Monthly Archives: October 2011

Some Miscellany

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Telling the truth at inconvenient times: The EU is considering banning rating agencies from publishing ratings on a member country’s sovereign debt whenever that country is in negotiation for a bailout.  After all, worries European Internal Market Commissioner Michel Barnier, who has made the proposal, a rating might be released at an “inopportune moment” and have “negative consequences for the financial stability of a country and a possible destabilizing effect on the global economy.”  M Barnier says that the ratings agencies don’t always publish accurate data.  Of course, the fact that the EU already has negligence (and fraud) laws that can be applied to this situation is unimportant.  It’s better simply to keep investors in the dark than to let them have a few unpleasant truths about European sovereign debt—especially when that debt is at its riskiest: the nation has only just recognized its debt to be worthless or approaching worthlessness, which is why it’s begging for bailouts in the first place.

Can’t trust those cops: They’re too anxious to Tase you, bro.  The New York Civil Liberties Union has their knickers in a twist because “[i]n 60% of cases, the circumstances did not meet standards recommended by experts.”  In their report (“Taking Tasers Seriously: The Need for Better Regulation of Stun Guns in New York”), they claim that “40% of the Taser incidents involved at-risk subjects” and that “people of color are overwhelmingly represented in Taser incidents,” yet the report contains no substantiating data for these claims.  Other beefs: 7% of those Tasered were handcuffed, and another 4% were fleeing. Hmm….  All handcuffed suspects are completely docile, are not kicking or biting risks, cooperatively enter the police car.  And, apparently, if a suspect is lucky enough to break free momentarily, he’s to be allowed to continue—potentially to pursue his misdeeds later.  And the obligatory tear-jerker: a poor 13-year-old boy was Tasered.  Never mind that he was fighting in a mall.  Never mind that the officer who Tasered the boy considered it necessary to “gain compliance.”  Apparently controlling a suspect isn’t allowed.  Of course there are bad apples in every police department, and they need to be weeded out.  And, of course, a few bad apples means we can’t trust the lot of them.

We got him?  The Daily Caller has this (follow the “Full Story” link) Reuters article indicating that in the process of finally gaining control over Sirte, Libya, Libyan fighters killed Muammar Gaddafi.  While the article itself seems clear about Gaddafi’s death (while acknowledging a lack of independent confirmation), the article does raise questions (at least in my grasshopper brain) about the timing of his wounds and of his killing relative to his capture, as well as the actual circumstances of his capture.  And I wonder at the Intelligence value that was lost with his death.

What did he know, and when did he know it?  Rep Jason Chaffetz (R, Utah) and Rep Trey Gowdy (R, South Carolina) are asking rude questions.  In a March interview with Univision, President Obama talked about “Fast and Furious,” and insisted that he “did not authorize it” and that “Eric Holder, the Attorney General, did not authorize it.”  This interview occurred a month prior to AG Holder’s Congressional testimony on the failed operation.  From this, Reps Chaffetz and Gowdy are wondering about things. “Would you inform us how you knew in March of 2011, 1 month prior to his testimony, that Attorney General Holder did not ‘authorize’ this investigation?  [I]f you knew the Attorney General did not authorize ‘Fast and Furious,’ how did you learn that and when did you learn that?  If you knew Attorney General Holder did not authorize it, inherent in that response is knowledge of who did authorize it. That information would be most helpful….”  Hmm….

Taxes, or Whose Money Is It?

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Herman Cain advertises his tax proposal as being revenue neutral—it would raise as much tax revenue, in a static sense, as does the current tax program that his 9-9-9 plan would replace.  Arthur Laffer, writing in The Wall Street Journal, agrees with this.  “Mr. Cain’s 9-9-9 plan was designed to be what economists call ‘static revenue neutral,’ which means that if people didn’t change what they do under his plan, total tax revenues would be the same as they are under our current tax code,” Laffer writes.  Other attempts to change the tax code have been advertised as good at least in part because the changes would have been “revenue neutral:” the amount of revenue collected by the government after the change would have been the same as the amount collected before the change.

But this begs a number of important questions.  Why must tax code changes—or even wholesale replacement of our Federal tax code—be revenue neutral?  What goal is supported by this neutrality?  One goal is continued government spending and borrowing at current levels.  Is this a legitimate goal?

These questions hinge on two other sets of questions that must be answered before these can be usefully satisfied.  The first of those sets of questions is this:  “Whose money is it: whose money is being taxed, and whose money is the collected tax?”

After those questions have been answered, a second set can be addressed: “What is the purpose of government?  Given a government, what is the purpose of its spending?”

With the answers to these, the answer to the question of the utility, if not the necessity, of tax change neutrality becomes clear.  Herewith, then, I begin a short series of posts on the question of taxation.  In this post, I’ll explore that first set of questions, questions that center on whose money it is.  In a subsequent post, I’ll look into that second set of questions, concerning the nature of government and government spending.  In a third post, I’ll answer the question of tax revenue neutrality.

Whose money is it that’s being taxed?  John Locke, Jean-Jacques Rousseau, et al., asserted that all men, despite beginning in a state of lawless nature, had inherent in their existence certain properties, beginning with a property in their minds and bodies, meaning these were their own to control and no one else’s.  From this property, men also had a property in whatever in their environment they might manipulate for their own good or that of their fellows, as well as the results of that manipulation—they owned, for instance, the wheat they grew and the land on which they grew it, or the metals they mined and the land from which they mined it, or the shelters they built and the land on which they built them, or the ideas they had for better ways of doing these things.  No one else had any right to these things.  From this, these men owned whatever they might obtain from an exchange of their property for that of another.  A man who exchanged some of his wheat for some of another’s metal owned outright and exclusively that metal he obtained, and he gave up all claim to the wheat which he exchanged: that other man now had an exclusive property in that wheat.

And so it goes from a barter economy to a money economy.  The goods we obtain in exchange for money become our exclusive property, the money we pay for those goods becomes the seller’s exclusive property, and vice versa.  Our social compact’s principles statement acknowledges as much:

[All men] are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

John Adams, as I’ve written elsewhere, explained “Happiness:”

All men are born free and independent, and have certain natural, essential, and unalienable rights, among which may be reckoned the right of enjoying and defending their lives and liberties; that of acquiring, possessing, and protecting property; in fine, that of seeking and obtaining their safety and happiness.

By the suite of our endowment and by our agreement in our American social compact, then, all property we gain from the sweat of our labor or the work of our mind is our exclusively owned private property.  All property we gain by exchange of our property for that of another’s, including money, is our exclusively owned private property.  Thus, the answer to our first question—whose money is being taxed—is straightforward: it’s our money.  It is not the government’s money that it is collecting; it is our money that we allocate to government.

This brings us to the question on the other side of this…coin.  Whose money is it after it’s been taxed and collected?

The answer to this is a resounding “it depends.”  It depends critically on the nature of a government and of the social compact that created that government—indeed, on whether such a compact exists at all.  There are three fundamental conditions here.  One condition consists of a polity in which there is no social compact: government exists because the men who populate it rose to the pinnacle of power by wile or by superior strength.  They govern because they can, not because the governed consent in any meaningful way to the governance.  In such a polity, the money, once collected as tax, is government property, if only because the government is strong enough to enforce its claim with blood.

In a second fundamental condition, a social compact exists, and its terms essentially cede all power and control to the government created by that compact.  It’s important to understand at this point that a social compact, even in a polity such as this one, is an agreement among the members of the compact; it is in no way an agreement between the compact’s members and their government.  This is straightforward: men first exist without a government, thus they can only agree among themselves; there is no government at this early stage with which to agree.  Any cessation of power to the government they create can only be by agreement of the collection of men among themselves.  Having ceded power to their government, though, the question of ownership of money collected as taxes becomes clear: that money belongs to the government.  When a polity cedes all power over itself to its government, it necessarily cedes (or tries to cede—see Locke and a Creator’s endowment—but functionally, trying to cede and ceding have the same result over the lifetime of the men involved) power over—ownership of—private property, including tax collections, to government.  Money, having been collected as taxes, then, is government’s money in this case.  (Of course, this condition implies that ownership of the money before it’s taxed also falls to government, but we’re considering here post-collected ownership.)

The third fundamental condition is our American social compact: we’ve assigned a short, explicit list of powers to a government which we have created through our compact, and that government, also by the design of our compact, is entirely subordinate to us and it serves at our pleasure.  One of the things we explicitly have not ceded to our government is a thing that we explicitly retain for ourselves (that principles statement again, and additionally, our government’s blueprint, the Constitution): our exclusive ownership in our own properties.  Among the places in our blueprint this is spelled out are Article I, Sections 8 and 9, and our Bill of Rights.  Thus, our money, which is ours before we allocate it to government as taxes, remains ours and not government’s after it’s been collected as taxes.  This is true through another pathway: by the terms of our blueprint, our government is permitted to spend money only on specific things; it cannot legally (not just may not, it can not, legally) spend that money for any purpose it pleases.  I’ve been saying we allocate money to government, rather than we pay tax money to government, on purpose.  We allocate money, in the form of taxes, for the specific purposes we’ve authorized the government and for no other.  That we retain ownership of our money after a tax allocation is true through yet another path: our government exists as our common representative.  Thus, things we allocate to our government, like our money, we are only allocating to ourselves.

Whose money is it after it’s been collected as taxes?  It’s ours.  We’ve only allowed our government to use it for a bit.

Bailouts and Accountability

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Der Spiegel Online reports that the EU is getting close to an agreement to expand the ability of the EU to continue bailing out Greece (and by extension, the rest of the PIGS of Europe).  This expansion of capacity is shaping up to be in the range of €1-€2 trillion ($1.4-$2.8 trillion).  The expansion is intended to work like insurance; it’s a 20%-30% “first loss guarantee:” European taxpayers, via the European Financial Stability Facility (EFSF), will guarantee up to a 20% or 30% loss incurred by the lenders—ensuring that those not involved in the investment at all will suffer the first 20%-30% loss before the investors lose a penny.

This comes against a backdrop of negotiations over how much of a loss those private lenders should be “required” to take compared to the degree of loss the guarantors should take, keeping in mind that ultimately, the guarantors are the taxpayers of the citizens of the EU member nations—the citizens whose tax monies ultimately fund those central banks.  The present agreement concerning the size of the “haircut” is that private lenders should expect losses of 21% of their investment, and the good citizens of the member nations should absorb the rest of any losses.  Berlin and Paris are currently dickering over whether that “haircut” should be raised all the way to 50% before the taxpayers pick up the rest of the bill.

Europe thinks, by propping up a bankrupt Greece, it’s learning from the United States’ handling of the Lehman Brothers failure during the beginnings of the Panic of 2008.  Our government’s decision was to allow a failing institution to fail, and the EU observes all that followed from that collapse.  But as other analysts have shown, that’s the wrong lesson.  The right lesson is from our government’s prior handling of a failing Bear Stearns and the decision not to let that failing institution fail.  This disastrous error created an expectation that no institution would be allowed to fail; these entities—including Lehman—can take, with impunity, severe, unhandled risks because failure from those risks will be made good by government—by taxpayers wholly unrelated to those institutions’ bets.  And we see this in the EU today: the other PIGS of Europe now expect bailouts, also; they expect to be inured against the results of their own failures.  And further, those losses, under the current régime, are not even to be paid by the taxpayers of the failing country, but by taxpayers wholly unrelated, by taxpayers of other sovereign nations, taxpayers whose hard work and personal and governmental responsibility have gained sound economies.

But who, in the end, will pay for a Greek default?  Under all of the plans currently under consideration, the citizens of fiscally responsible polities, of nations which took care of their revenues, look forward to being rewarded for their responsibility by being forced to give up their weal and transfer it to profligate spendthrifts and early retirers who, as a society, refused to take care of their own funds.  Why are the private investors, who invested private money, not expected to get barbered to the extent a free market demands?  Why must the taxpayer get his head shaved, as well, to bail out the private entities (and government banks) which made such poor investment decisions (and made such ill-considered “guarantees” of these poor investments)?

Once again, who is it that the politicians of the EU expect must pay for Greek failure to perform?  A fiscally responsibly Germany or Finland, whose hard-working and frugal citizens have developed a measure of personal and national wealth through their own efforts?  Slovakia, who move Heaven and Earth to get their fiscal house in order so they could join the EU, and whose per capita income remains about two-thirds that of wastrel Greece?  The United States (through the IMF and/or directly) with our own exploding deficits and debt?

Here is an indication of the level of integrity and responsibility that is being bailed out:

Greek citizens have deposited an estimated €200 billion in Swiss accounts, with a significant portion of that sum thought to be unreported.

And tax evasion is a national pastime for Greeks.

A question that must be asked, but which no one seems willing to ask—least of all the German government: For how long must Germany be held to war reparations (here is another demand for continuing reparations as an excuse for bailouts)?

More broadly than that, though, where is the accountability if losses are to be “guaranteed?”  Where is the risk control in a market where no one loses?  What moral hazard is being created?  Here is one outcome of that hazard: “there has been concern that EU governments would have to step in to recapitalize their banks at an immense cost to taxpayers.”  Practically, what inflation is being created for the “guaranteeing” economies when the failing economies are not allowed to go bankrupt and so to begin their recovery?

The cost of letting Greece default and then recover cleanly will be very high.  But the cost of attempting to prop up the failed Greek economy, and then Italy’s, will be far higher, especially after those economies collapse into default anyway.  And we can anticipate adding to the list Spain and Portugal.

Update: Here is another example of the integrity of the people being bailed out (sorry about the lead-in ad).  Slides 1 and 8 are instructive.

Another update:  Corrected, in the first paragraph an erroneous currency conversion from trillions of Euros into billions of dollars.  Trillions are now still trillions.

Another update: Corrected the “first loss” explanation.

Is the Group Guilty of the Misbehavior of the Few?

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Or, Where is the Logic?

In 2008, JPMorgan Chase was forced by the Federal government to accept bailout funds from TARP, even though the bank had no need of these funds.  The government’s reasoning for this was that they didn’t want to embarrass the banks that actually “needed” TARP bailout by having those banks be the only ones being funded by the government.  In the end, some 700 banks received TARP funds, which sounds like a lot, until that number is compared to the total number of banks in the US: nearly 9500 having assets of at least $100 million.  Yet, despite only 7% of the banks receiving bailout funds (and not all of them needing the funds), the entire banking industry is tarred by the failures of the few.  Flowing from this is the view that all banks contributed to the Panic of 2008 by overextending themselves with foolish investments, even though only a few of them actually were so engaged.

Throughout the Tea Party’s history over the last three years, there have been instances, as there are in all large and amorphous groupings, of individuals holding signs of a racist nature.  Whenever these signs, or other behaviors, are spotted by Tea Partiers at the gatherings, these individuals are isolated and removed from the gathering by those Tea Partiers.  Despite this, though, the entire collection of Tea Partiers is branded as racist.

In the current Occupy Wall Street protests, primarily in New York, there have been instances, again as there are in all large and amorphous groupings, of individuals holding offensive signs, this time of an anti-Semitic nature.  Following the logic applied to the Tea Partiers, should the OWS crowd be branded as bigoted?  To date, the NLMSM, which has applied this logic to the Tea Party movement, has not applied it to the OWS.

There are rare, but well-publicized, incidents of police brutality—Rodney King is one such.  Others, placed on YouTube, purport to show the same, but on full investigation, the “brutality” usually turns out to be non-existent.  Yet entire police forces are branded as corrupt on the basis of these rare incidents.

There are some Americans who objected to Barack Obama being elected President because of his race.  As a result of this, all Americans who disagree with Obama are racist, say too many on the Left.

And there are examples of a related “logic:” all who objected to the Patient Protection and Affordable Care Act while it was being developed were accused by Democrat Congressional leadership of being against all health care reform, even though many alternatives were proposed, both in the Congress and around the country.  Along the same lines, President Obama accuses all who object to his recently defeated Jobs Bill (defeated in the Democrat-controlled Senate, after Senate Majority Leader Harry Reid initially refused to allow it to come to a vote at all, even though Senate Minority Leader Mitch McConnell explicitly requested a vote in response to Obama’s demand for that vote) of wanting all teachers, police, firefighters, et al., to lose their jobs.

Where is the logic in these accusations?  Why is there such imbalance in applying this “logic?”  One answer might be in the outcome of applying such “thinking” consistently: it would contradict the predetermined outcome of those who make the logical leaps in some cases, but not others.

In the end, who benefits from this imbalance?

Update: Corrected a typo in the third paragraph: NLMSL should have been NLMSM, which it now is.

Mr Obama, Approve this Jobs Plan Now

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Energy security is a new meme of the present administration, and creating jobs has lately gained a measure of political importance within White House walls, too.  Here’s a chance for significant progress on both, and without gov’t subsidy, without the feds spending a penny.  This single move lessens our dependence on extracontinental foreign oil, whose sources are politically unreliable and whose delivery depends on a long, vulnerable, fragile “pipeline” of oil and gas tankers plying their slow, nonmaneuverable way across the Arabian Gulf, the Gulf of Aden, the Arabian Sea (these two already beset with pirates that our government is too timid to dispatch), and the world’s oceans.  This single move also will create hundreds of thousands of jobs, to cut into our 9+% unemployment rate.  Mr Obama, cut through the delays and approve the Keystone XL pipeline, proposed in 2008, now.

The Washington Post reports that several unions aver this pipeline will directly generate as many as 20,000 high-wage construction jobs for their members, your constituents.  As many as 250,000 additional jobs, according The Chamber of Commerce, also will flow from this pipeline project and other businesses that will develop along its completed length.  Even if inflated by 100%, this represents 125,000 more jobs in your economy than currently extant.  US News and World Report reports that “[T]he states along the pipeline route are anticipated to receive an additional $5.2 billion in property tax revenue and thousands of indirect jobs relating to the project.”

Environmentalists and farmers misinformed by these environmentalists, worry about oil spills from pipeline leaks.  However, the fact is that in the existing 55,000 miles of oil and gas pipelines in the US, leaks are virtually non-existent.  Our most famous pipeline, the Trans Alaska Pipeline, suffered sabotage in 1978 with a resulting spill of around 16,000 barrels.  Other incidents of gunshots and age have led to leaks of 4,200 barrels, 6,300 barrels, and “several thousand” barrels, as reported by the pipeline’s operator, Alyeska.   These are vanishingly small against the pipeline’s lifetime delivery, to date, of 16,000,000 barrels.  Interestingly, the Denali earthquake in 2002 damaged some parts of the pipeline designed to take the damage, and no leaks at all occurred.

The existing Keystone pipeline is equally sound.  Of the leaks reported from 2001-2010 for this pipeline, 50 percent were less than 3 barrels and 80 percent were less than 50 barrels.

Finally, simple business imperatives push for sound design to minimize the likelihood of leaks and for prompt seal and cleanup of those leaks that do occur.  Oil and gas pipelines turn out to be safer than the trucks that would need to carry all that oil from the Athabasca Oil Sands field to our Gulf Coast and Texas refineries—were Canada willing to sell to us under such limiting conditions.

With regard to that, either we use the Canadian oil or the Chinese will: the US News also reports that PetroChina has already signed a deal with Athabasca Oil Sands Corporation that gives PC a controlling 60% stake Athabasca’s MacKay and Dover oil sands deposits in Alberta. Further, Sinopec, a state-owned Chinese company, has bought ConocoPhillips’ 9% stake in Syncrude Canada, LTD, further demonstrating China’s drive to absorb North American oil and gas resources, even as it is doing with Iranian oil resources.

Yet this administration’s response to the need for this pipeline isn’t based on the merits (or lack) of Keystone XL, it’s based solely on Obama’s “Re-elect me” campaign stump, as this email from campaign spokesman Ben LaBolt demonstrates:

When Americans compare the president’s record promoting clean energy and America’s energy security to those of the leading Republican candidates, who don’t even believe that climate change is an issue that we need to address and would cede the clean-energy market to China, there will be no question about who will continue our progress.

Additionally, Administration officials are ducking their responsibility for making a decision in re this project—for or against—at every turn.  In an October 11 interview with the Associated Press, also reported in The Washington Post, Secretary of State Clinton said she realized “this is a very emotional decision” for some but emphasized that she had not been involved in the process yet because “originally, two and a half years ago, this had been delegated to the deputy.”  Hmm….  Even though I’m the MFWIC, I’m going to keep avoiding this for as long as I can.

Thus, the question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy.  Mr Obama, approve this jobs plan now.