic public events from 1892-1942 until there was a growing sentiment that it resembled the Nazi Salute too closely. The word ‘Allegiance’ has a Middle English origin (14th Century), meaning: a) the obligation of a feudal vassal to his liege lord, b: the fidelity owed by a subject or citizen to a sovereign or government.
The pledge forgets the importance of Individual Liberty and how the US Constitution is dedicated to protect it, in some ways it diminishes the power of federalism with the term ‘One Nation’ and ‘Indivisible’ and subscribes to the pursuit of the utopian goal of a ‘greater common good’ and an equality that fits all.
Here’s an amended version for today:
I pledge allegiance to Individual Liberty and recognize the flag (voluntarily) of the United States of America, and to the republic for which it stands,
one nation (a nation in limited powers and a federal system of state power in all else) under God (if you so choose), indivisible (except for where federal government treads into state sovereignty), with liberty and justice for all (not measured as a collective outcome but through the protection of each individual to live his/her life, liberty and pursuit of happiness as they so choose.
In Sunday’s NY Times column, Modesty and Audacity, David Brooks writes, “Washington is full of arrogant people who grab power whenever they get the chance. But there is at least one modest minimalist in town, and that’s John Roberts Jr.” Brooks of course is referring to the 5-4 (or 4-1-4) ruling of SCOTUS last week that produced a surprise ruling in some respects and some interesting tea leaf reading days later.
Brooks goes on further to frame what he and most in Washington believes is the game, “And here’s the biggest gift that Roberts gave to the nation: By restraining the power of the court to shape health care policy, he opened up space for the rest of us to shape that policy through the political process. By modestly refraining from rewriting health care laws himself, he has given voters and politicians more room to be audacious.” Does that sound dangerous to you? How much of your life do you wish to depend upon politicians to ‘manage’ and activities to exclude?
While it could be argued on both sides of the Health Care debate that they won a victory in the Roberts decision, on the one hand health care goes through but on the other there’s been a potential boundary drawn around the Commerce Clause which has taken on a power of it’s own since the Hughes court of the 1930s (Charles Hughes, Chief Justice, like Roberts nominated by a Republican, Hoover). But ‘at the end of the day’ (hate that saying) it still leans toward a pro-government interventionist game that doesn’t open the gate as much to non-politicians and lawyers and leaves the individual at the mercy of all branches of the federal government.
In Brooks’ summary he says, “Personally, I think the Republicans’ defined-contribution approach is compelling. It’s a potentially effective way to expand coverage while aligning incentives so that people make cost-conscious, responsible decisions. But the truth is neither I nor anybody else really knows what works. We’re going to have to go through a process of discovery. We’re going to have to ride the period of rapid innovation that is now under way.” While admitting the efficiency of aligning cost to benefits, in the article he doesn’t recognize the most efficient way that can be done and is done through competitive markets, without having to compromise the greatest attribute and foundation of this ‘Nation/Federalist’ system and that is the Freedom of the Individual and the Market to arrive at what Man cannot ‘Manage’ his/her way to.
Brooks even admits at the end of this statement “But the truth is neither I nor anybody else really knows what works.” So with that statement being true, then why would we take the further irrational steps of limiting personal choice, taking non-homogeneous data (individuals are so different), and from 40,000 feet in the air (DC) make decisions by an elite-ignorant (admitted by Brooks) group in Washington to create policy and manage costs, benefits and features?
If Presidential nominee Mitt Romney and his camp could step away from the ‘GOP handlers’ they would realize that as the smoke clears there’s ground to be staked out or it will be staked out for him. You see he was right in his Federalism but possibly wrong in his policy choice for Massachusetts. He is right in that the US Constitution and Madison specifically emphasizes the importance of leaving Positive Liberty (Government managed outcomes) and powers not enumerated in the Constitution to the states – it can’t be emphasized enough how important that is. He might be wrong as time will show in who stays, flees or goes to MA in part due to their health care system and whether it will crumble under the weight of its debt or survive.
Of course that is the power of the Market, that while as Brooks says ‘Nobody really knows what works’, with a federal government that protects open access into the market and quells disputes between states (not intrastate) it allows for the ‘friction’ of voluntary exchange and association which will in the long run provide access to better health care choices and lead to the ‘Greater Good’ of Liberty which is defined ‘on the ground’ and can be arguably protected in Washington if as Franklin said, “..a Republic, if you can keep it!”
A line by Dorothy Gale from Wizard of Oz played by Judy Garland, an allegory written by Frank Baum in the late 19th century that parodies the eastern banks’ desire for a gold system vs the mid-west farmers’ desire to keep silver open as that was what they predominantly owned and traded with.
In the story Dorothy makes her way through following gold (follow the yellow brick road) into the government of OZ where they make all kinds of promises not realizing until later that she had the power to get back to Kansas all along because she was wearing silver (changed to red in 1939 movie) shoes which would get her there. The cowardly lion was William Jennings Bryan who made the case for silver but was no match to the eastern banking interests. The banks not only won on the gold issue as they consolidated their power but they would go on to win even bigger as the 1907 bank panic followed which lead to centralizing the bank system under the Federal Reserve in 1913 legislation.
This morning, the Wizard (Bernanke) once again told congress with a wink, wink, nudge, nudge that the banks could get another ‘helicopter drop’ of cash. Yes, you and I are today’s Dorothy, but instead of following the ‘Yellow Brick Road’ we’re following a different ‘Road to Serfdom’ (Hayek).
The question that we can ask ourselves allegorically is what do we like Dorothy already have that we’ve forgotten about, that will get us back to what had been working for us? The answer has been there all the time: Understanding the power that each state has to defend itself and its people against federal encroachment and the importance of decentralized government and currency. Tools like nullification and state’s party insistence that their candidates be held to the responsibility of saying to the federal government, “Thus far and no further” while at the same time resisting the temptation of federal aid that comes with strings attached. It will take readers of this article, getting involved in state and municipal politics to make the difference and educating themselves on the reason why the Constitution separates the powers of government between limited federal and greater state power. Please help yourself to the articles on this website and the Library tab at top that includes many free books, essays and articles regarding why Liberty should be the goal of government based on a ’Negative’ (nonintervention) posture rather than ‘Positive’ and why free and unmanaged markets do much better in determining value than managed markets.
As the powers in Washington scatter about to preserve their corrupt and crony power that dates back to the Lincoln administration, shouldn’t we start clicking our heels together that a rebalance of constitutional alignment would take place. Find your silver slippers and get going.
Christopher M. Mahon, Editor
Well of course if you’re not worth $1 million or made $200k ($300k joint) over the past few years they wouldn’t be able to sell it to you anyway, because under Rule 501 Schedule D of the SEC you have to be an ‘Accredited Investor’ because otherwise you’re stupid or too poor to take the risk – government knows best you know.
So here’s what generally happens. The door is shut on John & Jane Q Public but the ‘well healed’, connected and those in the game (brokerage, hedge funds, etc) get the offering for a fraction and then they sit back and watch as it runs…probably to $100 or more. Then they sell all or part of it and make several times their investment. Johnny and Janey of course jump in on the resale paying close to the high price and take a bath all the way down.
You remember the ‘soak the rich’ slogan to get the John & Jane Publics of the early 20th century to jump on board for Fed Reserve and SEC regulations, well here’s the result of those regulations. The struggling hard working small business owner, tradesman, teacher, etc are shut out while the connected get the goodies as the game is rigged. Oh and if we have a crisis, of course government will need to pass the cost onto the disconnected. The Left cries, “Business is corrupt and we need government to protect us” and the Right cries, “Government is corrupt and we need to protect (big) business and create markets for it”, but the voices of both of those schools have been cutting in line to get ‘myz’ leading up to Friday’s open.
In an upcoming article I’m writing, “The Government of FAVEAA”, (fa-Vee-ah) which is an acronym for ‘Free And Voluntary Exchange And Association’, we’ll show why Left and Right politics are in fact similar and that ‘Free Market’ is not synonymous with ‘Self Government’ as many pundits and politicians believe. It is the friction of the market (deciding who/what to associate and trade with) that produces the best results of marginalizing bad behavior while promoting good. This is done in a rational way – bottom up and not in an irrational way – top down (Platonic Model).
The irony of the stock going public is that while FaceBook appears to offer a ‘voice’ to the common man who drives FB profits on his personal information, it is the common man that stands outside behind the velvet chain with the bouncer.
Christopher M. Mahon, Editor
In Reason Magazine’s article ‘Moderates Only Look Dead‘ Steve Chapman goes on to suggest that while it has been hard on incumbents since 2010′s ‘revolution’ and the political climate seems to be polarized with support on the far left and right, don’t rule out the centrists and the Moderate wing of both parties so fast.
“The tea party, by contrast, is flexing its muscles in Indiana, where it helped conservative Richard Mourdock beat the once-invincible Lugar. Rick Santorum, who gave Mitt Romney a strong challenge, is well-positioned for a 2016 bid if Romney loses in November. Voters in North Carolina, which went for Barack Obama in 2008, approved a ban on same-sex marriage and civil unions.
With 40 percent of the electorate, Gallup finds, conservatives now represent the biggest ideological group. Only 35 percent of Americans admit to being moderates.
But the center, contrary to what you might conclude, is not vanishing. In fact, it’s not too much to say that this year promises the triumph of moderates.”
Many had thought Scott Brown would lose handily to Elizabeth Warren in the Senate race in MA, but it has been very close as GOP support for Brown hasn’t fallen.
The middle of the political road remains important, even if it doesn’t get much attention. It brings to mind what Yogi Berra said about one restaurant: “Nobody goes there anymore. It’s too crowded.”
Year of Progressive or Conservative change or Year of Triangulation? What’s your thoughts?
The Washington Times on Monday May 7th in its article `Romney rejects Ron Paul-style Austerity‘ reported,
“Speaking Monday at a town hall style-meeting event in Cleveland, presumptive GOP presidential Mitt Romney plunged a fork into the idea that he could come around to embracing (Congressman Ron) Paul’s call for deep cuts in federal spending.
“My job is to get America back on track to have a balanced budget. Now I’m not going to cut $1 trillion in the first year,” he said, distancing himself from Mr. Paul’s plan to slice more than a quarter of the estimated $3.8 trillion being spent by the the federal government.”
Later when pushed further regarding Paul’s budget proposal and the spending cut measures, Romney went on to say, “The reason, is taking a trillion dollars out of a $15 trillion economy would cause our economy to shrink [and] would put a lot of people out of work.”
Here’s why Romney is wrong in his suggestion that this could harm the US economy, wrong in his historical perspective and most importantly wrong on his understanding of the `American Spirit’.
FactCheck, which generally leans progressive, correctly points out that “The biggest (budget) cut, on a percentage basis, occurred in fiscal year 1920 after two years of steep budget increases to finance World War I. That year, spending dropped from $18.5 billion to $6.4 billion, which is $12.1 billion decline or about 65 percent. The $12.1 billion in today’s dollars would be worth $134.3 billion, according to the Bureau of Labor Statistics’ .
Likewise, there was a sharp decline in spending after World War II. Beginning in 1946, Congress cut spending for three straight fiscal years. The biggest drop occurred in 1946, when spending dropped by $37.5 billion or about 40 percent (from $92.7 billion to $55.2 billion). That $37.5 billion would be worth $425.4 billion in today’s dollars — making it the largest cut in adjusted dollars.”
To further the comparison to the error of Romney’s remarks that to `take $1 trillion Federal spending out $15 trillion US economy’ would cause job loss versus what happened in 1920 and 1946, is that in 1920 and 1946 they removed roughly 17% and 16% of federal spending (respectively) while Ron Paul’s proposal would shift federal spending by less than 7%. But here’s where Romney, policy makers and most economists get it wrong, it’s the `Unseen’. While Federal spending through intervention in military, education, health care and many other areas of the economy create malinvestment and shift purchasing power from the individual to the state, the reverse allows markets to correct and that money doesn’t disappear as Romney suggests but moves through the economy in a more efficient way. Both 1920 and 1946 illustrate that as you had millions of men and women coming home from wars, you had manufacturing shifting from making weapons and bombs to meet domestic and international demands for other products and services.
Finally, where Romney really gets it wrong is calculating the heart of the American worker-entrepreneur on the same plane as in Greece or France. The US small business owners and those who’d like to be are like race horses restrained and thrown off at the starting gate by a capricious federal government that if instead was restrained would allow like in 1920 and in 1946 for the ingenuity of the `American Spirit’ to soar. The greatness of the United States isn’t inherent in her citizens rather as it has been in her law, protection of individual liberty and the access to succeed and fail through the discipline of the US Constitution.
While Federal power has encroached greatly and has been redefined in a positive matter through intervention and defining social and financial outcomes over the past 150 years, there is still a remnant of Liberty, Self Determination and the desire to not only lift one’s self but to help others.
In 1866 Lord Acton of British Parliament viewed the remains of the Civil War aftermath and in a lecture series he exalted the unique qualities of the US prior to the war, a Democratic Republic restrained by state sovereignty, where the lowest man counted but warned of a new federalism to come that would go the way of Rome and France.
The Federal Government has an important but limited role as a referee between the states, the states and foreign entities and to vigilantly protect our sovereignty as a nation. The question for today framed in the backdrop of the 2012 election, “Are there state and national politicians (like Presidents Harding and Coolidge of the 1920s* and the Congress of 1946, 47) who will aid in the process of restraining Federal power and loosening the Individual and the states to experiment as Madison, Jefferson and many of the framers suggested?
This is why it is crucial that the GOP platform adopts Congressman Paul’s classical economic and constitutional principles of limited federal power, social and financial values determined by the market (free and voluntary exchange and association) and sound money.
While President Obama wishes to impose more centralized federal government power in taking over more sectors of the economy and redistribute wealth, if Mr. Romney wins in November, don’t we still lose? Our financial, social and infrastructure problems will not go away. Just as aerodynamics defies gravity briefly through a 3 point landing or crash, so do markets eventually adjust either voluntarily like in 1920, 1946 or involuntarily like in 1929 and 2008. The global systems of the world are decentralizing one way or the other; the Middle East, Greece, Ireland and potentially France are showing how `not to do it’, Paul’s classical economic principles through constitutionally aligned government as we’ve seen voluntarily applied in our past shows how ‘to do it’. Who’s steps should we follow?
Christopher M Mahon, Editor
*Unfortunately, the recovery of 1920-21 was followed by Federal Reserve excess in part by the 1st Fed Chairman Benjamin Strong’s friendship to Montagu Norman, Governor of Bank of England to help in Britain’s parliamentary requirement to go back to Gold in 1925 at a fixed price (which is a lesson for today). Modern day Keynesians point to greed and excess of unrestrained markets to the Great Depression but the reality is that the monetary policies of the Federal Reserve distorted markets and brought about malinvestment. The 1929 Depression that took 25 years should have been a 1929-30(31) Depression if Hoover and/or Roosevelt had taken the same steps as Harding, Coolidge in early 1920s and the 1946 Congress. Hopefully today classical economics (Austrian) will win out.
In David Brooks’ NYTimes column this morning, When The Good Do Bad, he presents in his view of modern day philosophy-religion that man is born good but some are born evil, “According to this view, most people are naturally good, because nature is good. The monstrosities of the world are caused by the few people (like Hitler or Idi Amin) who are fundamentally warped and evil.”
Brooks illustrates this through the recent slaughter of 16 people (including children) in Iraq by Robert Bales, who those who’ve known him say they are astounded – “Friends and teachers describe him as caring, gregarious and self-confident”.
Brooks digs back into centuries old Christianity and Philosophical thought on Good vs. Evil, quoting John Calvin, GK Chesterton and CS Lewis who believed like the Bible says in Jeremiah 17.9, that the heart of man is deceitful (wicked) above all things and who can truly know it.
The modern worldview of Good vs. Evil is simplistic as Brooks says, “This worldview gives us an easy conscience, because we don’t have to contemplate the evil in ourselves. But when somebody who seems mostly good does something completely awful, we’re rendered mute or confused.” But, in that confusion the modern worldview grapples for answers on how to identify and protect against those external evils in others and isolate them from the good. He identifies the Hitlers and Idi Amin for example.
Brooks ends his article positing this, “According to this older worldview, Robert Bales, like all of us, is a mixture of virtue and depravity. His job is to struggle daily to strengthen the good and resist the evil, policing small transgressions to prevent larger ones. If he didn’t do that, and if he was swept up in a whirlwind, then even a formerly good man is capable of monstrous acts that shock the soul and sear the brain.”
I would take this a step further and propose this question framed within our Presidential election process as the backdrop. Do these two contrasting views of `Man is either Good or Bad’ versus `Man is a combination of Good and Bad’ play a factor in determining the type of Government System we should have?
If you believe that Man is born with different natures of Good and Bad, wouldn’t you try to find `The Best’ to run the country and forfeit the most power to them? On the other hand if Man is a mixture of Good and Bad, wouldn’t you like James Madison and the other framers of the US Constitution and architect of our Nation, build a government designed not for the best to rule, but to protect against the worst?
Our government was designed by men who believed that Man is a combination of potential Good and Evil, that he could do amazing exploits of courage and patriotism but had the potential for the worst depravity and self interest at the expense of his neighbor. They built a government with that in mind, that allowed for the greatest amount of freedom but punished bad acts and they divided the powers of government between federal offices and State Powers. This was also to prevent the same potentials in Man for the depravity of self interest at the expense of others and the power to lord over another from becoming systematic.
So two final questions:
- Do you think in modern worldview as David Brooks subscribes, Man is basically Good but there are some that are Bad? Or do you believe like those in our past that Man is a mixture and has the potential for great exploits or the worst depravity?
- Having decided upon one of those worldviews, do you think that should affect the type of government we should have?
Christopher M. Mahon, Editor
In a March 9th article in Reason Magazine, `Ron Paul Revolution: What Now? Brian Doherty sums up the frustration of Ron Paul supporters as their candidate hasn’t won a single primary or caucus state, and media channels like Politico have written him off. The math of Super Tuesday last week also shows that Congressman Paul has no chance of winning the nomination. So what is left of his candidacy? Who or how can the Constitution and Individual Liberty be brought to the forefront as Washington Insider interests jockey for power with large funding resources and powerful media connections?
Doherty mulls over a brokered convention in Tampa, “Given the general attitudes of the average GOP stalwart, though, it’s hard to imagine Ron Paul coming out of one a winner. Ronald Reagan in 1976 made quite the push to deny leader Gerald Ford the nomination when Ford lacked a clear majority going into the convention, and even Reagan, god-saint of modern Republicanism, failed. Former GOP super-strategist Roger Stone, who lived through those days, reminded me that Reagan actually represented the views and enthusiasms of the mass of GOP activists in his day in a way Ron Paul does not now. This makes it even less likely Paul will succeed with any last-minute Tampa coup.”
But all is not lost. Ron Paul and his campaign support bring a couple of surprises to a brokered convention. First, the media has discounted loyal delegate support for Ron Paul in states where delegates are not bound and can move their support, and in the training and volunteer effort that the Paul camp has made since 2008 in getting their people into key precinct positions in each state will help. While it may be a long, long shot when considering Reagan failed, still Paul’s influence will be felt at the convention.
Finally, when you again run through the numbers and where Ron Paul runs strong: Independents, Reagan Democrats and the Youth (twenty somethings); even without the holdout for a brokered convention, just as the King of Israel contended with Elijah so will the eventual GOP nominee need Paul support going into November. Unlike deals made with past failed candidacies, to get Ron Paul support and a successful national campaign there will need to be tangible evidence of foreign and domestic policy revisions that align with constitutional principles.
If Mitt Romney runs against President Obama with $1billion cut in spending in the first year, a new military footprint and a Defense rather than Military Intervention policy that respects national sovereignty around the globe – until they violate ours; and an audit of the Federal Reserve with a change in objective from Employment/Inflation to inflation only and creates a committee in his first year to look at role of Federal Reserve going forward, then we can consider the Paul campaign of 2012 very successful.
My friends, don’t give up the good fight! Evangelize those around you to the Constitution and Individual Liberty as vital to a healthy society and the well being of a nation. As Madison suggested in Federalist Papers #39, our success hinges on `Self-Government’.
NOTE: If you wish to be more involved, contact your county party office that you are registered with and find out how you can be involved. You could become a committee member and precinct representative. Each state is vital in the fight against federal power encroachment, the best weapon the states have against that encroachment sits rusty and unused – Nullification. Finally, many are standing up to Universal Health Care. Get involved.
Christopher M. Mahon, Editor
The Iowa Caucus is less than a week away and political rhetoric by all candidates is at a high level, a good part of that is directed at Ron Paul who currently is the leader as indicated from most polls. He not only pulls from Independent and Libertarian voters but also Conservatives who have become disenfranchised with almost 10 years of military conflict at the expense of a balanced budget and debt. The latest accusations portray Congressman Paul as not only out of the `mainstream’ in his ideas on federal powers (even though by all accounts they are constitutional) but also that a Ron Paul presidency would be dangerous for the US as Iran could go nuclear and Paul is an `Isolationist’.
In a November 2011 Cato Institute article Ted Galen Carpenter makes the opposite claim that Military Interventionists and NeoCons like Gingrich, Santorum and Bachmann do us much more harm than good. For interventionists to not realize the beneficiary of a war with Iraq was Iran was a failure….“For neoconservatves to argue that the withdrawal of the few thousand remaining U.S. troops from Iraq significantly worsens that aspect is either obtuse or disingenuous. If they didn’t want Iran t…o gain significant influence in the region, they should have thought of that danger in 2002 and early 2003, instead of lobbying feverishly for U.S. military intervention against Iraq. The United States has paid a terrible cost — some $850 billion and more than 4,400 dead American soldiers — to make Iran the most influential power in Iraq.”
In another article by Per Bylund, Bylund makes the case how the `Endowment Effect’ theory, (people place more value on things they own versus things they do not) illustrates the shortcomings of economic and military intervention in not understanding human action (Praxeology) and the unintended consequences. Or why Ron Paul’s theories on domestic and foreign policies while more aligned to constitutional principles are also more sound than policies of the other candidates.
Does US military policy of Intervention into the affairs of other nations (occupation, embargo, etc), prop up the dictators of the world like Hugo Chavez or Mahmoud Ahmadinejad who rally their people and crusade against US military might and US monetary policy? What part did Federal Reserve Quantitative Easing (1 and 2) play in the Middle East uprisings and other struggling nation’s financial affairs? What part did troops in Iraq, Afghanistan and Pakistan play? Tell us what you think?
Christopher M. Mahon, Editor
CONSIDERING RON PAUL AND THE RISKS-REWARDS OF US MILITARY INTERVENTION
“The armies separated; and, it is said, Pyrrhus replied to one that gave him joy of his victory that one more such victory would utterly undo him. For he had lost a great part of the forces he brought with him, and almost all his particular friends and principal commanders; there were no others there to make recruits, and he found the confederates in Italy backward. On the other hand, as from a fountain continually flowing out of the city, the Roman camp was quickly and plentifully filled up with fresh men, not at all abating in courage for the loss they sustained, but even from their very anger gaining new force and resolution to go on with the war.” Plutarch
Plutarch’s observation, which is where the phrase a `Pyrrhic Victory’ comes from suggests that while a win (War Victory) is good, if not managed properly could be the undoing or collapse of a nation. Even in the best (for lack of better word) or most moralistic war, while the citizenry keeps its freedom it’s the State, the pilot fish (Corporations through huge government contracts) and the financiers of their excursions that make substantial gains. This group is ready to wage war again: gain territory and advantages, build weapons at a premium and of course finance it, but the citizenry is exhausted, depleted and emotionally, spiritually and physically bankrupt from the last victory (or defeat).
Ron Paul has been dismissed as naive and with outcries of `Appeaser’ or `Coward’ when he suggests the dangers of another war (Iran) and to verify (Reagan) intelligence carefully and to consider the risks before moving ahead. Critics who favor military intervention will highlight the `dangers’ of a nuclear Iran meanwhile not consider the full scope of risk to Individual Liberty (from bills like NDAA 2012) or the financial impact to an already dire US and global economic condition. Interventionists also don’t consider the motives and reward of the State, their corporate relationships and the banks who survive from one stimulus bill or appropriations bill to the next and look forward to the next big government excursion. In Reason Magazine, ‘Ron Paul Challenges Mindless Militarism’, Jacob Sullum writes, “This week the U.S. officially ended its war in Iraq, nearly nine years after launching it based on the false claim that Saddam Hussein posed a threat to us because he had weapons of mass destruction. The war, which replaced a brutal dictator with a corrupt, wobbly elected government that may not be able to defend Iraq’s borders or maintain peace in a country driven by sectarian violence, cost the U.S. $800 billion and nearly 4,500 American lives. More than 100,000 civilians were killed during the invasion and its aftermath.
The regime installed by the U.S. in Afghanistan to replace Al Qaeda’s Taliban allies is even weaker and more corrupt than the one in Iraq. Ten years after the invasion, we still have 100,000 troops in Afghanistan, and so far the war has cost about $500 billion, 1,800 American lives, and thousands of civilian casualties.”
The irony in Plutarch’s statement and warning was that they were conquered by a conqueror that later would make the same mistake. Are we too myopic and blind to the dangers of `Empire Building’? Has war like the automobile industry or `Green Technology’ become a `preferred’ industry that the government funnels money into? Washington, Jefferson, Eisenhower, Kennedy and Reagan warned of the proliferation of militaristic power rather than defense; a strong constitutionally based Defense is right they would have argued, but today if you utter a word questioning the wisdom of an aggressive military footprint and preemptive attacks you are drown out by rhetoric and name calling.
While the zeal of the Neo-Conservative GOP base is to be the `leader’ in managing world affairs and using military intervention as a tool for peace while contemplating a war with Iran and putting aside the blaring consequences of these policies the other obvious reality is that with over $15.13 Trillion in debt (more than our GDP), the USD is leveraged more than 40:1 and we can’t afford the current military footprint let alone expanding it further. Isn’t it time to talk sensibly about a well balanced strategy of Defense that is constitutionally based and fits within our budget? Can we learn lessons from Rome and Great Britain that while they achieved Empires for a time, they expanded beyond their ability to manage their affairs effectively and Individual Liberties were sacrificed in the process?
Woodrow Wilson wasn’t wrong because he was an `Appeaser’, he was wrong because he was an early `Empire Builder’ and a globalist which oversteps constitutional authority of Federal power. There was no sovereign threat to the US at the time of WW1 except possibly to the banks as they were financing the war, and that’s a harbinger on `Too big to fail’ and Moral Hazard.
Sullum concludes, “For 35 years Ron Paul has been speaking truths that the foreign policy mavens of both parties prefer to ignore: that the Constitution gives Congress alone the power to declare war, that unjustified interventions breed resentment that undermines our security, that there is a difference between military spending and defense spending, that foreign aid rewards autocrats and their cronies, and that economic sanctions are an “an act of war” that hurts people in the name of punishing the governments that oppress them. If there really is no room for these arguments in the Republican Party, that is the party’s fault, not Paul’s.”
Today, as we take a `full assessment’ of external and internal threats to our sovereignty we need to weigh the real threats to State sovereignty from terrorism and invasion from abroad, against fragilities of our financial house and the cost to Individual Liberty while tipping our hats to individuals like Ron Paul who are courageous in that they don’t back down but speak out against tyranny and the political marginalization of alternative views.
The real terror today is that the US Constitution with its separation of powers between the states and federal government and protection against the concentration of power into the hands of a few has become unfamiliar and even peculiar to most of our population who perceive it as `dangerous’ and a threat to their way of life. When you consider Pyrrhus’ warning, the irony is thick.
Christopher M. Mahon, Editor
I was recently reading the history of National Review, a magazine started up in the late 1950s by William Buckley and how he and the magazine back then helped orchestrate a `fusion’ movement to pull – classical, neo, social and libertarian-leaning conservatives together to make a political move which helped to bring about the Reagan Revolution. While there’s disagreement on how successful the Reagan Revolution was, they were able to put aside the rhetoric and started to define boundaries and sensible goals at the time while keeping the Constitution in sight. In light of the heated discussion going on today, is a second fusion possible and do you think that it could help the GOP party in the campaign process?
As a `Libertarian-leaning’ Conservative I want a decentralized government system like laid out in the Constitution that was part of the genius of our founders who understood Montesquieu’s Separation of Powers theory which protects against concentration of monolithic power and isolates failure and allows for better governance (closer and tailored to the citizenry) and as Madison pointed out in the Federalist Papers it permits for the `Grand Experiments’ of the states. I also believe that our military intervention has failed but obviously we need a military footprint but the question is where and how big. Having said all that however, I realize that movement in those directions is not unreasonable but not being able to budge/compromise is. The question is can each group mentioned come away with a sense of `progress’ and success, while still falling short of their goals?
Granted it’s complicated as even within each group there’s disagreement, within the Libertarians for example, there are differences between `Rights’ based and Consequentialists. Rights- based support the Individual and his Rights in the marketplace (Laissez-faire) above the State; while Consequentialist Libertarians will accept the use of the State if it can produce an intended outcome more `efficiently’ while ignoring constitutional barriers.
But there is common footing that can be found like between Social Conservatives and Libertarians, where if you’re on a social networking site or watch some of the political debates on the news programs and witness the hyperbole, vitriol and name calling you wouldn’t think so. Where social conservatives want to see traditional values maintained, like in marriage, family and lifestyle choices, many Libertarians have similar views with the difference being how are those values maintained or restored? Where the Social Conservative sees value in government intervention to create appropriate outcomes (Drugs, Pornography, Marriage, etc) the Libertarian believes the marketplace is a better regulator than the government. Where the canyon can be bridged however is through the Constitution in that it permits state and local intervention for those causes (Drugs, Marriage, etc) but disallows it at the federal level.
So with an open invitation to the different groups of the GOP that basically asks `what realistically are you able to compromise on and what are deal breakers?’, could there be a `buy-in’ to a realistic platform for today that cuts taxes and spending (not only growth), rolls back federal regulations (Dodd-Frank, Sarbanes-Oxley), audits but keeps the Federal Reserve (redefined to a single goal of guarding against Inflation), maintains DOMA and other values focused federal laws and to maintain some of the attrition savings in Defense while at the same time a Congressional review with strong input from our military that looks at our Defense policies and deployment `footprint’ going forward, while long term an eye on future plans to phase out federal laws, programs and departments based on relinquishing unconstitutional powers back to the states?
Can we like Ron Burgundy in Anchorman, `agree to disagree’ but still work together? How important is it for you and your ideals to win a Pyrrhic victory? You are successful in your favorite candidate wins the Primary only to lose the 2012 election and allow for the US to continue down the slide of financial insolvency and the continued loss of Individual freedoms, through a centralized `one size fits all’ collectivist state that Statesmen like Jefferson, Madison, Lord Acton, Eisenhower and Reagan warned against. As disciplined as you are in being passionate for your cause, can you be as disciplined in controlling that passion and channeling it in a way that not only helps your cause but creates better chances at Life, Liberty and the Individual’s pursuit of Happiness?
Christopher M. Mahon, Editor
5,4,3,2,1 BLAST OFF! I remember as a young boy in the heyday of the NASA Space Program the thrill of watching on TV the Apollo missions blasting into space. What pageantry, what courage and what technology! The intellectual capital and cooperative effort that it must have taken. The other day while golfing on one of my local courses, I noticed an elderly couple behind me that was enjoying the afternoon. As we moved from hole to hole I was somewhat surprised at how adept the wife was at maneuvering the golf cart. Though somewhat limited in her physical ability she was able to operate the vehicle quite well.
I contrast those two scenes to highlight the degree of difficulty and the prospects of participation in both of those vehicles. Obviously it takes a high skill set to build and or operate a Rocket Ship, while a golf cart was purposefully built so that the broadest amount of people could participate. The question then is, `Did the framers of the Constitution (our government) construct it so that only very few and those highly skilled could represent it or was it built for the greatest amount of participation?
Today in the GOP race to become the Presidential Candidate the news highlights almost each day the gaffs, stammers and lack of knowledge of the candidates. Even Herman Cain’s question `How to say hot dog in Cuban’? As if assuming he didn’t know it was Spanish while he could have easily meant the different dialect and as in UK or US English there are different words to describe a bathroom, apartment and elevator. Even in the United States, Soda and Sandwiches (Grinder, Hero, wedge) have different expressions in different parts of the country. It seems the election process is more of a weeding out of those who don’t know the intricacies of the `Washington System’ and the very specific international information that one would only pickup if a world traveler or through growing up in certain social settings. Is that what we want in a candidate?
What are the dangers of letting anyone into Office vs narrowing the selection?
Of course the dangers would be scaled to the amount of power available and the potential for critical or even fatal failure. In the UK, the powers of the Monarchy are virtually nonexistent as the Throne is a figurehead position today, so the Brits don’t lose sleep over who’s next in line. The framers discussed this at length as they considered many resources at the time like: Baron Montesquieu’s theory on `Separation of Powers’ which stated that centralized power was more likely to lead to tyranny and cataclysmic failure while decentralized power diffused the impact. They also observed the mistakes made by Europe’s Monarchal and primitive central bank systems. In the Federalist Papers Hamilton and Madison disagreed on the function of government, while Hamilton admired a European Monarchal and Parliamentary system, particularly in banking, Madison preferred the protections of a decentralized Republic.
In a highly `specialized’ system of government that is centralized into a federal system that is far reaching into the intimate lives of each individual and as a result has developed intricate systems of welfare, taxation, regulation and the necessary University structures to support it would have to by nature be very selective and restrictive in candidate selection. On the other hand, in a decentralized system, that has specific and limited powers (enumerated) for the federal system and much broader powers to the states, local and community systems, the selection process can be much broader based, particularly as you get closer to the community levels.
So these two views (Rocket Ship vs Golf Cart) really can change your selection process. If `Rocket Ship’ then as the media suggests, a well educated (in governmental systems), world traveled and leadership-oriented candidate ONLY will do. But if like the founders who understood the potential for the `downside risk’ built instead a `Golf Cart’, isn’t it more of an examination to who can protect that constitutional design and ultimately put the protection of Individual Liberty first?
While the pageantry and beauty of a rocket ship is awesome to behold, unfortunately even in the hands of the greatest minds there’s system errors and they do fall from the sky at a great cost. The framer’s didn’t want to put the fate of a Great Nation in the hands of a few but designed through decentralize powers (in bits) to be put in the hands of many. Think about it, a little grey haired woman (golf cart) in a small town in Florida as a town alderman could overrule Washington because of constitutional design. Which of today’s candidates and current officeholders are best capable to maintain and restore that design?
Christopher M. Mahon
In bygone days news traveled slowly. There wasn’t an Internet or Mutimedia or even XBox. I remember my grandfather telling me a story of a hillbilly being found on an obscure part of a West Virginia mountain not knowing that WW1 had ended. There were traveling salesmen who’d go into the country and sell `snake oil’ as a cure for anything from cancer to canker sores. The `Big City’ huckster made out big, while the small town `rube’ lost his money.
One of the criticisms that John Maynard Keynes had of Classical Economics was the timing of information arriving into the hands of the comsumer/investor in being able to establish a `competitive’ price. He believed that a Laissez-faire approach to financial markets in establishing prices couldn’t exist because the information needed to make a buying decision arrived either too late, distorted or in parts. Thus the need for a regulated centralized system best done by governments became major policy since the 1930s as an answer to the Great Depression.
Now, depending upon which schools you’ve attended either you uphold and maybe have subscribed to Keynesianism 1.0 or 2.0, 3.0, etc or maybe like many economists (schooled and arm chair) are starting to question modern macroeconomic theory that has relied upon Keynesian theories of monetary stimulus and the importance of `Aggregate Demand’. The results of Quantitative Easing and Federal Stimulus since the 2008 crisis has been an arguable failure and the glaring lack of tools that Secretary of Treasury Geithner and Federal Reserve Chairman Bernanke had at their disposal has caused Austrian (Classical) Economic books, tapes and videos to fly off the shelves and set record downloads on Amazon.
Today’s government has been designed on an old belief that the individual (consumer, investor) is less informed and that pricing, products, wages and markets in general need to be regulated and that in the long run it will cause economic stability. Now without going into a Mises or Hayekian discussion of why Keynes was wrong, even if he was right at the time, do those same dynamics apply to today? And is government today an obstacle or an aid in bringing about economic stability?
The United States has experienced two types of government function throughout it’s history, one based on Negative Liberty and the other Positive Liberty. Negative Liberty is where government `stands down’ until a law has been violated by an individual or entity, JS Mill’s `Harm Principle’ describes it well, where the only legitimate use of coercive force by government is when an individual or entity takes away the Liberty of another. Otherwise, society is left to the voluntary and free exchanges and associations (in trade, friendships, etc) that determine outcomes and at times provides for `self correction’. Positive Liberty on the other hand is where government plays an active role of participation in order to try and achieve a desired outcome or social goal. Societal values are determined ahead of time and government sets laws and policies (which can be altered along the way) to achieve those goals. Negative Liberty affords the greatest amount of Liberty to the Individual, while Positive Liberty through government `managing’ the Individual allows for the least. The framers of our government and the intent of the US Constitution was to restrict federal powers to what are `enumerated’ but also to the philosophy of Negative Liberty, while with heeded warning they allowed the experimentation of Positive Liberty among the States.
Today unfortunately, it is the government itself who is the cause of economic and social instability. Laws and regulations designed to produce social and economic outcomes (employment, housing, family) instead cause unintended consequences, uncertainty and distortion of capital allocations. The government functioning in the role of provider or producer of `desired societal outcomes’ is antiquated at best or has been at the root of economic and social instability in our recent past.
So, just as we upgrade our browser or app programs on our phones from time to time, isn’t it time for a government upgrade? While it may not be government itself that is obslolete, it is the government structure we currently have. How about a Negative Liberty federal government that protects individual liberties and access to open markets? We can leave the experimentation of health care, retirement, and all social behavior to the states, local governments and ultimately between individuals.
Today’s teens, college kids and young adults while mocked on TV by Jay Leno for not being able to identify Vice President Joe Biden can find the music they want quickly and know how to spend their time and money. Positive government, which we have now, wants to change that, while Negative government, the intent of our founders, would leave them free to succeed, fail and through free and voluntary association and exchange come to their own conclusions on `what’s working and what’s not’ in their own lives. In a society where the Individual is free, society `self corrects’, but in a society where the Individual is `managed’, society’s maladies are incubated.
While the TV News and Internet argue who won the `Debt Deal’ the Democrats or the Republicans, the Progressives or the Conservatives, the Tea Party or ….? But if you read the bill when the smoke has cleared away you can see that the real winners are the State and those who feed off of it – media, politicians, educators, think tanks and lobbyists.
In the legislation there’s a provision for a panel made up of 12 that would work on revenue and spending proposals to be presented to Congress before Thanksgiving and the panel would come with special rights as the Huffington post reports, “a committee of 12 lawmakers evenly divided between the two parties and two chambers. This so-called Super Congress would have to present its cuts by Thanksgiving, and the rest of Congress could not amend or filibuster the recommendations.”
Two things are becoming more apparent, the losers are the Tea Party and other citizen grassroots movements that try to change the way Washington does business in the future and that behind closed doors before the end of the year there will be revenue increases and any promises of spending cuts will fade away.
Default will become more and more a reality despite the likelihood of credit downgrades due to the shift from USD reserve manged by the US Federal Reserve to a global currency (Special Drawing Rights: basket of 3-4 currencies) managed by the IMF (International Monetary Fund). Before, the US could print it’s way out of disaster, that will no longer be possible.
As many in the media and governments around the world smell blood in the water, is there a not so hidden strategy being prepared? The recent revelations on Rupert Murdoch’s News of the World paying off government officials and hacking into voice mail accounts of tragedy victims (possibly even 9/11) has closed the newspaper down which was founded in 1843, stopped a lucrative Murdoch deal and has exposed the Murdoch media empire to other potential government and market reactions.
One of the prized possessions of that empire is the Fox syndication, which like other Murdoch properties (NY Post, Wall Street Journal) promotes a Conservative view on social and economic issues. When the scandal initially broke, media on the left like MSNBC, NY Times and others seemed to walk a pretty good `tight rope’ of reporting the facts while holding back judgment or opinion. FoxNews, WSJ and the NYPost, has also walked that tight rope as well, disclosing the Murdoch relationship, reporting the facts and holding it’s punches regarding the `soft’ attacks of the left at that time.
More recently, the tight rope has been abandoned on the left and the gloves have come off. Politicians in England like David Cameron are running for cover and politicians in the US like Jay Rockefeller (D-WV), Barbara Boxer (D-CA) and Harry Reid (D-NV) have called for Congressional investigations (some GOP like Peter King (R-NY) have asked for a review regarding 9/11 hacking). MSNBC, has put out a poll that asks if `Rupert Murdoch has done `something’ regarding the scandal’ and the NYTimes over the weekend included an Op-Ed by Joe Nocera, `The Journal Becomes Foxified’ where he says, “As a business story, the News of the World scandal isn’t just about phone hacking and police bribery. It is about Murdoch’s media empire, the News Corporation, being at risk — along with his family’s once unshakable hold on it. The old Wall Street Journal would have been leading the pack in pursuit of that story.” Nocera, goes on to suggest as does Ed Miliband a UK Labor leader that Murdoch’s empire should come under further scrutiny and as Miliband forcefully says, `broken up’.
For those who can add, it’s become apparent that some government officials, like those mentioned above and competing media with different ideologies might be looking for competitive advantages or even payback through attaching the notoriety of News of the World events to the other Murdoch properties or even government regulations that could censor Free Speech through a `Fairness’ policy. FoxNews has always been a target of left media and even White House and Congressional operatives; to add fuel to the fire, recently the White House released emails that confirmed what many on the Right had already suspected, that the President really didn’t like to have to deal with FoxNews as a legitimate News Organization and had been trying to marginalize it.
Today, the Wall Street Journal has commented directly on the scandal and the attacks on the left to associate the paper with it. In the Opinion section, `News and Critics’ it says, “We also trust that readers can see through the commercial and ideological motives of our competitor-critics. The Schadenfreude is so thick you can’t cut it with a chainsaw. Especially redolent are lectures about journalistic standards from publications that give Julian Assange and WikiLeaks their moral imprimatur. They want their readers to believe, based on no evidence, that the tabloid excesses of one publication somehow tarnish thousands of other News Corp. journalists across the world.” The article goes on to say, “In braying for politicians to take down Mr. Murdoch and News Corp., our media colleagues might also stop to ask about possible precedents. The political mob has been quick to call for a criminal probe into whether News Corp. executives violated the U.S. Foreign Corrupt Practices Act with payments to British security or government officials in return for information used in news stories. Attorney General Eric Holder quickly obliged last week, without so much as a fare-thee-well to the First Amendment.”
Unfortunately the Left (Progressives and Modern Liberals) have been ahead of the curve in precedences – bad legislation that produces unintended consequences (New Deal, War on Poverty, Affirmative Action). The `Zeal of the Public Weal’ that at times has blinded both the Left and the Right in pursuits of their causes has produced significant blow back in both social and economic results. All parties (media and government) should consider this when the itch to push their causes and agendas start to increase and the results are less liberty.
The Left also should consider the adage, “Be careful what you ask for because you might get it”. As MSNBC, NYTimes and other media could envision a party at the demise of FoxNews and other conservative brands, they have no idea what could be lurking behind to replace them. TeapartyNews anyone? PaulNews?
Christopher M. Mahon
What would you do if this morning when you woke up, you couldn’t access the funds in your banks or brokerage accounts, the cash in your pockets (what little there is) substantially diminished in value and your mortgage company was on the phone and they’ve decided to call your loan?
While our website is less than a year old, many of our articles date back several years since we’ve been writing on US and World Economic, Social and Political conditions. I invite you to peruse the past articles and I believe you will find most of them accurate in plotting trends and in pointing out potential consequences that governments, institutions and individuals haven’t considered in economic, political and public policy decision making. This is not due to an inherent skill but through the use of Classical Economic Theory and the principles of Negative Liberty and Risk that speak to the nature of government, centralized systems and human behavior. Economists, Philosophers and Statesman like: Ludwig Von Mises, Socrates, Nassim Taleb and Thomas Jefferson have proven accurate, while John Maynard Keynes, Paul Krugman, Plato (Hegel, Marx), FDR, and most of today’s political and financial class is in error.
For a few years we’ve been watching as the gradual decaying of our financial, political and social infrastructures here in the US has been unfolding. Around the world we’re seeing political and social unrest as economic conditions become more fragile and worsen. As of this writing, Europe is dealing with a debt crisis as Greece is at risk of defaulting on its bonds and the Middle East is reeling over rising prices and unemployment. Here in the US, Fed Chairman Bernanke confessed yesterday that he doesn’t know why the US economy won’t turn around and (indirectly) admits quantitative easing has not worked. While we hope for the best, do what we can to pray that it turns around, it is now time to prepare for some degree of social collapse or dysfunction here in the US. We’ve all heard the `Chicken Littles’ of the past who prophecy, fortell or predict doom; in fact, the year 2012 among the youth has become an urban legend and recently Harold Camping’s organization was predicting the `End of the world’. But irregardless, we don’t want to become like an ostrich who puts their head in the sand at such a time as this. A little preparation now, could go a long way tomorrow, and there’s some basic things we could start doing that would probably improve our lives anyway.
I’ve held off on this blog piece for almost a year now, adding information and looking for the proper time to publish it. Tone, was important, as I wanted to provide information minus hype and political blame. Below you’ll find we’ve collected information from many sources one source in particular we’ve gleaned a lot of information and more importantly insight from is Dmitry Orlov. Orlov was born in Leningrad (now Saint Petersburg), who moved to Boston at age 12 when his parents moved to the US. He is an engineer who writes on political and economic subjects and in particular what he observed while in Russia in the late 1980s and early 1990s as the Soviet Empire collapsed. Orlov believes as more of us are starting to, that an economic collapse is becoming more and more possible here in the US. In a video presentation below, Orlov makes his case before a distinguished crowd recorded for Fora.TV. This article and material contained here shouldn’t cause alarm but hopefully motivate you to some level of preparedness. We’ve layed out 7 specific areas to consider, many of which are common sense items you should consider anyway for a blackout or severe storm (as part of this article was written, most of the east coast was closed down by snowstorm and we had the nuclear disaster in Japan).
Dmitry Orlov (paraphrased):
“The more centralized the system, the more severe the collapse. In an economic crash, what was once positives become negatives and visa versa.”
Men don’t handle collapses of empires as well as women, they tend to get angry and useless. Possibly because they are more invested into the system, while women tend to become more resourceful.”
“The US food supply is long and thin and only days away from sparsity.”
“The best prepared are the rural poor. It takes a lot of practice to build resourceful skills to do without. The Amish also are better prepared.”
“Physical resources and assets, as well as relationships and connections are worth more than cash and those who know how to “do it themselves” and operate on the margins of society will do better than those whose incomes and lifestyles have plummeted.”
1. Food: Important to accumulate surplus inventory, either look into buying a food storage package (6mos-1 yr) from companies like Costco or start now to buy extra canned and dry goods weekly. Keep goods (including water) in a dry, safe location. Have on hand: Can opener, other kitchen utensils, battery, sewing and tool kits. Also, look into growing fruit & vegetables if you have property that permits or consider small land area outside of your community that your family or group could use.
2. Shelter: We need to think outside the box, while the traditional four bedroom colonial was the goal in the past, during a crisis extra space is expensive to heat, a/c and run electricity. In Russia during the collapse of early 1990s they became creative in their living arrangements, three generations living under one roof. They also sought out beneficial relationships based on skills and resourcefulness.
3. Medications: While it is difficult to store medications, many plans have the possibility to order 3 months in advance plus it is usually cheaper. Store up on aspirin (multiple uses), over the counter antibiotic salves, bandages, vitamins. Prepare a First Aid kit:
4. Transportation: While we enjoy today’s independence of multiple cars, during a crisis sharing a car within families or a community block becomes more likely. If economic downturn occurs, many vehicles will be repossessed, it is important to have access for transportation, if you, family member or friend have a paid off vehicle that will become very important.
5. Relationships: Identify, secure and develop good relationships. This is where Churches, Synagogues, Mosques and community centers can help, if not attending a church or connected to a community group, seek out those relationships now, they will become very important during a crisis. Get to know your neighbors and assess skill sets and barter potentials.
6. Security: As mentioned above identify with a group or community and create an action plan for protection and securing your food source and shelter. Decide on and handle ahead of time firearm decisions and defense tactics.
7. Monetary Value: In a financial crisis many times the national currency can go through a hyperinflationary period (Argentina, Germany, etc) and merchants will not accept the currency. While it is important to maintain some amounts of gold, silver and other precious metals for common exchange and portability, it is also important to look for opportunities to barter and exchange services. This again emphasizes why it is important to be part of a community and to identify each member’s skill set and resources.
Action Plan: Speak to your family members, friends and hold a community meeting. Watch the video and discuss openly the possibilities and potential risks of a collapse and practical preparations to undertake. Create a `Next Step’ process if collapse occurs.
FEMA Emergency Preparation Guide
It’s interesting, like many big influential works, very few have read The General Theory of Employment, Interest and Money which lays out Keynes’ theory on the government stepping in to stimulate markets and create demand. Like Marx’s theory of Communism, it was meant as a temporary or transitional solution where government intervenes (whether you agree with the theory or not). What’s interesting is that Keynes and Hayek became `combative’ friends over time (like O’Neill/Reagan) and met in late 1945 for lunch. Hayek asked him if he was concerned with rising inflation and the appearance that the world economies were printing money and aggressively stimulating the economy with the appearance the policies would become fixtures for years. He told Hayek that although he was watching it, he still had influence and sway with economists and central bankers and would be ready to step in to avert a crisis. Unfortunately, less than six months later Keynes would be dead.
Today, the `best’ Universities have some form of `bastardized’ Keynesian Theory of a State planned economy with central banking authority. As the video below suggests, Classical (Austrian) Economic theory is not widely taught or recognized. The idea that limited government intervention and broad voluntary social and economic associations and exchanges would produce a vibrant economic system that would `self correct’ as Adam Smith suggested in his Invisible Hand theory is collegially laughed off, chalked up as naivety or marginalized in the Universities, `Think Tanks’ and by the Media.
Thomas Jefferson, in his first inaugural address in 1801 said, “Sometimes it is said that man cannot be trusted with the government of himself. Can he then be trusted with the government of others? Or have we found angels, in the form of kings, to govern him? Let history answer this question.” History has answered this question time and time again, and it is answering it so starkly even today. When the `few’ rule over the `many’ it provides for corruption, fragility, instability and the eventual outright rejection of the ruler. Jefferson later in his address says, “Still one thing more, fellow citizens, a wise and frugal government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government; and this is necessary to close the circle of our felicities.”
Well ladies and gentlemen, it has been the `Circle of our Felicities’ that has been broadsided and burst wide open by encroaching federalist powers that can’t wait to take away every decision and the appearance of risk in our lives. The goal: To minimize the liberties of the individual for the greater good of society.
If you watched the first video of Keynes vs Hayek, you’d have seen a witty rap/documentary of Classical vs Keynesian Economic theory by a group called EconoStories, here’s their second follow up video and in the Genre of successful film series (Godfather, Rocky), they’ve done a great job.
In an article on CNBC’s website, the IMF is quoted as seeing the need for the US to continue on the path of quantitative easing. This is an interesting departure from the global financial community’s (including IMF) criticism of the Federal Reserve’s policy of printing money to save the US economy at the expense of world economic conditions. Some have blamed global rising food, energy prices and unemployment on US monetary policy.
In an article last month, Raghuram Rajan, IMF economist told a forum held by the Council of Foreign Affairs, “The function of the Fed monetary policy adopted in November 2010 to boost the U.S. economy is relatively limited, the biggest problem in some sense is that the Fed’s monetary policy actions are essentially transmitted to the rest of the world, when the rest of the world doesn’t allow their exchange rates to move and protect their own monetary policy and keep that as a separate policy as its own.”
The mixed message being sent by the IMF is at best simply monetary policy conflicts between economic academics or maybe more sinister, the world’s next `central bank’ trying to move along the process of transferring the world’s currency reserve responsibilities from the Federal Reserve to the IMF.
To add to the intrgue, George Soros was quoted this weekend as saying, “The US could still absorb taking on more debt” and that a rush to pay down the debt could hinder its slow economic recovery.
These comments coming from the Paul Krugman’s of the world, who follow to the letter Keynesian government stimulus and monetary easing policies wouldn’t be surprising but the suggestions come from those most likely to benefit from the greased slide.
Over the weekend of April 8th 2011, two conferences which were sponsored by George Soros were held just miles apart. One was a four day conference held at the historic Mount Washington Resort in Bretton Woods, NH attended by over 200 `Who’s Who’ of global economists, financiers and politicians. The theme of the conference was, “Crisis and Renewal: International Political Economy at the Crossroads.” The speakers included: Gordon Brown, former PM of Great Britain, Larry Summers, former director of WH National Economic Council and George Soros, financier. The second was also celebrated and a `Who’s Who’ in media, internet and politics and was held in Boston, MA. Nancy Pelosi, current US Representative and former House Speaker, missed out on the last days of the 2011 budget battle in order to attend the conference.
What made the two meetings not only interesting but potentially groundbreaking is that both looked to set new international standards in governance, currency, economic policy, and media: including internet regulations. Here’s what George Soros said about the Bretton Woods conference,
“A new Bretton Woods conference, like the one that established the international financial architecture after World War II, is needed to establish new international rules, including treatment of financial institutions considered too big to fail and the role of capital controls. It would also have to reconstitute the International Monetary Fund to reflect better the prevailing pecking order among states and to revise its methods of operation.
In addition, a new Bretton Woods would have to reform the currency system. The postwar order, which made the U.S. more equal than others, produced dangerous imbalances. The dollar no longer enjoys the trust and confidence that it once did, yet no other currency can take its place.”
The first conference held in Bretton Woods in 1944 was a secret meeting to determine a centralized global system of trade, banking, and governance between countries and the establishment of the International Monetary Fund which would be used as a vehicle to exchange currencies and determine aid in rebuilding parts of Europe and Asia. What it did was set the US Dollar as the reserve currency which most other currencies were pegged to and played a large role in the US’ growth to prosperity and to a leading role in the world community as a `Super Power’. Unfortunately, partly due to lack of competition, the US has abused that role.
Lately, there have been public outcries by world leaders that the Federal Reserve’s policy of quantitative easing has dumped $9 trillion of `hot money’ into the world economy. After November 2010 Basel iii Accord meetings, a decision had been made to move away from USD reserve to a mixture of currencies that would be controlled through the IMF in a `basket’ of SDRs (Special Drawing Rights), The French, German and Japanese finance ministers have all referred to the coming changes, and even Ben Bernanke, Fed Reserve Chairman and Timothy Geithner, US Treasury Secretary, have alluded to the inevitable.
As the world’s governments continue to centralize power and resources, world leaders are looking to effectively link those governments into one global centralized structure that would oversee: finance, trade, travel and governance that would have an impact on cultures and societies. But ironically, as government leaders and globalists look to centralize power and resources, nations are seeing uprisings and resistance by its citizens as if to say, `not so fast’.
While Europe attempts to reform many of its generous social programs, Europeans take to the streets. In the Middle East, nations face unrest and potential overthrow as its citizens take to the streets for some say, `Democracy’ but even more for the basics: food, shelter and employment. Even the US is no longer immune, as the States face dwindling revenues and escalating expenses and facing hard choices on where to make the cuts. Wisconsin, Ohio and other states have seen unrest similar to the rest of the world.
So if centralized national governmental power and globalization is inevitable, what will circumvent the potential for abuse of power and loss of freedoms?
In an article written last week by Pat Buchanan, “Is Tribalism The Future?” he reflects on the attempts by governments in the past to unite people groups within nation boundaries and the potential for conflicts. Eastern European lines were drawn from WW2 victories and Middle Eastern lines were drawn throughout history by battles but most recently brokered through the Balfour Declaration of 1917 (which established Palestine for Israel) and by subsequent political deals. Even after the Six Day War, Israel has been walked back somewhat by political channels.
The term `Tribalism’ has conjured up negative connotations of rural tribes that are uneducated, barbaric and ruthless: Insert political joke here (……..). Recent studies however, while not removing the stereotypes completely, have shown that tribal living was more harmonious, sustainable and surprisingly `individual building’ than most governmental systems.
When governments become abusive, history shows that the individual turns to tribal characteristics of family, locale, culture and overall homogeneity. In some ways it’s a charge of retreat to what he knows, but in other ways it’s what strengthens the individual; the more intense the coercion by governments to create economic and social exchanges and associations the more likely the retreat.
While world leaders negotiate the next steps in global power sharing, as they divide up the booty and draw new rules and boundaries for societal interchange; will there be a rise in tribalism in response? If so what could it look like?
The underground economy, which is a type of Tribalism, ebbs and flows in relationship to the severity of government taxation and burdensome regulations; it’s highest when government taxes take more away from the individual risk taker than it leaves in his or her pocket; and when regulations prevent reasonable port of entry into markets and industry. The `New Tribalism’ while constituting some of the familiar characteristics of Tribalism past: common language, locale and other homogeneous traits; it also will include a new phenomenon: Social Networking.
In a recent book by Gary Vaynerchuk, “The Thank You Economy” he outlines how social networking is changing how we do business and how we relate to one another. He points out that many of our grandparents lived in small neighborhoods (tribal) and spent their money, exchanging services and associations with those they knew. Vaynerchuk said, with the advent of malls and suburban sprawl our parents didn’t have the same experiences. If our grandparents had a gripe with their butcher, they’d tell all their friends in the village square, church or synagogue not to go there. The butcher felt the impact, and there was an incentive to treat their customers well. When our parents complained to Macy’s or Gimbels they didn’t see the same result.
Unfortunately, Gimbels is no longer around (my mother loved it), but Macy’s and other retailers have found their way to this new technology the internet. First it was to create a static web page just to say ‘we’re modern and on the internet’, but later they found they could sell stuff, and lots of it with low labor cost. It looked like we had inherited our parents relationships as consumers with very little influence and at the mercy of the big retailers. Government was of little help, they created the economic policies that allowed these businesses to grow to monolithic size, by removing competition and allowing them access to finances that wasn’t afforded to anyone else. If a big name celebrity complained about a bad consumer experience, maybe we stood a chance but the average consumer’s complaint fell on deaf ears. That was until Social Networking sites like Face Book and communities started to connect online to review buying or dining experiences from different companies like Walmart, Target or even a small wine store or cafe around the corner. All of a sudden the consumer’s world became smaller and their buying choices and experience more important to the seller.
Social Networking in its infant stage was a way for kids and college students to connect. Many saw it as a passing fad but of little commercial value. Today, social networking has played a part in changing public policies, the European and Middle East unrest and with a single post can assemble a ‘Flash Mob’ of thousands of people. The Tea Party success is in part due to organization and dissemination of information through social networks.
In some ways Tribalism and Social Networking are the Kryptonite of Globalization; new internet regulation reforms have already been put forth by many governments, and was a key subject at the global media conference in Boston this past weekend. Even the US has adopted a `kill switch’ option if deemed `necessary’.
Globalization, like all centralized systems are unsustainable because they force individuals into relationships and behavior not of their own choosing. The greatest life force is whatever is self sustaining for each individual, and they will obtain the freedom to seek out whatever that is. Whether Underground Economies, Tribalism or Social Networking are the tools, it still remains to be seen and are unimportant in that they are not the goal but merely vehicles in the journey.
Before you sit back in your easy chair and turn on reruns of Lou Rukeyser’s Wall Street Week, there’s probably something else you should consider; the same group of soothsayers were spreading the elixir of calm and `happy days are here again’ in 2008 and using pretty much the same message.
Zandi, speaking before the National Governor’s Assn winter meeting in Washington said, “I think that the very loud hand-wringing over the prospects for major municipal-bond defaults is entirely misplaced.”
The Bloomberg article ‘Risk of Widespread Municipal Defaults’ by Mark Niquette and William Selway goes on, “Thomas Doe, founder and chief executive officer of Concord, Massachusetts-based Municipal Market Advisors, said he has seen nothing to change his view that general-obligation debt at both the state and local level is secure.“I don’t want to be Pollyanna about it,” Doe told the governors. “I have great confidence in you all, the markets do have confidence in you as well, and the informed investor, the institutional investor, understands that your debt is good.”
What Zandi and Doe fail to see or recognize is that much of the past year’s state revenues were subsidized in part by the Federal bailout that was a ‘one and done’ stimulus to teachers and other state employees which is now gone. Also as Meredith Whitney of the Whitney Group and other muni bond analysts have commented that 49 out of 50 states have mandatory balanced budget requirements and there needs to be substantial cuts in spending (particularly retirement/health care for govt employees) which is now starting to be addressed as seen in some of the collective bargaining controversies stirring in a few states.
Zandi and Doe and others who are now forecasting recovery and dismissing troubles in the muni market are the same ones who called bottoms too early in the housing collapse and never even saw the financial crisis of 2008. Zandi is a student and believer of Keynesian economics in the same vein as Krugman and Bernanke, that if government steps in to support the economy when private industry and household spending falters then recovery is right around the corner. Ironically, Zandi wrote a report on economic stimulus packages and their effect on the United States economy which was cited in Christine Romer’s report back to President Obama which influenced bailout legislation (American Recovery and Reinvestment Plan). Harvard economist Robert J. Barro and many other economists are now questioning Zandi’s model and the need for federal government intervention.
While Whitney and others who forewarned the 2008 financial crisis are hopeful, they are also realistic in gauging the political and wrong-headed economic principles like Zandi’s that governs public policies. There is a way out of this mess but it doesn’t come from creating more debt, quantative easing or any other government led options; it is rather cutting government, reassuring markets that there aren’t any government surprises coming so that prices will stabilize and surpluses (housing inventory) will wind down through private market mechanics.
In another ill forecasted article by Mark Zandi, he proclaimed, “I’m an Optimist!” Are you an optimist when it comes to government stimulus packages or federal reserve quantitative easing schemes? Well just like Burt Lancaster’s character in Elmer Gantry, they are firing up the revival organs to the sound of ‘happy days are here again’ as the message is being preached of government salvation that comes at a great price…your money and your freedom. ‘Do you hear me brothers and sisters!’
While new home sales took an ‘unexpected’ drop of 12.6% in January, the jobs report showed promise as new jobless claims dipped below the 400,000 level. But does the jobless number really reflect what is happening in the jobs market? We know that individuals who can’t find employment after a ‘reasonable’ amount of time give up looking and might rotate in and out of jobless numbers, but is there an unregulated, unstructured ‘jobs market’ that is unaccounted for?
In a December 2009 article by Cato Institute’s Richard Rahn,’New Underground Economy’ lays out the characteristics of how underground economies ebb and flow. He starts out, “Here is the evidence. The Federal Deposit Insurance Corp. (FDIC) released a report last week concluding that 7.7 percent of U.S. households, containing at least 17 million adults, are unbanked (i.e. those who do not have bank accounts), and an “estimated 17.9 percent of U.S. households, roughly 21 million, are underbanked” (i.e., those who rely heavily on nonbank institutions, such as check cashing and money transmitting services). As an economy becomes richer and incomes rise, the normal expectation is that the proportion of the unbanked population falls and does not rise as is now happening in the United States.”
Rahn, in his article goes on to say that the underground economy is affected by federal and state tax, regulatory policies and inflation. When Sarbanes-Oxley was implemented in 2003 as a reaction to companies like Enron who didn’t account for off balance sheet liabilities in their reporting, it had the unintended consequences of building huge costs for large and mid-size companies to come into compliance. Most complied but some started to move headquarters out of US. Even today, while new start ups have slowed due to economic environment, there’s an increasing ratio of new companies starting up in Europe or Asia.
The smaller US businessowner has different alternatives than mid-size and large companies that are more public, they can simply take their business offline or underground.The trades and some services are more likely to go ‘offline’ to avoid heavy local, state and federal taxes which can eat up substantial profits and add time consuming additional recordkeeping and compliance. Carpenters, painters, lawn maintenance, home cleaning and many other small businesses who reported income for years are taking risks by pulling if not all their business, a good part out of the above ground economy. This is reflected in January 2011 federal tax revenues which are up from the previous year. “Total government revenues rose by $21.4 billion for the month (Jan 2011) from a year ago to $226.6 billion, a 10.4% increase. Year to date, revenues are up by $65.4 billion to $758.4 billion or by 9.4%. Total outlays for the month though increased by $28.4 billion or by 11.5%. Fiscal year to date, spending is up by $53.4 billion, or by 4.8%” Dirk Van Dijk, CFA ‘Federal Red Ink Less Than Expected.
When you look closer at federal revenue for January however, you see that payroll revenue is down even when factoring in the lowered employee tax rate by 2% (6.4 to 4.4), which only took affect in January and that the increase had more to do with liquidation of qualified money out of IRAs and 401(k)s, profit taking and asset repositioning as the estate tax issue wasn’t settled until year end.
In the trades like Carpentry, an owner might take his full business underground and work for cash without reporting or he may take his labor offline by hiring help that they pay in cash. The worker takes the risk of not entering social security and of possibly not building his credit profile and the employer takes the risk on an unlikely audit or insurance claim if payroll not accounted for. These are risks that are considered either consciously or unconsciously everyday as the cost of business continues to rise.
The budget battles happening in Washington and in the states like Wisconsin and now breaking out in other states like IL, OH and NJ is of particular interest to businessowners who hope for spending cuts but weigh the advantages and disadvantages of moving out of states or the country for larger companies and for small business owners, cutting another employee or taking their business underground.
At its core principles, Collective Bargaining is very reasonable and is a part of individual liberty: freedom to voluntary association and voluntary exchange which are also free market principles. A group of employees who work for a company in which some decide after meeting and exchanging ideas can go to management and negotiate their wants based upon their hard work and talents.
Unfortunately that is far from what exists today as worker interests and freedom to choose representation has taken a back seat to large powerful organizations that not only move masses of workers but also move massive legislation and influence elections through worker contributions and turnout. What was born in the 19th century Progressive and Social Reform movements that brought bargaining power to individual workers through numerous union options has been consolidated today through federal legislation into basically two organizations: AFL-CIO and Change To Win Federation.
Beatrice Webb, Socialist, Reformer, Economist and Co-Founder of the London School of Economics, is credited with first coining the phrase ‘Collective Bargaining’ in 1891.
Early US unionization and worker representation existed at local levels and organized more along craft or trade skills. Unions took on the characteristics of the European Guilds which while negotiating worker wages and hours also provided workers with education and training. While some employers fought union efforts many saw the benefits to the quality of their shops and in the products they were able to produce. While friction existed between worker and company ownership at times, companies had the choice to negotiate and workers had choices in who to associate and unite with. The late 19th century, particularly after the War and the depression of 1873 saw organizations like the American Federation of Labor and Knights of Labor open up to workers unprecedented bargaining power and a new focus for national unionism through political organization. Late 19th century and early 20th century social reform through progressive wage, immigration, African American and child labor reform saw the passage of local, state and federal laws that governed business and labor relationships and supported union centralization.
The Railway Act of 1926 and the court case Texas & N.O.R. Co. v. Brotherhood of Railway Clerks in 1930, strengthened union power to negotiate on behalf of workers. But it wasn’t until New Deal ground breaking legislation of the 1930s that put union at the forefront of the blue collar worker’s destiny.
In some ways The National Labor Relations Act of 1935 changed everything. It put regulatory powers in the hands of the federal government over labor and private industry. Ironically, the Act went much further than it’s inclusion in earlier legislation of FDR’s administration, the National Industrial Recovery Act (NIRA) of 1933 that was overturned as unconstitutional by the Supreme Court also in 1935. The result of the NLRA was the formation of the National Labor Relations Board which oversaw union and private industry’s labor contract negotiations. But it didn’t stop there, it also influenced union activities, worker voting and representation and the consolidation of power as unions merged into much larger organizations. The NLRB codified labor law, which would influence some of the largest US industries for the next 70 years.
The AFL-CIO has over 56 key Unions that represent several hundreds and over 11 million workers according to a 2008 survey. The Change To Win Federation is a collection of 4 major unions: The International Brotherhood of Teamsters (IBT); Service Employees International Union (SEIU); United Farm Workers (UFW); and United Food and Commercial Workers (UFCW), as of 2008 they had 4.8 million members. These organizations have the financial resources and votes to affect elections and legislation passed through Congress. Unfortunately, just like federally protected industries and companies like auto and banking, they result in monolithic centralized entities that lack competition and lose sight of their goals: individual workers.
The current Labor environment has become interesting due to the ‘uprising in Wisconsin’ where Governor Scott Walker and the legislature of Wisconsin, in addition to looking for wage and benefit concessions has also included in SB 11 changes in collective bargaining in the state for municipal and state workers; which at first blush might seem ominous for Wisconsin union workers and other state and federal workers. The legislation limits collective bargaining to wages with a CPI cap and in addition it reduces contracts from 2 years to 1 year. Also, and most importantly for union workers it includes a clause that would open up worker choices of union representation and the ability to ‘fire’ unions or replace management every year. The state would also require certification and re-certification of union entities:
Under SELRA and MERA, a collective bargaining unit elects a labor organization as its representative once a majority of the employees in that collective bargaining unit who are actually voting votes for that labor organization; that labor organization remains the representative unless a percentage of members of the collective bargaining unit supports a petition for a new election and subsequently votes to decertify the representative. This bill requires an annual certification election of the labor organization that represents each collective bargaining unit containing general employees. If, at the election, less than 51 percent of the actual employees in the collective bargaining unit vote for a representative, then, at the expiration of the current collective bargaining agreement, the current representative is decertified and the members of the collective bargaining unit are nonrepresented and may not be represented for one year. This bill requires an initial certification election for all represented state and municipal general employees in April 2011.
In some ways the condition of the union system and the individual worker placed into that system is similar to the US government system which has become too centralized, powerful and sacrifices the interests of the individual for the collective. The US Constitution stands as a plumb line to correct government, which hopefully is what some of today’s state conflicts reflect - change (even when it is good) is seldom without pain. . Unfortunately for union workers there is no ‘constitution’ to look back to specifically, but understanding that representation is more effective when it operates at local levels. Also, decentralized systems through state and local organizations allow for the recognition of unique differences and through experimentation, expose ideology and operations to success and failure. As there’s a call around the country for ‘Workers Unite!’ mostly by union operatives, workers should really study history and then ask themselves, ‘am I getting a fair shake from my union and, is what my employer asking of me fair’?
The Walker Bill – SB 11 To read Full Bill
In an article last year we warned of a possible Muni default crisis, this is an update to that article which you can find at ‘The Coming Municipal Bond Collapse’.
The recent Wisconsin stand off between the GOP Governor Scott Walker, his legislature and the teacher’s union has now started to break out in other states like Ohio who are battling budget deficits. Yield spreads are starting to reflect growing possibilities of defaults. Meredith Whitney of Whitney Group, bank and Muni analyst had came out early and suggests short positions, but even PIMCO says, “Now, however, with many states and local governments struggling to close large deficits, it’s time to acknowledge that defaults could happen, even in large and systemically important municipal issuers.”
In a CNBC article by John Carney, ‘The Bulls and Bears Agree’, ”The debate underway now is about the likely severity and scale of Muni defaults. Or, more precisely, we have a debate about how to fairly price the default risks inherent in Muni credits. On the one hand, there are analysts like Meredith Whitney and hedge fund managers like Jim Chanos who warn that investors are taking on too much risk for too little yield. Whitney has predicted a “wave of defaults” that could be in the hundreds of billions of dollars. On the other hand, there are the bond fund managers and economists like CNBC reporter Steve Liesman, most of who are more bullish on Muni credits.” As a footnote, Whitney has been fairly accurate in forecasting banking and real estate crisis, while Liesman has not.
John Carney in a second part of the Muni Series explains why he doesn’t trust muni managers. He reflects back on the 2008 financial crisis and points to overconfidence in models and risk assessment which were exposed to be flawed as the dust clears from the subsequent collapse. Carney says, “The reason I find this so striking is that this is the same sort of thing we’re now hearing about muni-bonds. The “muni people” are pretty much united in the view that munis are safe, that talk of large losses is irresponsible and the product of novice minds looking at a market they don’t understand. After all, investment grade munis never default.I’m worried that the same kind of tunnel vision that blinded so many of the smartest minds on Wall Street to the fragility of the mortgage market may be operating in munis.
Of course, as Nassim Taleb, Peter Schiff and Nouriel Roubini have pointed, modern portfolio management theory is vulnerable to fragility due to models that underestimate risk. Taleb goes even further in his NYTimes Best Seller, ‘The Black Swan’ saying that our current financial system is designed to ‘blow up’ every 25 years or so. With growing unrest around the world and in US States, the shift in currency and credit markets, it’s a good idea to reassess risks in our portfolios.
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In Greek Mythology, Procrustes (who’s name means ‘The Stretcher’) the son of Poseidon, lured weary travelers from Athens to Eleusis to stay with him where he would make them stay on his iron bed. He would stretch those too short to fit his bed and amputate the legs of those too long. Procrustes continued his reign of terror until Theseus traveling the same route killed Procrustes, by convincing him to fit himself to his own bed.
A Procrustes bed is used as a modern analogy of an arbitrary standard by which exact conformity is required. It has been used as comparisons in literature, math and computer science. In his recently released book, ‘The Procrustes Bed: Philosophical and Practical Aphorisms’ Nassim Taleb says that it is not only that many times we try to fit into wrong boxes, but that the emphasis is on the box rather than the object. He also points out the danger of overestimating or under estimating variables as in Modern Portfolio Theory that uses risk assessment like Bell Curve distribution sigmas to gauge investment pairing and balancing. In a sense, Modern Portfolio Theory is a Procrustes Bed as it lops off 3rd or 4th sigma risk as inconsequential, only to find out later as we have with the recent financial crisis those variables played a greater role.
The Procrustes Bed analogy of government policy can be made in areas like health care and education. As Procrustes would stretch his shorter victims and amputate his taller ones, government health care policy would give more health care to the healthy and less to the very sick. Individuals with health care needs ‘out of the bed’ of protocol would either have to look for it on the private or black market while the healthiest would be required an annual exam and other benefits that they don’t want. The analogy could also apply regarding cost sharing as healthy and unhealthy would be in the bed with the same premiums. Alternative care options which even now are generally only available to those with discretionary income, might under government health care be outlawed or even more expensive. Those who have the money might be joining those already fleeing other nation’s government health care, like a Danny Williams former Canadian MP who flew to Miami, FL for a heart procedure last year.
The Procrustes Bed of public education as it exists today is particularly cruel. I’d refer to an earlier article on a brief history of US education, that was loosely state regulated, decentralized and adaptable to different regions of the country and even up until the early 20th century was local and neighborhood focused. Today education is highly centralized through the Dept of Education, federal mandates and state enticements of money and credits to cash strapped states. Public school children are at the mercy of every new lab project coming through teacher colleges like Columbia, that weigh priorities of traditional skills of reading, writing, arithmetic and critical learning against socialisation and tolerance which was John Dewey’s goal in the early 20th century, who believed changes in societies have to start in the classrooms. But the experiments are failing dramatically as US test scores have plummeted against other nations and the US has even pulled out of some competition. Hindsight being 20/20 if these experiments had been done on a decentralized state by state basis as was the original system, the failure would have been isolated, less impacting nationally and there most probably would have been successful models in orther states to adapt to.
The Procrustes Bed can be applied in so many areas where federal government in particular creates arbitrary policy with rigid compliance. There is almost a unamimous conclusion that something is wrong in Washington, DC, while some consider the government as being ineffective and needs to be ‘fine tuned’, most believe it is doing too much and needs to do less.
As a fitting (pun intended) end of the mythological story, Procrustes is done in by his own device. Wouldn’t a fitting end to an uncontrollable and runaway federal government be a Procrustes Bed of Constitutional measures?
Statists, Governmentalists, Collectivists for over a century now have lured weary citizen travelers journeying through life, into the secure and comfortable bed of federal government powers to solve all problems, only to find out too late the limits it put on individual freedom. There is an inverse relationship between Government and Individual Liberty – as government power increases, individual liberty decreases. The framers of the Constitution understood the natural process of government was to grow and that it needed to be limited through constitutional restraint.
Is there a Theseus who can lure the Federal Government back into the bed of constitutional restraint so we can once again ‘fit it’ so it functions as was intended as a protector of individual liberties and not as a provider of rights and services.
To paraphrase Isaiah Berlin from his essay, ‘Two Concepts of Liberty’, When men lose interest in their ends, they lose control of their means. When we hand over the education of our children, or our healthcare to experts we also lose control over it as well, keeping our fingers crossed that men and women of excellent education and pedigree themselves can figure it out. But like Saint-Simon understood, caregiving except by the closets of relationships or through an individual’s compassion with their own resources, warps into duty and the object into a byproduct of the means.
Wisconsin, arguably the birthplace of Progressivism, is ground zero of the upcoming budget battles between the states and unions; contracts negotiated during better times, that are benefit-rich, stand in contrast to plummeting state revenues and many private workers who are unemployed or underemployed.
There is a strange irony, as this plays out in Wisconsin, where Robert La Follette, the former Senator and Governor of the state, championed the early Progressive movement. Like a thread that enters into the first stitch of a garment, could the same thread becomes it’s unwind?
The early Progressive movements started as modest private initiatives in the cities such as Chicago, Boston and NY in the late 19th Century to address wages, poverty, illiteracy and shelter in the growing immigrant population and later in the post war African American population through settlement house, labor, education and other social movements that made their way from Europe.
Women such as Jane Addams and Ellen Gates Starr, founders of the Hull House in Chicago, came from well to do families (Duponts, Carnegie) that benefited from the industrial age and believed that they had a `personal responsibility to clean up their cities’ and give back to society. Addams’ father like many of that generation were ‘Lincoln Republicans’ who saw the charitable needs of their day. By the turn of the century there were thousands of settlement houses throughout the major cities in the US with facilities to feed, shelter and educate the masses. Successful ventures like Hull House in Chicago and Henry Street Settlement in NYC were the beneficiary of discriminating donors who inspected their facilities and results. Because these were private initiatives at the outset they were free to raise funds, experiment with methodology and be exposed to competition. Competition at the time was mostly from national organizations like the Salvation Army. What was unique about the settlement house movement and made it effective was that it was local, flexible and responsive to the needs of their neighborhood clients. What worked in one neighborhood might not work in another.
There also was labor and education movements that were growing as well. Initially the labor movements were setup as European Guilds which focused on training and skill development, later the movement turned more toward collective bargaining for higher wages. The labor movement gained traction in the early 20th century, which was aided by the derogatory termed ‘Muckrakers’ of the time like Upton Sinclair and his book, ‘The Jungle’ which described the working conditions in the slaughter houses of the Midwest.
While public education has always been a part of American history on some level; until Horace Mann, Secretary of Education in MA in the early 19th century introduced the ‘Prussian Model’ of professional teaching, most education if not home schooled were a loose collection of neighborhood schools with parents volunteering to teach the children. During the progressive era John Dewey, who taught at University of Chicago and Columbia, where he experimented with radical changes in education theory, purported that in order for society to change it must first be introduced into the classrooms. He was the first to suggest that curriculum, teacher certification and methodology should be centralized and more directly managed through the federal government. While public education existed before as a function of state and local administration with little federal guidance, Dewey radically changed it so that the states were mere agents of federal management and planning.
Robert La Follette and Wisconsin’s Progressive legacy is similar to the early beginnings of the movement. While La Follette championed a number of progressive reforms, including the first worker’s comp system, railroad rate reform, the minimum wage, the open primary system, women’s suffrage, and progressive taxation. He created an atmosphere of close cooperation between government and the citizens. Unfortunately, La Follette like the early progressives of the 19th century never imagined what the mixture of admirable causes (poverty, education, wages), unions and politics would turnout. The unintended consequences come from the insulation of bad theory, protocol and application that no longer has to compete for dollars or victims.
Social reform that is fueled by private initiative has proven to bring about wanted change, however once it has been ‘weaponized’ through union and political power it becomes something else. That ‘something else’ is protesting on the streets of Madison this week.
One summer my brother and I stayed with relatives in a tony area of Connecticut; our family was middle class from a suburb of NYC and not schooled in the finer things, we were however, very good in sports. We’d show up at the tennis courts in mismatched shorts and tees, torn sneakers (high-tops not Tennis) but we’d kill anybody we’d play. The elites at the club tolerated us for a time, but refused to recognize our skills and couldn’t wait for us to leave.
In a recent interview with Bill O’Reilly, Charles Krauthammer commenting on CPAC (Conservative Political Action Committee), and their year after year top vote for Ron Paul in their straw Poll, belittled Paul’s support for ending the Federal Reserve, calls for substantial cuts in the defense budget and his constitutional discipline of separating federal and state power that would extremely realign not only government but also political fortunes.
While Krauthammer is my favorite elitist and intellectual he does unfortunately suffer from a condition, ‘Elitist Intellectual Ailment’ (EIA), which is characterized by ideas and policies that emanate from a small group of schools and think tanks that has a love for information and the need to connect causality. I call it the ‘Joe Frazier’ Socio-political style of `leading with your head’. This group believes that there isn’t a problem that can’t be intellectually worked out in a lab on an Ivy League campus through the hands of elitists (sons and daughters of the same) who then can through government management of society process their answers. To elitists, Government has never been the problem, the problem has been either differing elitist theories on the use of government or the improper use of government by the rare occasions that Commoners (non-elitists) have been in power. While Progressives favor the government as a re-distributor of wealth and income and Conservatives favor government as a protector of traditional values, they both favor government. They reject the ideas of Ron Paul and true free market believers who suggest that in an open society, through voluntary exchange and association, societies don’t necessarily collapse but ‘self-correct’.
Krauthammer who honored in political and economic studies, has a degree from Harvard Medical School in Psychiatry and practiced until 1978 when he went to work for the Carter Administration is like many Conservative and Progressive elitists, they at times can move back and forth between political philosophies and political parties. While they may hang out in different areas of the ‘Country Club’, at the end of the day they still sit down at the same table and enjoy hot toddies in front of the same fire. Both believe that society is better managed by experts (another name for elites) who can steer resources, labor and values for the greater good.
To Krauthammer and other elitists, Ron Paul is the most peculiar of anomalies; he is bright, well educated, understands Washington like elitists, but yet he doesn’t see government as the overriding solution to society.
In a NYTimes best seller, ‘The Black Swan’, Nassim Taleb (University of Paris, Wharton School) wrote about the fragility that was inherent in financial, economic and public policy models coming out of the best schools and think tanks, that didn’t account for unknown variables. He says unlike nature which protects against exponential growth and centralization, the hybrid derivatives built in the financial markets and the government built banking behemoths would lead to a financial crisis. “If I shot an elephant, the biggest animal on earth you’d be unhappy. I will probably get some bad press as well. Will it impact the ecology of the planet though? No. If, before the financial crisis 2 years ago, I shot a company called Lehman Brothers, would it have had an impact on the world economy? Yes. The lesson learned here from the elephant is that it is not too big. Companies get too big” Taleb.
The reason that companies get too big, is the same reason that values like home prices, USD and drugs are distorted because of public policies built upon flawed interpretation of data and not properly accounting for risk. You could never have monopolies or the size companies we have today without government regulations that protect industries and corporations from competition and provide subsidized capital. But monolithic structures become prone to stress and create system failures when they fall. Nature allows for the largest tree in the forest to fall with little impact, while if the largest entity in almost any industry failed it could cause substantial impact to a community, state or a nation’s economy.
In another book, ‘Open Society’, Karl Popper traces the elitism of Conservative and Progressive theories back to Plato. Plato saw societies as machinery that would decay and become obsolete over time if not managed and planned for, he felt decay could be forestalled by ‘managing’ society to an ideal that would need to be reinterpreted over time. This would be done by a special class of individuals called ‘Philosopher-Kings’ who would set the vision. They would need to go to special schools for training and most likely come from a select (elite) group of people. He envisioned a second class of people, ‘The Warriors’ who would enforce the vision of the ‘Philosopher-Kings’, these would be police, politicians and judges; and then there would be a third class, ‘The Workers’ who followed the rules and allowed themselves to be managed and receive the benefits of a better society. As today, it would be unconscionable to move from class to class for the most part, and there would always be a need for the philosopher (political) class to manage society.
To quote Popper, “Our knowledge can only be finite, while our ignorance must necessarily be infinite.” In Popper’s theory of Falsification, he says every theory and policy is prone to failure and must be assumed so until proven so. Theories ‘cooked’ in the lab, proven on a very small data sample, could have tremendous unintended downside consequences or at a minimum – distort values.
Elitists don’t like ‘old fashion’ ideas of limited government and constitutional principles that separate government powers between the individual, states, and the federal government. Which allows for currency, food and values to self-regulate through voluntary exchange and association. To them it is too much power in too many hands. The idea of everyone doing whatever they wanted, would destroy a society, the very thing that Plato, Hegel and Marx warned against.
A truly free society, where government merely intervenes to protect individual liberties and men and women are free to succeed or fail? No, no, society must be managed and even though we have times of crisis, the boys and the girls in the labs of Princeton and Harvard will have the next great public policy solution and with a little more government control in their hands (and less in yours), elitists will enable Plato’s vision to continue.
In a controversial study by Carmen Reinhart and Ken Rogoff it shows that economic activity is hindered when government gross debt rises above 90%. This year actual debt held by the public is 72% but is expected to accelerated as social security and health care liabilities are projected to rise sharply.
The budget the President is handing to Congress is expected to be $3.73 trillion, with only a few weeks left to deliberate, a government shutdown is becoming more of a possibility. There is also the need over the next few months of an additional increase in the debt ceiling which will cause a confrontation within Congress between the Tea Party sponsored members who took pledges not to raise the ceiling and those who are more pragmatic or have sponsored bills in legislation.
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France has joined a growing chorus of G20 countries who have starting to go public with plans to transition off dollar denominated global reserves to Special Drawing Rights, which are several currencies that would be held in place of USD to stabilize the currency markets. “At the same time, international capital flows should be better regulated and the role of the Special Drawing Rights issued by the International Monetary Fund should be reinforced by the inclusion of China’s yuan in the system.” Says the French economics minister.
China currently the 2nd largest economy in the world to the US, is holding $2.5 trillion in mostly USD as a hedge under the current monetary structure, the real question is what will happen to China’s and other monetary reserve portfolio balances and the USD’s value as they move to the new system.
In domestic news, housing prices plunged over 5% in 2010 and some traditionally insulated markets like Seattle and Atlanta are showing erosion as many prepare for the next level of price decreases. “Seattle is down about 31 percent from its mid-2007 peak and, according to Zillow’s calculations, still has as much as 10 percent to fall. Stan Humphries, economist for website Zillow, estimates the rest of the country will drop a further 5 and 7 percent as last year’s tax credits for home buyers continue to wear off.
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In a NYTimes article last month, David Brooks makes the case for why it is difficult for totalitarian regimes to make the transition toward democracies. Brooks points out, “But in 2002, Thomas Carothers gathered the evidence and wrote a seminal essay called “The End of the Transition Paradigm,” pointing out that moving away from dictatorship does not mean moving toward democracy. Many countries end up in a “gray zone,” with semi-functioning governments and powerful oligarchies.” Is the US currently in that ‘gray zone’? In another NYTimes article a few days ago Bob Herbert boasts that Democracy is breaking out around the world.
The assumption that Brooks, Herbert and many in the political class and media make is that the opposite of a totalitarian regime is democracy or to put it in contrast: totalitarianism is to bondage as democracy is to liberty. The founders of the United States and history has shown that Democracy without restraint, leads to tyranny. A Democracy impregnated by special interest, elitism and powers gives birth to a ‘Rosemarie’s baby’. “Democracy… while it lasts is more bloody than either [aristocracy or monarchy]. Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There is never a democracy that did not commit suicide” John Adams
Lord Acton (John Dalberg-Acton) a Member of British Parliament in the mid 19th Century also saw the danger of Democracy. In a lecture given after visiting the US at the end of the Civil War in 1866, Acton extolled the beginnings of the ‘Great Republic’ of America but warned of democracy. He defined the US’ early strengths in couching democracy within the restraints of law through a republican design of electoral college, state legislatures and separation of powers between State and Federal governance inherent in her Constitution. He warned that as a result of the necessities of the recent war that Lincoln and the winning north had endured, the stage might be set for an erosion of a Republic and the unhindered growth of federal powers in the name of Democracy.
Acton applauded the founders and Constitution, “In practical politics they had solved with astonishing and unexampled success two problems which had hitherto baffled the capacity of the most enlightened nations: they had contrived a system of federal government which prodigiously increased the national power and yet respected local liberties and authorities; and they had founded it on the principle of equality, without surrendering the securities for property and freedom.” But warned about centralized powers and democratic abuses, “Above all, a democracy has never even attempted to adopt the system of representative government which is the supreme and characteristic invention of the British monarchy. Therefore it had become almost an axiom in political science that that which ancient Rome and modern France attempted and failed to accomplish is really impossible; that democracy, to be consistent with liberty, must subsist in solution and combination with other qualifying principles, and that complete equality is the ruin of liberty, and very prejudicial to the most valued interests of society, civilization, and religion.”
Acton pointed out that it was America’s founders themselves like Washington, Adams and Hamilton, that feared Democracy itself was the potential uprooting of individual freedom. “It has been observed that a pure democracy, if it were practicable, would be the most perfect government. Experience has proved that no position in politics is more false than this. The ancient democracies, in which the people themselves deliberated, never possessed one feature of good government. Their very character was tyranny, their figure deformity” Alexander Hamilton. Acton concluded that the early `American Experience’ was successful because individual freedoms were protected through natural law and limited government powers that were less on the federal level and increased along the way down (not decreased) to the States until most powers resided in the individual. Decentralized power provided for checks and balances as successful efforts were reinforced and replicated while unsuccessful ones died quickly.
Lord Acton, goes on to cast a prescient insight, “All governments in which one principle dominates degenerate by its exaggeration. The unity of monarchy gravitates towards the despotism of a single will. Aristocracy which is governed by a minority inclines to restrict that minority into an oligarchy. In pure democracies the same course is followed, and the dominion of majority asserts itself more and more extensively and irresistibly. We understand liberty to consist in exemption from control. In America it has come to mean the right to exercise control.”
In Brooks’ NYTimes article he says regarding Democracies, “Since then, a mountain of research has established that countries with strong underlying institutions have better odds of making it to democracy. Some scholars argue that political institutions matter most — having independent political parties. Others say social institutions matter most — having a cross-cutting web of citizen, neighborhood and religious groups.” Hence the growth of NGOs(Non-governmental Organizations), Think Tanks and University Projects that operate out of public view with financial support from the likes of George Soros or the Koch brothers who influence economic and social policy decisions of both parties. Progressives in the US believe more government power can bring about social justice and equality, the beneficiary - society and the individual. Conservatives believe the use of government power is just to `conserve’ and manage the values of society - traditional marriage and family values . But popular opinion and choices are fickled and can change with the wind, and the will of the majority can be manipulated and can abuse the liberties of the individual.
Many around the world today fear religious extremists like the zealots of Islam who have declared a Jihad upon most of the world. But if a group was really interested in controlling the world wouldn’t the sublimity of Democracy be more effective? Democracy could meld different cultures, social and economic classes and interest groups around the world into a homogeneous group that can be centralized, controlled and ruled, for the greater good of a global society. Acton and unfortunately only a few in 1866, saw as the smoke of war cleared that while wars were to be fought at times, so was a democratic peace that robbed those left of the liberties that the fallen had fought for.
Today as the cry for Democracy beckons around the world and the IMF, BIS, UN and other international groups decide upon better global financial, currency and regulatory governance, be prepared to defend national, city and local sovereignty, and in turn individual liberties that our founders and subsequent statesmen and soldiers fought hard for. Join the effort to re-stake constitutional principles back firmly into the ground of US governance and resist the `zeal of the weal’ which myopically places social causes and interests ahead of individual freedoms.
While unrestrained Democracy truly is a mirage, Negative Liberties protected by a Republic are not.
Arizona counter sues Feds over SB 1070 Immigration bill, adding to its already aggressive posture in joining almost 30 other states in suing over Obamacare. Arizona with its fiscal problems is turning out to be a state that is part of the solution rather than the problem in being a ‘check’ to encroaching federal powers to constitutional restraints.
While many states remain subservient to the Federal Government, beholding to federal grants and aid, many are rising up in defense of constitutional state and individual liberties. Battle lines are being drawn around issues such as immigration, health care and education as many states are challenging federal regulations and mandates in the courts. State electorates are holding the feet of state legislatures to the fire in not rolling over on federal legislation that encroaches upon state sovereignty.
Many from the Tea Party movment and other groups who feel that the federal government has become too large and overreaching in its authority, and has violated the limited powers as proscribed by the US Constitution, have found national elections only produced small incremental changes. Instead many are turning their focus to local and state elections and saying to their state governments and politicians, “You have a sworn duty to defend the US Constitution and our State Constitution against federal tyranny!”
Where does your state stand? According to a recent George Mason survey here is their ranking:
New Hampshire ranked as the freest state overall. The top 10 freest states were:
1. New Hampshire
3. South Dakota
10. North Dakota
George Mason’s Hall of Shame, 10 least free states started with the Big Apple:
50. New York
49. New Jersey
48. Rhode Island
There’s been an important update on the move away from the USD as a reserve currency that we’ve reported about over the past several months. The International Monetary Fund (IMF) issued a report yesterday outlining the process to move from a world reserve currency for central banks based on the USD to a fund of Special Drawing Rights (SDR) that would include a basket of different currencies.
The IMF said that the SDRs would create a more stable currency environment by spreading the risk among several currencies while pointing out the volatility of the USD during the recession and recovery process over the past several years. US Monetary policy of quantitative easing has contributed to rising oil and food prices which has indirectly put pressure on oil dependent nations and other poorer nations that live marginally.
In an article on Money.com they report that Dominique Strauss-Kahn, managing director of the IMF, “acknowledged there are some “technical hurdles” involved with SDRs, but he believes they could help correct global imbalances and shore up the global financial system. “Over time, there may also be a role for the SDR to contribute to a more stable international monetary system,” he said. The goal is to have a reserve asset for central banks that better reflects the global economy since the dollar is vulnerable to swings in the domestic economy and changes in U.S. policy.”
Kahn also says that he could see where the IMF through a new reserve currency structure could issue bonds and other financial instruments. This would create a new centralized level of banking structure that would potentially sit above all national central banks. While there have been rumors of centralizing world banking and a new global regulatory structure as recently as Davos last month, this step would be a leap into that direction. The creation of a global banking structure that had the ability to produce ‘treasury-type’ bonds would compete directly with US treasuries for safety and liquidity and cause further erosion of USD value.
Fred Bergsten, director of the Peterson Institute for International Economics, “said at a conference in Washington that IMF member nations should agree to create $2 trillion worth of SDRs over the next few years. SDRs, he said, “will further diversify the system.”
We can’t stress enough how much the impact will be to USD value, particularly if US domestic spending and the US debt is not addressed to make the USD more attractive as it becomes more exposed to a competitive global market.
As a follow up to an earlier article, ‘The Elephant In The Room: Conservatives And Libertarians, and to comment on the strains within GOP and CPAC members and leadership leading up to their conference this week; the ‘elephant in the room’ is still social issues and causes within the GOP and have been highlighted with GOProud (A self proclaimed Gay Conservative Organization) joining CPAC conferences. While the GOP is a big tent party, social issues have driven a wedge that gapes and contracts at different times. The GOP and particularly Conservatives seem to unite around economic causes with calls for limited government but chasm when social issues are brought to the table.
Classical Conservatism was more about ‘conserving’ individual liberties (even at times when they were counter cultural), understanding that the same free markets that correct price and value will also ‘self correct’ human behavior in society through voluntary exchange and association. Unfortunately modern and neoconservatism chooses the short cut of government intervention just like progressives within the Democrat Party. The ‘Zeal of the Weal’ (Greater Good) can be a danger to freedom when it is ‘weaponized’ by government power and determined as an outcome; whether that is solving poverty or controlling life style choices, in the end it is a Pyrrhic victory as freedoms are lost and values are distorted in the hands of government planners.
Government power as our founders understood, should be negative in nature and not an activist for any causes, if there is any room for positive experimentation it is at the state and local level. While (modern) conservatives are ‘making an exit’ out of the CPAC meeting; libertarians and classical conservatives are making an exit out of the Tea Party movement and that is most unfortunate.
Federal powers need to be restrained by constitutional principles and state and local government powers need to be open to competitive models.
As Ben Bernanke heads to Congress on Wednesday, many in the financial community are hoping he will be asked the question that many are thinking. “Are we seeing an upward trend in Inflation?” and “What is your exit strategy?”
As world food and energy prices are starting to soar and we’re seeing 2 and 10 year bond yields at record proportions is Bernanke behind the curve of stopping runaway inflation?
In a CNBC article ‘Is Bernanke Behind the Curve When it Comes to Inflation?’ Jeff Cox points out that critics of Fed Policy like Ron and Rand Paul point out that it is impossible to predict and control true markets and that what has happened before by previous fed chairman will most likely happen again – closing the door after the horse has left.
Meanwhile, the Chinese have raised their interest rates by another quarter percent, the third such move in 4 months to combat the rise in commodities prices.
Bernanke, a student of the Great Depression, believes that quantitative easing (liquidity) can help spur economic growth in times of stagnation. Bernanke, like many economists believe in Keynesian and Monetarist monetary policies which purports that money supplies should be managed and matched against economic activity. They also don’t make a direct connection between money supply and prices, using the Velocity of Money Theory to explain why in down trending economic periods inflation is less likely to occur and the concern should be deflation. The theory is challenged by classical economists who argue that the model is measured in constant dollars and doesn’t take into account the movement of physical goods.
For more information please visit our Library and the articles below:
ACD Library On subject: Book – Economics in One Lesson, Hazlitt and Article – Cheap Money, Benjamin Anderson. You can also download Keynes’ General Theory on Employment, Interest and Money
As Egyptian banks reopened on Sunday the conditions have been relatively stable all things considered, as the US dollar has made a 2.3% gain on the Egyptian pound (EP) according to the BBC, since the crisis started. Rumors are that while the Egyptian government hasn’t intervened directly that state-owned banks have been selling USD to support the EP. The Egyptian stock market will remain closed until next Sunday.
When bank doors initially opened there were a significant amount of customers waiting. But withdrawals have been limited to 50,000 EP ($8,400) and $10,000 in foreign currencies.
The Egyptian government had to pull back on a treasury auction, looking for 15bn (Euro), they had to settle for 1bn as foreign investors are reluctant to buy and borrowing costs have risen for the government around 1.5% from the last auction.
The domino effect to Tunisia’s and Egypt’s political unrest that has been taking place in some respect to other neighboring countries like Jordan and Yemen, is now feared to also destabilize currencies and financial markets as well.
While the Middle East tries to rebound from unrest, Europe is still cautiously waiting for a turnaround in some of their country-states like Greece and Ireland who have undergone renovations and Portugal, Spain and Italy who are on watch lists for now. China has made overtures to purchase European bonds and help in reworking debt.
Meanwhile, the US struggles with mounting national debt, stalled talks on budget policy and cutting spending, and unemployment which remains stubbornly high at 9.0%.
In January, a Tunisian uprising over unemployment, food inflation and government corruption caused the overthrow of the government and for President Ben Ali to flee the country allegedly with 1.5 tons of gold in his possession. The end of last month Egyptians have taken to the street in protest of the Mubarak government. The protesters include the upper middle class to the lower class, decrying the high rate of unemployment and inflation; as of this writing, Mubarak has offered to step down in September after his current term ends. With growing unrest in his own country, Jordanian King Abdullah has sacked his own government as protests against high unemployment and rising prices are growing in the streets.
Other Arab states are concerned about a Domino Effect from the uprisings spreading to their nations and the possibility of the Muslim Brotherhood and other fundamentalist groups of gaining more traction by taking advantage of the social unrest.
While fundamentalists are driving some of the uprisings, the majority of the uprisings have a common thread: Unemployment, rising food and energy prices. Does US monetary policies play a role in the process?
The current world economies run off the US Dollar as a reserve currency. The Arab states trade in US Dollars for the most part through oil revenues, IMF funds and direct aid from the US. When the US decides to use quantitative easing measures to print its way out of economic malaise or to monetize its own debt, it not only destroys the buying power of its citizens but foreign governments and their citizens as well. Unemployment and rising prices are the result of currency and interest rate distortions, as governments, corporations and individuals react to changes in the supply, cost or perceived value of money in the marketplace. The poorest of nations and individuals in those nations seem to suffer the most as they live on the margins of society, meeting their food and shelter needs day by day. They lack the reserves and robustness to endure long periods of economic disruption. Meanwhile, China has been the whipping boy because of its perceived loose monetary policy as well, but from China’s point of view, the US leaves it no choice but to take a defensive posture, by print more Yuan/RMB in response to devaluation of the USD.
Many around the world are reacting to US foreign policies of intervention and involvement in other nation’s governments and of the proliferation of US military presence around the globe but there is a growing resentment to US monetary policy as well. The recent Basel Accord meetings late last year and the meetings most recently with the Chinese were about moving away from the USD as the sole reserve currency and a move toward a commodity structure (unlikely) or a basket of currencies – SDR (Special Drawing Rights). Since the Bretton Woods conference in 1944, the US has enjoyed a monopoly as the worlds reserve currency, which gave it the perception as a safe haven to hold currency and as the best means of exchange. The US has been able to take advantage of that position by making risky monetary and fiscal decisions to run up deficits in domestic and foreign policies and experiment in Keynesian monetary policy of stimulus injections when the economy slows down. This has been done for years through Congressional Budget busting programs and zealous monetary policy, all the while knowing that the world had little recourse as they needed the USD. The US has been making the bed of its own demise for years and yet there’s very little evidence that the political or monetary class is willing to change directions.
Ben Bernanke of the Federal Reserve, Tim Geithner of the US Treasury, the current President and most of Congress are not only not friends of the American people, they are also not friends of most people around the globe as their policy decisions are threats to government stability and individual freedoms and standards of living. If the US wants to have the greatest positive impact around the globe, she would do well to get her own house in order by using the Constitution as a plumb line to determine legitimate federal power by which to cut programs and departments and decentralize public policy decision making, in order to bring about Montesquieu’s Balance of Power (fed/states) as her nation’s founders had intended. They can start by rescinding the Federal Reserve Act of 1913.
A strong, stable US government built upon individual liberty and constitutional restraint would make for a better export to the world instead of the foreign policy bullying and economic policy time bombs we currently export. As the recent US elections show and the unfortunate unrest around the globe backup: both the American people and the world community as a whole is frustrated. The question is: Will the US find it’s historical moorings and once again step up to a leadership position among nations, or will the US continue down the road of self-inflicted destruction, as the world community looks for leadership elsewhere?
As GOP leaders flesh out Tea Party ideology and come to terms in Washington regarding the influence of the Tea Party movement, the majority of Americans according to a Gallup/USA poll say that Republicans in power should take into consideration Tea Party positions when making decisions. 71% of adults think it is very or somewhat important; that breaks down 88% of Republicans, 72% of independents and 63% of Democrats think so.
The article goes on to question why Democrats would be in favor of the GOP pursuing Tea Party ideas, positing that some may feel it is appropriate for the GOP to recognize its constituents wishes, while others might feel the Tea Party ideas are radical, which could play into the 2012 election.
The Overall Opinion/Favorability rating of the GOP is 47%, a recent improvement, the Tea Party rating is 39%, which hasn’t moved much in either direction.
Within the Tea Party movement there are factions between Conservative, Independent and Libertarian elements that disagree regarding the role of government in social issues like marriage, sexuality and drugs. There is general agreement overall regarding the need to limit federal government power, cut spending and balance the budget using the US Constitution as a backdrop. Many in the Tea Party are scrutinizing the GOP’s embracing of Paul Ryan’s Healthcare Alternative as having still too much federal involvement and are looking to the individual states for healthcare statecraft.
As the world observes the unrest in Egypt and the uncertain future of its citizens as political, military and religious forces jockey for power and its neighbors prepare for similar unrest; it brings to the forefront a growing global phenomena, that of the failure of US Neoconservative foreign policy.
Conservatives (Constitutional), Libertarians and some Democrats have warned of meddling US foreign policy for years and the unintended consequences of US style democratization. Egypt serves as an example of how US foreign policy of trying to choose a horse in the race to deliver US interests eventually backfire and has resulted in more times than not putting in power with US monies and military backing, a dictator who is as bad or worse than the previous regime. The seduction of aid packages like that of US aid to Egypt as part of the Egyptian-Israeli Peace Treaty of 1979 that has averaged close to $2 billion annually, subsidizes economic and political instability just as welfare aid subsidizes poverty. The lingering hangover that has been growing as a result of these ill gotten policies is growing world resentment and suspicion of the US government.
“The true theory of our Constitution is surely the wisest and best, that the States are independent as to everything within themselves, and united as to everything respecting foreign affairs. Let the General Government be reduced to foreign concerns only, and let our affairs be disentangled from those of all other nations, except as to commerce, which the merchants will manage the better, the more they are left free to manage for themselves, and our General Government may be reduced to a very simple organization, and a very inexpensive one; a few plain duties to be performed by a few servants.” Thomas Jefferson
Jefferson understood the limiting power of the Constitution over the federal government, even regarding foreign policy. Aid, military support and most of what is done in the name of Foreign Affairs today is unconstitutional. Just like the cracks that are appearing more regularly in US economic and monetary planning around the globe and the resentment that comes with it, so are the fault lines appearing in US foreign policy that uses aid and coercion to assure favorable markets and `good neighbor’ partnering in global political design. But just like the bully in the school yard or even worse the weak kid who pays for friendships, eventually those relationships (if they ever really existed) dissolve and the resentment and marginalization that results afterwards takes a long time to heal.
The US which is becoming more and more exposed to growing financial disruptions and potential unrest within her own shores, risks a global push back and unanticipated consequences of new alliances, some of which could be ones that ironically we are currently paying big money in the form of aid and trade pacts not to happen.
Our best diplomats are not university policy wonks or think group protégés who bear little downside risk in venturing their newest coercive policy but rather those active in `free market’ commerce who while proffering their own interests sow seeds of free market economic, political and social principles.
As the ship called, `Modern American Capitalism’ lists off shore with engine failure, it still could teach the world a thing or two about the finessed use of government powers. With many centralized and totalitarian governments making the shift to forms of market driven economies, they are still left with pesky ownership issues of property and incentives. State Capitalism around the globe has become the modern rage in order to spur growth, employment and to drive individual incentives within centralized governments, however, most property ownership is maintained by the State. Cost of ownership, asset depletion and deterioration has always been an expensive venture for government or collective ownership. In the theory Tragedy of The Commons, where there is no clear ownship, property tends to be abused and misallocated.
Where Socialism and other centralized managed economies have failed through common ownership of production and resources, Modern American Capitalism has taken a different approach through regulations and taxes while leaving intact private ownership – or at least the appearance. Through regulations and taxes of industry, the government can be the `invisible hand’ rather than the outdated `invisible hand’ of the free market that Adam Smith alluded to, that steers resources and labor into `state favored endeavors’ for the greater good, and not have to worry about ownership issues for the most part. Modern American Capitalism could be nicknamed `Socialism on the Cheap’.
In a January 24th, 2011 column of Kaiser News `Just Call Me Liar Of The Year’, Michael Cannon, Director of Health Policy Studies at the Cato Institute, touches on the issue of regulation rather than `state run’ in regards to the Obama health care legislation. Cannon reveals the subtle nuances of using private health care carriers and facilities (in the short term) in the plan with the heavy hand (invisible?) of government behind the scenes steering the process through regulations, taxes and fines as salable and palatable to the American people versus a full frontal government takeover. Cannon says, “ObamaCare is not a government takeover, I learned from PolitiFact, because it “uses the private health insurance system to expand health care coverage.” But wait. In my research, I found that distinction between public and private to be illusory: what difference is there between a public system where the government taxes and spends your money, and a “private” system where the government forces you to spend your money in the same way? “It is irrelevant,” I wrote, “whether we describe medical resources (e.g., hospitals, employees) as ‘public’ or ‘private.’ What matters – what determines real as opposed to nominal ownership – is who controls the resources.” I detailedhow making private health insurance compulsory – as ObamaCare does – “would give government as much control over the nation’s health care sector as a compulsory government program.”
Columnist Michael Kingsley wrote, “”If the government requires insurers to accept all customers and charge all the same price, regulates all aspects of their marketing to make sure they aren’t discriminating, and then redistributes the profits to make sure that no company gets penalized unfairly, in what sense is the industry still ‘private’?”
The same has be applied to other industries in the US like, banking, housing, agriculture and the auto industry. Industries that were once decentralized and robust to failure/success and characteristically saw creativity, innovation, risk and deployment of capital to its greatest efficiencies as the pillars of market dynamics, now suffer `Jenga’ like connectivities and look to government to offload fragilities that are inherent in the system.
While laws and some regulation can be productive, those that are open-ended and arbitrary leave the door open for government control and abuse. Through understanding the proper roles of federal and state powers (Constitution), most regulation and positive laws are exposed to competitive models and experimentation through state and local governments where government is the most effective and responsive.
A year ago January 12th, 2010, a 7.0 magnitude earth quake hit Haiti at 4:53pm, the death toll according to the Haitian government today is at 316,000 and counting as bodies are still being pulled from the rubble. The death toll published by the Haitian government is being disputed as they give no accounting for their numbers, many believe it is much higher. In fact, much the Haitian Government has been doing for the past year is being brought into question as the global community has responded with money and resources but very little has found its way into bellies and infrastructure. Is there a teachable moment here?
“We wake up every morning in the dust … We need people who can understand the country, who can change the country,”Carla Fleuriven, a 19-year-old mother of three dressed in a white skirt and blouse, told Reuters outside the Cathedral.
“God made the earthquake, but it’s our leaders who are selling our misery,”said Sephonese Louis, 58, one of the protesters in the Champs de Mars, Port-au-Prince’s central plaza on the day of the 1 year anniversay.
“The Interim Haiti Recovery Commission — a Haitian and international partnership including Canada — is headed by former U.S. president Bill Clinton and Haitian Prime Minister Jean-Max Bellerive. It has provided food, water and basic accommodations to millions of survivors. But it has been criticized by Haitians and international organizations for lagging on restoring normality to hungry, jobless and deeply traumatized people”Olivia Ward writes in an article, `Haitian Support Stumbles’. Ward also sites that only 20%-30% of world aid has made it into the country. Later in her article Ward quotes an international Charity Oxfam Executive ”The international charity Oxfam says impressive efforts were nevertheless made in providing emergency relief that saved “countless lives.” But its recent report on reconstruction progress one year after the earthquake says there are vital elements missing from rebuilding plans, including strong leadership, co-ordination and an employment program to put Haitians to work in their own country. “We see projects approved that fit into the broad national framework,”says Robert Fox, executive director of Oxfam Canada. “But it’s at the level of detailed thinking about sequencing, and the relationship between (projects) that is needed. It’s not just a case of what can be done, but who can do it. That means, for instance, a job creation strategy. Reconstruction needs carpenters, plumbers and masons. It’s not rocket science that you can train those people in about six months.”
Is the teachable moment that Haiti needs a change in leadership and for government to be more responsive to the needs of their people? Possibly, and unfortunately with the return of ‘Baby Doc’ Duvalier, who knows if Haiti’s in for yet another round of political turmoil. But could the other teachable moment be that governments in general are not the best vehicle to deliver aid? Whether it’s rice rotting on the docks of Port-au-Prince or mobile homes decaying on the outskirts of New Orleans during Katrina: isn’t it time to assess the way we approach disasters? Even observing the recent oil spill on our east coast, it wasn’t until leadership became more localized and to a certain extend privatized, even with BP involvement (love them or hate them) that meaningful progress was made.
Government works best when it protects `Negative Liberties’, like life and property, but far worse when delivering services and making moral judgments. NGOs (Non-governmental Organizations) fare no better, as they link through government monies and political interests in determining policies and outcomes. Currently there are over 40,000 NGOs worldwide and in a 2008 report by Esra Guler voices frustration as lofty goals to eliminate poverty have fallen short. Guler says in her report `How To Improve NGO Effectiveness In Development?
“The lack of coherence between what an NGO envisions and what it does bring ineffectiveness since it creates confusion in the minds of the NGO staff, its supporters, and the outside world and weakens focus and energies.”Later in the article Guler highlights the NGOs that have focused on Poverty and criticizes the poor performance in relationship to huge amounts of funds and resources that have passed through their hands.
On the other hand private initiatives have been much more successful than government or NGO endeavors in part because they tend to be smaller in scope and the individuals, corporations or charitable organizations tend to attach more accountability to the donations.
The argument that some disasters are so big that they can only be covered by public funds is nonsense, in an article in the NY Times in July 2010 they projected that the final cost of the Haitian earthquake to be between $7-13 billion, while private donations at that point were estimated to be close to $4 billion. The estimates were based on projected government and NGO costs which are two to three times higher than private operations. The overcharges to the federal government from Katrina and mismanagement by FEMA has reached into the tens of trillion dollars to date.
Many actors and musicians like Bono and George Clooney have done a good job of putting the spotlight on special causes, but most of those money are funded through quasi-public endeavors and arguably resources are squandered. How much better for celebrities, government officials to use their high profile positions to continue to point to needs in our society but allow for private initiative to meet those needs. Not only could the monies and resources be used more effectively but society is enriched more when need and giver make a more direct encounter.
“It is said that the world is in a state of bankruptcy, that the world owes the world more than the world can pay.”
(Ralph Waldo Emerson)
Ironically in searching for a couple of quotes to lead this article off on Bankruptcy, I found more quotes on the subject by politicians who warned if we as a nation didn’t `invest’ more money through government for things like health care, education and wages that it would lead to bankruptcies of all types. ‘ In this most powerful nation in the world, lack of access to health care should not force local and state governments, companies and workers into bankruptcy, while causing unnecessary illness and hospitalization.” (John Conyers)
In a New York Times article this morning (January 21, 2011) Mary Williams Walsh talks about the quiet meetings happening in the House and Senate regarding the growing possibility of State bankruptcies. Currently there are constitutional issues that prevent states from seeking bankruptcy relief unlike local municipalities, but lawmakers having started to entertain a few inquiries by states such as California and Illinois and are rushing through the corridors of DC preparing a `Best Practices’ plan of approach.
Many are in denial that some States are in the kind of financial peril that warrants bankruptcy discussions (come on! We read it in the Times!) but another ironic quote is Bob Lutz the auto executive commenting on GM’s financial condition, “Imminent GM bankruptcy was always fiction, created by Wall Street and the media.” Here at ACD we brought up the possibility over a year ago and investment managers like Meredith Whitney as recently as December suggested that with 49 states that have mandatory balanced budgets in their charters will be forced to make dramatic spending cuts, pay increased debt finance costs or default on loans that are coming due later this year. Whitney and others are forecasting that unemployment will rise later this year due in part to spending cuts forced upon the States.
The two big questions that will affect the outcome are: How much will the Federal Government become involved (which can distort process) and what liabilities will the States renegotiate on? The NYTimes article mentions a type of Federal Board that could set standards and regulate the process, like with the Savings & Loan crisis of the late 1980s. Fortunately or unfortunately, when decisions come out of Washington they are politicized and decisions regarding viability and allocating resources which free markets would go one way, Washington could take a different root. This brings up the liabilities, some that might be on the table to negotiate or eliminate through a bankruptcy process are: Pensions (retirees), Bondholders and Union Contracts. Most financial analysts rate the priorities as Bondholders or Union Contracts first and retirees Pensions as last. In recent years Federal and State wages have far exceeded private wages and while most Bondholders tend to be retirees, there’s still an understanding of risk (albeit, low) in Bond ownership.
The good news is the discussions about where to cut state spending and how to work out their liabilities is starting to be done head on rather than temporarily refinanced and kicked down the road for another day, let’s hope it leads to market driven answers with a minimum amount of government intervention keeping with constitutional principles.
As China’s President Hu Jintao arrives in Washington to meet with President Obama, there are seismic shifts around the world as the plates of social and economic systems rub up against one another in the form of trade, currency and credit policies. As the sun sets on the US as the world’s Superpower, some look to China as the most likely to take its place.
While the US has suffered tremendous loss of leadership position around the world on social and economic fronts and has suffered an extended recession of late, it still ranks at the top regarding individual freedom and personal and small business wealth, and stands to lose a lot if these shifts happen.
Mr. Hu has already hinted at what he wants and is going to happen in his answers to the questions posed by media. There’s coming a new global initiative that involves economic and banking regulations which will include a new currency valuation methodology (Basel III has resulted in calls for a basket of reserve funds that could dilute USD power as it makes room for other reserve currencies), which will diminish the benefits that the US Dollar has enjoyed as the sole reserve currency since 1944 (albeit, a responsibility at times abused). The compromises and sacrifices that our politicians, bankers, mega-corporations and regulators are rushing to make will cause an osmotic event – the high density freedoms and wealth of the US will shift to accommodate the lower density freedoms and wealth of other countries around the world. Our leaders will say, `It’s for a greater good’, `China’s time has come and it will have little impact on the US long term’; but don’t be fooled, centralized and collective structures are inherently unstable and abusive to minority interests. For the past 70 years the US has suffered under the hands of its own government and the world power it enjoyed, but now there’s the potential to suffer at the hands of the worldwide community, of which the majority doesn’t share the same beliefs or lifestyles. How do you think that will end?
As an aside, please don’t draw from the analogy `the survival of the fittest’ or `strong advantages the weak’ scenarios to justify `managed society’ policies through centralized governments. While Government managed societies do only shift wealth and freedoms back and forth with little if any growth. Limited governments based on free market principles do not create zero sum scenarios and allow for real growth in wealth and freedom among nations willing to apply the same principles.
But don’t worry, our politicians, bankers, mega corporations and regulators have secured a place at the global governance and finance table for themselves, even if just for appearances, token influence and a lot of cash.
Also, in fairness to China and other nations regarding the call by the US Treasury, Federal Reserve and financial community to stop devaluing their currencies; the US is by far the greater abuser, as they are the biggest rock in the world currency pond, and the US dollar value since 1913 has dropped more than 95% and we are well on the path to price inflation as food and oil prices have increase significantly.
A positive outcome of the 2010 elections is that there’s more influence in congress for decentralized monetary policy and trade policies, and less government intervention. Ron Paul (R-TX) now yields the gavel as Chairman of the House Subcommittee for Domestic Monetary Policy and Technology, and holds great influence over Treasury and Federal Reserve activities.
“YOU NEED ME!” Says a devoted spouse to their successful other half. Now as the GOP emerges back onto center stage, the Conservative Majority seems to be putting a little distance from its `better half’. Conservatism and Libertarianism run like two tributaries that run parallel at times but other times appear juxtaposed as they spill into the GOP.
Where Conservatism and Libertarianism clash most is regarding social issues. We’ve heard the term ‘Fiscal Conservative’ used to describe a candidate who while meeting the economic criteria for Conservatism, fails the litmus test on social values by not taking positions of government intervention to preserve ‘marriage’, ‘family’, `drug prevention’ or a host of other social issues. Mixed into that labelled group of ‘Fiscal Conservatives’ are candidates who have mixed the two party’s (Dems/GOP) ideologies, favoring freer markets in economic policy, while favoring government redistributive social policy. Libertarians lumped into that group however, are different in that their ideology favors less intervention of government into both economic and social issues and support laws that are `negative’ in nature. It is very important, if not crucial for Conservatives to understand and embrace their `other half’ in the fight for freedom in our country and if the GOP is to survive as an alternative to the `Government as the Solution’ party which `manages’ behavior and freedoms for the greater good.
In order to do this Conservatives would do well to understand the dynamics of Libertarianism, and some of the differences between Classical Conservatism and Modern Conservatism and how they look at the function of Government.
Most Libertarians and Conservatives have similar `ends’ in sight for what society should look like: traditional marriage, sobriety, industry, moral, spiritual and overall belief that the stronger and more self sufficient the individual is the better society will become. Where they differ is in the `means’ for that to occur. Libertarian and Classical Conservative ideology were analogous in their understanding of the proper role of Government and their confidence in the individual and `self correcting’ free markets for many years; but as streams separate, so have the two movements. While most Conservatives today believe in a laissez-fare approach to economic markets (unfortunately not all do – as witnessed by 2008 bank bailout), most don’t believe in the same laissez-fare (free market) approach when it comes to social issues. But for years they did, changing significantly after the FDR New Deal era and the Civil Rights movement of the 1950s-60s. This could be due to the `Overton Window’ phenomena or my personal theory is that while Conservatives of those eras fought the Progressive march on the Left, they either consciously or subconsciously took notice to how affective government could be at getting stuff done now. Giving up the sometimes long and arduous process of laissez-fare, and losing confidence in the Individual to make the right choices, they opted for Government as the Final Solution. In a book I hope to have finished by the end of the 1st quarter 2011, I use the term `Zeal for the Weal’, in describing myopic social movements of both the Right and the Left and the unintended damages that has been done through abuse of power and removing individual liberties for the greater good when the movements gain traction through government legislation and regulations. The old adage is true, `Beware of those bearing good intentions’.
The key to the success of laissez-fare (free market) is that markets self correct for the most part and superior ideas, products, systems and lifestyles survive, while inferior ones either fail completely, adapt or are marginalized. Both economic and social values need the same free market dynamics with a government that protects negative liberties, because both values work congruently in society, this is key to understanding Classical Conservatism. This allows for society to run at its best and allows for minority opinions, lifestyles, systems, etc to coexist with much less influence; and most importantly it protects individual liberties. In a Classical Conservative or Libertarian model, Governments only intervene when negative laws are broken - ex: individuals or institutions tread on the rights of another to exist, prosper or suffer loss of property. Social ills like poverty, drug abuse or hunger are allowed to improve by individual and private institutional initiatives where in the free market money and resources follows success.
Conservatism has had a long history of failed policies: trade, foreign affairs, drug, immigration, etc; all `bearing good intentions’ but have produced unintended results. Just as Cuba sits as a `pimple’ for over 50 years on the arse of US foreign policy, so does the failed war on drugs that’s also linked to the immigration problem. The unintended consequences of our drug policy has been violence, prison overcrowding with wasting human life and death in its wake. Our borders are war zones, distorted pricing, supply and demand are results of shortsighted policies that have perpetuated our problems. Government that brings positive laws as a solution is packed with unintended consequences that are unpacked for years afterward.
As the US sits on the precipice of great social and financial perils, Conservatism needs to turn back to its classical roots in allowing for individuals through free exchange and association to make the right (and wrong decisions), admit its policy failures and embrace the limited but important part Government can play today which is outlined in the Constitution.
On The CBS show `Face The Nation’ on January 16th 2011, Rudy Giuliani commenting on the Tucson shooting suggested that we need to catch those with mental illness earlier in the process in order to decrease incidents like Tucson from happening as often. He went on to infer that there needed to be a profiling process for mental illness and a way to access potential risks among the general public.
First, while many are suggesting that there needs to be a `National Debate’ around political discourse, gun laws and mental illness, I would suggest instead this needs to be a local debate between family members first, individuals in their local community and any legislation (I would tread carefully) should come out of the states and not as federal laws. Government becomes less effective, less accommodating, more costly and treads on individual liberties the further away from the people and closer to Washington DC into a centralized system.
Ex-Mayor Giuliani’s suggestion of monitoring mental illness in our society at face value seems reasonable but like any laws and controls on behavior there is the ‘pebble in the water’ ripple effect or Unintended Consequences’. To paraphrase Ludwig Von Mises, ” Classical Economist of the early 20th Century, “A good economist not only considers what is seen and affects now, but also anticipates to the best of his knowledge that which he can’t see and exists in the future.” Mental Health, like Economics is an inexact science as it considers human social behavior in creating models and treatment therapies for the mentally ill; while assessing the mental health of one individual and the potential risk he might be to society is daunting, creating national formulas or profiles for all individuals is impossible.
The insurance industry has struggled in assessing risk for mental illness in their life and disability insurance policies for over a century. Most policies have an exclusion for suicide the first few years of the policy and underwriting the disease has been very difficult in general. Most insurance companies when underwriting for mental illness history will either decline the applicant or will put a rider on the policy to not cover the disease and could ask for higher annual premiums (money). Ironically, the most challenging class of people to underwrite for policies are those in the mental health profession, like Psychiatrists and Psychologists as they obviously believe in the service and will receive services as preemptive care or a general mental health checkup .
So what are the potential unintended consequences of the federal government creating a database for government officials and law enforcement to monitor the general public for security threats? One consequence might be fewer individuals turning to the mental health profession for answers. Fearing the possibility of ending up on a government watch list, many sufferers of the illness might choose to suffer in silence, some potentially deteriorating into a risk to their families or society. Another consequence is those of us who have already chosen to seek mental health services who could potentially wind up on a list somewhere in Washington, as your local mental health provider is forced to give up client file information in the creation of the national database. When federal laws are created they are administered by experts brought in by Washington, who decide what data is significant or not and how social and psychological models should be created. You could see the potential for real harm and abuse to individuals, the loss of privacy being the best outcome.
The tragedy of Tucson shouldn’t turn into a double tragedy, the loss of precious lives and the taking away of the individual freedoms of those left behind. In order for that not to happen, we need to be led by the Constitution regarding the federal limitation to only make sure the 2nd Amendment is not tread upon by the states, and for states at their most local levels to have voluntary discussions about responsible gun ownership and the mental and spiritual health of their communities. Who knows maybe through private discourse and initiative, another Loughner family that has given up and closed its doors to its neighbors and society might with another knock on the door reconsider and find the help they need.
Sometimes our ideology betrays sound economic principles and empirical evidence. In a Reason Magazine article, `Back To The Future on Cuba’ Steven Chapman posed this question, “That is our Cuba policy. For nearly half a century, we have been trying to bring down Castro’s regime by prohibiting Americans from trading with Cubans. For nearly half a century, the regime has survived in spite of—or is it because of?—the boycott. And there is nothing to say the economic blockade won’t go on for another half-century.”
Chapman’s article was written in 2009 when the Obama administration first started to outline some travel changes to Cuba, allowing family to family and charitable organizations travel. The best way to allow freedom to break out in a country is to expose them to free men and a free society, which while diminishing in the US, has been our competitive advantage for the past 50 years. Allowing for Cubans to be exposed to free enterprise and freedom minded individuals could only sow positive seeds for real change.
The unintended consequences of embargoes is to coerce the country into seeking other alliances and to strengthen the totalitaran regime which prolongs unsustainable governments. Initially the rest of the free world had been on border to a certain degree but over time have opened up trade. Even Castro himself pronounced Communism dead last year as a viable economic system. How much sooner could this have happened if the largest economy in the world had exposed Cuban people to the freedoms of American enterprise and free spirit.
The blind spot of the Conservative movement (and I still consider myself one) is the idea that the Government has a role in steering economic policy abroad. If we are at war, that’s one think but as Jefferson found out the hard way in the embargo of 1807-1809 with parts of Europe, it strengthened his main enemy in Britain and caused more damage to the US in the long run. The embargo was repealed on him leaving office and he declared later in his writings that his ‘Peace through Coercion’ policy doesn’t work.
Steve Chapman, writing in an article in Reason Magazine, ‘Why Gun Control (Still) Won’t Work’, “Gun control has faltered mainly because it hasn’t worked. And nothing in the new recommendations offers hope of success. The first idea came from Rep. Carolyn McCarthy (D-N.Y.), who wants to ban all ammunition magazines holding more than 10 rounds—which was the rule under the assault weapons law (not renewed in 2004). Her rationale is that the rampage ended when the shooter exhausted a 30-round clip and tried to reload, at which point he was subdued. With a 10-round clip, he could have been stopped sooner.
Maybe so. But Jared Loughner apparently put some planning into this attack, and had the laws been different, he might have planned around them. Suppose he couldn’t go to the gun shop and buy a new 30-round clip. He could have bought a used one, which could be legally sold under the expired federal law. Or he could have bought extra weapons to avoid the need to reload—like the shooter in the 2008 Northern Illinois University slaughter, who had a shotgun and three handguns. Passing a law to head off a freakishly rare occurrence is probably a waste of time. Florida State University criminologist Gary Kleck says that of the hundreds of mass shootings that have occurred in this country, he knows of only one in which a gunman was stopped because he had to reload—a 1993 episode on the Long Island Railroad.
A measure offered by Rep. Peter King (R-N.Y.), offers even less promise. He wants to make it a crime to knowingly carry a firearm within 1,000 feet of a president, vice president, member of Congress, or federal judge. That would punish law-abiding citizens who have no aggressive intentions—say, someone who parks a block away from a campaign rally on his way to the target range. But it would have been only a paper barrier to Loughner, who ignored a host of laws on his way to shoot Rep. Gabrielle Giffords.
The group Mayors Against Illegal Guns fantasizes that King’s bill “would give federal, state, and local law enforcement a better chance to intercept would-be shooters before they pull the trigger.” Not unless the gunmen announce themselves, it wouldn’t.
A more serious complaint is that Loughner was able to legally buy a weapon even though he was weird enough to induce fear at his community college. School authorities finally told him not to come back until he got a bill of health from a mental health professional. But none of this showed up in the background check when he went to buy a gun.
It’s hard to imagine that stricter gun control laws would have any discernible value in averting tragedy. Homicides have actually declined since the demise of the assault weapons ban. Utah has the nation’s most permissive gun laws, according to the Brady Campaign to Prevent Gun Violence, but it has one of the lowest murder rates in the country. California, with the strictest laws, has a homicide rate higher than the national average.
There are plenty of lessons to be drawn from the ineffectuality of firearms regulations. But gun control supporters are in no mood to learn.
As we continue to pray for Gabrielle Giffords and those who are struggling in their injuries and the families of those who have suffered loss, let’s be vigilant as Americans to not allow the ‘Tyranny of the Urgent’ to become an excuse to take away individual liberties.
In Paul Krugman’s NY Times column this morning (Climate of Hate) he opens by asking this question, “When you heard the terrible news from Arizona, were you completely surprised? Or were you, at some level, expecting something like this atrocity to happen?” Mr. Krugman then continues throughout the article to vilify the ‘Right’ for everything that this crazed young man did, pulling all stops as he named TV and Radio Conservative pundits and of course Fox News as culpable. The question I had on my mind yesterday was how soon would political operatives and media rush to point fingers and take advantage of an unfortunate incident.
Meantime, as more and more evidence is revealed there is nothing that shows a patern of political philosophy let alone even a remote connection to any national Conservative media personalities, the Tea Party or Sarah Palin. Rather, we’re finding out that Mr. Loughner has had a history of run-ins with authorities in school, failed a drug test while applying for military service and has spent a lot of time alone.
On the Chris Jensen show on MSNBC this morning, a guest suggested that it is more important to ’focus on the perception of political speech rather than on the intent’. Regarding the shooter, this would have been irrelevant advice, as the mind of someone who is delusional and effected by drugs and paranoia tends to pick a disarray of information out of the air and create nonsensical ideas. From interviews with classmates and friends we find that to be true.
Regarding, free speech and gun laws. There is a call over the news services and talk shows to moderate our political hyperbole and even the suggestion of laws to more directly tie speech to outcomes. There is also a call for more restrictive gun laws in AZ and around the country. In times of national crisis there tends to be an irresistible urge to use the power of government to solve problems without weighing the long term and unintended consequences that we might not even see at the time. Because life and even human behavior is ‘self correcting’ when allowed to be, a positive outcome of this horrible tragedy might be a toning down of political speech, if that happens voluntarily it is a good thing. Also, regarding gun laws in AZ and around the country; if we allow the US Constitution to lead the way, then AZ and each state rather than the federal government can make those decisions. But the professional and media voices on both sides of the political spectrum should be taken with a grain of salt, for their livelihood depends upon tragedy and salacious stories; `fair weathered’ news doesn’t sell much. Be sober, be vigilant, political agendas are dispatched and on the march in times of crisis and individual liberties weigh in the balance.
May God bless and heal all those involved in this tragedy and may He heal our nation as well.
Those on the Right point out the flaws and inconsistencies of those on the Left, while those on the Left point out the same on the Right. But what is ‘Left’ and ‘Right’ politics? Are those the issues we should be concerned with, or is there something more sinister going on that ails our nation and its governance?
The terms for Right and Left politics actually is traced back to the French Revolution, those who were loyal to the King and the State religion sat to the right while those who weren’t sat to the left. Later, it changed slightly; those to the right were ultra loyalists of the crown, while those to the center were constitutionalists and those to the left were considered independents.
In his 1935 book, “Our Enemy, The State” Jay Nock breaks down politics, economics and all social interaction into two powers: Social vs. State Power. Social Power Nock explains is all human activities outside the control of the State. Nock warns to be careful of growing State Power, “Collective choice is never independent of what significant numbers of people want it to be.” The State not only crowds out ‘minority’ voices at the hands of the Tyranny of the Majority but eventually the State crowds out all voices except for its own. “Therefore ,every assumption of State power, whether by gift or seizure, leaves society with so much less power; there is never, nor can be, any strengthening of State power without a corresponding and roughly equivalent depletion of social power.”
So while you and I on the Right, wage debate and small arms fire with our neighbors on the Left, there is a much greater foe that sits above the fray and who is seldom seriously engaged or moved except occasional rhetoric and empty threats – The STATE. But why is that? Why did the Congress of 1994 go to Washington and accomplish so little? Why will the Congress of 2010 most likely do the same?
In a book I hope to have finished this 1st quarter of the year, ‘Zeal For The Public Weal’, I look at historic Social Reform movements like the Settlement Houses movement of the late 19th Century brought about by Jane Addams and her followers and the Moral Majority movement of the 1980s led by Jerry Falwell and others. A common characteristic of most Social Reform movements is that while they start out as private grassroots movements with individuals and businesses donating time and resources, eventually the movements tap into the public domain, redistributing wealth and determining outcomes for the greater good of society. Just like with some harmless household items which can be ‘weaponized’, social causes become weaponized when they are aligned to Government Powers; social causes like unwed pregnancy, poverty or drug abuse when addressed privately or at most through state and local government tend to be more effective, responsive and not ‘liberty robbing’. Even advocacies for reducing Cancer and Drunk Driving hold potential harm in their zeal, when they tap into the power of the State.
The word ‘Liberal’ has at its root liberty and the term Classical Liberal use to mean someone who believed in both free social and economic markets which has produced the greatest wealth and freedoms for a society. I’m still a subscriber to that. The word ‘Conservative’ use to mean a Conservativism that allowed for both economics and traditions to be tested in free and open markets; unlike today’s conservativism that at times not only protects big business interests through regulations and subsidies but also protects social behavior in the name of ‘greater good’. Just as we’ve witnessed the unintended consequences of economic distortions at the hands of the State, so we also have witnessed the unintended social ills at the hands of the State through Conservative style intervention.
As the Conservative ‘Right’ goes to Washington once again already loaded down with the burden of our own (Special Interests) Christmas Lists for 2011, I’d say let’s reconsider and rather charge them with peeling away unconstitutional federal powers, even those that support our own pet causes. Let’s not only emphasize Conservativism, but Constitutional Conservativism.
What those of us on the Right have to learn is that the same laissez faire, free market dynamics that allows for success and failure and brings true value to the economic marketplace also works with social values as well. State intervention always distorts value and diminishes individual freedom.
As we ring in 2011, we look back at a year that was in some ways a culmination of the three previous years that saw banking, housing and debt crisis’ and an unpopular bailout that resulted in a Democratic 2008 landslide and a federal government on steriods that in 2010 lead to a reversal of fortunes for the Dems as the GOP won big. In 2010 the GOP took the majority in the House and narrowed their deficit in the Senate, in addition they enjoyed big wins at the state level in gubernatorials and state houses around the country.
As we ease into 2011, a skeptical voting population weighs the prospects of more government to solve dire economic and social problems that lie on the horizon or considers a different direction of less federal government intervention, and more state oversight, allowing freer markets and private capital to determine price and value.
Around the world, the news of China’s decision to actively use its overseas investment fund to buy EU assets and bonds, and of new trading and currency pacts that China has made with Russia as well as South American countries hint at political and economic realignments to come. The recent Basel III meetings also suggest a move away from the USD as the world’s reserve currency.
In 2010, Americans watched as a man jumps from a balcony in the Romanian Parliament, protesting 25% cuts in wages and prophecying that government policies would lead to the ruin of his children’s future as he falls to the floor. In Rome bomb packages are delivered to embassies to protest budget cuts. All around Europe in places like England, France and even Germany there’s growing unrest and distrust of government policies as governments are forced to renege on generational promises. Americans ponder in their heart, could this hit our shores too.
In 2011, there’s a growing likelihood that the PIGS crisis of the EU will hit US shores in the form of Municipal Bond defaults and State budget crisis’ that will put pressure on the Federal Government to guarantee State and Local debt. State governments are looking at increasing finance costs of budget shortfalls in 2011 as many have bonds coming due, and are facing the stark reality of cutting budgets as much as 30% and laying off hundreds of thousands of state employees. Regional banks with no quantitative easing or stimulus options from the Treasury or Federal Reserve, have seen a significant increase in bank failures and mergers this past year and will likely continue into 2011. According to a recent Case-Shiller Report and forecasts by Meredith Whitney a economist specializing in the banking sector, suggest that housing prices still need to fall as much as 25%.
While there are dark clouds gathering and many have already suffered from job losses, home foreclosures and business failures, there may be good news on the horizon. As mentioned in the second sentence above, “A skeptical voting population weighs…more federal government..or…less federal government..”. The economic and social ills we’ve suffered over the past few years might just be the very initiative that the US population needs to reexamine the role of government and what the US Constitution has to say about separation of powers between the Federal, State, Local and Individual governments.
Let’s raise a glass to the rollback of an overly centralized federal government that is out of step and out of bounds with the US Constitution. Let’s play a part of getting our States to challenge federal powers that violate constitutional boundaries by state ‘civil disobedience’ or as its better known as, Nullification. Let’s take personal responsibility in what our part is in bringing about change in the direction of Liberty. Become proactive and get involved this year and be a part of the solution.
Moe Buchsbaum, an American arrested for speeding in Evreux, France in 1934, and given a ticket for $100 francs (USD$6.60), appeared before a French traffic court judge and called the French a race of welchers and flatly refused to pay $6.60 to any French court until President Roosevelt receives the total War Debt payment now due from Paris, $141.308.530.79.
Buchsbaum refused to pay on the grounds that the French still had an outstanding war debt owed to the USA. The Judge, bothered as so many other Frenchmen by the embarrassment of the outstanding debt, instead of ordering the prisoner jailed he snapped, “I will accept, Monsieur Buchsbaum, a photostatic copy of a check proving that you have paid the sum of 100 francs to the American Treasury for the account of France.”
As a result of the Buchsbaum incident, the next day the US Treasury recieved wires and property from Frenchmen looking to pay down France’s war debt. Only after receiving confirmation from France of its willingness to allow the debt to be discharged against these deposits was it allowed.
To this day, you can see recorded in the Treasury’s ledger of that year an amount of $6.60 as payment from Moe Buchsbaum.
A couple of things we can learn from that speeding ticket in 1934 regarding the world today is that back then citizens identified more intimately with their national governments, taking pride or shame in what it did, and the belief that one man’s decision can make a difference.
In 1934, even as Roosevelt’s New Deal landmark legislation was being rolled out and its impact not yet felt, government was more limited in size and scope that allowed people to get their minds around causes and more simple structures of liberty and justice. Only a few years later in 1937 however, would American’s love for government turn into contempt as freedom was waylaid for government interventionist policies like the National Industrial Recovery Act which was later struck down by the Courts in 1935 and large scale programs through the Works Progress Administration (WPA), Agriculture Adjustment Act, Farm Security Administration and the introduction of the Social Security Act. A government that had for years been run by albeit ‘aristocrats’ who could be voted in and out of office, was now being transformed into a ‘modern government’ that was being run by institutional and university intellectual elitists who made decisions based on socioeconomic public policy models and were protected and insulated from the electorate.
But the second thing we can take away from this incident is that one man’s decision can have a ripple effect for good. Just as an American in 1934 spoke to an injustice then by saying to a government `France pay your war debts’ so too in 2009 another American spoke to the hypocrisy in Washington, by saying, “President Obama, are you listening?” Partly as a result of that ‘rant heard around the world’ by Rick Santelli of CNBC, a groundswell of grassroots movement of Tea Party and constitutional enthusiasts mobilized and awakened a sleepy majority to demand limited government and constitutional restraint.
As we enter 2011, let’s realize that we can make a difference. Set the cause of Individual Liberty at the forefront of any cause you pursue, and as the only legitimate function of a federal government. To quote Lord Acton, “Liberty is not a means to a higher political end. It is itself the highest political end.”
On Chris Matthew’s Hardball show on December 21, 2010 Matthews commented on what he believes is a growing phenomena across the country, the concept that each of the 50 States have a fundamental right of protection to exercise ‘Nullification’ against unconstitutional federal power. In his closing comments he muses about Jefferson’s agrarian society and “healthcare decided in the town square”, as if to say, the people are too ignorant to make basic decisions on their own without elitists from the federal government as caretakers.
Here’s Matthews closing comments, “Why on god’s earth, why here in these united states to which we all pledge allegiance are men talking loosely of nullification and cessation? Have they no feeling to our country, how it grew, the pain it suffered to grow to this great republic that it is today? There must be something malicious. Don’t people know the power of the words — nullification, cessation? Request a state nullify, overrule an act of congress? Can a group of states nullify an act of congress? Not according to the constitution. Why are we hearing voices raised against the federal government as if this were 1860? I ask this as a question for the basic reason that people around me don’t talk like this. Is that the way people talking this way want us to go — a confederacy? Is that their dream? A country of little farms and loosely allied states, decisions like healthcare are made at the town square? Let’s go back to the old days when we thought of ourselves as citizens of separate colonies and not the united states. Before we complicate life by thinking of americans pledged to certain fundamental values under a strong constitution that protects the rights of individuals. Now, wait a minute. Is that what the states’ rights is about – substituting states’ rights for individual rights? Now it makes sense, doesn’t it?” (You can see full transcripts below)
Matthews’ response is not uncharacteristic of many on both the left and right who view federal powers as an agent for good and the Constitution as securing that power in order to regulate individual behavior in society. Unfortunately for them, that was never the intent of the framers and as Thomas Woods put it, “In a free society people do not require Constitutional Authority to act, the government does”. Matthews and the Washington elites view the federal government as the best protector of individual freedoms, while history has shown the opposite.
It was Massachussetts that stood up to the federal government against the Slave Act in 1850s, which required free states to give up slaves who took refuge in those states. It was the federal government who came up with discriminatory immigration legislation like the ‘Wetback Act’ of 1952. It has been the federal government in conjunction with the federal reserve that has devalued our currency by more than 95% since the Federal Reserve Act of 1913.
While States can make wrong decisions just as well as the Federal Government, the difference that the framers saw was that the States could never become a monopoly and pure sovereign in the same sense as the potential for the Federal Government. Because of the benefit of decentralization and redundancy in there being many states, competition would spur creativity and best practices; while a single monolithic entity like the Federal Government would be more prone to monopolisitc aspects and insulate failure and be resistive to change. A centralized federal system, resistive to change and protected from competition, would more likely use public policy to alter the behavior of its citizens to produce a government-favored outcome. We’ve seen this recently in healthcare and the new FDA bill that regulates food, but also in tax and welfare policies and through regulation of industry.
Both Jefferson and Madison toward the end of the 18th Century wrote about the states’ power of nullification through the Kentucky and Viriginia Resolutions of 1798,99. Jefferson, strongly believed in the right of each state to validate federal powers and could exercise negation of federal law if it didn’t fall under a constitutional power. Madison, on the other hand, while fully believing as Jefferson did in nullification and the need for states to hold the federal government to constitutional standards; he was more cautious in his approach and saw the benefit in enlisting the cooperation of his ‘fellow states’ in either an appeal if not outright nullification of federal law.
Wisconsin Supreme Court Ruling 1859, “Resolved, That the government formed by the Constitution of the United States was not the exclusive or final judge of the extent of the powers delegated to itself; but that, as in all other cases of compact among parties having no common judge, each party has an equal right to judge for itself, as well of infractions as of the mode and measure of redress. Resolved, that the principle and construction contended for by the party which now rules in the councils of the nation, that the general government is the exclusive judge of the extent of the powers delegated to it, stop nothing short of despotism, since the discretion of those who administer the government, and not the Constitution, would be the measure of their powers; that the several states which formed that instrument, being sovereign and independent, have the unquestionable right to judge of its infractions; and that a positive defiance of those sovereignties, of all unauthorized acts done or attempted to be done under color of that instrument, is the rightful remedy.”
As we move into 2011, it will become more apparent that the election of 2010 while a positive result was not the answer to our nation’s ill. To reduce the size and more importantly the sphere of power of the Federal Government, can only come from an outside force – the individual through the States. Power has rarely been relinguished voluntarily. Nullification is one of the tools that must be exercised. I believe you’ll start to hear more and more criticism and villification of the concept as its idea starts to spread and gain traction.
Tools like nullification of unconstitutional federal powers by the States, and decentralization of our banking system in order to bring back value and stability to our currency, are two goals that we should plan for through the Tea Party movement and other grass roots movements that want to see real structural change with the protection of individual liberties as its goal.
In a recent Reason Magazine article, John Stossel says that over a quarter of Americans believe in magic and astrology, but that a much higher percentage are gullible when it comes to the ‘voodoo’ out of Washington. They fall for the shell games of sociopolitical experts and politicians who claim to have the cure for everything from poverty and health care to how the FDA can keep you alive.
Stossel, a TV Consumer advocate in his past says,
“But after I did that for 25 years, I concluded that the harm done by those hucksters is minor compared to the scams perpetuated by politicians.
They promise fiscal responsibility. Then they spend like drunken sailors.
They promise to cure poverty. Then their programs make it worse.
They promise to create jobs. But then they make life so complex and unpredictable that entrepreneurs are afraid to create jobs.
Almost none of their promises come true. But few people approach government with the skepticism it deserves.
Whether you believe in God—or psychics, or global warming—that’s your business. I may think you’re stupid, but if you waste your money on, say, a “strength” bracelet, you only harm yourself.
But being gullible about government hurts everyone. Government is force. When it sells us bunk, we have to pay even if we don’t believe in or want it. If we don’t pay up, men with guns will make sure we do.
It’s good to be skeptical. It’s really good to be skeptical about government.”
Writing in The Economist, Nassim Taleb looks into his crystal ball that foresaw the financial crisis of 2008 unlike many prognosticators, “The great top-down nation-state will be only cosmetically alive, weakened by deficits, politicians’ misalignment of interests and the magnification of errors by centralised systems. The pre-modernist robust model of city-states and statelings will prevail, with obsessive fiscal prudence. Currencies might still exist, but, after the disastrous experience of America’s Federal Reserve, they will peg to some currency without a government, such as gold.”
Taleb believes it is more likely that technology that is more than 25 years old will survive rather than recent tech that will be absorbed by the new or become obsolete.
In the brief article he hints that companies (and other systems like govt, political, charitable, etc) that are ‘debt laden’ won’t survive. Are the financial crisis in Europe and around the world, and political changes like the Tea Party movment signs of that? Taleb has a new book January 2011, Procrustes Bed based on the mythological story of ‘one size fits’ all and the macbre results – keep an eye out for it.
I printed out and scored the 37 ‘cost’ accounts in the 2009 GAO ‘United States Government Financial Statement’. I’ve included the link for the full financial report at bottom of this blog. If you read the section ‘Management’s Discussions and Analysis’, it paints a dire future of a government out of control and unsustainable. Minor adjustments on growth and the political bickering doesn’t help. A major structural change has to happen. Here we go…..
The bottom line is, of the 37 cost accounts on page 45 only 15 can be justified as legitmate Federal powers under the original intent of the US Constitution. Which means of the $3.7 trillion in Gross Costs, only $1.5 trillion is legitimate. The Revenues for 2009 were roughly $2.4 trillion which means the federal operating loss for 2009 was $1.3 trillion which is added to the national debt each year – $14.7 trillion at this writing.
Now I did this quickly on a napkin, but if we cut 37% of federal spending we would have a balanced budget and not add to our national debt. If we also tagged the unconstitutional spending accounts (department of education, medicare, energy, housing, etc) and put a timer on them for phase out (5-10 years), it would leave time for the states to decide individually which, if any they’d want to take on. The remaining 15 accounts (department of defense, justice, etc) are engorged and while the initial across the board cuts will go a long way, we also could look at privatizing some of the remaining departments or outsourcing some of their services.
While 37% is a severe cut in one year we could phase it in over a short period of time as well. Calvin Coolidge cut over 20% coming out of a depression in the early 1920s. The risk though, is not getting meaningful cuts through so I’d start at 37%. Also, the federal employees who are laid off would receive a severance package of wages and benefits for a period of time ranging 6 months to a year based on years of service.
Social Security, because it’s unconstitutional, should also be treated as the programs tagged above and phased out. The states can decide whether they want to institute a retirement program, if their charters allow. The phase out approach we would take would be similar to the approach private industry took in the late 1980s-1990s as they transitioned from Defined Benefit plans over to Defined Contribution plans. Those already in retirement would see no change, and we’d choose private managers and actuaries to keep the plan fully funded each year. We’d decide on a cut off age (50, 55?) and those below that age could receive a choice of a rollover into an IRA or cash payout of the actuarial value of their contributions and establish their own retirement accounts, or find a state that wishes to take on a retirement plan. Those over the cutoff would have same choices as those below cutoff age and in addition, they’d have the option to join those in retirement where the funds would be managed privately and would behave similarly to the existing social security system which is a Defined Benefit plan. Overtime, the federal obligation would diminish and be phased out.
The surplus from the cuts in spending and elimination of more than 50% of federal programs would leave enough room for substantial cuts in taxes and enough tax revenue to cover much lower spending commitments (that are constitutional) and a debt retirement schedule. The effects in substantial cuts in federal taxes on individuals, corporations, estates and trusts, would have a stimulative effect on the economy. Consumer Confidences Indexes would boom. Markets would rally.
Also we would reinstate legislation that required any new debt issuance to originate in Congress, which would hamper willy-nilly debt expansion.
Sounds like a ‘pipe dream’? Maybe- but we have to start somewhere and we need dramatic structural and financial changes to our Federal Government. If you have a cursory understanding of basic accounting and you review this report, you can see the magnitude of the problem we are in. Substantial cuts, retiring debt and shifting of power out of DC and back to the States is the answer. It will invigorate our economy because it tells the markets we’re serious, and in the hands of individuals is where capital is created and best utilized.
Sometimes in our ‘zeal’ for ‘righteousness’ we lose sight of the ‘individual’. I have a term for it and it’s described in a book I’m writing called ‘Zeal For The Weal’ to be finished first quarter next year – sorry for the shameless plug.
When we observe some of the historic reform movements of the past, like the Settlement House movement in the late 19th century which confronted ills of society like child labor, slavery and the plight of immigrants and names like Jane Addams, founder of the Hull House in Chicago which was part of the movement that came from England (Toynbee House) and spread throughout cities in the US – Henry House in NYC, Andover House in Boston for examples. There also was the Moral Majority movement of the 1970s and 1980s that took on the decline of moral values of American Society, getting the word out and gathering together to support marriage, teen pregnancy and to spread the good news of the gospel. Promise Keepers (anyone remember?) was a call to men that they could be ‘real men’ even if they loved God.
While the Moral Majority movement was more of a ‘Christian’ movement – inside the progressive movements, like the Settlement Houses of the 19th-20th century were Christians and churches who played a large part. But where these movements like most reform movements are similar is what they evolve into and the unintended byproduct of its growth.
The Settlement House movement of the late 19th century reform movement started locally and later went nationally. So programs like the Salvation Army and Hull House would compete for private donors in Chicago and would have to prove the effectiveness of their programs. Because of competition, charitable organizations just like private industry would lose funding and go out of business unless they provided value to their clients. In the early 20th century the Settlement House movement started to make inroads into government power and funding, first through municipal and state laws and later through acquiring state financing. Eventually the movement moved nationally and state chapters were formed and then decisions were made to petition for federal regulation and federal financing. Eventually the movement entwined with union and political power became entrenched in Federal Policies and developed a profession out of it called Social Workers, who in large part are funded by federal tax dollars.
The Moral Majority movement (mid 1970s- late 1980s) started in part with rally’s by Jerry Falwell and building state chapters. The message was that sociey had become anemic as a result of the lack of the message and commitment to Christ: showing up in divorce, crime, teen pregnancy and an immoral government. With the election of Ronald Reagan the movement started to nationalize around these values and looking to the federal government to enact laws that support moral issues.
In the late 1980s the movement then centralized with a legislative agenda for choosing candidates and enacting federal and state laws, was being scrutinized by the media and general public. The movement was ‘officially’ disbanded in 1989 although its platform and beliefs have existed in some form or another since and even in the Tea Party movement today. Federal programs that allow for churches and Christian nonprofit businesses to receive tax payer funds for services they provide to their communities have in part come out of the movement.
A common thread that runs through these types of reform movements is, early zeal and cooperation, success and failure that developed tangible results, a focus on taking the movement to a larger scale (national) to enact federal legilation to support the cause and lastly infighting, control and policy issues.
Two things we can learn from these movements: Local (private) solutions work better, while centralized systems (particularly public) are fragile, ineffective and sacrifice individual liberty for a greater social cause. There is an irresistible zeal when you are driven by a ’cause’ that you become myopic and sacrifice the freedoms of the individual.
When the Moral Majority movement looked to infringe upon individual freedoms by restricting behavior for the greater good and the progressive movement (Settlement Houses) looked to infringe upon individual freedoms by redistributing wealth for the greater good, they were met by resistance and eventually the movements died off or absorbed by another movement with early zeal.
The greatest book on the Individual and Liberty is the Bible. By one man’s act all suffered loss, while by another man’s act all gained and by a singular individual act, you or I can receive eternal life. You and I as individuals and by voluntary exchange and association can make a difference, but we lose sight that individuals are unique and unequal in so many ways and that ‘collective’ solutions do far greater harm than good.
If individuals in the Tea Party movement would offer up ideas and solutions on how to reduce the size and power of the federal government constitutionally, sending those powers back to the states, and allow for states and municipalities through individual representation to decide what they want their local government to do, the Tea Party will not suffer the way of past movements but grow in numbers and zeal as long as it has the Individual in mind.
To quote the movie ‘Anchorman’ the 2004 parody of 1970s TV Anchormen starring Will Farrell, “That escalated fast” referring to a group of competing network anchors getting together to talk about their difference and suddenly someone pulls out a trident and someone else is missing a limb. I guess you have to watch the movie to appreciate it. In some ways that’s where the Tea Party movement has come to. The differences are now becoming apparent.
Within the Tea Party movement there’s much diversity: Income, age, ethnicity, religions (or not), personal interests, philosophies of government and social values to name a few. Because there were few identifiable leaders andit was an organic ‘bottom up’ movement, the media grew frustrated trying to find whose head they could pin the phenomena on andhow they should cover it. The Tea Party has changed the s0ciopolitical landscape, but has the movement become a victim of its own success?
I remember the first meeting I went to here in Phoenix, AZ at the state capitol; I engaged old, young, hippies, married, unmarried, those with different sexual orientations, bikers, liberals, conservatives and libertarians. We were excited at the prospects of a grassroots change in Washington and were willing to put our differences aside and focus on what at the time we perceived to be the ‘uniting’ problem: Federal Government was growing too big, taking on unconstitutional powers and crowding in on our personal rights. The challenge to Washington by Rick SantelliCNBC, February 2009, “Mr. President, are you listening?”, rung out around the country as an organizer to confront federal government powers that were spending money they didn’t have andusing power they were not granted. America showed up at Tea Party Rallies around the country and then showed up November 2nd 2010 at the ballot box.
Recently, as the newly elected congressional members converged on DC for orientation there has erupted factions within the movement as the same diversity that caused synergy toward change is now threatening to tear the movement apart.
The Tea Party’s salvation is in the US Constitution itself and the philosophies of our founding fathers. Even after the failure of our first Constitution, The Articles of Confederation, at the end of 1788 and the adoption of our new one, the biggest issue was how much power to give to this newly formed federal government and how to hold it at bay. Jefferson warned of ‘unrestrained’ government, while others like John Adams beckoned for a monarchical republic like Europe was turning toward. In some ways the TP movement possesses similar traits to the failure of the first constitution and the need for a new one. While the AoC lacked teeth in raising finances and representation, there were those at the time who didn’t want to see its demise and there were other forces at the time that were pushing for a constitution with more federal power: banking, military and social. The Federalist Papers expressed the thinking at the creation of the second constitution and the works of Montesquieu’s philosophy of governance (Separation of Powers), the Bible, John Locke, Thomas Hobbes and the events of the ‘Enlightenment’ period and its effects on Europe, guided the Constitution that we accept and defend today.
There were provincial and person interests that conflicted at the time but were put aside at least momentarily as this nation signed a document and set forth on a journey based on strong self government that negotiated openly in local (state) affairs through state (colonies) government and deferred to a new federal entity only on specific matters between states, foreign affairs and the specific items laid out in Article 1 Section 8 of that document. Men were free to pursue their own interests without the burden of the Crown or another abusive government robbing them of their labor and freedoms, except for the limited responsibilities they committed to the federal government to maintain a nation (only those few things that were held in common) and their local commitments to the state (localities) based on its charter or constitution. Because of the theory, Separation of Power, while most power resided in the state, they were free to choose where they wanted to live. So while some territories decided on state churches, others did not, and while some decided on state schools, there were others that did not. The Constitution gave its citizens the greatest potential of individual liberty but still maintaining a nation under a ‘collection’ of eventually 50 individual States that reflected the interests and will of its citizens.
For those of us who have identified with the TP movement realized somehow America had lost its vision and constitutional intent. In a series on Constitutional Liberty, I’ve distinguish between two types of philosophies of governance: Negative vs. Positive Liberty and how they impact our freedoms and the types of legislation that it creates. Here are a couple of excerpts:
“Recently Pierre Mandelbrot passed away at 85, the mathematician who came up with fractal geometric theory in the form of the Mandelbrot Set. Mandelbrot coined the term fractal and was able to show that objects that seemed ‘smooth’ were actually `rough’ and divisible into smaller units of the whole, like mountains, clouds, coastlines and arteries. He once wrote, “Clouds are not spheres, mountains are not cones, coastlines are not circles, and bark is not smooth, nor does lightning travel in a straight line.” So how do you measure a coastline? Wouldn’t it depend upon the resolution or scale you are looking for; which brings us to the point of government or public policies that are designed nationally or on a state or local level to govern the lives of their citizens. In some ways Individuals are fractal-like (in their relationships, motivations, decision-making), there appears to be a ‘self similarity’ and `smoothness’ that Mandelbrot refers to but upon closer observation you see the `differences’ and ‘roughness’. This is partly why social policies and financial systems become fragile and fail, they are unable to account for the immeasurable differences or variables of the dynamics in human behavior in their economic or social models. Out of the crooked timber of humanity, no straight thing was ever made.”(Immanuel Kant)”
“In his 1958 essay, “Two Concepts of Liberty”, Isaiah Berlin lays out the two basic philosophies of government based on ‘Negative and Positive’ Liberty. Berlin’s opening paragraph says, “If men never disagreed about the ends of life, if our ancestors had remained undisturbed in the Garden of Eden, the studies to which the Chichele Chair of Social and Political Theory is dedicated could scarcely have been conceived…Where ends are agreed, the only questions left are those of means, andthese are not political but technical, that is to say, capable of being settled by experts or machines like arguments between engineers or doctors.” Unfortunately, this is not how mankind works, we essentially are not equal (size, intellect, interests, strength, personality), we don’t have common goals, common interests and our desire for outcomes can be very different. Ludwig Von Mises in his classic, ‘Human Action’ says that it is because of man’s inequality that it allows for cooperation and a healthy society: one man’s strength and another’s intellect can work to produce more in cooperation than singular effort. We are therefore more like the fractals that Mandelbrot described than automated systems to be engineered by social and economic scientists who if they can just collect more monies and data will solvethe human viruses in the applications. The theory of NegativeLiberty in reference to governance can be illustrated in JS Mill’s ‘Harm Principle’, “The only purpose for which power can be rightfully exercised over any member of a civilized society, against his will, is to prevent harm to another.” Berlin puts it this way, “The first of these political senses of freedom or liberty, I shall call the `negative’ sense, is involved in the answer to the question `What is the area within which the subject–a person or group of persons–is or should be left to do or be what he is able to do or be, without interference by other persons?’” Berlin goes on to describe PositiveLiberty, “The second, which I shall call the positivesense, is involved in the answer to the question `What, or who, is the source of control or interference that can determine someone to do, or be, this rather than that?” So, NegativeLiberty steps in when man forfeits his ‘right’ to freedom based on a rule or law (treads on another’s liberty), while PositiveLiberty sets behavioral standards that must be met by man’s performance with an ideal outcome of justice, peace or prosperity, for example. PL (PositiveLiberty) limits man’s freedom from the outset, while NL limits a man’s freedom only if he violates a law. The US Constitution was designed giving the Federal Government powers specifically enumerated with Negative Liberty in mind, while those powers not specifically enumerated where left to the States, who through each of their Charters or State Constitutions could allow for Positive Liberty, open to success and failure and the ability of its citizenry to exercise its freedom, whether to flee or stay.”
In other words, centralized power and policies based on large scale projects like those coming out of think tanks and Universities by both sides of the political aisle are inherently flawed because their data is incomplete. The results are what we have today, programs that don’t work and awful unintended consequences, which has led to the Tea Party movement. The constitution protected against this, but over the last century through new interpretations of constitutional power like, ‘Supremacy’ and ‘Commerce’ Clauses, it is like a lock has been picked and individual freedoms are being stolen.
Today’s TP faction seems to be between social conservatives, libertarian and liberals and centers around social value differences . The constitution allows for these issues to be addressed on the state level where public policies can be designed to reflect the interests and lifestyles of its citizens and as the Mandelbrot Set showed above, large scale social policies that assume collective interests, collective equality, and collective justice are exposed to large scale failures. While smaller up close social policies within family, friends and local government allows for smaller scale success and failure and the ability to adapt quickly just as in decentralized economic markets. This is the great flaw in the two dominant parties: Progressive and Conservative philosophies. Modern Progressives believe in ‘managing’ national economic markets to produce an outcome of a society that is Just, Peaceful and Equitable. The Conservatives believe in ‘managing’ national social values to produce an outcome of a society that is Just, Peaceful and Equitable. What modern Conservatives and Progressives miss is that both economic and social values move in tandem and respond in similar ways to freer markets of exchange and association – decentralized (states) small successes and failures don’t destroy the system but strengthen it, while centralized (federal) public policies become fragile and susceptible to catastrophic failure.
The zeal for conflicting desires of freedom and social change that we have today existed at the founding of our nation. As people we are not equal, nor the same, but as Ludwig von Mises said in his book, Human Action, “It is because of the inequalities of man that cooperation can occur.” One man’s strength and one man’s intellect can produce more together than each man’s singular effort. Unfortunately, most political groups are more about ‘harmonizing’ life through arcane centralized federal power which limits liberty, rather than restricting federal powers to constitutional intent and allowing the states (really the individual) through free exchange and association to work on cooperation.
Tea Party friends, let’s get back to the business of dismantling federal power and remanding it back to the states (ultimately the individual) where government can work or even if it fails you and I have recourse whether to flee or stay. The next step is an action plan to bring government into alignment with the Constitution.
What started out thirty years ago as a crusade to drive Christian morality into politics and thus into the laws of our nation and statehood, has ended not with a bang but in a puff of vapor. Its leadership is gone or faded into the social background and where as political parties desperately courted the movement, today there’s a definite disassociation. So what happened and what has it left behind in its wake? I would suggest that the antithesis of the Moral Majority is the Progressive Movement that now shepherds universal health care, environmental legislation and re-distributive policies designed (in their minds) to bring about social justice and equality. Being a part of the Moral Majority Movement in the 1980s and 1990s, and reflecting on what the movement was trying to accomplish, I unfortunately today realize it was misdirected. Some of it might even seem obvious now: ‘The majority forcing its will on a minority’ (like censorship) or ‘limit personal freedoms for the greater good’ (homosexuality). The gospel message starts small like a seed and grows; it changes the life of an individual who then can effect change in his family and community. Christianity to be effective changes mankind one individual at a time, and individuals change society. With a wind at its back and a great candidate in Ronald Reagan, the Moral Majority tried to use its political capital to enforce its moral will on American Society through the use of State powers and it was ugly and shameful. Through the gospel we preached and tried to demonstrate love in our personal relationships, but in our political affiliations and support of heavy handed ‘Pro-Christian’ legislation we demonstrated intolerance for personal freedoms under the law. Our motives might have been for the well being of the ‘sinner’ but in our disregard for the US Constitution and personal freedoms we hardened more hearts than we helped and in my opinion helped to mobilize the progressive movement in opposition.
While the progressive movement dates as far back as Plato and Aristotle and the modern movement from Hegel, Marx and Stuart in response to the Industrial Revolution which embodied itself in US politics with Theodore Roosevelt, Woodrow Wilson and FDR’s ‘New Deal’; it had become dormant in the 1970s, but revived partly in opposition to the Moral Majority Movement in the 1980s, you can read the history of the progressive movement that I wrote on my blog at (The Progressive Movement: Individual Regressivism) for some additional insight. While the philosophies of the Progressive and Moral Majority movements may be different, their delivery system is very similar. The Moral Majority starts out from the perspective, ‘God is not fairly represented in society’, while the Progressive Movement says, ‘There are inequities and abuses in society’. The Moral Majority and Progressive movements are Collectivists in their approach to ideas and in using government, by identifying groups or classes in society. Collectivism is grounded in Holism which believes that the individual is part of a system and inseparable, so in Collectivism the state is emphasized over the individual – ‘the greater good’. Both the Moral Majority and Progressive movements believe that the government was to be used to carry out their policy agendas. The government would use its power to force the will of the many onto the will of the few. Neither one of the movements has shown success at accomplishing their goals; the prohibition movement of the 1920s was a disaster (Alcohol Prohibition Was a Failure) as are drug laws today at promoting morality, and many of the wealth redistribution and government social programs from FDR’s New Deal have produced unintended consequences and huge deficits.
So, the Progressive Movement which unlike the Moral Majority movement has some political capital left in its arsenal. The question is, will it go the way of the Moral Majority and other socio-political movements of the past, which gain power and try to force its will on its subjects only to be eventually rebuffed? Or will it (where I believe the Moral Majority failed) try to protect all freedoms (left and right) and encourage social change (as Moral Majority should have) through society privately with government as a ‘defender’ of freedoms instead of playing an `offensive’ role as a provider. There’s an old idiom, “You can lead a horse to water but you can’t make it drink”, that could be upgraded to “You can lead a horse to water but not only can you not make it drink but you can make it hate water and you as well.” Social movements that use state control and force, even those well intended and containing admirable goals will create more unintended consequences, raise suspicions of the state with possible overreactions and eventually will be turned away by the people in the end.
Christopher M. Mahon, Editor 2009