Fed Walk Back

Relax said the night man
We are programmed to receive
You can check out any time you like
But you can never leave
--Eagles

Yesterday's FOMC announcement verified what markets have been sniffing out for weeks--that the Fed is caving to pressure to stop their rate hike program. There is also chatter that the Fed will quit selling their bond portfolio a little early--perhaps after peeling only a couple hundred billion$ in assets from their $4.5 trillion balance sheet. Pre QE, the Fed's balance sheet was about $0.5 trillion large.

It took only a 10-20% pullback in stocks (following a 2-3x move higher in major stock indexes since the commencement of aggressive monetary policy) for the Fed to ease off the brakes.

Some believe that merely stopping the tightening will not be enough to keep the bubble from popping. Not sure about that. Real rates are still negative, credit money is still being created out of thin air, and all of the money created by $4 trillion in QE bond buying (and multiples of that created by ECB, BOJ, and other central banks) seems like the stuff of big inflation to me.

The Fed's policy walk back reiterates what we already knew. Central banks have checked into a monetary roach motel that they can't leave.

Rule by Choice vs Rule by Force

And I'll rule, I'll rule, I'll rule, I'll rule
Let me live that fantasy
--Lorde

Some people strive to rule over others. Some people are satisfied with being ruled by others. Still other people disdain rule by force--that it is unjust for some to forcibly rule others.

That does not mean that markets for rule cannot be made. As long as those seeking to rule and those wanting to be ruled do so voluntarily, then the relationship is acceptable.

What is wrong is when rule is forced on those who do not prefer it. Doing so violates the unalienable right to liberty endowed to us by our Creator.

Wages: Risk and Reward

"Look, what does a capitalist do? Let me ask you that, Mike. Huh? Tell me. I mean, what does he make, besides money? I don't know what he makes. The workers do all the work."
--John Reed (Reds)

Many view the incomes of successful entrepreneurs and the capitalists who fund new ventures with resentment and covetousness. The premium that these people earn over everyday workers isn't fair, so goes the argument, and the wage gap needs to be closed--by force.

Prof Bylund observes that wages are adjusted in the market to compensate for risk. Most new ventures fail, leaving entrepreneurs and capitalists out in the cold when things don't work out. The uncertainty associated with venture success requires that those bearing the risk of failure face  prospects of high reward if things do work out. Otherwise, why would anyone take the risk?

To demand pay equal to "full [ex post] value" of one's labor is to demand to be treated as an entrepreneur: you won't get paid if things don't work out. The alternative is to earn the market wage regardless of the venture's success, and leave uncertainty-bearing to entrepreneurs.

— Per Bylund (@PerBylund) January 28, 2019

Everyday workers bear no such risk. They are hired to supply labor that, when mixed with the tools supplied by capitalist investors, help the entrepreneur create value for consumers. Those laborers essentially forego the high risk:reward relationship for a lower one--one associated with a steadier paycheck.

Yes, if the venture goes bust, then workers have to find another job. But meanwhile they would have earned a steady income. Entrepreneurs and capitalists, on the other, may have little or nothing to show for their effort. They could lose everything.

Those workers who detest the high incomes of those who start and fund successful ventures are free to forego their steady jobs and become entrepreneurs or investors themselves.

Tea Party Strong

Seems like yesterday
But it was long ago
--Bob Seger

Although, as these pages predicted, many Tea Party types elected years back have been co-opted by the state, some have stood firm as reflected by their voting record on spending cuts.

The few legislators willing to cut spending are Tea Partiers like @RandPaul, @SenMikeLee, @justinamash, & @RepThomasMassie https://t.co/pzMggcnOW5 via @dcexaminer #TeaParty #MAGA

— Jenny Beth Martin (@jennybethm) January 27, 2019

That so few remain demonstrates just how powerful statist pressure can be. But it also demonstrates that it is possible to stand strong in the face of such pressure.

Mercy, Justice, and Condemnation

Nasir: Mercy.
Saladin: No, I cannot.
--Kingdom of Heaven

Not a bad way to look at it. We tend to seek mercy for ourselves but seek 'justice' for others. A popular word for justice today is 'condemn' (i.e., "I condemn those acts.")

“It’s natural to want mercy for yourself but justice for others ... But when God’s call of mercy collides with your lack of mercy, you begin to see yourself with accuracy.” - @PaulTripp from New Morning Mercies

— Shannon Bream (@ShannonBream) January 26, 2019

Only the Creator has standing to condemn. When we fail to heed God's call for mercy by seeking worldly justice and condemnation for others who commit what we perceive as wrongdoings, then how can we credibly stand before Him on Judgment Day and request mercy for ourselves?

Process Crimes

"They tortured me...with machines...to make me tell them things that...I didn't know to being with."
--Guinevere (King Arthur)

The legal witch hunt against Donald Trump has raised awareness of 'process crimes.' Process crimes are violations of the law committed by someone under government investigation that occur during the investigation. The most common process crime appears to be lying to investigators, whether that 'lie' was intentional or not.

Stated differently, it is the investigation (i.e., the government) itself that causes the crime. A person can be completely innocent of the alleged crimes that permit the investigation to be undertaken in the first place, and yet be convicted and sent to prison for process crimes.

It should be clear by now to anyone following the Trump situation that investigators are highly motivated to create process crimes. Process crimes can be employed as bargaining chips to lean on people to provide legal fodder that can be used against the ultimate target of the investigation.

Process crimes are legally sanctioned blackmail, pure and simple.

Financial Stability

Hey I'm not complaining 'cause I really need the work
Hittin' up my buddy's got me feeling like a jerk
Hundred dollar car note, two hundred rent
I get a check on Friday but it's already spent
--Huey Lewis & the News

Amity Shlaes quotes a snippet from Calvin Coolidge's 1923 State of Union message. Coping with uncertain environments greatly increases when your financial house is in order. This is true at the country, organization, and individual level.

"Our main problems are domestic problems..." Some lines for the State of the Union from...one CC (1923 Coolidge State of the Union equivalent) #coolidgeclub pic.twitter.com/A5XTkyTGrS

— Amity Shlaes (@AmityShlaes) January 24, 2019

We are far more capable of dealing with external threats from positions of financial strength. In fact, as Coolidge observes, it is from firm financial foundations that peace and prosperity advance.

Conversely, weak financial arrangements predicated on borrowing and debt are sources of conflict and squalor.

Government Shutdowns and Dependence

I saw the world crashing all around your face
Never realizing it was always mesh and lace
--Modern English

Statists point to problems arising from the partial government shutdown, such as bills piling up for federal workers who have missed paychecks, or trade slowdowns due to absence of inspectors/regulators necessary to approve shipments, as proof that these functions of government are necessary.

No. What it indicates is the dependence on government that has developed--a dependence that requires some discomfort while kicking the habit.

The corollary is the addict who suffers cravings and withdrawal when first denied another fix. The addict's mind is then prone to rationalize, "The pain proves that I must keep on using." Subsequently, the addict is motivated to stay hooked rather than to work thru the pain associated with reducing dependency.

The discomfort associated with a government shutdown reflects the dependence that festers when we forsake freedom and social power and replace it with state power.

Has Not vs Cannot

Ah Leah
Here we go again
Ah Leah
Is it ever gonna end?
Ah Leah 
Here we go again
Ah Leah
We ain't learned our lesson yet
--Donnie Iris

Good point made by Prof Bylund. Stating that socialism has not worked is technically correct, but it implies that it could possibly work using some configuration that has yet to be tried. This is, of course, precisely what proponents of socialism suggest.

It's not an error to say that #socialism, or non-market planning and allocation of resources, has not worked historically, but it reinforces the illusion of it being a fixable problem. The fact is that socialism *cannot* work, which means it never will. #calculationproblem #Mises

— Per Bylund (@PerBylund) January 23, 2019

The more accurate statement is that socialism cannot work--a conclusion presented by Mises many years ago after careful analysis.

Hospital Insurance

"Well, I get darn sick of trying to pick up after a gang of fast-talking salesmen dumb enough to sell life insurance to a guy who sleeps in the same bed with four rattlesnakes."
--Barton Keyes (Double Indemnity)

Interesting article highlighting key developments in medicine and health insurance in the US. One development was hospital insurance. Early hospitals were designed for the very poor, particularly for those suffering from blindness, mental illness, or contagious diseases. Those who could afford better were treated at home or in privately run nursing facilities. Until antiseptic procedures were adopted, hospitals were key sources in spreading rather than curing diseases.

Because hospitals were perceived as places for the poor and desperate to die, demand and supply were low. In 1873, there were only 149 hospitals in the US. Things obviously changed over the next one hundred years. By the 1970s, the number of US hospitals had reached about 7,000.

From their beginning, hospitals had a financial problem. They are labor intensive and expensive to operate, with the majority of costs being fixed and independent of number of patients served. To help solve this problem, the idea of hospital insurance was born in the 1920s. The first hospital insurance plan was introduced at Baylor University Hospital in 1929. Some 1,500 teachers paid six dollars in annual premiums. In turn, the hospital agreed to provide up to 21 days of care to subscribers who needed it.

In exchange for the modest fee, subscribers were protected from unexpected health care costs while the hospital improved its cash flow. Before long, groups of hospitals were offering similar plans which gave subscribers choice of which hospitals to use. This became the model for Blue Cross which first operated in Sacramento, California in 1932.

These hospital plans differed from conventional notions of 'insurance.' Traditionally, insurance policies protected policyholders from large, unforeseeable losses and came with a deductible. In contrast, early hospital plans paid all costs up to a limit. The primary reason of course, was that the policies were being underwritten not by third party insurers but by operating hospitals themselves that were trying to generate steady demand for their services and regular cash flows.

The tradition of early hospital 'insurance' to cover health maintenance costs rather than catastrophic medical costs was one of three defects associated with these plans that would ultimately drive US healthcare costs through the roof. A second defect was that the early plans paid only those medical expenses incurred in hospitals. Consequently, those cases that could be treated on an outpatient basis were instead kept in house--a more expensive form of care.

The third defect was that hospital insurance did not provide indemnity coverage. Indemnification is when the insurer pays for the loss and then the policyholder decides how to best deal with it. Instead, the insurer (hospital) was providing service benefits, and paying the bill whatever the cost was. Consequently, consumers of medical services had little incentive to shop around. This raises the classic moral hazard problem--which someone else is paying the bill, healthcare consumers become indifferent to the cost of care.

Predictably, the medical profession lobbied in favor of retaining the Blue Cross system. The American Hospital Association and American Medical Association worked hard to exempt Blue Cross from regulation that would have forced it to adhere to standards required of more conventional insurance plans. Meanwhile, the IRS ruled that hospital insurance companies were charitable organizations and free from paying federal taxes. Free from regulation and tax burdens, Blue Cross and Blue Shield (a physician plan similar the Blue Cross hospital plan) came to dominate the market, holding about half of all policies outstanding by 1940. To compete, private insurers began modelling their policies similar to the Blue Cross and Blue Shield designs.

Hospitals thus came to be paid on a cost-plus basis, receiving the cost of services provided plus a percentage to cover costs of invested capital. Incentive for hospitals to be efficient vanished. Incentive to add capacity, on the other hand, escalated.

This led to an odd economic situation where price of health care rose despite many years of increasing medical supply. We'll pick it up from here in an upcoming post.

Out of Context Reporting

"In good faith, Rich, I am sorrier for your perjury than for my peril."
--Sir Thomas More (A Man for All Seasons)

A favorite tool of slanted journalism is out of context reporting. Select a small unrepresentative sample from a large pool of words or video and report it as if it did represent the larger pool.

Such dishonest reporting, which amounts to a form of perjury in the court of public opinion, has been going on since markets for media originated (i.e., a long time).

However, as politically-motivated factions grow in size and intensity in a democratic state, then we should expect media sympathetic to particular factions to become more motivated to employ out of context reporting.

Empirical observation confirms the trend.

Small Sympathy

I watched with glee
While your kings and queens
Fought for decades
For the gods they made
--The Rolling Stones

Ryan McMaken correctly observes that if the media showed a fraction of the sympathy for over-regulated small businesses that it displays for furloughed federal workers, then we would see more stories related to:

Small businesses having to cut back hours and lay off workers due to minimum wage laws.

The burden on small businesses cause by paid family leave mandates.

Contractors who lost business because government shuts down downstream producers in a supply chain for not complying to civil rights standards.

Licensing requirements that keep low skilled workers from entering entry-level occupations.

Health care mandates that drive small business to limit new hires.

Focused news coverage on such issues seems unlikely, as media lackeys would be required to cast their government compadres in poor light.

FIRE

Some days won't end forever
And some days pass on by
I'll be working here forever
At least until I die
--Huey Lewis & the News

A popular acronym among many millennials and late Gen Xers is FIRE (Financial Independence, Retire Early). The idea is to save and be thrifty in your first couple of post grad decades so that you've amassed a large enough nest egg to subsequently live the way you want--and primarily paycheck free.

While retiring early has always been an attractive proposition to many (due to the axiomatic preference for leisure over labor), younger generations seem more eager to pursue it than previous generations. Why this is so is not entirely clear.

However, the idea of early retirement for large groups of people raises concerns about its advisability as well as its feasibility. Retiring early by definition means that individuals cease production of economic resources even though they still have capacity to do so. Whatever savings that could be set aside to fund subsequent non-productive years spent in 'retirement' is thus prematurely truncated.

Because they have ceased producing and saving prematurely, early retirees are more vulnerable to unforeseen events that could require more economic resources than have been set aside. Illness, financial market calamities, inflation, family members in distress, and health care in old age are but some of the possibilities that could drain savings pools that are smaller than they otherwise would have been.

Not only will this situation reduce the standard of living of early retirees, but it will also put more pressure on social safety nets as early retirees who run out of resources seek government assistance. Fewer number of workers will be forced to support greater numbers of non-workers. Early retirement that leads to this situation literally taxes the system.

But even if those in pursuit of FIRE were able to do so without taxing the production of full-time workers, is early retirement a worthy goal? If that early retirement is to be spent by increasing leisure such as travel and hobbies and decreasing productive output (which could include 'non-profit' charity as well as 'for-profit' work), then those prospective early retirees might want to think twice. Production and exchange, whether it occurs in markets for economic or charitable resources, is how prosperity improves. Not working reduces overall prosperity.

Prematurely exiting labor markets in pursuit of leisurely preferences increases the likelihood of an unproductive life.

Current AA

I never wanted another
Come over to me and discover
--Orchestral Manoeuvres in the Dark

Current asset allocation in securitized (paper) form:

Stocks  13%
Fixed income. 1%
Alternative assets  28%
Cash  58%

Alternative assets mostly include precious metal ETFs and stocks are primarily in PM miners.

Primary goal this year is to broaden equity exposure to include a stable of dividend payers. Not too much too fast, though, given elevated valuation levels and field position. Hoping to use lower prices to my advantage.

Libertarian Experiment

No more running down the wrong road
Dancing to a different drum
Can't you see what's going on
Deep inside your heart
--Michael McDonald

John Stossel notes the absurdity of calling the current 'government shutdown' a 'libertarian experiment. Government rules of force have not been rescinded, and, when the shutdown ends, furloughed workers will receive back pay for not working.

.@PaulKrugman calls the government shutdown a "libertarian experiment". The opposite is true! The endless rules are still in place, and soon, government workers will be paid for NOT working. That's UN-libertarian. But there are things we can learn from the shutdown: pic.twitter.com/r7PK7IMfq0

— John Stossel (@JohnStossel) January 16, 2019

A true 'libertarian experiment' would be to shutter entire government agencies (e.g., education, commerce, transportation, etc.) and do away with all associated rules and regulations which restrict liberty. Eliminate taxes used to fund those sources of government aggression. Observe how people regulate themselves rather than using the strong arm of government to do so.

In short, the libertarian experiment would consist of removing government force from the system and relying on peaceful, voluntary cooperation among people.

Si Si, Puede!

So don't tell anybody what I wanna do
If they find out you know they'll never let me though
--Genesis

Drawing heavily from this video, Prof Williams discusses the politics associated with illegal immigration and the border wall. The obvious take away from the data is the reversal among many on the left from being against illegal immigration to being for it.

What motivated the flip flop? Politics, pure and simple. Previously it paid politically to be against illegal immigration if your were a Democrat in order to kowtow to power labor groups in the U.S. who wanted protection from competition.

Today leftists see illegal immigrants as associated with a large voting bloc that could elevate the Democratic party into positions of power for some time to come.

Sprinkle in rancor for all things Donald Trump and it is easy to see why Democrats don't mind  their blatant hypocrisy on display.

Government Workers

"Nice house on government pay."
--Mace Ryan (Rapid Fire)

As the current 'government shutdown,' which in reality affects only a small fraction of total federal government services and employees, continues, statists are predictably trotting out stories of furloughed workers who are missing paychecks and struggling to make ends meet. An underlying message is that these people are dependent on and entitled to these wages--as if they were working under contracts or similar employment agreements like those commonly made in the private sector.

However, the legitimacy of any wage agreement made by the federal government to transfer taxpayer funds--whether it be to workers or to suppliers--is questionable. Taxpayers surrender economic resources to the government under penalty of force. They are not willing principals using federal government agents to contract for them. Because the sources of the funds have not consented, contracts to pay government workers can be seen as invalid and breakable at any time.

Compounding the problem is the 'promise' to provide furloughed government workers back pay for all days missed once the shutdown ends. One can be confident that few taxpayers are on board with paying workers for services not rendered.

Politicians try to stave off taxpayer revolts by keeping tax rates below a politically expedient threshold--which historically appears to be about 20% at the federal level. But taxes collected at the politically expedient level are not enough to fund the federal payroll. As such, government borrows the difference to make payroll.

Thus, even if taxpayers do not revolt, the bogus federal employment agreements will ultimately be broken by economic forces. The debt and deficits necessary to fund the existing federal payroll, not to mention future spending increases, are not sustainable. Either the government defaults on its debt and payments cease, or the currency gets inflated away and debt (and government workers wages) get paid back in real pennies on the dollar.

Selective Journalism

The deception with tact
Just what are you trying to say
You've got a blank face which irritates
Communicate, pull out your party piece
--The Fixx

CNN contacted a San Diego TV station last week requesting a local view of the debate surrounding the border wall. When it became apparent that the local report was not negative on the wall, CNN declined to pick the report up, as noted by the station on-air.

Thursday morning, @CNN called the KUSI Newsroom asking if a reporter could give them a local view of the debate surrounding the border wall and government shutdown. After we informed them about our past reports, they declined to hear from us.

More info: https://t.co/RX4mB6EdNE pic.twitter.com/r0SAvWxFIm

— KUSI News (@KUSINews) January 11, 2019

Confirmation bias...selective reasoning...selective journalism.

Electoral College Nonsense

'Cause you've got to blame someone
For your own confusion
We're on guard this time
Against your final solution
--Red Ryder

As progressivism was gaining traction a century ago, leaders of the movement such as Woodrow Wilson dismissed the Constitution as out of date. We needed a new, more modern governing design that kept up with the times, so went the argument.

Because this approach consequently didn't resonate with many Americans, progressives have since then been searching for more compelling rationales for overthrowing the governing framework developed by our founding ancestors.

The rationale du jour is that the founding design is steeped in the all too familiar ad hominem cry of the left: racism and slavery. Among the current targets of this weak form of argument is the electoral college. Progressives, of course, are upset with this approach for electing presidents because several of their candidates lost elections while winning the popular vote.

Tara Ross presents the progressive argument that the electoral college is an 'antiquated relic of slavery' and a 'pro-slavery compromise,' and then demolishes the it with evidence to the contrary.

Of course, anyone who has completed junior high civics should already know this. The United States was not founded as a democracy, but as a federal republic. Because the founders clearly understood the dangers of majority rule--particularly in a 'union of states' such as the United States--they designed the electoral college as a means for reducing dominance of big states over small.

Ross cites one of the many of the anti-slavery delegates to the constitutional convention, Gunning Bedford of Delaware, who said that the small states simply feared that they would be outvoted time and again by the large states. The electoral college can be seen as a device for coping with those fears.

The division between small and large states was the greatest difference that needed to be overcome at the convention in order to obtain agreement on a 'union of states.'

Theory and history work against progressives, who would much rather erase both in favor of nonsense.

Trumpet of Doom

I can see that it won't be long
You grow cold when you keep holding on
--Frida

In forecasting theory, the 'trumpet of doom' reflects the axiom that the likelihood of forecasting error increases with the amount of time until the event that is being forecast.

Forecast the weather a minute from now, not much forecasting error. Forecast the weather a few days from now, more forecasting error. Etc.

Many forecasters, including global warming proponents, ignore the trumpet of doom to their  detriment.

Wall of Incompetence

In violent times
You shouldn't have to sell your soul
In black and white
They really, really ought to know
--Tears for Fears

Doubtful whether any event during the presidency of Donald Trump thus far, even the Russian collusion folly, has revealed more about the bias and partisanship of the mainstream media than the wall debate. From failing to pursue obvious lines of questioning...

Will liberal media ever ask @SenSchumer & @SpeakerPelosi why they voted for wall before & now won’t back?

— Liz Peek (@lizpeek) January 9, 2019

...to reporting in manners that disprove their slanted viewpoints...

Thanks @Acosta for reporting that #WallsWork @POTUS https://t.co/F4IhlmKfcO

— Rep. Andy Harris, MD (@RepAndyHarrisMD) January 10, 2019

..it is difficult to decide whether to laugh at or pity this degree of incompetence.

Era of No Monetary Precedent

"Mr Dale, I'm obviously sorry that we are here today but these are extraordinary times as you very well must know."
--Lauren Bratberg (Margin Call)

James Grant suggests that people forecasting economic futures given our current state are kidding themselves. Worldwide, over $8 trillion in securities are priced to yield less than zero. Nowhere on the Treasury yield curve are investors earning above zero returns after inflation and taxes. By one measure, interest rates are at 500 year lows.

These extraordinary circumstances are the consequence of force--force exerted by central bank monetary policies to suppress interest rates around the globe. Grant argues that, because of these unparalleled conditions, the future is extremely difficult to script, and that investors should be prepared for a outcomes difficult to fathom in our present state.

A scenario that Grant has been considering is one where inflation increases more than expected in a world that has grown extremely comfortable to ultra-low rates. He notes that in the 1960s, inflation rates were low and seemingly under control--"and then suddenly the world changed" leading to the stagflationary 1970s.

The problem with higher inflation in today's world is that, because we've been living in a world of essentially free money for many years, the "economy is capitalized for ultra-low interest rates." Small upticks in rates to, say, four percent, which is a very common level over the past 30 years, would be "a very disturbing thing" in this environment.

I think he's right. We indeed live in a era of no monetary precedent. People have come to believe that low interest rates will last forever courtesy of central banks. If the CBs lose control of their low interest rate regime, then the associated reactions by surprised economic actors worldwide would likely not be pleasant.

Perhaps we're getting a preview of that disturbance complements of increased market volatility worldwide.

Wall's Biggest Problem

Borderline
Feels like I'm going to lose my mind
--Madonna

Most arguments against construction of a barrier wall across the southern border are weak. The most popular one, that 'walls don't work,' is among the weakest. As discussed on these pages, humans have been building walls as effective deterrents for thousands of years. While they do not eliminate intruders, particularly those who are highly motivated, walls certainly reduce them.

However, there is one argument against the wall that is difficult to ignore. In order to build a comprehensive walls across the southern border, the government would have to expropriate property from hundreds if not thousands of private landowners. Commonly known as 'eminent domain,' the process is justified under the auspices that it is being done for the 'common good' or for purposes of 'national security.'

Now, to be sure, many of the president's political opponents, particularly those on the left, who have voiced opposition to the eminent domain approach can hardly be taken seriously. After all, these same people generally have no problem with government confiscating property in other contexts for the 'common good.' Their motivation is purely political. They are desperate to employ any means necessary, no matter how inconsistent with their beliefs and past actions, to defeat this president's agenda.

However, opposition to the eminent domain approach is not coming solely from the left. Several congressional representatives and thousands of citizens, particularly from the state of Texas where much of the eminent domain process would likely be employed, have voiced their objections as well.

And their argument is a strong one, as these pages have made clear in the past (here, here, here, here).

To be fair, though, I do sense that there may be a couple of arguments that may have some merit from the pro-wall side. One might be called the 'airline emergency door' argument. If you are a passenger on a flight and you are sitting next to an emergency exit, then you are asked whether you are willing to operate the door in the event of an emergency. If you say 'no,' then you are asked to move in favor of someone who is willing to be responsible for 'securing the border' for travel.

A similar argument might be made for land owners whose property buts up against a national border. Because the border is subject to policies such as those related to national security, property owners adjacent to that border may be viewed as being obligated to secure their properties' boundaries, or be open to the government doing so, so that national security policies can be realized. If those property owners choose not to do so, then they would have to move--similar to those unwilling airline passengers seated next to emergency doors.

The other argument might be called the 'outside the fort' policy. As settlers moved west, forts were often erected so that those living behind those walls would be safer. Some settlers, however, chose to live outside of the fort's walls. By doing so, those settlers could live on their own land as they saw fit with greater freedom. However, they were also more exposed to unwanted invasion by intruders.

For border line property owners in Texas and elsewhere who do not want a wall erected on their land, then perhaps the government should look inland until it finds land owners who will voluntarily cooperate with wall construction. That would simply leave landowners who do not want the wall erected on their property 'outside the fort' by their own choosing.

Those are two arguments that I can think of that might hold some water against those who oppose the wall on eminent domain grounds.

Bankrupt Pensions

But you never had a dream like this before
And you don't want to ask for more
Sometimes you leave a mark
Before you know the score
--Ric Ocasek

The always insightful Stephanie Pomboy argues that biggest consequence of the Fed's decade-long experiment in financial repression has been that it has virtually bankrupted the US pension system.

No lesser authority than the Federal Reserve estimated, quite ironically, that the funding shortfall of US pension plans was greater than $6 trillion by end of Q3 2018. Pomboy suggests that the scariest part of this shortfall isn't even its enormous magnitude. Rather, it is the fact that the funding shortfall widened after a decade of rampant financial asset inflation and a 10 year economic expansion.

What's been going on here? Financial repression is about strangling yields of fixed income instruments--instruments that have traditionally been the lifeblood of pension funds. Instead of getting 6-8% that they have historically counted on, pension plans have been getting far less than half that yield. Consequently, it's a good bet that pension fund managers, like all other investors, are now holding riskier assets than before to maintain any semblance of return in a low yield world.

Pomboy points out that serious effort to shore up pension finances will significantly impact the economy. Spending cuts, higher taxes, and less capital formation will leave a big mark.

Of course, this doesn't even consider the possibility that all those riskier assets now held on pension fund books might blow up if general prices decline in the months or years ahead.

Free Range Humans

"You think you're free? You're not."
--Nathan 'Diamond Dog' Jones (Con Air)

John Lott reminds us that, although many people believe that they are free, they're not.

So is the US still a free country? This is only a very partial list of things people can no longer do without gov approval. pic.twitter.com/cVQNynixDv

— John R Lott Jr. (@JohnRLottJr) January 5, 2019

Freedom has become a positive substitute symbol for government regulation and control.

Not a bad way to put it at the bottom of the graphic. Increasingly, we're living on a tax farm as free range humans.

Wrong Copyrights

"You can break a man's skull. You can arrest him. You can throw him into a dungeon. But how do you control what's up here? How do you fight an idea?"
--Sextus (Ben-Hur)

NYT article discusses add-ons and follow-ups to classic works that will be possible once prohibitory copyrights expire. Because copyrights grant monopolistic privileges to holders, both production and consumption are lower than they otherwise would be. Standard of living is therefore compromised.

The article nicely demonstrates how standard of living can be improved once those monopolistic restrictions are lifted.

As these pages have discussed, it is debatable whether copyrights and other forms of intellectual property (IP) constitute property at all.  Intellectual property is not scarce. Unlike tangible property, where taking it away denies use of that property to the owner, ideas upon which intellectual property are based can be infinitely reproduced without denying the purported originator or 'owner' of its use.

Unlike tangible property, where ownership can be demonstrated by various means, such as its purchase from someone else via a bill of sale, clean title can not be shown for an idea. It is impossible to separate thoughts that are truly mine from thoughts of others that I may have built upon.

Arguments that IP laws encourage innovation can be readily countered. Standard of living improves when goods and services are produced that people want. But copyright and other IP laws restrict production  and  subsequent consumption, thereby restraining prosperity. Moreover, IP laws raise entry barriers to entrepreneurs. Incumbent firms benefit, industries get more concentrated and less competitive. Consequently, innovation declines.

Extending constitutional copyright protection to producers continues to be one of the few areas that our founding ancestors got wrong. The NYT article helps demonstrate this mistake by describing bright possibilities of copyright-free situations.

Statism is Not Radical

"A toast? Yes, to high treason. That's what these men were committing when they signed the Declaration. Had we lost the war, they would have been hanged, beheaded, drawn and quartered, and, oh-oh, my personal favorite, had their entrails cut out and BURNED!"
--Benjamin Franklin Gates (National Treasure)

As the incoming cohort of House majority Democrats reveal its agenda, many are sounding alarm bells regarding the agenda's radicalism.

America, meet the Pelosi House. Articles of impeachment, a move to abolish the electoral college, comparisons of the president to Hitler, a nonstarter vote on the shutdown, profanity, a proposal for a 70% tax on the "wealthy"--all under 36 hours. Wait till they get rolling.

— Kimberley Strassel (@KimStrassel) January 4, 2019

Nothing could be further from the truth. While specific proposals may seem different or extreme, this is just plain old statism in a different wrapper. Statism is not radical. It has defined the status quo condition of the world since society began.

The radical idea is liberty-freedom from state control. It remains as fresh and unusual as its revolutionary appearance in what became the United States of America over 240 years ago.

CO2

Vera Prescott: I hate trees. They suck up all the oxygen.
Brantley Foster: Actually, trees produce oxygen.
Vera Prescott: Who are you? Mr Wizard?
--The Secret of My Sucess

Central to the global warming thesis is that carbon dioxide (CO2) in some quantity undesirable. However, as Thomas Massie observes, global warming proponents have yet to make a compelling case as to precisely what level of CO2 is 'bad.'

Plants, including ones we eat and ones our animals eat, do better when CO2 levels increase and not as well when CO2 levels decrease. My colleagues never discuss this when talking about the optimum level of CO2 in the atmosphere. The media is even worse - they think it’s poison. https://t.co/zTfMQGo3EG

— Thomas Massie (@RepThomasMassie) January 2, 2019

These pages have discussed the robust nature of the planet, including the capacity of plants to absorb large quantities of CO2 from the atmosphere, and the positive effects from associated 'greening.'

Last month we noted that global warming theory is based on three premises. 1) that the earth's atmosphere is warming significantly, 2) that humans are responsible for any significant warming that is taking place, 3) that warming to the degree projected by theory is inherently bad.

Neglect in adequately explaining the proposed net negative effect of CO2, given the various positives, contributes to the overall theory's failure at this point.

Gold Getting Extended

I've been in my mind
It's such a fine line
That keeps me searching for a heart of gold
And I'm getting old
--Neil Young

Gold marking 6 month highs and getting pretty extended here. A pullback would not be unusual, and perhaps even healthy, in here somewhere.

It does feel like investors are once again kicking the tires of the gold complex.

position in gold

Interstate Policy Competition

Don't care about pollution
I'm an air-conditioned gypsy
That's my solution
Watch the police and the tax man miss me
I'm mobile!
--The Who

One of the many beneficial features of the federalist system created by our founding ancestors is that it promotes policy competition among the states. If, for example, a particular state places high tax burdens on its citizens, then people can 'vote with their feet' by leaving the state in favor of lower tax regimes.

Data presented by Dan Mitchell suggest people are doing just that. Individuals are moving from states with oppressive policies such as California, New York, Illinois, and New Jersey to states like Florida, North Carolina, Utah, and Texas that offer more liberty.

One recent study of state household taxes (income, sales, property taxes) and domestic migration rates finds a significant negative relationship, i.e., the higher the state household taxes, the lower the level of migration into that state, as expected.

Mitchell does note one potentially undesirable consequence of these domestic migration patterns. Migrants coming from oppressive policy states might bring their political attitudes with them, which subsequently might lead them to support the same policies that ruined the states that they left. Recent political developments in Colorado, which has been a destination state for many fleeing high tax  regimes, is offered as an example.

An interesting point, but a design that supports ongoing interstate policy competition is likely to erode political attitudes that lead to oppressive policies over time.

Diversity Bureaucracy

"You are all being royally screwed over by these bureaucrats with their steak luncheons, hunting and fishing trips, and golden parachutes."
--Gordon Gekko (Wall Street)

The bureaucracy of diversity and inclusion on display at UMich. Eighty two associated administrators, 28 making $100K or more, at an annual payroll cost of over $10 million. A 'vice provost for diversity and inclusion & chief diversity officer' rakes in more than $400K.

The University of Michigan Has At Least 82 Full-Time Diversity Officers at a Total Annual Payroll Cost of $10.6M. That Would Support Full In-State Tuition for 708 Students. pic.twitter.com/hdvgCMaSAc

— Mark J. Perry (@Mark_J_Perry) December 31, 2018

If this bureaucracy was shuttered and the funds were redeployed into student scholarships, about 700 in-state undergrads could attend UMich this year at current tuition rates.

Nice example of the opportunity cost associated with diversity bureaucracy.