Liberty

Soft Fascism?

Jacques Delacroix Law, Liberty, Politics , ,

I am trying hard to avoid joining the current hysteria but I can’t help reading signals flashing right in my face.

The President is going to address grammar-school, and middle-school, and high-school students. That might be OK though I don’t see why or what for. He is not a king but our hired servant. What’s not OK is that the federal Department of Education is sending teachers everywhere follow-up packets of suggested topics for post-speech classroom discussion, some with the word “inspiration.”

That’s a classical, conventional totalitarian strategy. A liberal commentator who struck me, that time, has   argued that it’s not because the teachers don’t have to follow the suggestions. I am sorry but I am sure 80% and up of teachers, at all grade levels, are Obama devotees. They probably constitute the core of the silly, adoring Obama constituency. They will follow the suggestions. They can be counted on to establish the foundations  of  an Obama cult of personality.

I have been holding casual, short conversations with a young man I like around the coffee- shop. (He is very likable in general; I think everyone likes him.)  He is a student of philosophy at one of the University of  California campuses. I like him for this; it takes bravery to major in Philosophy rather than in, say, Accounting. He is an Obama supporter, of course, but a thoughtful one.  He represents the best of what there is to like in political liberalism, including  a striving for rationality and generous  impulses. Continue reading →

The Holy Roman Empire was…

Brandon Christensen History, Law, Liberty , , , ,

…_______________ (fill in the blank!).

I’ve been meaning to link to a fascinating article in the Economist on the parallels between the Holy Roman Empire and the European Union, but travels, getting ready for school, and other stuff has gotten in the way.

Among the gems:

The empire faced the same problem as today’s EU, only worse. The EU currently has 27 member states. During its final 150 years, the empire had more than 300 territories (the number varied). Should each member get one vote? If so, any hillbilly could block progress. Or should votes be weighted by territory? If so, big princes could bully little ones. Should decisions be taken by simple majority, qualified majority or unanimity? The empire answered these questions as the EU does: with a characteristically decisive it-all-depends.

Do read the whole thing.

My only critique of the article is that it misses a huge piece of the puzzle: the presence of the US military, as a conquering power, on the continent. As long as Uncle Sam is around, Europeans don’t have to worry about descending into yet another war. None of them will ever admit this, though. Europeans would rather spend their time ignoring this point while simultaneously assaulting the very political and economic system that enables the US to provide for Europe’s security.

I’ve written about this before, but due to the inevitable fiscal constraints of empire I think American military policy towards Europe needs to go one of two ways: 1) either withdraw our troops completely or 2) start implementing trade policies that would make living, working, and traveling between the US and Europe much, much easier. Like moving to Louisiana from Languedoc should be as easy as moving from California to Connecticut.

Taking the second route would pay for itself and much, much more. Unfortunately, there are too many isolationists and too many reactionaries (mostly on the Left) on both sides of the pond that would oppose such a policy no matter how much it would benefit themselves and everybody around them. The second route might be the one we need to take. Both, as I mentioned, are going to have to be necessary if the US is going to get its fiscal house in order.

Federal Deposit Insurance: A Banking System Built on Sand

Warren Gibson Economics, History, Law, Liberty ,

Federal deposit insurance grew out of a turbulent time in American history: the Great Depression. During two waves of bank failures in the 1930s an astonishing 9,000 banks closed and millions of depositors lost some or all of their savings. The Federal Deposit Insurance Corporation (FDIC) began operations in 1934, insuring deposit accounts up to $5,000 per person (roughly $80,000 in today’s money).

The bank failure rate then dropped dramatically and never again rose anywhere close to the level of the 1930s. And such bank failures that have occurred have cost insured depositors nothing; many uninsured depositors were made whole as well. Bank runs are a distant memory, revived occasionally by reruns of It’s a Wonderful Life.

Yet it may be premature to pronounce deposit insurance a success. It can take a long time for an unsustainable program to unravel: Witness Social Security and Medicare. Seventy-five years after the start of Social Security and 45 years into Medicare, it’s common knowledge that both programs are headed for a financial cliff. A closer look at deposit insurance will show cracks in its edifice, raising questions about its sustainability as well as the distortions that it has introduced into the economy.

Before we take that closer look we might ask whether, as is widely assumed, the bank failures of the 1930s were an example of unregulated free markets run amok. During that time, as Milton Friedman and Anna Schwarz pointed out in their classic, A Monetary History of the U.S., the number of bank failures in Canada was exactly zero. Canada is closely linked to the United States economically and culturally, making this episode as near to a controlled experiment as any macroeconomist could wish for.

The difference? Canada had just ten nationwide banks with about 3,000 branches, while branch banking across state lines, and often within states, was prohibited by U.S. law. Thus smaller communities could only be served by relatively weak, poorly capitalized banks. A hailstorm might be enough to topple the local bank in a small farming community as surely as if it were built from straw.

The banking system was also caught in the downdraft of a plummeting money supply. When banks hold only a fraction of their liabilities as reserves, deposit inflows cause the money supply to multiply, but the reverse happened during the Depression as worried depositors began to cash out their accounts. The economy could have adjusted to a declining money supply in one of two ways: either by lowering prices and wages or by Federal Reserve injection of new money. Hoover’s jawboning and Roosevelt’s New Deal legislation precluded the first solution, while the Fed, out of ignorance or confusion, failed to inject new money. With economic adjustment prevented by government policies, a vicious cycle of souring bank loans, liquidation of deposits, further declines in the money supply, and more business failures took hold.

Interestingly, Milton Friedman and Murray Rothbard, both free-market economists, reached opposite conclusions about the declining money supply. While Friedman blamed the Fed, Rothbard celebrated what he saw as the people’s attempt to overturn fractional-reserve banking, which he believed is inherently fraudulent. Either way, the fingerprints of government were all over the bank failures of the 1930s and the Great Depression generally.

With the failure of so many banks, U.S. Representative Henry Steagall vigorously pushed deposit insurance legislation. Franklin Roosevelt was among his opponents. Indeed, when asked about guaranteeing bank deposits four days after his inauguration in March 1933, Roosevelt said he agreed with Herbert Hoover:

“I can tell you as to guaranteeing bank deposits my own views, and I think those of the old Administration. The general underlying thought behind the use of the word ‘guarantee’ with respect to bank deposits is that you guarantee bad banks as well as good banks. The minute the Government starts to do that the Government runs into a probable loss. . . . We do not wish to make the United States Government liable for the mistakes and errors of individual banks, and put a premium on unsound banking in the future.”

FDR was right. Deposit insurance generates moral hazard: an incentive to engage in more reckless behavior when one’s misdeeds are covered by someone else. Bank managers tend to make riskier loans than they would without insurance, and depositors don’t worry about the lending practices of the banks they patronize. Currently many people, including me, buy bank certificates of deposit through online brokers, perhaps not even learning the name of the bank that got our money. The magic letters FDIC are all we look for.

Savings & Loan and Moral Hazard

The savings and loan crisis of the late 1980s saw a catastrophic explosion of moral hazard. Deregulation had lifted interest rate caps for S&Ls and allowed them to expand from residential mortgages into commercial and consumer lending. Competitive pressures sent managers scrambling into these markets, which were mostly unfamiliar to them, while at the same time they had to compete vigorously for deposits. With deposit insurance offered to all chartered institutions regardless of risk, S&Ls made many preposterous loans. When the dust settled, roughly half had failed. A massive taxpayer bailout followed and, as very rarely happens to failing government agencies, the Federal Savings and Loan Insurance Corporation was abolished in 1989—though its responsibilities were shifted to the FDIC.

Moral hazard is an aspect of all insurance, public or private. But private insurance companies, if they wish to survive and prosper, must find ways to limit policyholders’ risky behavior. Deductibles, copays, threats of cancellation, and rewards for prudent behavior return some monetary incentive to policyholders. In addition, insurance companies try to educate policyholders about prudent behavior. Crucially, in a free market private insurance companies’ profit-and-loss statements tell whether they’re getting it right. Government agencies lack profit-and-loss discipline and are inevitably subject to political pressure. The FDIC’s legally mandated requirement to hold reserves to back its liabilities may resemble market discipline, but as we shall see, when the mandate was violated, no one lost his job and no investors lost any capital.

Private insurance companies invest most of their reserves in productive activities such as corporate securities or real estate. They count on earnings from these investments to balance low or even negative returns on their pure underwriting activities. The FDIC, by law, holds its reserves in the form of Treasury securities. Any alternative would certainly be riskier and more politically charged. Yet we must recognize that this arrangement, as with the Social Security Trust Fund, is merely a pass-through of the FDIC’s liabilities to U.S. taxpayers.

The FDIC reserve fund is called the Deposit Insurance Fund (DIF). For most of its history, the DIF was kept within its statutory limit, which has varied over time but is currently a range of 1.15 to 1.25 percent of insured deposits. At least, that’s the statutory range. It’s actually essentially zero. But are the statutory numbers the right ones? No one can be sure, but again, the FDIC lacks a profit motive to help get it right.

A spate of bank failures in 2008 and 2009, while far less severe in number and magnitude than in the 1930s, left the DIF with no unencumbered assets at all. The pace of bank failures continued during the first three months of 2010, while the number of problem banks on the FDIC’s secret list jumped 27 percent in the fourth quarter of 2009, to 702. In short, the FDIC is in trouble.

A restoration plan has been proposed to get the DIF back to 1.15 percent of insured deposits by about 2017, a date that has been pushed back more than once. The plan relies heavily on an assumption that the economy will soon resume robust growth and that “only” about $100 billion in failure costs will be incurred between 2009 and 2013, with most of those costs coming in 2010. For the shorter term, the proposal calls on commercial banks to prepay their deposit insurance premiums through 2011. When they do so, a new asset will appear on their balance sheets: a prepaid expense. To gain their acceptance and cooperation, the FDIC proposes that this prepaid expense be counted as an asset that is just as safe as U.S. government securities and therefore does not require additional capital backing. This shuffle will be pretty much a wash for the commercial banks, and the upshot is that the FDIC will indirectly borrow its own future premium income, hoping that income will materialize in amounts sufficient not only to cover future bank failures but also to rebuild the DIF. We shall see.

The DIF is not the FDIC’s only problem. When closing a failed bank, the agency tries to sell as many of the bank’s assets as possible, including branches, loans, and securities holdings. The FDIC’s goal is usually to make all depositors whole, not just insured depositors. It sometimes takes possession of assets for which it can’t get an acceptable bid. In doing so it acquires assets that are difficult to evaluate and thus greatly complicate estimates of future liabilities.

Disguised Risk

Now let’s take a longer look at the business of banking. The very words we use, like “bank” and “deposit,” can distort our thinking. The word “bank” comes from the bench or counter where medieval money changers did business. The word “deposit” suggests something like an ore deposit in the ground: the minerals are there and can be gotten out. We think of banks as custodians of our money, keeping it safe for us and making it available whenever we need it. But present-day banks are not deposit banks, locking our money away in a vault as the term would suggest, but rather loan banks. Most of our deposits are loaned out and not all of them could be redeemed on short notice. This works fine as long as there is no large and sudden short-term demand for withdrawals. But we have come to believe, in part due to misleading terminology, that we can have rewards without risk. Interest paid on bank deposits is now essentially zero but as depositors, we still reap benefits such as ATMs and online banking with no fee and no apparent risk. In short, as in so many areas of contemporary life, we have been led to expect something for nothing.

Thus proper labeling could help rationalize banking. Those who want utmost safety in the form of true deposit banking should be free to pay for it with fees for storage of their currency or gold. Liability insurance for true custodial service should be very cheap. Those who wish to entrust their money to loan banking should accept the risk, and if they want insured accounts, they—not taxpayers—should be prepared to pay for the insurance, at least indirectly.

While there is nothing inherently wrong with loan banking, we get too much of it when it is disguised as deposit banking and backed by mispriced and politically motivated government insurance. The result is a banking system that is more highly leveraged than it otherwise would be. This in turn increases the severity of business cycles—booms and busts.

FDIC Incentives

Back to the FDIC. As we have seen, banks pay for its service in the form of insurance premiums. Coverage is not mandatory, so the organization looks somewhat like a private business. But in fact it is a monopoly supplier to banks (with a parallel institution serving credit unions). Private competitors are locked out, perhaps not by statute, but by the FDIC’s implicit and explicit backing by the Treasury (explicit in the form of a line of credit). Without a profit motive, the FDIC lacks the incentive to serve its bank customers and its indirect depositor customers by offering innovative services with effective moral-hazard controls.

Though the FDIC lacks market incentives, it is awash in political incentives. Thus in 2008 Congress voted for an increase in deposit coverage from $100,000 to $250,000 with little or no discussion of the costs of this move. This “temporary” increase has been extended once and will likely become permanent. Members of Congress are of course motivated by the campaign contributions of bankers and others, and may not know or care about the long-term consequences of such actions.

Private Options

How might private firms handle bank deposit insurance? Before the government takeover of the banking system, private clearinghouses sometimes provided mutual aid among member banks. The Suffolk Bank in Boston was a notable example in the early 1800s. It supported country banks in New England for many years by clearing their transactions and accepting their currency at par. It earned a profit doing so.

But could private firms ever be big enough to provide bank deposit insurance in today’s multitrillion dollar economy? Reinsurance firms offer evidence that they could. As their name indicates, General Re and other such firms insure insurance companies. Who insures the reinsurance companies? No one. Absent government intervention, these firms would experience diseconomies of scale when they grow too large, provided it is clear that they would not be in line for a government bailout should they get into difficulty.

Failure is an important aspect of the free market. Economist Joseph Schumpeter’s pithy phrase “creative destruction” captures this notion and reminds us that failures, which will always be with us, should be liquidated so that others can pick up the remains and apply them to more promising enterprises. Shouldn’t this idea apply to banks as well? Rothbard actually celebrated occasional bank runs as a way of putting the fear of God into bank managers and depositors alike. Amazingly, Roosevelt’s initial response to the deposit insurance proposal echoed Rothbard’s: “There are undoubtedly some banks that are not going to pay one hundred cents on the dollar. We all know it is better to have that loss taken than to jeopardize the credit of the United States Government. . . .”

Washington-Wall Street Banking Cartel

Make no mistake, our current banking system is, and has long been, a cartel run for the mutual benefit of Wall Street financiers and their regulator friends in Washington. Case in point: Goldman Sachs and Morgan Stanley were allowed to convert to bank holding companies so that they could receive federal bailout money. The $180 billion AIG bailout provided Goldman with 100 cents on the dollar for its holdings of AIG credit default swaps.

Let us not be so naive as to believe that government deposit insurance is any different. Any benefit this system provides to small depositors is incidental to its real objective: to serve the cartel.

The banking system is in need of real reform. More regulation? More virtuous regulators? Only the naive, the ignorant, or the disingenuous can believe these answers in the face of regulation’s long history of failure, the practical impossibility of detailed oversight, and the perverse political incentives that always operate. The solution lies not in wiping out risk—there can be no real economic growth without risk. Instead, we need rational incentives: Let risks be borne by those best able and willing to take them.

[Editor’s note: this essay first appeared in the Freeman on May 20 2010]

The Sales Tax Petard

Fred Foldvary Current Events, Economics, Liberty

For years, the web-based book seller Amazon.com had not been charging sales tax in states in which it did not have a physical presence such as a store. States do not have legal jurisdiction over enterprises that are not located within their territory, although Amazon and other companies have had relationships with affiliate companies, which makes the concept of a physical presence unclear.

Customers who do not pay a sales tax to the seller are supposed to pay a Ause@ tax that is equivalent to a sales tax, but they rarely do this, due to the absence of enforcement. This proves that most people do not consider a tax on goods to be a moral obligation.

Now the sales-tax-free era is coming to an end. Book store owners had long complained that it was unjust for them to pay sales taxes while web-based sellers were not charging the tax. In California and some other states, the sales tax rate is about ten percent, a substantial difference when the price of a book is high, and the books can be mailed at the low-cost media rate. Continue reading →

GDP: Who Needs It?

Warren Gibson Current Events, Economics, History, Liberty

“For so it is, oh my Lord God, I measure it, but what it is that I measure I do not know.” –St. Augustine

Gross Domestic Product (GDP) gets a lot of attention these days. It’s fair game for bloggers, talking heads, perhaps your local barber.  While most agree that higher GDP is better than lower, there are problems, some better-known than others. Some theorists have considered the concept hopeless, such as Austrian economist Oskar Morgenstern, who called GNP (the predecessor to GDP) “primitive in the extreme and certainly useless.” Lamenting the idea that the whole of a nation’s economic activity could be captured in a single number, he said that “very few men, even few economists, or should I say regretfully, especially economists, have a real appreciation and understanding of the immense complexity of an economic system.”

Let’s get the formal definition out of the way. GDP is the market value of all final goods and services produced in a particular country in a given year. The federal Bureau of Economic Analysis computes this number and releases it quarterly. The level of GDP is used as a basis for evaluating other things, like the national debt, which currently stands at about 85 percent of one year’s GDP in the United States. GDP growth rates are closely followed. These are inflation-adjusted, seasonally adjusted, and annualized, and are of course supposed to tell us how well the economy is doing.

Simon Kuznets gets credit for the first serious attempt to calculate national income figures, publishing his first work on the subject in 1941. Following in his footsteps, calculation of GDP and other “national income accounts” has become a core area of the economics profession. The explosion of economic and financial news has thrust GDP into the limelight in recent years. Continue reading →

Petaluma

Jacques Delacroix Liberty ,

Here is a poem I like:

No asphalt here, all concrete streets,
cracked, torn and rattled,
above centuries of adobe mud.

I’m from Petaluma and I never know
How to handle being home. Continue reading →

America and Firearms (Explained to Overseas Readers)

Jacques Delacroix Current Events, History, Law, Liberty, Politics , , , , , , , , , , ,

The other day, I am watching the news on TV5, the international French language network. I am doing this to get away from the spectacle of the impending economic disaster in the US where I live. This is shortly after the massacre of school children in Connecticut. One item draws my attention: The cute, airhead French female announcer (or “anchorette”) states that last year about 28,000 people in the US lost their lives to guns.

Here we go again, I think. More half-assed information that is worse than no information at all. I have witnessed European media disseminating misleading information about the US for more than forty years. This time again, I have to intervene to help overseas of observers of the international scene who want to know about reality and who might happen to read this blog.

I can’t tell you how often I have witnessed the following: European commentators making sarcastic, superior comments about some American event or custom, or some American way of doing things and then, their society adopting uncritically the same American event, or custom, or way of doing things ten years later, or even later. Right now, for example, I would bet you anything that one of the novelties on French radio is 1990s American popular music. That would be especially true on the channel that calls itself without batting an eye-lash, “France culture.”

The tendency of Europeans to copycat the United States is so pronounced that it even affects social pathologies, the last thing you should want to imitate. Accordingly, it seems that the French expression for “serial killer” is: “serial killer.” N.S. ! (Would I make this up?) Continue reading →

What is a Fair Share of Taxes?

Fred Foldvary Economics, Liberty

What is fair is different from what is just. What is just is determined by the ethic of natural moral law as expressed by the universal ethic. The universal ethic prescribes that all acts, and only those acts, that coercively harm others, are evil. Justice is the implementation of the universal ethic in law. Justice is applied by prohibiting and penalizing evil acts, and by keeping all other acts free of restrictions or imposed costs.

The premises from which natural moral law derive are the biological independence of thinking and feeling, and the equal moral worth of all human beings. Thus a foundation of justice is equality before the law. People with equal conditions should be treated the same.

Equality implies that all persons are equal self-owners. If one person imposes his will on another, the victim becomes a slave, and the tyrant becomes a master, in violation of equality. Self-ownership implies that one fully owns one’s labor, and therefore any tax on wages or the products of labor, or the spending of wages, violates self-ownership, and is unjust.  Continue reading →

No Upticks in Mass Shootings…

Brandon Christensen Current Events, Liberty, Politics

…so, what is to be done?

Brad Plumer of the Washington Post has a graph up on mass shootings:

Mass Shootings in the US 1980-2010

Plumer explains:

Mother Jones found that 24 of the last 62 worst mass shootings have taken place in the past seven years alone. That seemed like a clear increase.

But is this the right way of looking at things? Over at Reason, Jesse Walker criticizes my post and points to data from James Allan Fox, a criminologist at Northeastern, who has found that there’s been no discernible increase in mass shootings since 1980 […]

Why the difference? Fox is looking at all mass shootings involving four or more victims — that’s the standard FBI definition. Mother Jones, by contrast, had a much more restrictive definition, excluding things like armed robbery or gang violence. They were trying to focus on spree killings that were similar in style to Virginia Tech or Aurora or Newtown. The definitions make a big difference: On Fox’s criteria, there’s no uptick. On Mother Jones’, there’s a clear increase […]

So, duly noted. One final point, though: Even if mass shootings are simply staying constant, and not actually increasing, that might still be of interest given that the overall rate of gun violence and homicide in the United States appears to be on the downswing.

So, not only have mass shootings not increased, but violence overall in the US is decreasing as well.

Every time something horrific happens, be it mass shootings, a collapse of the financial sector, a terrorist attack, whatever, there are calls from the people for the government to “do something.” These calls do not emanate from the Left alone.

The Austrian (and Austrian School) economist Ludwig von Mises recognized this nearly a century ago. I understand why there are calls from people for their government to “do something” after something awful happens. I understand why politicians respond to such calls. I always feel awful when I read about things like some psychopath gunning down little children at school or people losing their homes in an economic downturn.

Also, I always feel a little bit awkward standing athwart these calls waiving cold, hard evidence around that states disasters are extremely rare, and that passionate calls for more government intervention in our lives when there is absolutely no need for it is an invitation for more trouble, not less.

(h/t Tyler Cowen)

On another note, Pierre Lemieux and Jacques Delacroix have comments on guns and psychopaths. Both are worth reading.

Guns and Debate: An Issue Within An Issue?

Brandon Christensen Current Events, Liberty, Politics

I’ve been making the rounds on Facebook in regards to the inevitable catcalls for more gun control. Two things have jumped out at me.

1) The people who are calling for more gun control (whatever that means) are not very good with numbers. I suspect this ignorance is of the obstinate kind.

For example, when I politely pointed out to a friend-of-a-friend that, statistically-speaking, gun-related violence amounts to almost nothing, he responded with a half-assed blog post by a DC policy wonk with a title that read something like “9 Things You Need to Know About Gun Control.” There were at least 12 things on the list. Continue reading →

End Prohibition on Self-Defense in Schools

Warren Gibson Current Events, Liberty , , ,

Of all the reactions to the horrible shooting at Stony Ridge Sandy Hook, this one from the Libertarian Party is the most sensible thus far.  It focuses on the federal Gun Free School Zone Act which prohibits firearms in schools.  It goes on to cite incidents where armed citizens have been able to stop or cut short these sorts of shootings.  Hat tip: Jeff Hummel.

Labor Unions as Squeegee Men

Warren Gibson Liberty

ImageIt seems like only yesterday, but it was in the 1980’s that squeegee men had their heyday, particularly in New York City.  These were young men who would approach cars stopped in traffic.  Without asking, they would start “cleaning” the victim’s windshield – often using just a dirty rag.  It was usually evident to the driver that a generous gratuity would be a good idea, as a smashed windshield would be a distinct headache.

As a lecturer at San Jose State University, I am victimized each month by a group of “squeegee men” known as the California Faculty Association.  A certain sum is extracted out of my paycheck and handed over to these gangsters so they can continue pressing their statist demands.  “Membership” in the union remains optional at extra cost, notwithstanding a recent dirty trick in the form of an announcement that everyone would be enrolled as a “member” unless they sent a letter to the union asking to be excluded.

What benefits do these squeegee men confer on me?  The pay I get for teaching one class is trivial so whether it rises or falls makes little difference to me.  I have other motives for teaching.  The benefits were pretty good, but having voluntarily cut back to one class, I no longer get benefits.  I see no return at all from the money that the union extracts from me.

A couple of years ago there was talk of a strike.  I had fond hopes that it would come to pass because I have long wished for an opportunity to cross a picket line.  That would have been great fun.  Alas, it’s unlikely, as budget woes have taken the steam out of such threats.

But wait, wasn’t the union legitimized by a vote of the faculty?  Yes, a vote was taken a few years before I got there.  In no way does that excuse the theft of my money.  It does exemplify the basic social malady of our time, which is social democracy – the idea that voting can legitimize acts that trample minority rights.

Unions have been taking it on the chin lately.  Most recently the Michigan legislature passed, and the governor signed, a “right to work law.”  Such laws, now on the books of some 24 states, make payment of union dues of any kind optional. The primary argument against these laws is that they enable “free riders,” non-payers who supposedly benefit from union activities, like motorists who drive off without paying the squeegee men.  This problem could be solved by excluding non-payers from union-negotiated settlements.

While it’s great fun to watch the unions getting pummeled, I must add a note of opposition to right-to-work laws.  If employers want to make union membership a condition of employment, and are able to find good workers willing to accept that condition, the law should not prohibit such arrangements.  The proper place of the law in labor relations is the prevention and punishment of criminal acts, principally violence and intimidation, and nothing more.  Any union that conducts its business in a peaceful manner – without threats against either employers or holdout workers – should not be molested.

The Israeli-Palestinian Mess: Some Historical Context

Brandon Christensen Current Events, History, Liberty, Religion , , , , , , , , , , ,

I just finished up an anthropology course on the Middle East as a culture area, and for reasons beyond my explanatory power, I got to look at the Israeli-Palestinian conflict a bit more in depth. A brief narrative of the Israeli-Palestinian conflict follows.

The historical context of the Israeli-Palestinian conflict can best be understood by breaking it up into three separate but interrelated segments: the collapse of cosmopolitan empires, the emergence of nation-states, and seismic shifts in demography that accompanied collapse and rebirth.

The post-World War I era can be defined largely in terms of the collapse of the cosmopolitan Austro-Hungarian and Ottoman empires. The spectacular collapse of these centuries-old empires has been attributed to the policies of democrats in western Europe and the President of the United States at the time, Woodrow Wilson, by a number of historians. The underlying idea being promoted by Western elites for central and eastern Europe was that of national self-determination, a belief that each ethnic and linguistic group should have the right to govern itself within a free and democratic state. The movement was intended to break the back of “despotism” in eastern and central Europe (as well as the Near East), but the policies unleashed instead a hotheaded nationalism amidst pockets of power vacuums prevalent throughout the now-dead empires. Continue reading →

A Glimmer of Freedom in Health Care

Warren Gibson Liberty

The politicians are bound and determined to seize total control of health care and damImagen the consequences.  And yet … And yet every so often a glimmer of a free market in health care appears like a weed pushing through a crack in the asphalt and bursting into bloom.

Here we have an inkling of a free market in medicine: an advertisement from a local paper featuring price, diversity of services, convenience and qualification (MD).  We mustn’t give up hope for health care freedom.

I had never heard of Dr. Marchasin but got a pleasant surprise when visiting his web site with links to his criticisms of Obamacare.

Reflections on the Income Tax

Warren Gibson Liberty

I’ve been spending quite a bit of time with TurboTax lately, looking for last-minute opportunities to manipulate my income – legally, of course – to minimize my income tax.  Why not just hire a professional to do it, you might ask?  I’ll tell you later.

First, let’s remind ourselves what a vile institution the income tax is.  Taxation in general is bad enough – legalized theft, really.  The income tax is particularly onerous because it requires us to drop our pants financially, because it’s hideously complicated and because it generates huge amounts of deadweight loss.

With all the concern about privacy these days we hear precious little about the intrusiveness of the income tax.  We must reveal intimate details of our economic activities.  Of course the IRS holds all that information in confidence – until they don’t.

The tax code, in case you didn’t know it, has become complex far beyond the comprehension of any single tax expert.  Consider, as a random example and a mild one at that, the instructions for line 31 of Form 6251, Alternative Minimum Tax for Individuals:

  • ImageIf you are filing Form 2555 or 2555-EZ, see instructions for amount to enter.
  • If you reported capital gain distributions directly on Form 1040, line 13; you reported qualified dividends on Form 1040, line 9b; or you had a gain on both lines 15 and 16 of Schedule D (Form 1040) (as refigured for the AMT, if necessary), Complete Part III on the back and enter the amount from line 54 here.
  • All others: If line 30 is $175,000 or less ($87,500 or less if married filing separately), multiply line 30 by 26% (.26).  Otherwise multiply line 30 by 28% (.28) and subtract $3,500 ($1,750 if married filing separately) from the result.

Can anyone set this to music?

The original form 1040, issued in 1913, ran to three pages in length with a single page of instructions.  The current federal income tax is set forth in Title 26 of the U.S. Code of Federal Regulations.  You can get your own copy, all twenty volumes running over 13,000 pages, from the Government Printing Office for just $974, free shipping included!

The complexity of today’s income tax leads to hundreds of billions of dollars worth of deadweight losses each year.  A deadweight loss, you will recall, is a loss that is no one’s gain.  Deadweight loss associated with income taxes consists of two parts: (1) tax preparation costs plus costs of finding and implementing avoidance or evasion strategies and (2) lost gains from production and trade because of the disincentives of taxation.  If you’re tempted to say that money spent on accountants isn’t deadweight loss because it generates income for accountants, you haven’t internalized Bastiat’s “Fallacy of the Broken Window.”  If you’re going to count income to accountants you have to subtract the value of their efforts which could be spent doing other things.

TurboTax is good news and bad news.  The good news is that it reduces tax preparation costs while generating profits for Intuit.  The bad news is that lower costs mean taxpayers are less inclined to rebel against the tax code.

What disturbs me most about the income tax is not its complexity but how resigned most people are to this heinous institution.  We forget that taxes are extracted using threats of physical violence.  People are so brainwashed!  Every time I open up TurboTax I face the picture shown here of happy taxpayers.  Or maybe they’re happy accountants.  Or happy IRS agents.  Anyway, I’ve managed to avoid barfing on my keyboard thus far.

So why do my own taxes?  Stubbornness, I guess.  First of all, I’m an engineer and a numbers guy.  I can figure this stuff out (I think).  With TurboTax I can play what mathematicians call finite-difference games to see how hypothetical increments of various kinds of income alter my tax liability.  Second, I hate to shell out a four-figure fee to an accountant who may add little or no value to what I can do on my own.  But mainly I guess it’s just the perverse satisfaction in doing first-hand combat with The Man.

If you’re like me and have some choices about income such as IRA withdrawals or realization of capital gains, better get cracking ‘cause you only have about three weeks left.