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billions & trillions

A Peaceful Transfer of Power Is a Good Start, But…

by adam on January 20, 2009 · 0 comments

Today, as President Obama takes the oath thingy about upholding the U.S. Constitution— his hand resting not on the Constitution itself, but instead on a book bursting at the seams with befuddling contradictions, cruel prejudices, self-destructive rationales, and death-defying wish-fulfillment fantasies— pundits aplenty will trot out the vapid cliche, “the peaceful transfer of power,” to congratulate the country and its political elites on not resorting to bloody insurrection to install a new president. “America,” cliche-peddlers will propound, “is the envy of the world,” because of this peaceful power transfer business.

Don’t get me wrong, I have nothing against peaceful transfers. I was a half-back when I played football in my youth and always appreciated a decent hand-off at the beginning of a play. However, gushing over a peaceful transfer… of power… strikes me as jumping the gun in light of the obvious and pertinent question, the peaceful transfer of power to do what exactly?

Many people argue that a democratically elected president has earned the consent of the people, such consent being the prerequisite for the just exercise of political power. President Obama won the election fair and square, therefore he has the moral right to use his power to pursue the agenda that ostensibly got him elected. That’s an intuition-friendly notion, but it’s deeply flawed.

The process by which politicians are elected is separate and distinct from the source of an elected official’s moral legitimacy. The democratic means by which an American politician gains power do not justify the ends to which he purposes that power, just as the technical processes by which a bill becomes a law do not magically confer on that law the quality of being just. Tragically, we live in a time when the Constitution is treated primarily as an instructions manual for electing officials and passing laws. But it is fraudulent to assert that laws passed in a “constitutionally” adequate manner are necessarily constitutional. Substance matters, people!

How should elected officials morally justify their use of power?

In America, which is a republic not a democracy, each citizen’s freedom to act and our government’s latitude for passing and enforcing laws should be substantively limited (1) by the inherent value of individual human life and (2) by the concept that no one is above the law (ie, the rule of law). Doesn’t get more basic than this. Every person must be treated as the sole owner of his/her life; no person can be used against his/her will as a means to the ends of others; all laws apply equally to all people.

Another way of saying this is that in a free society, an individual’s actions and a legislature’s laws are justified by their consistent respect for private property rights, that is, each individual’s inviolable right to the use of his/her body, mind, labor, land, and belongings.

The most profound stimulus program that our government could possibly undertake would be based on (1) repealing all laws that regulate, tax, or punish nonviolent behavior, entrepreneurial activity, and voluntary trades and (2) repealing all laws that confer advantages and/or wealth on some at the involuntary expense of others. Respecting individual liberty and the rule of law would result in government we can afford and a sustainable, dynamic, wealth and innovation producing economy. And here’s the thing: President Obama has the power to advance this approach to our country’s dismal economic situation, which is itself a product of disrespecting individual liberty and undermining the rule of law.  Alas, don’t hold your breath. President Obama is launching his first term with politics-as-usual, nearly a trillion dollars worth of “stimulus” spending, using money he’ll borrow from ours and future generations’ earnings. Moreover, Obama promises more trillions in deficit spending to come. Audaciously, I hope that he’ll change his mind, give me something I can believe in, like real change, for example. Otherwise, I hope he’ll be thwarted by sensible opponents, though the ranks of the sensible are thin.

A peaceful transfer of power is a good start, but President Obama will be judged on what he did with the ball after the hand-off.  Here’s some of what I’ll be paying attention to over the next four years.

***

• To what extent will President Obama use his power to repeal/weaken/affirm/strengthen laws that interfere with my freedom to make decisions about the use and treatment of my body? In medical, recreational, reproductive, and sexual contexts, will President Obama leave me free to make choices and pursue options on my own, or intervene in ways that criminalize peaceful options or increase the costs of legal ones? Will he interfere with the market processes that generate more and less costly health care options, or will he wedge more bureaucracy between me and health care professionals? Will he set free people who are wasting away in jail for simple drug possession/drug use/or selling to adults?

• To what extent will President Obama interfere with my freedom and ability to make money, invest capital, hire employees, grow my business. Will he restrict nonviolent career options? Will he reject the bullying techniques of unions? Will he support or reject price floors on labor, tariffs, wealth transfers to groups of people or industries? Will he eliminate/decrease/increase taxes on capital gains? Will he use the tax code to discriminate against levels of success? Will he abolish the Department of Agriculture, or at the very least eliminate the sinful practice of paying farmers not to grow (or even to destroy) crops? Will he downsize or upsize the federal government? Will he get the government out of the retirement insurance business or raise taxes to meet shortfalls?

* To what extent will President Obama expand or reduce the global U.S. military presence? Will he repeal the Patriot Act? Will he engage in preemptive interventions? Will he only engage in foreign military actions after a proper declaration of war by Congress?

My libertylovin’ fingers are crossed on both hands.

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Discombobulating Capitalism With His Last Presidential Breath

by adam on January 16, 2009 · 0 comments

W.’s farewell address featured his vexing habit of exalting liberty and freedom and “the free enterprise system” with jingoistic rhetorical flourishes anchored in la-la land. Back on Earth, authentic libertylovers remain irate over W.’s willingness to depict himself as an advocate of capitalist ideals that he consistently undermined in practice. It is truth irrefutable that W. ushered in big government conservatism, driving the greatest increases in entitlement spending and corporate welfare the country has ever experienced. W. dabbled in protectionism when it was politically expedient for him to do so, signed huge agricultural subsidies, signed off on over a trillion dollars in corporate welfare programs in the last months of his presidency, and yet he has portrayed himself repeatedly and vociferously and fraudulently, as a stalwart champion of free markets.

To the extent that W. fostered and reinforced the impression that his failed interventionist policies reflect capitalism-in-action, he has discombobulated the popular understanding of capitalism. This tragic accomplishment will reverberate not merely in his presidential legacy. It will be felt in public policy debates to come, when honest advocates of private property rights, voluntary trading based on mutual consent, and the profit-and-loss system of competition are challenged to defend their proposals in light of the failures of the self-professed capitalist, George W. Bush. Of course, specious claims like that will not stand up to serious scrutiny, but the popular perception that free markets failed under W. has set the stage for professional politicians who will make hay promising a tsunami of new-fangled, old-school, big-government interventionism.

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Public-Sector vs. Private Responses to Bad Decisions, Part Deux

by adam on January 8, 2009 · 0 comments

Here’s a lovely question for a rainy day in NYC: Why don’t more politicians kill themselves given the depth and scale and reach of their failures? At the very least, why don’t more politicians seem depressed? Look at the financial condition of the states and the federal government. You wouldn’t exactly be surprised to learn that the suicide rate among professional politicians had increased in the last year.

A businessman loses millions of dollars, becomes ashamed and despondent, and then decides to end his life. I’ve read this story several times in the last year. Far more frequently, we read about politicians wasting hundreds of billions of dollars on failed programs, spinning the failures as “well intended moves in the right direction,” and then running for re-election, if not higher office. I can’t remember the last time I read about a single professional politician offing himself. Strange, that.

Do political leaders value their lives more than business leaders value theirs? I doubt it.

I daresay that Congressmen who have helped to increase funding for the status quo in public education but also somehow manage to have a shred of conscience should experience a modicum of suicidal ideation when reviewing the abject failure of their spending. At least a nightmare or two.

But that’s not satisfying to me. Where is the actual retribution for their negligence on education and other public policy issues where government has become less effective and more costly over time? Businessmen in general are accustomed to the practical experience of accountability, which essentially is justice. Successful businessmen thrive on accountability, whereas the most successful politicians elude it. Businessmen who don’t kill themselves when their businesses fail must deal with real world losses. They can’t keep failing and expect to succeed. That would be preposterous. Quite the contrary is the case with professional politicians.

In competitive markets, profits and losses are signals from consumers to producers about the quality of the decisions they’ve made. It is impossible for a business owner to thrive if her decisions continue to ignore customer feedback. In many ways, signals of failure and the adaptive responses they encourage are responsible for success. But that doesn’t change the fact that some businessmen will make decisions that are so bad that there’s no way to save their business, and they’ll have to start all over again.

(((((Curiously, the only way most government enterprises “succeed” (ie, receive budget increases) is by failing to accomplish some or even all of their goals in the previous year. “If we had more funds..” leads to budget increases; “we met our objectives…” leads to budget cuts. More on that some other time.)))))

Politicians (1) compete to keep their jobs and expand their power (2) compete to advance particular public policies (those likely to help them get reelected), and (3) compete to be perceived as responsible for policies that generate good results and opposed to policies that generate suboptimal results, regardless of how they actually vote. (For example, remember Hillary Clinton voted to authorize the use of force in Iraq at the president’s discretion, but portrayed herself as opposed to the substance of that vote). In other words, professional politicians can (and do) make bad decisions on a regular basis, but still thrive. It helps them that (1) they’re playing with the house’s money (and with the power to print money out of thin air), (2) the ill effects of their policies affect others directly and them (mostly) indirectly, and (3) those ill effects are frequently difficult to trace to one particular vote of one particular politician.

What does it cost a politician to support the continuation of a failed policy?  The entrepreneur will lose her business for following such a course of action (or they used to before the bailout proliferation). The politician can still secure the support they need to be re-elected (eg, gaining the support of the teachers union by promising to support a failing policy of automatic tenure).

So politicians are not losing when they support bad public policies, they’re winning, and at your and my expense. No wonder so few of them kill themselves and so many of us wouldn’t mind if they did. We experiences the losses related to their failures, the impact on our society of generations of high school graduates who can’t read, difficulties accessing and affording health care, and on and on. They’re experiencing completely different consequences (ie, the support of a union, the support of an industry PAC, quid pro quo from fellow politicians). Their calculations are inextricably linked to their re-election considerations. Their challenge is to balance their career interests with those of stakeholders in the outcome of any given vote.

Let’s say there is a $100 billion dollar bill about to be voted on in Congress. For the purposes of this example, suppose taxpayers are the only source of revenue for the federal government (they’re not). There are over 134 million taxpayers in the U.S., so the per capita financial impact of the bill’s passage would be approximately $746. That’s not an insignificant charge, but it’s small change compared to the gains the stakeholders (firms and their lobbyists) are chasing. For example, a bank employing 150,000 people lobbies for and receives $25 billion (a per employee gain for the bank of over $16,000.00, and no, I realize the money would not be cut into equal checks for each employee). Obviously, the bank will be far more motivated to support the bill than taxpayers will be to oppose it.

The point is, professional politicians work harmoniously with interested parties to pass legislation with concentrated benefits for those who can help them get re-elected. The costs are so dispersed that taxpayers largely ignore these shenanigans. This is one facet of public choice theory, one of its sharpest contributions to our understanding of why political processes that hurt many and benefit few are ubiquitous.

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Public-Sector vs. Private Responses to Bad Decisions

by adam on January 6, 2009 · 2 comments

There are two news stories on the “front page” of nytimes.com today that make for an interesting exercise in juxtaposition.

First, there’s the suicide of an entrepreneurial billionaire.

Adolf Merckle, the German billionaire whose speculation in volatile Volkswagen stock had pushed his sprawling business empire to the edge of ruin, has committed suicide, his family said Tuesday.

A native of Dresden who made his way to western Germany after World War II, Mr. Merckle parlayed a family business in chemicals into one of the biggest pharmaceutical concerns in the world. Ratiopharm, a maker of generic medicines that nonetheless became a recognized brand itself, became the pride of the family.

Forbes estimated Mr. Merckle’s fortune at $9.2 billion in 2008, making him No. 94 on its list of the world’s richest.

“The distress to his firms caused by the financial crisis and the related uncertainties of recent weeks, along with the helplessness of no longer being able to handle the situation, broke the passionate family businessman, and he ended his life,” the family said in a statement.

More than any other single investment, Mr. Merckle’s poorly timed bet on Volkswagen shares caused the financial distress that led to his death.

In November, it emerged that Mr. Merckle had lost an amount of money in the “low hundreds of millions” by wagering that shares in Volkswagen would fall, a financial transaction known as short-selling.

The bet had put him up squarely against a positively world-famous family, the Porsches. The sports car manufacturer from nearby Stuttgart was in the process of taking over Volkswagen.

On Oct. 26, Porsche announced it had secured stock and options equivalent to about 75 percent of Volkswagen shares. Short sellers, who borrow shares and sell them, hoping to buy them back later at a lower cost, were caught in a bind, since the revelation implied a shortage of VW shares to “cover” the short-selling.

Sad story about a man overwhelmed by the consequences of his horrible decisions. He lost hundreds of millions of euros and was clearly moved to despair by the effects of those decisions on his family, his employees, his investors. Obviously one wishes that he had not taken his own life, and I won’t debate here the morality of that decision. However, I cannot help but think that Merkle felt, correctly, the weight of his responsibility for losing so much, and however maladaptive his response was to that feeling, it was the right feeling.

Then, there’s the headline story, Obama Warns of ‘Trillion-Dollar Deficits’

Mr. Obama also warned that the country faced the prospect of “trillion-dollar deficits for years to come, even with the economic recovery that we are working on.” He said he was troubled by the staggering $1 trillion figure, adding: “I’m going to be willing to make some very difficult choices on how we get a handle on this deficit.”

Mr. Obama said the $775 billion recovery plan was urgently needed to jumpstart the economy. He pledged to be a watchful steward over the money, offering the restriction on earmarks as an example of how he intended to be mindful of Republican criticism that the package could be too costly.

Of course, the deficits weren’t created by Obama and it’s possible to drive oneself crazy quoting W about his “advocacy” of free markets in light of his epic levels of deficit-driven government growth. But now look at Obama’s “plan,” his response to years of W’s deficit spending.

More deficit spending.

The government can’t pay its bills. It’s mortgaging the future earnings of taxpayers to the hilt and printing money out of thin air. It’s on proverbial life support. Will Obama’s plan reduce the size of the federal government? No, of course not. The government will become more expensive under Obama.  And taxpayers are being asked AGAIN to believe that it is necessary for the federal government to augment its already skyscraping, market-distorting expenditures (over a hundred BILLION to AIG, over $750 BILLION in additionally authorized spending, nearly half of which was given to banks [$25 BILLION to each of ~8 "big" banks], more BILLIONS to automakers whose cars are not being purchased, BILLIONS more to foreign banks and financial insurance companies).

I won’t go on at length about the intellectual bankruptcy of this approach. My focus here is on the public response by the president-elect to what have proved to be bad decisions. Deficit spending defers today’s tough decisions, rendering them tomorrow’s tougher decisions. It’s not a strategy for economic growth, it’s a tactic for delaying dealing with reality. And it’s based on people’s faith that politicians are operating on the premise of serving the taxpayers’ best interests.

Obama voted for all of the aforementioned spending packages, even those laden with pork, and they did not “turn the economy around.” And now he’s going to do more of the same thing, with impunity. He is saying that there will be no pork or earmarks in the planned spending, but a huge cut of his spending will involve infrastructure improvements and highways, which happen locally in states, so of course there will be lobbying for spending by interested parties in every state. It will be a feeding frenzy as coalitions of pols and builders jockey for position with their “shovel-ready” projects. The pork is built into his spending plan.

Just as one wishes somebody had been there to engage Merkle before he took his own like (ie, “you don’t have to do this, there are other ways, opting for death is not practical, c’mon, let’s give this second thought and come up with a better response), I’d love to stage an intervention with Obama, to implore him to start from scratch and check his premises about the underpinnings of economic growth. But if he’s unwilling to do that, if he’s firmly convinced that his plan will work, then Obama really must not only explain to us why it is “urgent” that the federal government spend $750,000,000,000.00 that it does not have, that it will have to borrow from foreign banks and/or print into existence, but also share with us his expectations of the effect of that spending. So that its impact can be measured and evaluated by all of us in the context of the originally intended target. How else can we know that Obama in fact has a plan with concrete goals? Hey it’s our money, right? Obama says the federal government “may” have to spend a trillion dollars over budget next year and the year after? Okay, why? And what exactly do we get for it? And if we don’t achieve those milestones, when will you, President “Learn From Mistakes Instead of Perpetuating Them” Obama, reverse this approach, pass deep tax cuts, reduce the size and expense of government, and spend only money that the U.S. Treasury has in hand?

Obama’s error is the same as Merkle’s. Both responses are maladaptive and irreversible. Once Obama authorizes another huge spending package, that wealth will be lost. All of the uses to which you and I and every other taxpayer, born and unborn, would have put that value will be obliterated out of deference for the spending preferences of bureaucrats in DC. The error is the same, but would Obama feel as responsible for making a horrible mistake as Merkle? Would any professional politician every feel as bad as Merkle for a failed, exorbitantly costly program he or she spear-headed?

And why not? Perhaps because Merkle lost what was his, and professional politicians only ever lose what was never theirs in the first place.

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