All for freedom and for pleasure
Nothing ever lasts forever
Everybody wants to rule the world
--Tears for Fears
In previous posts we distinguished between outsourcing and offshoring, and we observed that offshoring in particular is subject to political meddling. Perversely, while politicians jawbone against the practice of offshoring, many of their policies exacerbate, rather than brake, offshoring tendency.
Consider the following three general policy categories:
Tax rates. Econ 101 tells us that when you tax a behavior, you get less of that behavior. Couple that with US corporate tax rates that approach 40% - among the highest in the world - and, voila, policymakers have created compelling incentives for companies to operate outside the US.
Minimum wage laws. Minimum wage laws are a form of price control which imposes a price of hourly labor above the free market rate. Minimum wage laws also can be viewed as a monopolistic grant that protects a subset of workers from would-be workers willing to do the same job for lower pay. Econ 101 tells us that minimum price controls drive buyer (in this case employer) demand from the market. Thus, not only do minimum wage laws result in compulsory unemployment for some workers in domestic markets, but these laws encourage companies to look at foreign markets where labor can be obtained at a cheaper rate.
Regulation. Regulation in its general form involves any government interference in voluntary exchange between individuals. Tax and minimum wage laws discussed above can be viewed as regulation. Here, however, let's limit the notion of regulation to government interference in processes of production. In this context, regulatory burden might include product requirements (e.g., safety, quality), production process requirements (e.g., environmental, mandatory practice, testing, record keeping), and/or licensing requirements (process qualification, individual qualification), among others. Plainly, regulation raises cost of production. It also reduces flexibility to quickly move in directions that better satisfy market needs. Incumbents as well as aspiring entrepreneurs will be prone to look abroad for less regulated markets that reduce cost and increase freedom.
We might include other policies as well. For example, monetary policies that force interest rates lower discourage saving, thereby starving markets of real capital for investment. High levels of government spending and debt reduce forecasting clarity, thereby making it more difficult to plan for the future.
Clearly, policymakers have enacted rules that tilt the playing field away from domestic employment and toward offshoring.
The escalating presidential campaign provides a nice example of the politics of offshoring. Recently President Obama has been chastising challenger Mitt Romney for offshoring jobs during Romney's time at Bain Capital. Because Obama presides over an offshoring friendly political system, this is a classic 'pot calling the kettle black' accusation.
And Romney should have said so. He should have said that he, like hundreds of thousands of managers, was making decisions inside a system distorted by rules that encourage offshoring. This system is currently being overseen by the Obama administration. Romney should have said that before lashing out at others, President Obama should perhaps get his own house in order by dedicating effort toward lower corporate tax rates, abolishing minimum wage laws, and less regulation.
Unfortunately, Romney did not say so. He either a) does not possess capacity for recognizing lay up opportunities when presented with them, or b) he would like to preside over similar offshoring-friendly policies himself. Given Romney's history as a Big Government type, b) seems more likely.
Regarding offshoring, these two candidates may be more alike than different. Both seem either clueless about the president's role as offshorer-in-chief, or they think that voters are clueless.
Tuesday, July 31, 2012
Monday, July 30, 2012
So Far Away
Here I am again in this mean old town
And you're so far away from me
And where are you when the sun goes down
You're so far away from me
--Dire Straits
Taken from this piece, below is a nice little graph demonstrating that domestic equity markets remain closer to where bear markets begin rather than end.
Sage Richard Russell has often noted that secular bear markets end at compelling valuations. He has cited trailing PE ratios of 4-8 for the DJI.
We are far from that sort of 'value range' currently.
Also consistent with John Hussman's work suggesting that US stocks are in aggregate at levels more commonly associated with market tops.
position in SPX
And you're so far away from me
And where are you when the sun goes down
You're so far away from me
--Dire Straits
Taken from this piece, below is a nice little graph demonstrating that domestic equity markets remain closer to where bear markets begin rather than end.
Sage Richard Russell has often noted that secular bear markets end at compelling valuations. He has cited trailing PE ratios of 4-8 for the DJI.
We are far from that sort of 'value range' currently.
Also consistent with John Hussman's work suggesting that US stocks are in aggregate at levels more commonly associated with market tops.
position in SPX
Saturday, July 28, 2012
Shlaes' Forgotten Man
Meet the new boss
Same as the old boss
--The Who
After many starts and stops, finally finished Amity Shlaes' (2007) The Forgotten Man. The title is adopted from William Graham Sumner's 1883 essay about the individual who is robbed by the welfare state.
Rather than employing a purely economic approach (of which I have read quite a few), Shlaes views the Depression thru more of a narrative lens using a number of leading characters in the story. Thus, I became familiar with a number of people (e.g., Stuart Chase, Harold Ickes, David Lilenthal, Andrew Mellon, Raymond Moley, Rex Tugwell, Wendell Wilkie) that I previously knew little about.
Because of her approach, Shlaes' recount has a personal feel that works pretty well. She did her research, too. There are pages of notes and references although she does not employ superscripts to explicitly link her narrative to her sources.
The book consists of 15 chronologically arranged chapters. Each one has a primary theme although Shlaes is careful to insert other important events as the timeline unfolds.
Some of the highlights as they come to mind:
Calvin Coolidge was the closest we came in the 20th century to a 'hands off' president. While not perfect, he labored largely to get government out of the way of the people. On the other hand, his Commerce secretary Herbert Hoover was making a name for himself as a hands-on interventionist. Coolidge, observing the people's enthusiastic response to Hoover's handouts, decided not to run for re-election in 1928. Shlaes doesn't say this, but it is easy to posit that Coolidge's decision to bow out may have been one of the largest errors in judgment of the period. I doubt that Coolidge would have meddled anywhere close to the degree that Hoover did following the events of 1929. In turn, the entire dynamic of the 1930s may have been profoundly different had Coolidge won a second term.
Despite what mainstream history books imply, Hoover was far from a 'free marketer.' He constantly espoused that government should 'do more' to help the people. His actions place him in line with other Progressive presidents who dominated the office in the first half of the century.
Similar to Flynn (1954), Shlaes finds FDR to be more of an opportunistic politician than an ideologue. He would readily shift positions if he thought that it would earn him more votes. FDR's campaign themes demonstrate his opportunism: 1932 class warfare; 1936 building special interest groups and buying their votes; 1940 war leadership. His spontaneous inconsistency drove many of his staffers (e.g., Ray Moley) away.
Although FDR himself was not an ideologue, he populated his administration with people who possessed strong socialistic (a.k.a. 'progressive') ideologies. Progressive fascination with Stalin and Soviet Russia is something that we do not hear much about today. However, in the late 1920s/early 1930s, boatloads of Progressives, including many that wound up in FDRs administration, toured Russia and waxed poetic that this was the social/political model for the world.
FDR's staff, known as 'the brain trust' because of its weighting toward academics with little real world experience, used government force to change the nature of markets with its New Deal programs - much of it in the name of 'experimentation.' The hubris of this group - their sense that they knew better than citizenry - remains truly eye popping to this day.
Not all citizens took kindly to the experimentation of the brain trust, and it was not long before challenges to many New Deal programs began making their way thru the court system, with many winding up before the Supreme Court. The High Court, led by the Four Horsemen, struck down a number of early New Deal programs such as the NIRA, AAA, various minimum wage laws. Shlaes does a particularly good job of profiling the 'sick chicken' case of the Schechter brothers that wound up breaking the NRA.
That the Supreme Court was not falling in line with his New Deal initiative irritated FDR to no end. He publicly railed against the Court, and liberal commentators such as Pearson and Allen (1936) lambasted the justices using the Progressive party line that they were out of touch with the modern world. After his re-election in 1936, FDR proposed his court packing plan that would allow him to appoint more Supremes that shared his view. Many citizens were appalled; even his closest supporters cautioned him of overreach. After finding little support for his plan even among congressional Democrats, FDR withdrew his plan.
But he ultimately won the war. Swing justice Owen Roberts suddenly turned his hat around and began siding with leftists on the court. The Four Horsemen, all of them 70 yrs or older by 1936, began retiring, which enabled FDR to subsequently replace them with cronies such as Felix Frankfurter. The fix was then complete.
Shlaes dedicates a significant portion of her story to the TVA and the federal government's near takeover of the utilities sector. In the 1920s, electricity was a growth industry, with residences being wired for the first time. FDRs New Dealers clearly saw this sector as a major political opportunity. Using the Tennessee Valley Authority run by David Lilenthal as a pilot project, the federal government sought to demonstrate how it could help improve standard of living for commonfolk through the provision of 'cheap power.' Because government was essentially competing with private industry using tax payer funds, this put many utility company execs in the spotlight. One of these was Wendell Wilkie, who handled himself well enough in public debates on the subject to become the Republican presidential nominee in 1940. The TVA was complemented with farming projects and communes (e.g., Casa Grande) meant to demonstrate how centrally planned communities could provide benefits that competitive markets could not.
Shlaes provides compelling evidence that, despite the massive government intervention that took place first under Hoover and then under FDR, that the economic barely moved by the end of the 1930s. Many of New Deal programs were outright failures and didn't see the 1940s. Others did little to add long term value, indicated by the fact that nearly all jobs 'created' by the government were short term and when the money ran out, the jobs disappeared. Stated differently, any good coming from government supplied stimulus was temporary and unsustainable.
She astutely makes the point (although I thought she could have made it stronger), that a primary reason for the persistence of the Depression was lack of investment capital. There was not much in the way of savings that could fund productivity improvement projects. What little capital did exist either a) remained on the sidelines because of huge uncertainty among capitalists about what FDR was going to do next, b) was offset by massive government spending. On the margin, capital was being consumed. As we have discussed on these pages many times, this is a ticket for the Lower Standard of Living Express.
Unemployment and investment remained weak up until WWII. Indeed, the perverse lesson that hard core policymakers likely derive from the Depression is that war can be an effective way to jump start an economy - assuming that you wind up winning the war, of course.
One area area where Shlaes could have done more relates to her title. Sumner's Forgotten Man is the individual who pays at the point of a gun to subsidize welfare programs. I think this work would have benefited from more on-the-ground research of actual forgotten men during the 1930s. Yes, Shlaes touches on some high profile characters such as Andrew Mellon, but it would have been interesting had more research been dedicated to typical taxpayers and their thoughts and activity during the time.
Such an approach would have resulted in a work truer to its title.
Nonetheless, this book is a worthy read. The reader will experience many deja vu moments connecting characters, behaviors, and events from the 1930s to our present day situation.
Reference
Pearson, D. & Allen, R.S. 1936. The nine old men. Garden City, NY: Doubleday Doran.
Shlaes, A. 2007. The forgotten man: A new history of the Great Depression. New York: HarperCollins.
Same as the old boss
--The Who
After many starts and stops, finally finished Amity Shlaes' (2007) The Forgotten Man. The title is adopted from William Graham Sumner's 1883 essay about the individual who is robbed by the welfare state.
Rather than employing a purely economic approach (of which I have read quite a few), Shlaes views the Depression thru more of a narrative lens using a number of leading characters in the story. Thus, I became familiar with a number of people (e.g., Stuart Chase, Harold Ickes, David Lilenthal, Andrew Mellon, Raymond Moley, Rex Tugwell, Wendell Wilkie) that I previously knew little about.
Because of her approach, Shlaes' recount has a personal feel that works pretty well. She did her research, too. There are pages of notes and references although she does not employ superscripts to explicitly link her narrative to her sources.
The book consists of 15 chronologically arranged chapters. Each one has a primary theme although Shlaes is careful to insert other important events as the timeline unfolds.
Some of the highlights as they come to mind:
Calvin Coolidge was the closest we came in the 20th century to a 'hands off' president. While not perfect, he labored largely to get government out of the way of the people. On the other hand, his Commerce secretary Herbert Hoover was making a name for himself as a hands-on interventionist. Coolidge, observing the people's enthusiastic response to Hoover's handouts, decided not to run for re-election in 1928. Shlaes doesn't say this, but it is easy to posit that Coolidge's decision to bow out may have been one of the largest errors in judgment of the period. I doubt that Coolidge would have meddled anywhere close to the degree that Hoover did following the events of 1929. In turn, the entire dynamic of the 1930s may have been profoundly different had Coolidge won a second term.
Despite what mainstream history books imply, Hoover was far from a 'free marketer.' He constantly espoused that government should 'do more' to help the people. His actions place him in line with other Progressive presidents who dominated the office in the first half of the century.
Similar to Flynn (1954), Shlaes finds FDR to be more of an opportunistic politician than an ideologue. He would readily shift positions if he thought that it would earn him more votes. FDR's campaign themes demonstrate his opportunism: 1932 class warfare; 1936 building special interest groups and buying their votes; 1940 war leadership. His spontaneous inconsistency drove many of his staffers (e.g., Ray Moley) away.
Although FDR himself was not an ideologue, he populated his administration with people who possessed strong socialistic (a.k.a. 'progressive') ideologies. Progressive fascination with Stalin and Soviet Russia is something that we do not hear much about today. However, in the late 1920s/early 1930s, boatloads of Progressives, including many that wound up in FDRs administration, toured Russia and waxed poetic that this was the social/political model for the world.
FDR's staff, known as 'the brain trust' because of its weighting toward academics with little real world experience, used government force to change the nature of markets with its New Deal programs - much of it in the name of 'experimentation.' The hubris of this group - their sense that they knew better than citizenry - remains truly eye popping to this day.
Not all citizens took kindly to the experimentation of the brain trust, and it was not long before challenges to many New Deal programs began making their way thru the court system, with many winding up before the Supreme Court. The High Court, led by the Four Horsemen, struck down a number of early New Deal programs such as the NIRA, AAA, various minimum wage laws. Shlaes does a particularly good job of profiling the 'sick chicken' case of the Schechter brothers that wound up breaking the NRA.
That the Supreme Court was not falling in line with his New Deal initiative irritated FDR to no end. He publicly railed against the Court, and liberal commentators such as Pearson and Allen (1936) lambasted the justices using the Progressive party line that they were out of touch with the modern world. After his re-election in 1936, FDR proposed his court packing plan that would allow him to appoint more Supremes that shared his view. Many citizens were appalled; even his closest supporters cautioned him of overreach. After finding little support for his plan even among congressional Democrats, FDR withdrew his plan.
But he ultimately won the war. Swing justice Owen Roberts suddenly turned his hat around and began siding with leftists on the court. The Four Horsemen, all of them 70 yrs or older by 1936, began retiring, which enabled FDR to subsequently replace them with cronies such as Felix Frankfurter. The fix was then complete.
Shlaes dedicates a significant portion of her story to the TVA and the federal government's near takeover of the utilities sector. In the 1920s, electricity was a growth industry, with residences being wired for the first time. FDRs New Dealers clearly saw this sector as a major political opportunity. Using the Tennessee Valley Authority run by David Lilenthal as a pilot project, the federal government sought to demonstrate how it could help improve standard of living for commonfolk through the provision of 'cheap power.' Because government was essentially competing with private industry using tax payer funds, this put many utility company execs in the spotlight. One of these was Wendell Wilkie, who handled himself well enough in public debates on the subject to become the Republican presidential nominee in 1940. The TVA was complemented with farming projects and communes (e.g., Casa Grande) meant to demonstrate how centrally planned communities could provide benefits that competitive markets could not.
Shlaes provides compelling evidence that, despite the massive government intervention that took place first under Hoover and then under FDR, that the economic barely moved by the end of the 1930s. Many of New Deal programs were outright failures and didn't see the 1940s. Others did little to add long term value, indicated by the fact that nearly all jobs 'created' by the government were short term and when the money ran out, the jobs disappeared. Stated differently, any good coming from government supplied stimulus was temporary and unsustainable.
She astutely makes the point (although I thought she could have made it stronger), that a primary reason for the persistence of the Depression was lack of investment capital. There was not much in the way of savings that could fund productivity improvement projects. What little capital did exist either a) remained on the sidelines because of huge uncertainty among capitalists about what FDR was going to do next, b) was offset by massive government spending. On the margin, capital was being consumed. As we have discussed on these pages many times, this is a ticket for the Lower Standard of Living Express.
Unemployment and investment remained weak up until WWII. Indeed, the perverse lesson that hard core policymakers likely derive from the Depression is that war can be an effective way to jump start an economy - assuming that you wind up winning the war, of course.
One area area where Shlaes could have done more relates to her title. Sumner's Forgotten Man is the individual who pays at the point of a gun to subsidize welfare programs. I think this work would have benefited from more on-the-ground research of actual forgotten men during the 1930s. Yes, Shlaes touches on some high profile characters such as Andrew Mellon, but it would have been interesting had more research been dedicated to typical taxpayers and their thoughts and activity during the time.
Such an approach would have resulted in a work truer to its title.
Nonetheless, this book is a worthy read. The reader will experience many deja vu moments connecting characters, behaviors, and events from the 1930s to our present day situation.
Reference
Pearson, D. & Allen, R.S. 1936. The nine old men. Garden City, NY: Doubleday Doran.
Shlaes, A. 2007. The forgotten man: A new history of the Great Depression. New York: HarperCollins.
Friday, July 27, 2012
Going All In
"I put it all on Lucky Dan...half a million dollars - to win."
--Doyle Lonnegan (The Sting)
Over the past couple of days EU officials have been painting the tape with comments meant to reflect firming resolve to do their best Abe Lincoln--i.e., doing whatever it takes to 'save the union.'
When today's dose of comments hit the tape, domestic equity indexes doubled in a heartbeat. Treasuries and other 'risk off' assets were sold. Ten year yields are up nearly ten percent today.
What stands out to me is how much energy EU officials have put into talk without any action to back it up. Seems to me they either need prices higher right here, or they are playing chicken with factions who are not on board (read: Germany).
Sure feels to me like policymakers are going all in right here.
In any event, I want to sell this rally, and have trimmed more long exposure from an already thinning long side of my book.
position SPX
--Doyle Lonnegan (The Sting)
Over the past couple of days EU officials have been painting the tape with comments meant to reflect firming resolve to do their best Abe Lincoln--i.e., doing whatever it takes to 'save the union.'
When today's dose of comments hit the tape, domestic equity indexes doubled in a heartbeat. Treasuries and other 'risk off' assets were sold. Ten year yields are up nearly ten percent today.
What stands out to me is how much energy EU officials have put into talk without any action to back it up. Seems to me they either need prices higher right here, or they are playing chicken with factions who are not on board (read: Germany).
Sure feels to me like policymakers are going all in right here.
In any event, I want to sell this rally, and have trimmed more long exposure from an already thinning long side of my book.
position SPX
Big Business and the State
"The plane we flew in on this morning...leased from AIG. Construction downtown...AIG. Life insurance 81 million policies with a face value of $1.9 trillion. Billions of dollars of teachers' pensions. You want 'too big to fail?' Here is is!"
--Henry Paulson (Too Big to Fail)
Embedded in this piece is a nice history of the increasingly cozy relationship between government and big business. He integrates a number of key events, including:
Henry Clay and the Whigs' 'American System' which included planks for protectionist tariffs and government subsidized 'internal improvement' projects that benefitted large business.
The American System baton was handed to the Republican Party in 1854. It is straightforward to argue that big business influenced Lincoln and the prosecution of the Civil War.
Post Civil War, 'political entrepreneurs' such as many railroad operators relied on monopolistic grants, subsidies, and loans from the federal government. 'Market entrepreneurs,' on the other hand, were unassisted, and even opposed, by the government.
By 1900, competition was chewing into many large business franchises, driving many corporate leaders to approach Washington for 'regulation' to help keep competition (especially from new entrants) under control. Large businesses allied with administrations beginning with Theodore Roosevelt to advance their agendas.
The Progressive era strengthened the alliance between big business and the State. Progressive 'reforms' such as compensation laws were favored by big businesses and their affiliates.
Despite what history books suggest, no period period matched the New Deal for its incestuous relationships between business and government. FDR's National Industrial Recovery Act was essentially a copy of Mussolini's facist industry verticals. Welfare programs such as Social Security were backed by large corporations as an instrument for levying outsized burdens on smaller, nimbler competitors. FDR's administration also saw the rise of the military industrial complex which survives to this day.
The author lists some of the myriad government policies that prop up big business: licensing laws, regressive taxes, giveaways, military spending contracts, patents and copyright laws, secured higher ed loans, banking regs, credit expansion.
The incestuous relationship between big business and the federal government has clearly been a bipartisan effort. This administration has been no exception, providing bailouts, regulations, low interest rates, etc that favor incumbent operators at the expense of upstarts.
Yet we find President Obama arguing that the federal government is here to protect people from 'big business.' Of course, this administration is doing nothing new. As noted by the author, "'Liberal' politicians have long advanced their own power while serving the very monopolists they claim to oppose."
If you are one of the many who buy the 'government must protect you from big business' argument, then you are being played.
--Henry Paulson (Too Big to Fail)
Embedded in this piece is a nice history of the increasingly cozy relationship between government and big business. He integrates a number of key events, including:
Henry Clay and the Whigs' 'American System' which included planks for protectionist tariffs and government subsidized 'internal improvement' projects that benefitted large business.
The American System baton was handed to the Republican Party in 1854. It is straightforward to argue that big business influenced Lincoln and the prosecution of the Civil War.
Post Civil War, 'political entrepreneurs' such as many railroad operators relied on monopolistic grants, subsidies, and loans from the federal government. 'Market entrepreneurs,' on the other hand, were unassisted, and even opposed, by the government.
By 1900, competition was chewing into many large business franchises, driving many corporate leaders to approach Washington for 'regulation' to help keep competition (especially from new entrants) under control. Large businesses allied with administrations beginning with Theodore Roosevelt to advance their agendas.
The Progressive era strengthened the alliance between big business and the State. Progressive 'reforms' such as compensation laws were favored by big businesses and their affiliates.
Despite what history books suggest, no period period matched the New Deal for its incestuous relationships between business and government. FDR's National Industrial Recovery Act was essentially a copy of Mussolini's facist industry verticals. Welfare programs such as Social Security were backed by large corporations as an instrument for levying outsized burdens on smaller, nimbler competitors. FDR's administration also saw the rise of the military industrial complex which survives to this day.
The author lists some of the myriad government policies that prop up big business: licensing laws, regressive taxes, giveaways, military spending contracts, patents and copyright laws, secured higher ed loans, banking regs, credit expansion.
The incestuous relationship between big business and the federal government has clearly been a bipartisan effort. This administration has been no exception, providing bailouts, regulations, low interest rates, etc that favor incumbent operators at the expense of upstarts.
Yet we find President Obama arguing that the federal government is here to protect people from 'big business.' Of course, this administration is doing nothing new. As noted by the author, "'Liberal' politicians have long advanced their own power while serving the very monopolists they claim to oppose."
If you are one of the many who buy the 'government must protect you from big business' argument, then you are being played.
Thursday, July 26, 2012
Is Self-Defense an Inalienable Right?
Imad: He says, that is his horse.
Balian: Why would it be his horse?
Imad: Because it is on his land.
Balian: I took this horse from the sea.
Imad: He says you are a great liar, and he will fight you because you are a liar.
Balian: I have no desire to fight.
Imad: Then you must give him the horse.
[Balian draws his sword]
--Kingdom of Heaven
Isn't the central question whether individuals have the inalienable right to protect their person and property from forceful invasion by others?
If the answer to that question is yes, then doesn't any government imposed restriction (which of course is forceful itself) that impairs capacity for self-defense violate that right?
Balian: Why would it be his horse?
Imad: Because it is on his land.
Balian: I took this horse from the sea.
Imad: He says you are a great liar, and he will fight you because you are a liar.
Balian: I have no desire to fight.
Imad: Then you must give him the horse.
[Balian draws his sword]
--Kingdom of Heaven
Isn't the central question whether individuals have the inalienable right to protect their person and property from forceful invasion by others?
If the answer to that question is yes, then doesn't any government imposed restriction (which of course is forceful itself) that impairs capacity for self-defense violate that right?
Wednesday, July 25, 2012
Analog Device
Sometimes you picture me
I'm walking too far ahead
You're calling to me
I can't hear what you've said
--Cyndi Lauper
Are we in for a summer market swoon similar to 2011? The spectre has been crossing my mind.
In late July 2011 we had the budget stalemate plus early rumblings from Europe. Despite that, domestic stock markets were closer to their recent highs than recent lows. Action in many individual names seemed bullish.
Not that different from now.
There are bearish similarities as well. In addition to the Euro news, Treasuries were marking new lows. The SPX was tracing out a multi month up-down-up pattern with the recent 'up' seemingly marking a lower high.
One difference this time is that markets are at the edge of their seats in anticipation of more QE action from the Fed. Last year, it took a big swoon before the Pavlovian bell starting ringing in the heads of investors.
Feels deja vu-ish to me.
Personally, I've reeled in some long exposure in both stocks and commodities over the past week or so. Am currently sitting about 5% net long.
position in SPX
I'm walking too far ahead
You're calling to me
I can't hear what you've said
--Cyndi Lauper
Are we in for a summer market swoon similar to 2011? The spectre has been crossing my mind.
In late July 2011 we had the budget stalemate plus early rumblings from Europe. Despite that, domestic stock markets were closer to their recent highs than recent lows. Action in many individual names seemed bullish.
Not that different from now.
There are bearish similarities as well. In addition to the Euro news, Treasuries were marking new lows. The SPX was tracing out a multi month up-down-up pattern with the recent 'up' seemingly marking a lower high.
One difference this time is that markets are at the edge of their seats in anticipation of more QE action from the Fed. Last year, it took a big swoon before the Pavlovian bell starting ringing in the heads of investors.
Feels deja vu-ish to me.
Personally, I've reeled in some long exposure in both stocks and commodities over the past week or so. Am currently sitting about 5% net long.
position in SPX
Tuesday, July 24, 2012
Out of Balance
I close my eyes
Oh God I think I'm falling
Out of the sky, I close my eyes
Heaven help me
--Madonna
We have noted often on these pages that government is essentially force. There are two general purposes for employing government force.
One is to help individuals protect their person and property against forceful invasion by others. This purpose is based on the natural law notion that individuals are endowed with inalienable rights to pursue their interests without forceful impairment by others. The force of government enables liberty by protecting people's pursuits from unwanted invasion.
The other purpose for employing government force is as a mechanism of plunder. Government can be used to forcefully invade the person and property of some individuals for the benefit of others. This purpose is grounded in axiomatic human behavior. Because people have insatiable needs that must be satisfied through productive work, and because people generally prefer less work rather than more work to satisfy their needs, some people will seek to satisfy their needs on the backs of the productive efforts of others. Given government's core competence of force, it inevitably dawns on some people to employ the strong arm of government to take what they want from others.
Some people believe that a balance can somehow be struck between the two purposes of government. When this proposition is seriously considered, however, it becomes clear that the two purposes of government are mutually exclusive. People cannot be free to pursue their interests under a government that is sanctioned to take from some for the benefit of others.
Bastiat recognized the dichotomy long ago when he observed that societies slide away from liberty when the strong arm of government is employed as an agent of plunder.
Indeed, a political system that blends the two purposes of government is inherently out of balance. Plunder is likely to grow, and liberty is likely to shrink.
Instability rather than stability.
Oh God I think I'm falling
Out of the sky, I close my eyes
Heaven help me
--Madonna
We have noted often on these pages that government is essentially force. There are two general purposes for employing government force.
One is to help individuals protect their person and property against forceful invasion by others. This purpose is based on the natural law notion that individuals are endowed with inalienable rights to pursue their interests without forceful impairment by others. The force of government enables liberty by protecting people's pursuits from unwanted invasion.
The other purpose for employing government force is as a mechanism of plunder. Government can be used to forcefully invade the person and property of some individuals for the benefit of others. This purpose is grounded in axiomatic human behavior. Because people have insatiable needs that must be satisfied through productive work, and because people generally prefer less work rather than more work to satisfy their needs, some people will seek to satisfy their needs on the backs of the productive efforts of others. Given government's core competence of force, it inevitably dawns on some people to employ the strong arm of government to take what they want from others.
Some people believe that a balance can somehow be struck between the two purposes of government. When this proposition is seriously considered, however, it becomes clear that the two purposes of government are mutually exclusive. People cannot be free to pursue their interests under a government that is sanctioned to take from some for the benefit of others.
Bastiat recognized the dichotomy long ago when he observed that societies slide away from liberty when the strong arm of government is employed as an agent of plunder.
Indeed, a political system that blends the two purposes of government is inherently out of balance. Plunder is likely to grow, and liberty is likely to shrink.
Instability rather than stability.
Cisco Kid
They're seeing through the promises
And all the lies they dare to tell
Is it heaven or hell?
They know very well
--Journey
Nibbling on Cisco (CSCO) this am. After the bell last nite, the company announced that it would layoff about 2% of its workforce. That's knocked the stock down about 5% thus far today.
Below $16, I think this name represents decent long term value. Technically, the 2008/2011 low rests at about $14. Will be adding between here and there if/when.
position in CSCO
And all the lies they dare to tell
Is it heaven or hell?
They know very well
--Journey
Nibbling on Cisco (CSCO) this am. After the bell last nite, the company announced that it would layoff about 2% of its workforce. That's knocked the stock down about 5% thus far today.
Below $16, I think this name represents decent long term value. Technically, the 2008/2011 low rests at about $14. Will be adding between here and there if/when.
position in CSCO
Monday, July 23, 2012
Offshoring and Politics
They're the first to come and the last to leave
Working for that minimum wage
They'll set it up in another town
--Jackson Browne
Recently we distinguished between outsourcing and offshoring. Offshoring is either a) contracting out (i.e., outsourcing) to external suppliers located in other countries, or b) insourcing by relocating work units in others countries.
Either way, what people tend to see is migration of jobs offshore. What they tend to not see is that, in unhampered markets, offshoring is done in the name of providing better value for customers. When producers deliver satisfy customers in novel or more efficient ways, standard of living improves.
Because people generally focus on what they see, offshoring becomes an attractive target for those interested in preserving domestic jobs. A local union, for example, might demonize a vertically integrated employer that moves a unionized domestic parts operation to another country that operates in a union-free environment.
However misguided they might be, opponents of offshoring have a right to complain. They can buy TV ads, rent lecture halls, and lambast the practice of offshoring to those willing to listen. They might even try to convince buyers to elevate their taste preferences for locally produced goods and services.
Stated differently, opponents of offshoring can market the virtues of keeping jobs at home.
This is all well and good - as long as there is no force involved. Unfortunately, this is commonly not the case.
Politicians possess uncanny capacity for exploiting what people see. They can utilize their expertise in making markets for politial favor to promise those blindly married to the idea of domestic jobs that, if (re)elected, they will work towards bending the rules toward keeping jobs here.
But politicians can only bend rules through the use of force. Only thru the use of force can government coerce people to a) do what they do not voluntarily want to do, or b) not do what they voluntarily do want to do.
When politicians intervene in markets that engage in offshoring activity, consumers are no longer calling the shots. Instead, politicians and their special interest groups (SIGs) are forcefully altering behavior thats fits their view of the world.
Customer satisfaction goes down, standard of living declines, and, quite ironically, domestic employment is likely to take a hit as well.
Perhaps the strangest consequence of the present US situation related to offshoring is that policians have actually bent the rules in a manner that encourages more rather than less offshoring.
To be explained in a future installment.
Working for that minimum wage
They'll set it up in another town
--Jackson Browne
Recently we distinguished between outsourcing and offshoring. Offshoring is either a) contracting out (i.e., outsourcing) to external suppliers located in other countries, or b) insourcing by relocating work units in others countries.
Either way, what people tend to see is migration of jobs offshore. What they tend to not see is that, in unhampered markets, offshoring is done in the name of providing better value for customers. When producers deliver satisfy customers in novel or more efficient ways, standard of living improves.
Because people generally focus on what they see, offshoring becomes an attractive target for those interested in preserving domestic jobs. A local union, for example, might demonize a vertically integrated employer that moves a unionized domestic parts operation to another country that operates in a union-free environment.
However misguided they might be, opponents of offshoring have a right to complain. They can buy TV ads, rent lecture halls, and lambast the practice of offshoring to those willing to listen. They might even try to convince buyers to elevate their taste preferences for locally produced goods and services.
Stated differently, opponents of offshoring can market the virtues of keeping jobs at home.
This is all well and good - as long as there is no force involved. Unfortunately, this is commonly not the case.
Politicians possess uncanny capacity for exploiting what people see. They can utilize their expertise in making markets for politial favor to promise those blindly married to the idea of domestic jobs that, if (re)elected, they will work towards bending the rules toward keeping jobs here.
But politicians can only bend rules through the use of force. Only thru the use of force can government coerce people to a) do what they do not voluntarily want to do, or b) not do what they voluntarily do want to do.
When politicians intervene in markets that engage in offshoring activity, consumers are no longer calling the shots. Instead, politicians and their special interest groups (SIGs) are forcefully altering behavior thats fits their view of the world.
Customer satisfaction goes down, standard of living declines, and, quite ironically, domestic employment is likely to take a hit as well.
Perhaps the strangest consequence of the present US situation related to offshoring is that policians have actually bent the rules in a manner that encourages more rather than less offshoring.
To be explained in a future installment.
Spanish Flies
Everybody gather 'round now
Let your body feel the heat
--Miami Sound Machine
Spanish bond spreads at record wides as the country requested more help for insolvent banks this past wkend. That pounded mkts around the globe overnite and has domestic equity mkts off nearly 2 percent this am.
In classic bureaucratic form, policymakers in Spain and Italy have banned short selling. Nothing like removing a layer of liquidity from an already illiquid mkt...
10 yr T-note yields are at all time lows this morning at ~1.4%.
It's early for sure, but hard not to conjure visions of deja vu from one year ago when TNX broke to new lows ahead of last year's late summer meltdown.
position in SPX
Let your body feel the heat
--Miami Sound Machine
Spanish bond spreads at record wides as the country requested more help for insolvent banks this past wkend. That pounded mkts around the globe overnite and has domestic equity mkts off nearly 2 percent this am.
In classic bureaucratic form, policymakers in Spain and Italy have banned short selling. Nothing like removing a layer of liquidity from an already illiquid mkt...
10 yr T-note yields are at all time lows this morning at ~1.4%.
It's early for sure, but hard not to conjure visions of deja vu from one year ago when TNX broke to new lows ahead of last year's late summer meltdown.
position in SPX
Sunday, July 22, 2012
That Which is Seen, and That Which is Not Seen
I walk along the city streets, you used to walk along with me
And every step I take reminds me of just how we used to be
--Naked Eyes
Thomas Sowell reminds us that creating particular jobs, as boasted by the current president on his campaign trail, does not create net jobs. His observations are applications of Bastiat's (1850) principle of That Which is Seen, and That Which is Not Seen, which was later famously elaborated by Henry Hazlitt.
Sowell astutely observes that the government could create one million jobs tomorrow simply by hiring that many unemployed people. That is typically what people would see, or at least what politicians hope they would see.
But money to pay those people comes from private hands - hands that did not see an economic reason for hiring those people. Thus, capital that stood ready to be deployed when the risk/reward profile was deemed positive was instead consumed in the near term political name of 'job creation.' Absent the capital for projects that increase productivity, large numbers of future jobs are never created. That is typically what people don't see.
Sowell points out that one net effect on jobs currently is that the fraction of working age people without a job has fallen to its lowest level in decades. Moreover, the 'headline' unemployment number does not include 'discouraged' workers - those who have reportedly ceased looking for work. If those people were included in the headline jobless number, unemployment would be double the current 8%+ number that makes the front pages.
If everyone gave up looking for job, Sowell observes, then the headline unemployment number would fall to zero. But that would hardly solve our problem.
The principle of That Which is Seen, and That Which is Not Seen is a fundamental building block of economic logic.
And every step I take reminds me of just how we used to be
--Naked Eyes
Thomas Sowell reminds us that creating particular jobs, as boasted by the current president on his campaign trail, does not create net jobs. His observations are applications of Bastiat's (1850) principle of That Which is Seen, and That Which is Not Seen, which was later famously elaborated by Henry Hazlitt.
Sowell astutely observes that the government could create one million jobs tomorrow simply by hiring that many unemployed people. That is typically what people would see, or at least what politicians hope they would see.
But money to pay those people comes from private hands - hands that did not see an economic reason for hiring those people. Thus, capital that stood ready to be deployed when the risk/reward profile was deemed positive was instead consumed in the near term political name of 'job creation.' Absent the capital for projects that increase productivity, large numbers of future jobs are never created. That is typically what people don't see.
Sowell points out that one net effect on jobs currently is that the fraction of working age people without a job has fallen to its lowest level in decades. Moreover, the 'headline' unemployment number does not include 'discouraged' workers - those who have reportedly ceased looking for work. If those people were included in the headline jobless number, unemployment would be double the current 8%+ number that makes the front pages.
If everyone gave up looking for job, Sowell observes, then the headline unemployment number would fall to zero. But that would hardly solve our problem.
The principle of That Which is Seen, and That Which is Not Seen is a fundamental building block of economic logic.
Saturday, July 21, 2012
End of the Debt Supercycle
"The mother of all evils is speculation. Leveraged debt."
--Gordon Gekko (Wall Street: Money Never Sleeps)
Great interview with David Stockman. Many issues touched here under the general thesis that we're at the end of a multi-decade debt supercycle.
Stockman points out something that we noted months back: Austerity is not an elective course of action. It is something that happens when you are broke. He notes, "austerity is what happens when you break the rules." He is referring to economic rules: you can't forever consume more economic resources than you generate in income.
Spending cuts, defaults, falling prices, rising savings rates all constitute corrective measures for the economic system to get back in balance.
He fingers the Fed as a primary culprit in creating the problems that we face today. Discretionary meddling in the money markets have distorted decisions far and wide. At the very least, we should end the interventionary actions of the FOMC. Should we not dismantle the institution entirely, the Fed could provide a 'last ditch' source of liquidity (per Bagehot), but that liquidity should be priced appropriately for markets under big-time stress (in other words, super high rather than super low interest rates)
As Stockman states, capital markets need "an honest interest rate." Right now we have no interest rate, so we solve nothing. Instead, we are subject to "the monetary Politburo of the Western world" engaging in "Ponzi economics."
Near the end of the interview Stockman reveals his personal positioning. Cash (T-bills) with gold for insurance. He shuns all "securities markets" because he does not think the risk in the current system is worth it. He suggests that when the curtain closes on the Treasury market, all asset classes will be sold as "the great margin call in the sky comes down." To him, the 2008 credit crisis was "just a warm up."
What he's describing is major league deflation.
position in SPX, gold
--Gordon Gekko (Wall Street: Money Never Sleeps)
Great interview with David Stockman. Many issues touched here under the general thesis that we're at the end of a multi-decade debt supercycle.
Stockman points out something that we noted months back: Austerity is not an elective course of action. It is something that happens when you are broke. He notes, "austerity is what happens when you break the rules." He is referring to economic rules: you can't forever consume more economic resources than you generate in income.
Spending cuts, defaults, falling prices, rising savings rates all constitute corrective measures for the economic system to get back in balance.
He fingers the Fed as a primary culprit in creating the problems that we face today. Discretionary meddling in the money markets have distorted decisions far and wide. At the very least, we should end the interventionary actions of the FOMC. Should we not dismantle the institution entirely, the Fed could provide a 'last ditch' source of liquidity (per Bagehot), but that liquidity should be priced appropriately for markets under big-time stress (in other words, super high rather than super low interest rates)
As Stockman states, capital markets need "an honest interest rate." Right now we have no interest rate, so we solve nothing. Instead, we are subject to "the monetary Politburo of the Western world" engaging in "Ponzi economics."
Near the end of the interview Stockman reveals his personal positioning. Cash (T-bills) with gold for insurance. He shuns all "securities markets" because he does not think the risk in the current system is worth it. He suggests that when the curtain closes on the Treasury market, all asset classes will be sold as "the great margin call in the sky comes down." To him, the 2008 credit crisis was "just a warm up."
What he's describing is major league deflation.
position in SPX, gold
Friday, July 20, 2012
Outsourcing and Offshoring
I hear hearts beating loud as thunder
I saw the stars crashing down
--David Bowie
Outsourcing, or 'contracting out,' is purchasing goods and services on the market instead of producing those items internally. All people and all firms face the 'make or buy' decision--i.e., whether it is economically best to insource or outsource.
Insourcing is typically motivated by desires to achieve better control over quality, access, cost, or other aspects of operations. Outsourcing is typically motivated by desires to specialize on a core set of activities; the repetitive learning-by-doing associated with specialization is prone to lead to efficiency gains.
Often, people observe firms electing to outsource particular functions, and the layoffs that may result, and conclude that there has been a net loss of jobs in the economy. These people are likely mistaken. Work no longer being performed inside the firm must be performed by the contractor. There is likely to be little net effect on jobs in the near term. In the long term, outsourcing may increase real returns from work because of positive spillovers gained from the productivity of specialization and trade.
Many people mistakenly associate outsourcing with job loss because of today's pervasive practice of 'offshoring.' Offshoring comes in one of two flavors: a) outsourcing done with suppliers from other countries, b) insourcing done by relocating internal units to other countries. Similar to the general practice of outsourcing discussed above, there should be no appreciable net effect on jobs. Work is merely being shifted elsewhere.
What many people see, of course, is that the work is being shifted to another country. In the here and now, domestic jobs appear lost. Offshoring, therefore, earns a black eye among people those focused on domestic employment.
That focus may be misplaced. Like the decision to outsource, offshoring is generally done because managers view it as favorable for profits. For producers that operate in unhampered markets, profits only come by way of satisfying customer needs. To the extent that offshoring projects generate profits, then these projects have advanced the interests of buyers.
Stated differently, in free markets it is buyers who motivate offshoring, not producers.
Over time, the general effect on domestic employment is likely to be positive as well. If offshoring projects are profitable due to efficiency gains, then lower prices of consumer goods extend purchasing power which in turn, stimulates demand for other goods and the jobs that produce them. Producers that profit from offshoring now possess capital that can be reinvested to build more capacity for customer satisfaction in the future or distributed to owners who can invest or spend on their own. It is also likely that the wages of offshore workers will rise with their productivity which will reduce the attractiveness of future offshoring projects from a labor arbitrage perspective.
Lack capacity for economic logic, many people myopically embrace the domestic job loss story. This makes them easy pickings for politicians with the power to redistribute resources in exchange for political favor.
We'll consider the political angle of offshoring in a future post.
I saw the stars crashing down
--David Bowie
Outsourcing, or 'contracting out,' is purchasing goods and services on the market instead of producing those items internally. All people and all firms face the 'make or buy' decision--i.e., whether it is economically best to insource or outsource.
Insourcing is typically motivated by desires to achieve better control over quality, access, cost, or other aspects of operations. Outsourcing is typically motivated by desires to specialize on a core set of activities; the repetitive learning-by-doing associated with specialization is prone to lead to efficiency gains.
Often, people observe firms electing to outsource particular functions, and the layoffs that may result, and conclude that there has been a net loss of jobs in the economy. These people are likely mistaken. Work no longer being performed inside the firm must be performed by the contractor. There is likely to be little net effect on jobs in the near term. In the long term, outsourcing may increase real returns from work because of positive spillovers gained from the productivity of specialization and trade.
Many people mistakenly associate outsourcing with job loss because of today's pervasive practice of 'offshoring.' Offshoring comes in one of two flavors: a) outsourcing done with suppliers from other countries, b) insourcing done by relocating internal units to other countries. Similar to the general practice of outsourcing discussed above, there should be no appreciable net effect on jobs. Work is merely being shifted elsewhere.
What many people see, of course, is that the work is being shifted to another country. In the here and now, domestic jobs appear lost. Offshoring, therefore, earns a black eye among people those focused on domestic employment.
That focus may be misplaced. Like the decision to outsource, offshoring is generally done because managers view it as favorable for profits. For producers that operate in unhampered markets, profits only come by way of satisfying customer needs. To the extent that offshoring projects generate profits, then these projects have advanced the interests of buyers.
Stated differently, in free markets it is buyers who motivate offshoring, not producers.
Over time, the general effect on domestic employment is likely to be positive as well. If offshoring projects are profitable due to efficiency gains, then lower prices of consumer goods extend purchasing power which in turn, stimulates demand for other goods and the jobs that produce them. Producers that profit from offshoring now possess capital that can be reinvested to build more capacity for customer satisfaction in the future or distributed to owners who can invest or spend on their own. It is also likely that the wages of offshore workers will rise with their productivity which will reduce the attractiveness of future offshoring projects from a labor arbitrage perspective.
Lack capacity for economic logic, many people myopically embrace the domestic job loss story. This makes them easy pickings for politicians with the power to redistribute resources in exchange for political favor.
We'll consider the political angle of offshoring in a future post.
Thursday, July 19, 2012
Federal Register Page Counts
Staring at the blank page before you
Open up the dirty window
Let the sun illuminate the words you could not find
--Natasha Bedingfield
Couldn't resist tracking down those Federal Register pages discussed in the last post. Upon further review, I think the source of the historical data cited in the last post is pretty solid. The source is the Law Librarians' Society of Washington DC. LLSWDC has also developed a nice history and background of the Federal Register (first published in 1936).
Annual Federal Registry pages since 1936 appear below.
Changes in the FR requirements make longitudinal comparison challenging:
1947: addition of proposed rules
mid 1960s: addition of more explanatory material
1973: addition of extensive preambles
The current FR includes about 5% blank pages. There are also ~15 pages in each FR issue devoted to title pages, tables of contents, and reader's guides that the LLSWDC does not count (which may account for discrepencies w/ the previously discussed Heritage Foundation study).
It is obvious that the past 11 yrs of Federal Registry pages does not correlate well with the increase in regulatory burden suggested by the Heritage study of 'economically significant regulations.' Because there is more to the contents of the Federal Register than just new documented federal regulations, lack of correlation is not all that surprising. A more precise measure of regulatory burden from the FR pages might be obtained by counting the actual pages that describe new federal regulations, and maybe subtracting the number of pages that describe the removal of existing regs (although I do not know if that is even done in the FR). It would also be useful to identify the fraction of annual FR pages that contain regulatory matter.
Despite the limitations, FR page counts likely do contain some information about regulatory burden, particularly since 1973 (the date of last noteworthy changes to FR requirements). FR page counts have generally been trending higher since 1973 - eyeball suggests about 25-30%. It seems likely that more regs are contributing to the general rise. As such, raw FR page counts like constitutes a coarse measure of regulatory burden.
Perhaps it is more appropriate to view FR pages as a general measure of federal bureaucracy. When the data are viewed in this manner, the trend is clearly up.
Open up the dirty window
Let the sun illuminate the words you could not find
--Natasha Bedingfield
Couldn't resist tracking down those Federal Register pages discussed in the last post. Upon further review, I think the source of the historical data cited in the last post is pretty solid. The source is the Law Librarians' Society of Washington DC. LLSWDC has also developed a nice history and background of the Federal Register (first published in 1936).
Annual Federal Registry pages since 1936 appear below.
Changes in the FR requirements make longitudinal comparison challenging:
1947: addition of proposed rules
mid 1960s: addition of more explanatory material
1973: addition of extensive preambles
The current FR includes about 5% blank pages. There are also ~15 pages in each FR issue devoted to title pages, tables of contents, and reader's guides that the LLSWDC does not count (which may account for discrepencies w/ the previously discussed Heritage Foundation study).
It is obvious that the past 11 yrs of Federal Registry pages does not correlate well with the increase in regulatory burden suggested by the Heritage study of 'economically significant regulations.' Because there is more to the contents of the Federal Register than just new documented federal regulations, lack of correlation is not all that surprising. A more precise measure of regulatory burden from the FR pages might be obtained by counting the actual pages that describe new federal regulations, and maybe subtracting the number of pages that describe the removal of existing regs (although I do not know if that is even done in the FR). It would also be useful to identify the fraction of annual FR pages that contain regulatory matter.
Despite the limitations, FR page counts likely do contain some information about regulatory burden, particularly since 1973 (the date of last noteworthy changes to FR requirements). FR page counts have generally been trending higher since 1973 - eyeball suggests about 25-30%. It seems likely that more regs are contributing to the general rise. As such, raw FR page counts like constitutes a coarse measure of regulatory burden.
Perhaps it is more appropriate to view FR pages as a general measure of federal bureaucracy. When the data are viewed in this manner, the trend is clearly up.
Regulatory Burden
I'll never be your beast of burden
My back is broad, but it's a hurtin'
--Rolling Stones
Interesting analysis of levels and trends in regulation, particularly during the Obama administration. Primary method of analysis was to focus on 'economically significant regulations' -- regs estimated to cost greater than $100 million dollars per year.
Their chart of economically significant regs from 2001 thru 2011 (Bush and Obama administrations) appears above. There is a general upward trend, but the significant move higher commences in 2007--midway thru Bush's second term.
By eyeball only, the number of economically significant regs under the Obama administration is roughly 33% higher than those of the last two years of the Bush administration and about double the level of the early observation period.
From 2001 thru 2003, 28 economically significant regulations were adopted by federal agencies at an estimated cost of $8.1 billion (see Chart 1). From 2009 thru 2011, 106 economically significant regulations were adopted by federal agencies at an estimated cost of $46 billion (also Chart 1).
It is apparent that regulatory burden, defined by the economically significant regulations that are in operation now versus 5-10 yrs ago, has increased.
The authors also discuss the increasing number of pages in the Federal Register from 2009 -2011, stating that the 2011 value set a record. That felt a little too much like data mining to me, so I found a list covering more years. The numbers on this list are different, albiet slightly, from the authors numbers. Moreover, according to the more comprehensive source, Fed Register pages were higher in both 1980 and 2000 than they were in 2010, 2011.
Would want a more authoritative source before concluding much here. May need to count them personally...
After doing so (if/when), we'll post a graph of those FR pages for a big picture view.
My back is broad, but it's a hurtin'
--Rolling Stones
Interesting analysis of levels and trends in regulation, particularly during the Obama administration. Primary method of analysis was to focus on 'economically significant regulations' -- regs estimated to cost greater than $100 million dollars per year.
Their chart of economically significant regs from 2001 thru 2011 (Bush and Obama administrations) appears above. There is a general upward trend, but the significant move higher commences in 2007--midway thru Bush's second term.
By eyeball only, the number of economically significant regs under the Obama administration is roughly 33% higher than those of the last two years of the Bush administration and about double the level of the early observation period.
From 2001 thru 2003, 28 economically significant regulations were adopted by federal agencies at an estimated cost of $8.1 billion (see Chart 1). From 2009 thru 2011, 106 economically significant regulations were adopted by federal agencies at an estimated cost of $46 billion (also Chart 1).
It is apparent that regulatory burden, defined by the economically significant regulations that are in operation now versus 5-10 yrs ago, has increased.
The authors also discuss the increasing number of pages in the Federal Register from 2009 -2011, stating that the 2011 value set a record. That felt a little too much like data mining to me, so I found a list covering more years. The numbers on this list are different, albiet slightly, from the authors numbers. Moreover, according to the more comprehensive source, Fed Register pages were higher in both 1980 and 2000 than they were in 2010, 2011.
Would want a more authoritative source before concluding much here. May need to count them personally...
After doing so (if/when), we'll post a graph of those FR pages for a big picture view.
Wednesday, July 18, 2012
Two Purposes of Government
In violent times, you shouldn't have to sell your soul
In black and white, they really, really ought to know
--Tears for Fears
Government is legitimized force. Governments are formed because of the human tendency to obtain the most gains for the least amount of effort. This tendency will cause some people to try to further their interests on the backs of others. We might label this proclivity as seeking something for nothing (SFN).
One purpose for the legimitized force of government is to help indiividuals defend their person and property against invasion by those pursuing SFN schemes such as murder, slavery, robbery, etc. This is the argument for government under the auspices of natural law. Government is an enabler of liberty when it helps individuals to pursue their interests free of forceful intervention by others.
The other purpose for the legitimized force of government is allow individuals to obtain SFN. The strong arm of government can be employed by some to expropriate resources from others. Government becomes an agent of force for some to better their interests at the expense of others. Those getting SFN are either monarchs or special interest groups that trade votes for political favor.
All political philosophies are grounded in one of these two purposes.
In black and white, they really, really ought to know
--Tears for Fears
Government is legitimized force. Governments are formed because of the human tendency to obtain the most gains for the least amount of effort. This tendency will cause some people to try to further their interests on the backs of others. We might label this proclivity as seeking something for nothing (SFN).
One purpose for the legimitized force of government is to help indiividuals defend their person and property against invasion by those pursuing SFN schemes such as murder, slavery, robbery, etc. This is the argument for government under the auspices of natural law. Government is an enabler of liberty when it helps individuals to pursue their interests free of forceful intervention by others.
The other purpose for the legitimized force of government is allow individuals to obtain SFN. The strong arm of government can be employed by some to expropriate resources from others. Government becomes an agent of force for some to better their interests at the expense of others. Those getting SFN are either monarchs or special interest groups that trade votes for political favor.
All political philosophies are grounded in one of these two purposes.
Tuesday, July 17, 2012
Selling Pressure
So glad we've almost made it
So sad they had to fade it
--Tears for Fears
Took a small position in Merck (MRK) a couple months back with a 'buy and hold' mindset. However, the shares have been on fire recently. The stock now sports a market cap of about $135 which is getting rich for my blood given my valuation work.
Technically, the stock has been on a moonshot. Hard for me to hold a stock with that kind of near term pattern. And when this pattern stops working, there is often a fair amount of give back.
Moreover, hard for me to shake the notion that a general correction may be pending. This will create a signficant head wind against further share price increases if/when.
As such, I let my MRK position go today. Frankly, am looking to trim positions in JNJ and PG as well after their recent gappy upward moves. Will likely do so into further strength.
I like all of these names, but not at these prices in a context that I see as increasingly hostile for risk.
positions in JNJ, PG
So sad they had to fade it
--Tears for Fears
Took a small position in Merck (MRK) a couple months back with a 'buy and hold' mindset. However, the shares have been on fire recently. The stock now sports a market cap of about $135 which is getting rich for my blood given my valuation work.
Technically, the stock has been on a moonshot. Hard for me to hold a stock with that kind of near term pattern. And when this pattern stops working, there is often a fair amount of give back.
Moreover, hard for me to shake the notion that a general correction may be pending. This will create a signficant head wind against further share price increases if/when.
As such, I let my MRK position go today. Frankly, am looking to trim positions in JNJ and PG as well after their recent gappy upward moves. Will likely do so into further strength.
I like all of these names, but not at these prices in a context that I see as increasingly hostile for risk.
positions in JNJ, PG
The Secret of Your Success
With nothing to show, just sweat from my soul
My heart's on the line, and I'm dying to go
Look at us now, gonna make it somehow
Hold onto me baby, can't hold me down
--Night Ranger
A couple months back, we discussed a thoughtstream that was making the rounds on the Left: the claim that people's actions and success is dependent on government, and that people should therefore feel obligated to suport such government-sponsored 'benevolence.'
Strangely enough, President Obama is now weaving it into his campaign rhetoric.
If the president persists with this approach, it will be interesting to see how Americans digest this claim. Some are already pushing back. And the satire is cranking up (see above example).
Rhethoric like this may serve to awaken many who have been in Matrix-like slumber.
My heart's on the line, and I'm dying to go
Look at us now, gonna make it somehow
Hold onto me baby, can't hold me down
--Night Ranger
A couple months back, we discussed a thoughtstream that was making the rounds on the Left: the claim that people's actions and success is dependent on government, and that people should therefore feel obligated to suport such government-sponsored 'benevolence.'
Strangely enough, President Obama is now weaving it into his campaign rhetoric.
If the president persists with this approach, it will be interesting to see how Americans digest this claim. Some are already pushing back. And the satire is cranking up (see above example).
Rhethoric like this may serve to awaken many who have been in Matrix-like slumber.
Monday, July 16, 2012
Yield Curve in 3D
I've been look so long at these pictures of you
That I almost believe that they're real
I've been living so long with my pictures of you
That I almost believe that the pictures are all that I feel
--The Cure
Am not a big fan of 3-D graphs. My experience is that information is lost when trying to express that third dimension in two dimensional space.
However, this 3D of the Treasury yield curve since 1990 (source here) does a good job of capturing level and trend in yield curve over time.
![]()
If the previous decade (1980-1990) was included, one could REALLY get a picture of how far we've come. (In 1980, 10 yr yields were north of 15%).
New perspective on policy blunders and the resulting financial repression. Will likely also look back on this with 'coiling a spring' type metaphors.
no positions
That I almost believe that they're real
I've been living so long with my pictures of you
That I almost believe that the pictures are all that I feel
--The Cure
Am not a big fan of 3-D graphs. My experience is that information is lost when trying to express that third dimension in two dimensional space.
However, this 3D of the Treasury yield curve since 1990 (source here) does a good job of capturing level and trend in yield curve over time.
If the previous decade (1980-1990) was included, one could REALLY get a picture of how far we've come. (In 1980, 10 yr yields were north of 15%).
New perspective on policy blunders and the resulting financial repression. Will likely also look back on this with 'coiling a spring' type metaphors.
no positions
Safety Dance
I say, we can go where we want to
A place where they'll never find
And we can act like we come from out of this world
Leave the real one far behind
--Men Without Hats
Standout action this am is in Treasuries (and other sovereign debt perceived as 'risk free').
![]()
Ten year yields are back down near all time lows this morning at ~1.45%.
Govies have been trading out of synch w stocks recently. SPX is near top of trading channel while bond yields near record lows. Doubt the divergence will last.
position in SPX
A place where they'll never find
And we can act like we come from out of this world
Leave the real one far behind
--Men Without Hats
Standout action this am is in Treasuries (and other sovereign debt perceived as 'risk free').
Ten year yields are back down near all time lows this morning at ~1.45%.
Govies have been trading out of synch w stocks recently. SPX is near top of trading channel while bond yields near record lows. Doubt the divergence will last.
position in SPX
Sunday, July 15, 2012
Don't Tread on Me
Charlotte Selton: You have done nothing for which you should be ashamed.
Benjamin Martin: I have done nothing. And for that I am ashamed.
--The Patriot
Alongside bald eagles, rattlesnakes became early symbols of American ideals. Their nasty nature when provoked made rattlesnakes popular metaphors among Colonials who increasingly identified with their own communities and with the idea of liberty instead of with the British empire.
As the American Revolution commenced, flags and other paraphenalia commonly featured images of coiled rattlesnakes and the motto 'Don't Tread on Me.'
Among the most famous of these was the Gadsden flag. Christopher Gadsden was a colonel in the Continental army who developed several copies of a yellow fielded rattlesnake standard for the army and for his home state of South Carolina. The Gadsden flag flew over Charleston in 1776.
The Gadsden flag was considered one of the first flags of the United States. It was replaced by the current Stars and Stripes standard in 1777.
Its association with American ideals of liberty and disagreement with government finds the Gadsden flag popular among people seeking a return toward those ideals. The flag can be seen at many Tea Party events, for example.
Naturally, it has handsomely decorated this blog since the first post.
Benjamin Martin: I have done nothing. And for that I am ashamed.
--The Patriot
Alongside bald eagles, rattlesnakes became early symbols of American ideals. Their nasty nature when provoked made rattlesnakes popular metaphors among Colonials who increasingly identified with their own communities and with the idea of liberty instead of with the British empire.
As the American Revolution commenced, flags and other paraphenalia commonly featured images of coiled rattlesnakes and the motto 'Don't Tread on Me.'
Among the most famous of these was the Gadsden flag. Christopher Gadsden was a colonel in the Continental army who developed several copies of a yellow fielded rattlesnake standard for the army and for his home state of South Carolina. The Gadsden flag flew over Charleston in 1776.
The Gadsden flag was considered one of the first flags of the United States. It was replaced by the current Stars and Stripes standard in 1777.
Its association with American ideals of liberty and disagreement with government finds the Gadsden flag popular among people seeking a return toward those ideals. The flag can be seen at many Tea Party events, for example.
Naturally, it has handsomely decorated this blog since the first post.
Saturday, July 14, 2012
Rationalizing Robbery
Take my money, my cigarettes
I haven't seen the worst of it yet
I wanna know, can't you tell me?
I love to stay
--Talking Heads
A society consists of 100 people. They produce and engage in trade. The productivity of 25 people is relatively low; these people earn $10,000 each. The productivity of seventy four is 5X that of the low producers; people in this group earn $50,000. One of the individuals is 100X more productive than the low producers and earns $1,000,000.
Naturally, all of the people would like higher incomes. One way to do this is to become more productive. Increased productivity requires a) more hours of work or b) combining economic resources that have not been consumed into tools that increase output per hour of labor.
The other way to do this is to acquire income produced by others. Acquiring resources in this manner requires either voluntary charity, where those with more share with those who have less, or force, where those with more are forced to surrender income to those with the power to do violence.
Because people generally prefer less effort over more effort and leisure over work, there is a likelihood that some will seek to forcefully take resources from others. As such, the people form a government authorized to use force in order to assist individuals in protecting their property from forceful invasion by others.
However, it crosses the minds of a number of low and mid-range producers that they might employ the strong arm of government to acquire income from some of the higher producers--particularly that single $1 million earner.
Perhaps if they argued that the high earners should surrender a 'fair share' of their property in the name of 'social justice,' then a majority of people will back a decree that agents of the government shall take a fraction of income from the high producers under conditions of force. This income will be redistributed to others at the discretion of government officials.
Worth a try, the group of lower producers thought. They get busy on their plan.
I haven't seen the worst of it yet
I wanna know, can't you tell me?
I love to stay
--Talking Heads
A society consists of 100 people. They produce and engage in trade. The productivity of 25 people is relatively low; these people earn $10,000 each. The productivity of seventy four is 5X that of the low producers; people in this group earn $50,000. One of the individuals is 100X more productive than the low producers and earns $1,000,000.
Naturally, all of the people would like higher incomes. One way to do this is to become more productive. Increased productivity requires a) more hours of work or b) combining economic resources that have not been consumed into tools that increase output per hour of labor.
The other way to do this is to acquire income produced by others. Acquiring resources in this manner requires either voluntary charity, where those with more share with those who have less, or force, where those with more are forced to surrender income to those with the power to do violence.
Because people generally prefer less effort over more effort and leisure over work, there is a likelihood that some will seek to forcefully take resources from others. As such, the people form a government authorized to use force in order to assist individuals in protecting their property from forceful invasion by others.
However, it crosses the minds of a number of low and mid-range producers that they might employ the strong arm of government to acquire income from some of the higher producers--particularly that single $1 million earner.
Perhaps if they argued that the high earners should surrender a 'fair share' of their property in the name of 'social justice,' then a majority of people will back a decree that agents of the government shall take a fraction of income from the high producers under conditions of force. This income will be redistributed to others at the discretion of government officials.
Worth a try, the group of lower producers thought. They get busy on their plan.
Friday, July 13, 2012
History of Libertarianism
Benjamin Martin: May I sit with you?
Charlotte Selton: It's a free country. Or at least it will be.
--The Patriot
Here is a great overview of the history of libertarianism. I plan re-read this and perhaps sketch an outline.
As stated at the outset, all political philosophies boil down to one of two genres. One is a philosophy of liberty, where people should be free to live their lives as they see fit, as long as they don't forcefully intrude on the pursuits of others to do the same.
The other is a philosophy of power, where some people should be able to force others to do their bidding.
One thing that stuck out to me when reading this is that the philosophy of liberty was being shaped long before the Lockean 1600, with ideas about natural law being proffered before Christ. Of course, the default state of the world was conquest and despotism. The dominant logic was that there were two classes of people: the rulers and the ruled.
Various people ranging from Sophocles to St Thomas Aquinas to John Milton to the Levellers helped people see otherwise. Individuals were born free, and endowed with inalienable rights to pursue their interests unencumbered by forceful invasion by others.
By the time Locke, Voltaire, Trenchant & Gordon, and others began organizing the theory of natural law, the world was receptive. And, as much of this thought was being developed in Europe, the ideas were exported to the American colonies where they were further refined by a people hungry for freedom.
The course of history was readying for a big change.
Charlotte Selton: It's a free country. Or at least it will be.
--The Patriot
Here is a great overview of the history of libertarianism. I plan re-read this and perhaps sketch an outline.
As stated at the outset, all political philosophies boil down to one of two genres. One is a philosophy of liberty, where people should be free to live their lives as they see fit, as long as they don't forcefully intrude on the pursuits of others to do the same.
The other is a philosophy of power, where some people should be able to force others to do their bidding.
One thing that stuck out to me when reading this is that the philosophy of liberty was being shaped long before the Lockean 1600, with ideas about natural law being proffered before Christ. Of course, the default state of the world was conquest and despotism. The dominant logic was that there were two classes of people: the rulers and the ruled.
Various people ranging from Sophocles to St Thomas Aquinas to John Milton to the Levellers helped people see otherwise. Individuals were born free, and endowed with inalienable rights to pursue their interests unencumbered by forceful invasion by others.
By the time Locke, Voltaire, Trenchant & Gordon, and others began organizing the theory of natural law, the world was receptive. And, as much of this thought was being developed in Europe, the ideas were exported to the American colonies where they were further refined by a people hungry for freedom.
The course of history was readying for a big change.
Thursday, July 12, 2012
Convenient Inconsistency
"But does it make any sense?"
--Dr Stephen Falken (WarGames)
When reading discourse surrounding Chief Justice Roberts' healthcare ruling, one frequently encounters words like 'twisted,' 'tormented,' and 'tortured' to describe his arguments for justifying the individual mandate as a tax. I've described it similarly.
Most bothersome to me about Roberts' opinion is its inconsistency. When arguing the individual mandate as unconstitutional under the Commerce and Necessary and Proper clauses (see Roberts 15-30), Roberts constantly refers to the framers' intent to limit federal government power. Because the individual mandate forces individuals into unwanted commercial activity, Roberts concludes that the mandate is unconstitutional.
Then Roberts commences his tax argument (see Roberts 31-44). Not only is the argument disjointed and logically 'jumpy,' but it is void of the original intent basis of the previous section. Instead of considering the framers' intent to limit federal government power via taxes, Roberts attempts arguments that imply that federal taxing power is essentially unlimited. What he construes to be unconstitutional via the Commerce clause argument is construed as constitutional via Congress's taxing power.
Thus, we have a ruling that implies that Congress can lawfully command any behavior that it pleases, whether or not the subject of that behavior is a power granted to the Congress by the Constitution, and it may punish noncompliance with that command, as long as the punishment is called a 'tax.'
How this is consistent with the framers' original intent of limiting government power escapes me. Roberts recognizes the limited government notion in one part of his argument but ignores it in another part.
The hallmark of strong arguments is consistency in underlying reason. Weak arguments, on the other hand, conveniently pick and choose.
Roberts chose convenience.
--Dr Stephen Falken (WarGames)
When reading discourse surrounding Chief Justice Roberts' healthcare ruling, one frequently encounters words like 'twisted,' 'tormented,' and 'tortured' to describe his arguments for justifying the individual mandate as a tax. I've described it similarly.
Most bothersome to me about Roberts' opinion is its inconsistency. When arguing the individual mandate as unconstitutional under the Commerce and Necessary and Proper clauses (see Roberts 15-30), Roberts constantly refers to the framers' intent to limit federal government power. Because the individual mandate forces individuals into unwanted commercial activity, Roberts concludes that the mandate is unconstitutional.
Then Roberts commences his tax argument (see Roberts 31-44). Not only is the argument disjointed and logically 'jumpy,' but it is void of the original intent basis of the previous section. Instead of considering the framers' intent to limit federal government power via taxes, Roberts attempts arguments that imply that federal taxing power is essentially unlimited. What he construes to be unconstitutional via the Commerce clause argument is construed as constitutional via Congress's taxing power.
Thus, we have a ruling that implies that Congress can lawfully command any behavior that it pleases, whether or not the subject of that behavior is a power granted to the Congress by the Constitution, and it may punish noncompliance with that command, as long as the punishment is called a 'tax.'
How this is consistent with the framers' original intent of limiting government power escapes me. Roberts recognizes the limited government notion in one part of his argument but ignores it in another part.
The hallmark of strong arguments is consistency in underlying reason. Weak arguments, on the other hand, conveniently pick and choose.
Roberts chose convenience.
Wednesday, July 11, 2012
Fixed Influence
Lost feelings return
So now maybe I'll learn
To stop this world of a lie
This time around
--The Fixx
Eye opening study by the NY Fed. Suggests that if you factor out market movements from the periods surrounding FOMC announcements since 1994, the SPX would be roughly half of today's level.
Oddly enough, I have been estimating 'fair value' of the SPX right around 600.
The dual money printing, moral hazard card at work.
position in SPX
So now maybe I'll learn
To stop this world of a lie
This time around
--The Fixx
Eye opening study by the NY Fed. Suggests that if you factor out market movements from the periods surrounding FOMC announcements since 1994, the SPX would be roughly half of today's level.
Oddly enough, I have been estimating 'fair value' of the SPX right around 600.
The dual money printing, moral hazard card at work.
position in SPX
Net Domestic Product
I don't know when to start or when to stop
My luck's like a button
I can't stop pushing it
--General Public
Rothbard discusses the fallacy of viewing the 'public sector' as a legitimate economic producer. He observes, as have we, that aggregate measures of output that include government spending do not accurately reflect what citizens value. Citizens value what they voluntarily purchase.
Government spending is not grounded in voluntary consumer behavior because government spends what it takes by force.
Moreover, as Rothbard observes, government may then spend those resources on outcomes that have no value in the eyes of citizens whatsoever. Insert Garrett's brilliant pyramid analogy here.
A more accurate measure of voluntary consumer spending in the aggregate would be obtained by netting out government spendings from GDP. This 'net domestic product' (NDP) would better reflect what citizens truly value when guns aren't pointed at their heads.
An interesting exercise would be to back calculate NDP for past years and observe the true value of output voluntarily purchased by US citizens.
Because the higher the government spending, the lower the NDP, a couple of things would likely become apparent. One is that standard of living has not been rising nearly as much as reflected by GDP. The other is what could have been had that fraction of national income remained in the hands of the citizenry.
Tuesday, July 10, 2012
Judging Truth
So true
Funny how it seems
Always in time
But never in line for dreams
--Spandau Ballet
A truth can be viewed as something judged as correct. In my view, there stands only one final arbiter of truth, and that is our Creator. However, we have been endowed with powers of judgment so that we can progress in the Creator's image.
But our judgment is imperfect, meaning that we are likely to error in judging what is true. It is also likely that we will judge truth differently over time as a function of learning.
However imperfect our judgment, it seems that there are two dimensions upon which we can judge truth. One dimension is depth of truth. Depth of truth is the extent to which we judge something as true in the here and now.
We evaluate depth of truth thru various methods. We compare a potential truth to what we already know, i.e., to other truths. We employ logic to think through the correctness of a potential truth. We experiment and generate empirical evidence that confirms or disconfirms a potential truth's correctness.
All of these are processes of reason. Indeed, researchers employ these processes when seeking to add to our 'body of knowledge' - i.e., what we know to be true.
The second dimension is longitudinal truth. Longitudinal truth is the extent to which something deemed true in one period holds true over subsequent periods. It has been said that all truths are products of their times. That is necessarily true, as all discoveries are made inside particular periods of history.
But that does not mean that all truths are relative. While some items thought to be true may turn out to be temporary fad or fashion, other truths are durable and withstand 'the test of time.'
Durable truths are particularly valuable since they serve as social linking pins, providing common guideposts to people of various generations as they their interests.
Many people live their lives in pursuit of truth. That pursuit appears to encompass depth and longitudinal dimensions.
Funny how it seems
Always in time
But never in line for dreams
--Spandau Ballet
A truth can be viewed as something judged as correct. In my view, there stands only one final arbiter of truth, and that is our Creator. However, we have been endowed with powers of judgment so that we can progress in the Creator's image.
But our judgment is imperfect, meaning that we are likely to error in judging what is true. It is also likely that we will judge truth differently over time as a function of learning.
However imperfect our judgment, it seems that there are two dimensions upon which we can judge truth. One dimension is depth of truth. Depth of truth is the extent to which we judge something as true in the here and now.
We evaluate depth of truth thru various methods. We compare a potential truth to what we already know, i.e., to other truths. We employ logic to think through the correctness of a potential truth. We experiment and generate empirical evidence that confirms or disconfirms a potential truth's correctness.
All of these are processes of reason. Indeed, researchers employ these processes when seeking to add to our 'body of knowledge' - i.e., what we know to be true.
The second dimension is longitudinal truth. Longitudinal truth is the extent to which something deemed true in one period holds true over subsequent periods. It has been said that all truths are products of their times. That is necessarily true, as all discoveries are made inside particular periods of history.
But that does not mean that all truths are relative. While some items thought to be true may turn out to be temporary fad or fashion, other truths are durable and withstand 'the test of time.'
Durable truths are particularly valuable since they serve as social linking pins, providing common guideposts to people of various generations as they their interests.
Many people live their lives in pursuit of truth. That pursuit appears to encompass depth and longitudinal dimensions.
Monday, July 9, 2012
Repudiating Public Debt
"That's a helluva good idea."
--Lou Brown (Major League)
My a-ha moment of the day came from this Rothbard article. In it, Rothbard contrasts private debt and public debt. He also suggests that public debt should be repudiated.
Stated differently, Rothbard thinks that we should default on our public debt.
Private debt involves a borrower who contracts with a lender for the use of some of the lender's property (usually in the form of money) for some period of time. Typical terms require the repayment of principal plus interest over some period of time. If the borrower takes on more debt than can be repaid, then the debtor has effectively stolen property that belongs to the creditor. One individual has committed an act of aggression against another's property.
In a just society, only voluntary forgiveness by the creditor would let the debtor off the hook. Otherwise, government's proper role is to assist the creditor in defense against this aggressive act. (As Rothbard observes, draconian 'debtor's prisons' are seemingly ineffective in this regard as they inhibit the debtor from working to pay back the delinquent loan.)
Where property rights are respected, private debt is policed by the need to repay the creditor; there is no bailout coming from the government. The price of credit (a.k.a. the interest rate) also governs lending in unhampered markets. Borrowers deemed to be higher risks will be charged more by lenders.
Public debt is different.
In public debt transactions, the borrower is the government. Both the borrower and the lender understand that the loan will be paid back not out of the pockets or hides of politicians, but out of the looted pockets of taxpayers. And here is my 'a-ha' straight from Rothbard:
"The government gets the money by tax coercion; and the public creditors, far from being innocents, know full well that their proceeds will come out of that selfsame coercion. In short, public creditors are willing to hand over money to the government now in order to receive a share of tax loot in the future."
Rothbard really connects the dots here. A buyer of government bonds is essentially funding government projects under the expectation that government will plunder its people for repayment. That plunder occurs through either direct appropriation of property via taxes, or indirect appropriation of property via inflation. Either way, holders of government bonds can be seen as proponents of forceful invasion into the freedom of others.
Why should citizens be bound by debt taken on by a ruling elite that contracted these debts at the citizens' expense?
Rothbard suggests that the just and least destructive way to settle such debts is outright repudiation (read: default). Various US states have done so before, including waves of defaults following the Whig-run Second Bank of the United States inflation/bust of the late 1830s and the end of Reconstruction in the 1870s.
But wouldn't default destroy the credit of the United States? Wouldn't future borrowing costs would go through the roof as no creditor in his/her right mind would lend to a country that has defaulted on $trillion$ of loans?
Precisely, says Rothbard. The primary argument for repudiation is that it impairs future regimes from taking on public debt again. Savings and investment stay where they make the most impact - in the private sector. Moreover, private sector contracts are voluntary, and no one is forced to borrow and repay (as is the case with public sector debt).
One implication for me personally is that, if I want to be consistent with this idea (and I do), then I should not own any government bond that employs taxes as means for repayment (which is essentially all of them). Today I sold all of my government bond exposure except for cash proxies that might hold short term paper directly or indirectly tied to the government. Given the arrangement of most securities accounts, not sure how I can avoid cash-like instruments that carry short term government debt exposure.
At any rate, I now understand that if I buy government bonds, then I am sanctioning the use of force on others.
no positions
--Lou Brown (Major League)
My a-ha moment of the day came from this Rothbard article. In it, Rothbard contrasts private debt and public debt. He also suggests that public debt should be repudiated.
Stated differently, Rothbard thinks that we should default on our public debt.
Private debt involves a borrower who contracts with a lender for the use of some of the lender's property (usually in the form of money) for some period of time. Typical terms require the repayment of principal plus interest over some period of time. If the borrower takes on more debt than can be repaid, then the debtor has effectively stolen property that belongs to the creditor. One individual has committed an act of aggression against another's property.
In a just society, only voluntary forgiveness by the creditor would let the debtor off the hook. Otherwise, government's proper role is to assist the creditor in defense against this aggressive act. (As Rothbard observes, draconian 'debtor's prisons' are seemingly ineffective in this regard as they inhibit the debtor from working to pay back the delinquent loan.)
Where property rights are respected, private debt is policed by the need to repay the creditor; there is no bailout coming from the government. The price of credit (a.k.a. the interest rate) also governs lending in unhampered markets. Borrowers deemed to be higher risks will be charged more by lenders.
Public debt is different.
In public debt transactions, the borrower is the government. Both the borrower and the lender understand that the loan will be paid back not out of the pockets or hides of politicians, but out of the looted pockets of taxpayers. And here is my 'a-ha' straight from Rothbard:
"The government gets the money by tax coercion; and the public creditors, far from being innocents, know full well that their proceeds will come out of that selfsame coercion. In short, public creditors are willing to hand over money to the government now in order to receive a share of tax loot in the future."
Rothbard really connects the dots here. A buyer of government bonds is essentially funding government projects under the expectation that government will plunder its people for repayment. That plunder occurs through either direct appropriation of property via taxes, or indirect appropriation of property via inflation. Either way, holders of government bonds can be seen as proponents of forceful invasion into the freedom of others.
Why should citizens be bound by debt taken on by a ruling elite that contracted these debts at the citizens' expense?
Rothbard suggests that the just and least destructive way to settle such debts is outright repudiation (read: default). Various US states have done so before, including waves of defaults following the Whig-run Second Bank of the United States inflation/bust of the late 1830s and the end of Reconstruction in the 1870s.
But wouldn't default destroy the credit of the United States? Wouldn't future borrowing costs would go through the roof as no creditor in his/her right mind would lend to a country that has defaulted on $trillion$ of loans?
Precisely, says Rothbard. The primary argument for repudiation is that it impairs future regimes from taking on public debt again. Savings and investment stay where they make the most impact - in the private sector. Moreover, private sector contracts are voluntary, and no one is forced to borrow and repay (as is the case with public sector debt).
One implication for me personally is that, if I want to be consistent with this idea (and I do), then I should not own any government bond that employs taxes as means for repayment (which is essentially all of them). Today I sold all of my government bond exposure except for cash proxies that might hold short term paper directly or indirectly tied to the government. Given the arrangement of most securities accounts, not sure how I can avoid cash-like instruments that carry short term government debt exposure.
At any rate, I now understand that if I buy government bonds, then I am sanctioning the use of force on others.
no positions
Global Solvency Problem
"There is a wall of water coming toward New York City!
--Man on Radio (The Day After Tomorrow)
Dr J points out the diminishing returns of monetary intervention. In addtion to the reduced impact on stock prices, he also shares the below graph that reflects increasingly diminished effect on the 'real' economy. Global PMI has been trending lower since 2010 and is now ticking below the 50 level indicative of recession.
Note also that the current trend is a continuation of a trend that was in place prior to the 2008 meltdown.
This should not be surprising, of course. Monetary intervention is the provision of liquidity. Stated differently, it is money printing. Printing money cannot provide economic resources that the world desperately needs to cover their debts while maintaining standard of living.
The world has a solvency problem, not a liquidity problem. And, as John observes, liquidity does not produce solvency.
position in SPX
--Man on Radio (The Day After Tomorrow)
Dr J points out the diminishing returns of monetary intervention. In addtion to the reduced impact on stock prices, he also shares the below graph that reflects increasingly diminished effect on the 'real' economy. Global PMI has been trending lower since 2010 and is now ticking below the 50 level indicative of recession.
Note also that the current trend is a continuation of a trend that was in place prior to the 2008 meltdown.
This should not be surprising, of course. Monetary intervention is the provision of liquidity. Stated differently, it is money printing. Printing money cannot provide economic resources that the world desperately needs to cover their debts while maintaining standard of living.
The world has a solvency problem, not a liquidity problem. And, as John observes, liquidity does not produce solvency.
position in SPX
Sunday, July 8, 2012
Constitutional Taxation
Should five percent appear too small
Be thankful I don't take it all
--The Beatles
The Constitution gave Congress power to tax:
"The Congress shall of Power To lay and collect Taxes, Duties, Imposts and Excises to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States." (A1 S8 C1)
It is evident from the above that this original taxing power was not unlimited. Taxes could only be applied toward three areas: debt service, common defense, and general welfare. Moreover, there is a principle of uniformity that holds here. Common defense and general welfare implies that tax proceeds could not be distributed using a progressive scale toward particular groups. The uniformity principle is also evident in the specification that tariffs and excise taxes 'shall be uniform' from state to state.
Further down in Article 1, the framers imposed further limits on Congress's power to directly tax individuals. This is undoubtedly due to the central role of taxes in motivating the Revolution with England, and to the framers' understanding of property rights in the framework of natural law:
"No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken." (A1 S9 C4)
Once again the principle of uniformity applies. The only type of tax that could levied on individuals directly was a head tax that did not discriminate on any basis. Instead, all would be taxed by the same amount.
The framers did not consider an income tax of any kind. There is little doubt as to why. An income tax violates principles of natural law--that people should be secure in their person and possessions, and that income taxes reflect a violent intervention in the pursuit of individual interests. The framers certainly knew that the probability of the Constitution being ratified would be near zero if it included an income tax provision.
Nearly 150 years later, of course, politicians were able to amend A1 S9 C4 to permit the taxing of income at the discretion of the federal government.
The income tax amendment is so inconsistent with the rest of the Constitution that it sticks out to anyone who understands the Constitution's grounding in natural law. Indeed, the amendment is similar to another egregious constitutional error - the one that legalized people as the property of others.
Both enslave some people for the benefit of others.
Be thankful I don't take it all
--The Beatles
The Constitution gave Congress power to tax:
"The Congress shall of Power To lay and collect Taxes, Duties, Imposts and Excises to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States." (A1 S8 C1)
It is evident from the above that this original taxing power was not unlimited. Taxes could only be applied toward three areas: debt service, common defense, and general welfare. Moreover, there is a principle of uniformity that holds here. Common defense and general welfare implies that tax proceeds could not be distributed using a progressive scale toward particular groups. The uniformity principle is also evident in the specification that tariffs and excise taxes 'shall be uniform' from state to state.
Further down in Article 1, the framers imposed further limits on Congress's power to directly tax individuals. This is undoubtedly due to the central role of taxes in motivating the Revolution with England, and to the framers' understanding of property rights in the framework of natural law:
"No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken." (A1 S9 C4)
Once again the principle of uniformity applies. The only type of tax that could levied on individuals directly was a head tax that did not discriminate on any basis. Instead, all would be taxed by the same amount.
The framers did not consider an income tax of any kind. There is little doubt as to why. An income tax violates principles of natural law--that people should be secure in their person and possessions, and that income taxes reflect a violent intervention in the pursuit of individual interests. The framers certainly knew that the probability of the Constitution being ratified would be near zero if it included an income tax provision.
Nearly 150 years later, of course, politicians were able to amend A1 S9 C4 to permit the taxing of income at the discretion of the federal government.
The income tax amendment is so inconsistent with the rest of the Constitution that it sticks out to anyone who understands the Constitution's grounding in natural law. Indeed, the amendment is similar to another egregious constitutional error - the one that legalized people as the property of others.
Both enslave some people for the benefit of others.
Saturday, July 7, 2012
Switch in Rhyme
The shadow's high on the darker side
Behind those doors, it's a wilder ride
You can make or break, you can win or lose
That's a chance you take, when the heat's on you
And the heat is on
--Glenn Frye
Although the ink was barely dry on the Constitution before politicians began challenging its basis in natural law, the Supreme Court largely upheld, with notable exceptions of course, its libertarian underpinnings for the better part of 150 years.
The Great Depression, however, increased pressure to scrap the idea of limited goverment in favor of central planning and control. FDR's New Deal was a primary source of this pressure. Because of their radical departure from limited government precedents, New Deal laws like the National Industrial Recovery Act soon found their way before the Supreme Court.
Of the justices sitting on the Court at the time, four of them consistently opposed New Deal legislation. Justices Butler, McReynolds, Sutherland, and Van Devanter became known as The Four Horsemen.
The chief swing voter on the Court was Justice Owen Roberts. In early New Deal cases, Roberts typically sided with the Horsemen, thereby striking down much of FDRs program.
This frustrated FDR to no end. In fact, the president went so far as to propose that he should be able to name additional justices to the Court in order to 'lighten the justices' workload.' Although even FDR staffers thought his 'court packing' scheme went too far, pressure was increasing on the Court to bend to the progressive will.
In 1937 the Supreme Court court ruled on West Coast Hotel v Parrish. The case questioned the constitutionality of minimum wage legislation. In previous rulings, the Court had largely invalided such legislation. One year earlier, in fact, Roberts had joined the Four Horsemen in striking down a similar piece of minimum wage legislation in Morehead v Tipaldo.
This time around, however, Roberts switched sides, joining a majority in favor of minimum wage provisions.
Interestingly enough, FDR withdrew his formal court packing scheme at about the same time.
As such, Roberts' reversal has come to be known as "The Switch in Time that Saved Nine" in deference to the notion that external pressure swayed the Court.
After the Parrish, Roberts consistently sided with majorities that upheld New Deal laws and reversed previous rulings made on principles of limited government.
As the Four Horsemen retired, FDR replaced them with his own cronies to obtain a super majority and the Court commenced an activist binge unlike the country had seen before.
So here we are today. Another Justice Roberts does another historic switch as external pressure mounts to do so. Once again, the Court rules to expand government power over the individual.
As we recite the eerie rhyme of history.
Behind those doors, it's a wilder ride
You can make or break, you can win or lose
That's a chance you take, when the heat's on you
And the heat is on
--Glenn Frye
Although the ink was barely dry on the Constitution before politicians began challenging its basis in natural law, the Supreme Court largely upheld, with notable exceptions of course, its libertarian underpinnings for the better part of 150 years.
The Great Depression, however, increased pressure to scrap the idea of limited goverment in favor of central planning and control. FDR's New Deal was a primary source of this pressure. Because of their radical departure from limited government precedents, New Deal laws like the National Industrial Recovery Act soon found their way before the Supreme Court.
Of the justices sitting on the Court at the time, four of them consistently opposed New Deal legislation. Justices Butler, McReynolds, Sutherland, and Van Devanter became known as The Four Horsemen.
The chief swing voter on the Court was Justice Owen Roberts. In early New Deal cases, Roberts typically sided with the Horsemen, thereby striking down much of FDRs program.
This frustrated FDR to no end. In fact, the president went so far as to propose that he should be able to name additional justices to the Court in order to 'lighten the justices' workload.' Although even FDR staffers thought his 'court packing' scheme went too far, pressure was increasing on the Court to bend to the progressive will.
In 1937 the Supreme Court court ruled on West Coast Hotel v Parrish. The case questioned the constitutionality of minimum wage legislation. In previous rulings, the Court had largely invalided such legislation. One year earlier, in fact, Roberts had joined the Four Horsemen in striking down a similar piece of minimum wage legislation in Morehead v Tipaldo.
This time around, however, Roberts switched sides, joining a majority in favor of minimum wage provisions.
Interestingly enough, FDR withdrew his formal court packing scheme at about the same time.
As such, Roberts' reversal has come to be known as "The Switch in Time that Saved Nine" in deference to the notion that external pressure swayed the Court.
After the Parrish, Roberts consistently sided with majorities that upheld New Deal laws and reversed previous rulings made on principles of limited government.
As the Four Horsemen retired, FDR replaced them with his own cronies to obtain a super majority and the Court commenced an activist binge unlike the country had seen before.
So here we are today. Another Justice Roberts does another historic switch as external pressure mounts to do so. Once again, the Court rules to expand government power over the individual.
As we recite the eerie rhyme of history.
Friday, July 6, 2012
Imposing Morality
Matthew Harrison Brady: But your client is wrong. He is deluded. He has lost his way.
Henry Drummond: It's a shame we don't all possess your positive knowledge of what is right and what is wrong, Mr Brady
--Inherit the Wind
Although the focus of this article is on 19th century libertarian Lysander Spooner, I was more interested in Rothbard's recount of the role of the pietists and liturgicals in 19th century America. Actually, Rothbard's recount is a more of a review, as we have considered much of the story before.
Pietists believed that a religious person must experience a real-time conversion of sorts that made him/her morally just in action. In mid-19th century America, pietism took on a normative bent, meaning that people needed to watch over the behavior of others and participate in their conversion if necessary. Protestants generally supported this view.
This religious view leaked into politics, when pietists reasoned that they could do an even better job of converting their fellow man by using the force of government to do so. The Republican Party of the 1850s thru 1890s became the pietists' political vehicle. During this period, the Republican Party was commonly known as the 'party of great moral ideas.' Republicans backed such social movements as prohibition, public schools, and abolition.
Liturgicals, on the other hand, believed that salvation was achieved by following the creed of the church. The experts in the creed were the leaders of the church, not the State. Liturgicals had no interest in forcing others into being saved. They merely wanted to be left alone to pursue their interests. Episcopalians, Lutherans, and Roman Catholics generally supported this view.
The Democratic Party of the 1850s thru 1890s was the party of choice for liturgicals. Liturgicals profoundly believed that moralilty was not the business of the State. The Democratic Party was commonly known as the 'party of personal liberty.'
This arrangement continued until the mid 1890s, when a confluence of factors drove the libertarian liturgical vein out of the Democratic Party. Replacing it was a socialist populism, a secular pietist of sorts prescribing that people in society should behave in ways that support a leveling of economic and social status, and that it is the job of the State to impose this view of 'social justice.'
What happened to the liturgicals? Many of them defected to pietist or populist groups, perhaps sensing opportunity to advance their interests using State force. Others simply backed away from politics and focused on their religious pursuits.
Over the past 100 years, lack of engagement in political process has penalized those who believe morality is not the business of the state. Liturgicals and others who believe that people should be able to pursue their interests unencumbered by forceful intervention by others have no meaningful political vehicle to advance their view, although perhaps the Tea Party movement is changing that.
Meanwhile, America is dominated by two political parties, each trying to impose their version of morality on others using the strong arm of the State.
Henry Drummond: It's a shame we don't all possess your positive knowledge of what is right and what is wrong, Mr Brady
--Inherit the Wind
Although the focus of this article is on 19th century libertarian Lysander Spooner, I was more interested in Rothbard's recount of the role of the pietists and liturgicals in 19th century America. Actually, Rothbard's recount is a more of a review, as we have considered much of the story before.
Pietists believed that a religious person must experience a real-time conversion of sorts that made him/her morally just in action. In mid-19th century America, pietism took on a normative bent, meaning that people needed to watch over the behavior of others and participate in their conversion if necessary. Protestants generally supported this view.
This religious view leaked into politics, when pietists reasoned that they could do an even better job of converting their fellow man by using the force of government to do so. The Republican Party of the 1850s thru 1890s became the pietists' political vehicle. During this period, the Republican Party was commonly known as the 'party of great moral ideas.' Republicans backed such social movements as prohibition, public schools, and abolition.
Liturgicals, on the other hand, believed that salvation was achieved by following the creed of the church. The experts in the creed were the leaders of the church, not the State. Liturgicals had no interest in forcing others into being saved. They merely wanted to be left alone to pursue their interests. Episcopalians, Lutherans, and Roman Catholics generally supported this view.
The Democratic Party of the 1850s thru 1890s was the party of choice for liturgicals. Liturgicals profoundly believed that moralilty was not the business of the State. The Democratic Party was commonly known as the 'party of personal liberty.'
This arrangement continued until the mid 1890s, when a confluence of factors drove the libertarian liturgical vein out of the Democratic Party. Replacing it was a socialist populism, a secular pietist of sorts prescribing that people in society should behave in ways that support a leveling of economic and social status, and that it is the job of the State to impose this view of 'social justice.'
What happened to the liturgicals? Many of them defected to pietist or populist groups, perhaps sensing opportunity to advance their interests using State force. Others simply backed away from politics and focused on their religious pursuits.
Over the past 100 years, lack of engagement in political process has penalized those who believe morality is not the business of the state. Liturgicals and others who believe that people should be able to pursue their interests unencumbered by forceful intervention by others have no meaningful political vehicle to advance their view, although perhaps the Tea Party movement is changing that.
Meanwhile, America is dominated by two political parties, each trying to impose their version of morality on others using the strong arm of the State.
Thursday, July 5, 2012
Penalties, Taxes, and Rewriting Law
There's something happening here
What it is ain't exactly clear
--Buffalo Springfield
In the Affordable Care Act (ACA), the 'individual mandate' requires people to purchase health insurance. If they do not purchase health insurance, then they must pay a penalty. Failure to pay the fine results in criminal prosecution.
This is how the statute was written and presented to the American people. When asked repeatedly about whether the individual mandate was really a tax, DC Democrats repeatedly denied it. President Obama famously did so himself on national television.
However, when arguing before the Supreme Court, federal government lawyers asked the justices to consider the argument that, indeed, the individual mandate was indeed a tax. The government's brief states, "the minimum coverage provision is independently authorized under Congress's taxing power."
Previous cases argued before the Supreme Court have established clear lines between taxes and penalties (Scalia et al dissenting, 18). A tax is an enforced contribution to provide for the support of the government. Taxes 'raise revenue' for government programs. A penalty is an exaction imposed by statute as punishment for an unlawful act.
Because previous statutes have occaisionally blurred the two concepts, previous Courts have sought criteria that guides distinguishing a penalty from a tax. "When an act 'adopts the criteria of wrongdoing' and then imposes a monetary penalty as the 'principal consequence on those who transgress its standard,' it creates a regulatory penalty, not a tax." (Scalia et al dissenting, 18-19)
The simple question then, is whether the exaction imposed by individual mandate provision is a penalty or a tax. Clearly, as demonstrated by Scalia et al dissenting, 19-21, the statute itself imposes a penalty. The statute itself calls the exaction a penalty at least 18 times throughout the Act.
The dissenters observe that Congress may have developed the ACA on the basis of taxing but it chose not to do so in this case. From Scalia et al dissenting, 18:
"...we cannot rewrite the statute to be what it is not. 'Although this Court will often strain to construe legislation so as to save it against constitutional attack, it must not and will not carry this to the point of perverting the purpose of a statute...' or judicially rewriting it. In this case, there is no simple way, 'without doing violence to the fair meaning of the words used,' to escape what Congress has enacted: a mandate that individuals maintain minimum essential coverage, enforced by a penalty."
As we now know, Chief Justice Roberts labored to do otherwise (Roberts opinion, 31-44). By editing out the word 'penalty' and replacing it with the word 'tax,' the chief justice has rewritten law from the bench.
Roberts opined that judges should restrain from lawmaking since this is something that should be directly taken up between Congress and the people. However, by rewriting the statute in the form of a tax, he has done precisely this.
Most people understand that the primary reason why DC Dems did not slant the statute in the context of a tax is that taxes are politically unpopular with many Americans. A tax of the magnitude implied by the ACA may have made it generally unpalatable among the people during its development in 2009-2012. By waiting until after the law was passed and signed before declaring it a tax, Roberts has provided some measure of political cover for lawmakers.
Whether this political cover is effective or not remains to be seen. Plausibly, the American people will see through the process used here as one of gimmickry and subsequently reject its legitimacy. Moreover, Republican are already using the ruling to claim that Democrats duped people into supporting one of the largest tax increases on record. This could injure Democrats on the campaign trail.
In any event, it is hard to imagine a more straightforward example of judicial rewriting of law in the history of Supreme Court jurisprudence.
What it is ain't exactly clear
--Buffalo Springfield
In the Affordable Care Act (ACA), the 'individual mandate' requires people to purchase health insurance. If they do not purchase health insurance, then they must pay a penalty. Failure to pay the fine results in criminal prosecution.
This is how the statute was written and presented to the American people. When asked repeatedly about whether the individual mandate was really a tax, DC Democrats repeatedly denied it. President Obama famously did so himself on national television.
However, when arguing before the Supreme Court, federal government lawyers asked the justices to consider the argument that, indeed, the individual mandate was indeed a tax. The government's brief states, "the minimum coverage provision is independently authorized under Congress's taxing power."
Previous cases argued before the Supreme Court have established clear lines between taxes and penalties (Scalia et al dissenting, 18). A tax is an enforced contribution to provide for the support of the government. Taxes 'raise revenue' for government programs. A penalty is an exaction imposed by statute as punishment for an unlawful act.
Because previous statutes have occaisionally blurred the two concepts, previous Courts have sought criteria that guides distinguishing a penalty from a tax. "When an act 'adopts the criteria of wrongdoing' and then imposes a monetary penalty as the 'principal consequence on those who transgress its standard,' it creates a regulatory penalty, not a tax." (Scalia et al dissenting, 18-19)
The simple question then, is whether the exaction imposed by individual mandate provision is a penalty or a tax. Clearly, as demonstrated by Scalia et al dissenting, 19-21, the statute itself imposes a penalty. The statute itself calls the exaction a penalty at least 18 times throughout the Act.
The dissenters observe that Congress may have developed the ACA on the basis of taxing but it chose not to do so in this case. From Scalia et al dissenting, 18:
"...we cannot rewrite the statute to be what it is not. 'Although this Court will often strain to construe legislation so as to save it against constitutional attack, it must not and will not carry this to the point of perverting the purpose of a statute...' or judicially rewriting it. In this case, there is no simple way, 'without doing violence to the fair meaning of the words used,' to escape what Congress has enacted: a mandate that individuals maintain minimum essential coverage, enforced by a penalty."
As we now know, Chief Justice Roberts labored to do otherwise (Roberts opinion, 31-44). By editing out the word 'penalty' and replacing it with the word 'tax,' the chief justice has rewritten law from the bench.
Roberts opined that judges should restrain from lawmaking since this is something that should be directly taken up between Congress and the people. However, by rewriting the statute in the form of a tax, he has done precisely this.
Most people understand that the primary reason why DC Dems did not slant the statute in the context of a tax is that taxes are politically unpopular with many Americans. A tax of the magnitude implied by the ACA may have made it generally unpalatable among the people during its development in 2009-2012. By waiting until after the law was passed and signed before declaring it a tax, Roberts has provided some measure of political cover for lawmakers.
Whether this political cover is effective or not remains to be seen. Plausibly, the American people will see through the process used here as one of gimmickry and subsequently reject its legitimacy. Moreover, Republican are already using the ruling to claim that Democrats duped people into supporting one of the largest tax increases on record. This could injure Democrats on the campaign trail.
In any event, it is hard to imagine a more straightforward example of judicial rewriting of law in the history of Supreme Court jurisprudence.
Wednesday, July 4, 2012
Radical Truth
"Heres to the men who did what was considered wrong, in order to do what they knew was right...what they KNEW was right."
--Benjamin Franklin Gates (National Treasure)
The debate that is being carried out in real time involves whether liberty truly is an inalienable right.
--Benjamin Franklin Gates (National Treasure)
All discoveries
occur inside of a particular age. However, some discoveries yield truths that
are not relative. Instead, these truths endure various ages.
It was during the Enlightenment that many people for the
first time discovered the self-evident (i.e., requiring no elaborate proof) truth
that the proper state of man is to live freely, unencumbered by violent
intervention from others. Prior to
this period, it was broadly accepted that people must live under a system of
forceful government.
What makes the Framers remarkable is that they sought to implement a system that reflected the new-found truth on a large scale. These people were truly radicals, seeking to throw off tyranny and build something heretofore unheard of.
What makes the Framers remarkable is that they sought to implement a system that reflected the new-found truth on a large scale. These people were truly radicals, seeking to throw off tyranny and build something heretofore unheard of.
Did they design it perfectly out of the
gate? No. Did they always practice what they preached? No.
But their imperfect practice has no bearing on the validity of the underlying truth itself. More likely, it helps explain why liberty has been so difficult to achieve.
Indeed, more than two centuries after the Declaration was written, the world largely remains skeptical that Jefferson’s truths are in fact durable (‘inalienable’). That man’s natural state is one of freedom rather than of submission remains a radical concept to this day.
But their imperfect practice has no bearing on the validity of the underlying truth itself. More likely, it helps explain why liberty has been so difficult to achieve.
Indeed, more than two centuries after the Declaration was written, the world largely remains skeptical that Jefferson’s truths are in fact durable (‘inalienable’). That man’s natural state is one of freedom rather than of submission remains a radical concept to this day.
The debate that is being carried out in real time involves whether liberty truly is an inalienable right.
Tuesday, July 3, 2012
Supreme Switch
"I think that when statesmen foresake their own private conscience for the sake of their public duties, they lead their country by a short route to chaos."
--Sir Thomas More (A Man for All Seasons)
Following last Thursday's ruling, I read several theories positing that Chief Justice Roberts slanted his position on the Affordable Care Act (ACA) case to quell accusations about 'court bias'--particularly among left-leaning intellectuals in the media and elsewhere.
Then CBS's Jan Crawford broke this story yesterday, citing sources close to the deliberations that Roberts changed his position and allied with the four Liberals to salvage the centerpiece of the ACA known as the 'individual mandate.' The story does not directly claim that boosting the image of the court was Roberts' intent although innuendos were made.
The Crawford piece reports that, in the full Court conference that followed the oral arguments in March, Roberts sided with what ultimately became the four dissenting justices, who were of the opinion that the ACA should be struck down in its entirety. Being chief justice, Roberts elected to write the historic opinion himself.
Crawford's article observes that by May, sources of 'external pressure' were building in the form of countless new articles and editorials warning of the damage to the Court, and to Roberts' reputation, if the individual mandate was struck down. While some justices 'turn off' the media when cases are pending to avoid potential for influence, Crawford reports that Roberts stays plugged in, and is sensitive to how the public views the Court.
It was during this period that Crawford's inside sources said the Roberts became "wobbly" on his position, and soon began to pursue the tax argument. Roberts even tried to pursuade the dissenters, particularly Justice Kennedy, on the tax argument's merits, but they would have none of it. On the contrary, it was Kennedy, who by his voting record and opinions may in fact be the most libertarian member of the Court, who dogged Roberts to return to his original position. Kennedy also had a heavy hand in writing the dissent.
The fact that the four dissenters wrote a joint opinion that does not mention Roberts, even in the section where they sided on the mandate's unconstitutionality w.r.t. the Commerce Clause argument, was no accident. Rather, it was a signal that the four justices were upset with Roberts' switch and his logic, and no longer wished to engage in debate with him.
Crawford is careful to note that it is not known why Roberts switched his view. Perhaps he truly felt that his arguments were consistent with the Constitution he swore to uphold.
However, and this is ME writing rather than Crawford, the tortured logic of his opinion w.r.t. the tax argument (see Roberts: 31-44) suggests otherwise. When I read jumbled thought processes that include arguments that even a junior high schooler might refute, I suspect that the writer is either unclear in his/her position, or stuggling mightily in an unnatural way to make a viewpoint 'work.'
From there, postulating that CJR had ulterior motives, such as preserving the integrity of institution that he heads, that were clouding his judgment, is easy to do.
This is speculation, of course. Only the Creator knows what motivated Roberts to act as he did. However, if he did indeed choose to act in a manner that favored the Court's institutional standing over individual liberty, then this is a classic case of judicial interest impairing freedom.
--Sir Thomas More (A Man for All Seasons)
Following last Thursday's ruling, I read several theories positing that Chief Justice Roberts slanted his position on the Affordable Care Act (ACA) case to quell accusations about 'court bias'--particularly among left-leaning intellectuals in the media and elsewhere.
Then CBS's Jan Crawford broke this story yesterday, citing sources close to the deliberations that Roberts changed his position and allied with the four Liberals to salvage the centerpiece of the ACA known as the 'individual mandate.' The story does not directly claim that boosting the image of the court was Roberts' intent although innuendos were made.
The Crawford piece reports that, in the full Court conference that followed the oral arguments in March, Roberts sided with what ultimately became the four dissenting justices, who were of the opinion that the ACA should be struck down in its entirety. Being chief justice, Roberts elected to write the historic opinion himself.
Crawford's article observes that by May, sources of 'external pressure' were building in the form of countless new articles and editorials warning of the damage to the Court, and to Roberts' reputation, if the individual mandate was struck down. While some justices 'turn off' the media when cases are pending to avoid potential for influence, Crawford reports that Roberts stays plugged in, and is sensitive to how the public views the Court.
It was during this period that Crawford's inside sources said the Roberts became "wobbly" on his position, and soon began to pursue the tax argument. Roberts even tried to pursuade the dissenters, particularly Justice Kennedy, on the tax argument's merits, but they would have none of it. On the contrary, it was Kennedy, who by his voting record and opinions may in fact be the most libertarian member of the Court, who dogged Roberts to return to his original position. Kennedy also had a heavy hand in writing the dissent.
The fact that the four dissenters wrote a joint opinion that does not mention Roberts, even in the section where they sided on the mandate's unconstitutionality w.r.t. the Commerce Clause argument, was no accident. Rather, it was a signal that the four justices were upset with Roberts' switch and his logic, and no longer wished to engage in debate with him.
Crawford is careful to note that it is not known why Roberts switched his view. Perhaps he truly felt that his arguments were consistent with the Constitution he swore to uphold.
However, and this is ME writing rather than Crawford, the tortured logic of his opinion w.r.t. the tax argument (see Roberts: 31-44) suggests otherwise. When I read jumbled thought processes that include arguments that even a junior high schooler might refute, I suspect that the writer is either unclear in his/her position, or stuggling mightily in an unnatural way to make a viewpoint 'work.'
From there, postulating that CJR had ulterior motives, such as preserving the integrity of institution that he heads, that were clouding his judgment, is easy to do.
This is speculation, of course. Only the Creator knows what motivated Roberts to act as he did. However, if he did indeed choose to act in a manner that favored the Court's institutional standing over individual liberty, then this is a classic case of judicial interest impairing freedom.
Monday, July 2, 2012
Health Insurer Windfall
Lost inside
Adorable illusion and I cannot hide
I'm the one you're using, please don't push me aside
--Blondie
It has been proposed, and many people seem to believe, that the Affordable Care Act (ACA) somehow reigns in health insurers. Markets have certainly been betting otherwise since the ACA came under construction in 2009, as the below chart in United Healthcare (UNH) reflects.
In fact, health insurance stocks initially sold off last Thurs on premature headlines that the Individual Mandate had been struck down, only to recover once the full ruling was understood.
The ACA can be viewed as a government sponsored windfall for the health insurance sector. After all, the industry will be welcoming 30 million new customers who are being sent the industry's way at the point of a gun.
Moreover, insurers will reprice pools of policies higher to compensate for increased risk of having to take on people with actuarially costly conditions. Clearly, the younger and the less risky will pay more for insurance under this cost shifting arrangement. Many insurers have already been raising premiums on their 'better' customer policies.
Finally, layers of regulation that accompany the ACA raise large barriers in front of entrepreneurs thinking about climbing into the health insurance industry. New firms will be less likely to enter the sector, in turn reducing the likelihood of competition that improves quality and efficiency.
As it has done for at least a century, the federal government is once again acting in a manner that protects the franchises of 'big business.'
position in SPX
Adorable illusion and I cannot hide
I'm the one you're using, please don't push me aside
--Blondie
It has been proposed, and many people seem to believe, that the Affordable Care Act (ACA) somehow reigns in health insurers. Markets have certainly been betting otherwise since the ACA came under construction in 2009, as the below chart in United Healthcare (UNH) reflects.
In fact, health insurance stocks initially sold off last Thurs on premature headlines that the Individual Mandate had been struck down, only to recover once the full ruling was understood.
The ACA can be viewed as a government sponsored windfall for the health insurance sector. After all, the industry will be welcoming 30 million new customers who are being sent the industry's way at the point of a gun.
Moreover, insurers will reprice pools of policies higher to compensate for increased risk of having to take on people with actuarially costly conditions. Clearly, the younger and the less risky will pay more for insurance under this cost shifting arrangement. Many insurers have already been raising premiums on their 'better' customer policies.
Finally, layers of regulation that accompany the ACA raise large barriers in front of entrepreneurs thinking about climbing into the health insurance industry. New firms will be less likely to enter the sector, in turn reducing the likelihood of competition that improves quality and efficiency.
As it has done for at least a century, the federal government is once again acting in a manner that protects the franchises of 'big business.'
position in SPX
Sunday, July 1, 2012
Legal Precedent
Duke of Norfolk: Oh, confound all of this! I'm not a scholar. I don't know if the marriage was lawful or not. But dammit, Thomas, look at these names. Why can't you do as I did and come with us, for fellowship?
Sir Thomas More: And when we die, and you are sent to heaven for doing your conscience and I am sent to hell for not doing mine, will you come with me, for fellowship?
--A Man for All Seasons
I have read last Thursday's Supreme Court decision from cover to cover and some sections several times. It has been difficult to set down because of this case's importance. The opinions put forth by these judges have extraordinary implications for individual liberty.
Moreover, it seems to me that the validity of judicial decisions should not be estimated by the extent to which appointed-for-life judges side with each other. As FDR demonstrated for all to see, it is quite possible to pack a court with political interest. A law is not a just one by edict, but by the extent to which it is consistent with the rights of man.
The validity of judicial rulings, therefore, is best evaluated by digging into the opinions themselves. In their opinions, justices must bare their thought processes for all to read. Although they cannot directly alter the composition of the bench, the citizenry can surely evaluate the strength of legal arguments expressed in the opinions to assess the extent of jurisprudence or jurisimprudence evident in the minds of the people writing those opinions.
Were more people to do this, they might conclude that a practice frequently employed in court opinions, that of citing rulings and opinions of past cases to justify opinions on current cases, holds less legitimacy than judges seem to attribute.
In chewing thru the legal precedents cited in the healthcare ruling, I am reminded of the journalistic practice of quoting sources. Find sources that you agree with, and cherry pick quotes that fit the context that you are building. Voila, a prime source of media bias...
Judges can employ similar methods when writing opinions.
If a judge cites a precedent opinion from a former judge that was commited to strong central government like Joseph Story, or from a judge committed to majority rule like Oliver Wendell Holmes, or a from a majority of judges during the period when FDR packed the court, then just how much 'true' legal information can one glean from these precedents? Just because it was noted or ordered so in the past does not make it right.
Instead, the quality of a judicial opinion must be grounded in the judge's thought process itself. Justifying current law because 'we did it that way in the past' is a poor substitute for a well reasoned mind. A well reasoned mind surely recognizes that courts throughout history have been rife with interest that taints opinions.
Yes, citing precedents, like citing sources, can augment an argument. But grounding a legal decision in an interested judicial past past seems like Pilate washing his hands, or the blind leading the blind.
Sir Thomas More: And when we die, and you are sent to heaven for doing your conscience and I am sent to hell for not doing mine, will you come with me, for fellowship?
--A Man for All Seasons
I have read last Thursday's Supreme Court decision from cover to cover and some sections several times. It has been difficult to set down because of this case's importance. The opinions put forth by these judges have extraordinary implications for individual liberty.
Moreover, it seems to me that the validity of judicial decisions should not be estimated by the extent to which appointed-for-life judges side with each other. As FDR demonstrated for all to see, it is quite possible to pack a court with political interest. A law is not a just one by edict, but by the extent to which it is consistent with the rights of man.
The validity of judicial rulings, therefore, is best evaluated by digging into the opinions themselves. In their opinions, justices must bare their thought processes for all to read. Although they cannot directly alter the composition of the bench, the citizenry can surely evaluate the strength of legal arguments expressed in the opinions to assess the extent of jurisprudence or jurisimprudence evident in the minds of the people writing those opinions.
Were more people to do this, they might conclude that a practice frequently employed in court opinions, that of citing rulings and opinions of past cases to justify opinions on current cases, holds less legitimacy than judges seem to attribute.
In chewing thru the legal precedents cited in the healthcare ruling, I am reminded of the journalistic practice of quoting sources. Find sources that you agree with, and cherry pick quotes that fit the context that you are building. Voila, a prime source of media bias...
Judges can employ similar methods when writing opinions.
If a judge cites a precedent opinion from a former judge that was commited to strong central government like Joseph Story, or from a judge committed to majority rule like Oliver Wendell Holmes, or a from a majority of judges during the period when FDR packed the court, then just how much 'true' legal information can one glean from these precedents? Just because it was noted or ordered so in the past does not make it right.
Instead, the quality of a judicial opinion must be grounded in the judge's thought process itself. Justifying current law because 'we did it that way in the past' is a poor substitute for a well reasoned mind. A well reasoned mind surely recognizes that courts throughout history have been rife with interest that taints opinions.
Yes, citing precedents, like citing sources, can augment an argument. But grounding a legal decision in an interested judicial past past seems like Pilate washing his hands, or the blind leading the blind.
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