Tuesday, December 6, 2016

Government Contracts

"Get off my plane."
--President James Marshall (Air Force One)

Donald Trump tweets that the federal government should cancel its order with Boeing (BA) for a new Air Force One because of the project's high price tag--currently about $4 billion. The list price of a 'standard' 747-8 model upon which AF1 is based is about $378 million.

Should there be more room for cancelling government contracts than there is for contracts between private buyers and sellers?

Yes. Public officials who sign contracts for products or even labor are representatives of 'the people.' But in reality not all people will be in support of the government contract. Signing a contract that forces some people to abide by stipulations that they did not agree to is grounds for voiding the contract.

Suppliers who ink contracts with government agents, which includes creditors who buy sovereign debt, should be aware of the possibility that they can be legitimately reversed. In the case of bonds, that means legitimate grounds for default.

no positions

Monday, December 5, 2016

Modern Day Slaves

Colonel Robert Gould Shaw: It stinks, I suppose.
Trip: Yeah, it stinks bad. And we all covered up in it, too. Ain't nobody clean. Be nice to get clean, though.
--Glory

Using an analogy from the popular TV series The Walking Dead, Jacob Hornberger suggests that many people narrowly view slavery as the chattel version practiced by southern states prior to the Civil War.

But many other forms of slavery exist. Any time a person must routinely surrender production under penalty of force constitutes slavery.

As JH correctly concludes, modern day taxpayers are today's fractional slaves.

Sunday, December 4, 2016

US Population Density

In a big country
Dreams stay with you
Like a lover's voice
Fires the mountainside
--Big Country

Cool animated map of population density of the continental United States from 1790 - 2015. Many of the blank spots in the first 100 yrs are due to lack of data, as people were living in many of those areas--albeit thinly w.r.t. density. The visual of the second century is one of increasing splotches as population becomes more concentrated, particularly in urban areas.

Saturday, December 3, 2016

Tax Cuts vs Bailouts

If you drive a care, I'll tax the street
If you try to sit, I'll tax the seat
If you get too cold, I'll tax the heat
If you take a walk, I'll tax the street
--The Beatles

Of many headlines Donald Trump made this week, one related to a deal that he helped engineer with Carrier Corp. The essence of the deal was that the company would keep 800 jobs at a factory in Indiana rather than moving them outside the US in exchange for about $7 million in tax breaks.

Of course, the president-elect has no authority to grant tax breaks. But his running mate, vice president-elect Mike Pence, is still governor of Indiana and does possess the influence to get state-level tax exemptions done.

One of the many complaints about the deal comes from, naturally, progressives. Their complaint goes something like this: Barack Obama got all kinds of grief for bailing out the US auto industry following the credit market meltdown eight years ago. What's the difference between Obama's bailouts and Trump's tax cut?

The difference is considerable. When Obama, who in reality extended a plan initiated by his predecessor George Bush, bailed out the auto industry, he forced tax payers to subsidize imprudent behavior of automakers. In an unhampered market, that imprudent behavior would have been penalized by turning economic resources formerly in the hands of people who took excessive risk over to others who would have had the chance to manage those assets more prudently. Bailouts backstop excessive risk taking, and invite more imprudent decision-making in the future.

On the other hand, tax cuts of any kind are not subsidies. They constitute government permission to keep property--property that was rightfully owned in the first place. Tax cuts are peacefully grounded as they remove force from the system.

Bailouts are grants of privilege. They must be funded by imposing financial obligations on others. Tax avoidance of any kind (exemptions, loopholes, etc) confers no privilege. Those who avoid taxes are merely keeping more of what is rightfully theirs.

Friday, December 2, 2016

Flag Burning

"Who's to blame? Well certainly there are those more responsible than others and they will be held accountable. But again, truth be told, if you're looking for the guilty, you need only look into a mirror."
--V (V for Vendetta)

Recent statements by Donald Trump help us illustrate a recent point. Commenting on recent protests that included burning the American flag, the president-elect tweeted that flag burners should be jailed or perhaps even have their US citizenship revoked.

Under the constitutional government developed by our founding ancestors, what can a president legally do to people who burn flags?

Assuming that the flag is the burner's property and the act of burning does not endanger others, then the answer is nothing. Not a damn thing. The President of the United States cannot act like a king.

Burning an American flag under protest is a form of speech--speech which is protected from government interference under the First Amendment.

Under the original central government design, the best Trump could do is to drum up support for a constitutional amendment to ban flag burning--a tall order indeed.

Of course, what gets people nervous about Trump's rhetoric is that presidential power has expanded far beyond original intent. Thus, when a modern president states that he wants to ban speech, take away guns, suspend due process, et al., there is cause for alarm as he may be able to get away with discretionary action.

And guess what? We the people have ourselves to blame. We have sat idly by as presidents since the time of Lincoln have been unconstitutionally assimilating discretionary power aimed at trampling our natural rights.

Thursday, December 1, 2016

Yields March Higher

Will you stand above me?
Look my way, never love me
Rain keeps falling, rain keeps falling
Down, down, down, down
--Simple Minds

After a brief rest, long bond yields have resumed their march higher. Ten year note yields have increased nearly 50% in a month.


The wind in the face of leveraged economies and markets is stiffening.

position in SPX

Wednesday, November 30, 2016

Elections and Expansion of Power

"And, when the last law was down, and the Devil turned 'round on you, where would you hide, Roper, all the laws being flat?"
--Sir Thomas More (A Man for All Seasons)

Increasingly, presidential elections in America throw groups who supported the losing candidate into panic. The panic includes pointing fingers. The president elect is a marxist or fascist. People who voted for him are uninformed or just plain idiots. The election system is rigged or unfair.

An interesting thing about this phenomenon is that it is bipartisan. For example, eight (and four) years ago, Republicans went into hysteria when Barack Obama was elected. Today, it is Democrats' turn as Donald Trump prepares to take the reigns. Complaints only arise when their side loses.

One way to explain this behavior is that it aligns with social identity theory and the psychology of losing. People tend to identify with groups--sometimes very strongly. They can develop such an psychologically vested interest in their group being superior that, when their group loses or is put down, they cope with cognitive dissonance by blaming others.

Another way to explain it is that there is true reason to be terrified. Today's US president holds far more discretionary power than our founding ancestors intended. That may be ok with you if the person in charge shares your values. But if a sitting president does not like you or the group you belong to, then the nation's chief executive is in a position to trample your rights with, borrowing from the current administration's stated approach to lawlessness, with the stroke of a pen or a phone call.

The anti-federalists foresaw this situation long ago. Marry discretionary rule with democratic election processes, and you were likely to see at some point just what we're living through today.

But the proper source of blame isn't the other guy. It is with us when we support discretionary expansion of presidential powers when it suits our interests. Because, at some point, that discretionary power quite likely will be wielded by someone we don't like and who doesn't like us.

Tuesday, November 29, 2016

Making America Great Again

We, so tired of all the darkness in our lives
With no more angry words to say can come alive
Get into a car and drive
To the other side
--Joe Jackson

President elect Donald Trump's campaign slogan was 'Make America Great Again.' Of course, countries such as the US are merely collections of people. It is people living inside of countries who can act in great ways.

It is true, however, that capacity for greatness is influenced by a country's environment. For example, how a country's various legal and economic institutions are structured can place a wind at peoples' backs or in their faces on the path toward greatness.

Perhaps a more appropriate campaign slogan would have been 'Make America's Environment More Capable of Facilitating Greatness.' Unfortunately, it's not very catchy.

The most significant factor that influences a country's environment for facilitating greatness involves the extent to which its people are free. Free people can exercise their God-given right to peacefully pursue their interests. When people can freely act, great things happen.

Unfortunately, policies enacted during past administrations have made us less free. Moreover, many of Trump's campaign planks, such as protectionist trade policy and government funded infrastructure projects, serve as powerful headwinds that stall great endeavors.

It is reversing such policies, i.e., removing government force from the system, that is critical to an environment that promotes greatness.

Ron Paul suggests that ending the 100+ year dominance of the Federal Reserve over monetary policy is vital in this regard. The Fed's fiat monetary policies have destroyed the purchasing power of our currency and unnaturally tilted the scales toward more economic inequality.

During his campaign, Trump indicated that he is aware of these problems to some degree. It remains to be seen, of course, if he is serious about acting on them.

By removing government force from the monetary system, people can freely decide on things such as what constitutes effective money and how much borrowing should cost.

Ron Paul is correct. Monetary freedom lines the path toward greatness.

Monday, November 28, 2016

Of Clothes and Cake

"Sorry, the bar is closed."
--Bartender at fashion show (Bright Lights, Big City)

Thought similar after hearing news this past weekend that prominent fashion designers are refusing to outfit Melania Trump for the presidential inauguration. If bakers can be forced to serve particular customers, then why can't fashion designers?

When freedom of association, which includes the right to discriminate, is taken away, then intolerance of any sort is illegal.

Pretty sure Ms Trump will be able to make do without the presidential clothiers, though.

Sunday, November 27, 2016

Real Fakes

"A journalist makes himself the hero of the story. A reporter is only a witness."
--Jim Cleary (Deadline U.S.A.)

In a timely follow up on yesterday's post, Glenn Greenwald dissects the Washington Post's shoddy work in their reporting on venues deemed to be 'fake news' outlets. As noted yesterday, it could hardly be more ironic that an outlet whose product is consistently slanted is accusing others of reporting 'fake news.'

The longer WaPo and other mainstream media sources cling to such absurd threads, the more likely it is that their brands will lose any equity that they have left.