Monthly Archives: November 2011

What about the Euro?

Posted on by
Reply

Spiegel Online International writes that “in the end, only the ECB will be able to save the euro if the crisis continues to escalate.”  It’s useful to examine all three of the premises contained in this statement, which was made in the context of a discussion of the current Greek default crisis, the looming Italian default crisis, and the not far behind Portuguese and Spanish default crises.

One of those premises is the assumption that the euro should be saved.  Another of those assumptions, closely related to the first, is whether the euro can—or should—be saved in its present form; that is, should the current euro zone remain intact.  The third assumption, closely related to the second, is that, given a truth of either of the first two, the ECB is the only means of salvation.

On the first assumption, I suggest the answer is a qualified yes, the euro in some form is worth saving.  Free trade arrangements among nations are economically more efficient than trade among nations that have no such agreements among them.  The benefits for each of the member nations, for all of the taxpayers involved, include the following.  Free trade zones reduce the costs of the goods traded by smoothing their shipment and by reducing/eliminating costs associated with the process of trade: tariffs, for example; border delays in goods’ movement; reduction of bureaucracy and of bureaucratic costs associated with managing trade without such agreements.

A common currency is nothing more than a logical extension of this, and it carries further reductions in costs to the ultimate consumer—the businesses in the member nations and their cost of supplies and labor, and the citizens of the member nations as they go about their own business.  Another cost reduction is the loss of the cost of currency conversions from one nation’s to another’s.  Finally, if done right, the common currency eliminates currency speculation within the zone and the price excursions that can result from such speculation (even if the excursions are inherently short-lived).

A common currency, though, even more than a free trade zone, puts demands on achieving a commonality of mores among the nations involved.  The cultural imperatives, the views of a government’s role in a nation’s economy and in the people’s lives, even the views of the purpose of a currency (national or common) must have a very great deal of overlap and agreement.  If these do not exist, ultimately there will result a net flow toward some member nations and away from others; this instability means that a common currency cannot exist for long.

Additionally, a common currency stands on a very large leap of faith by all the members of the common currency zone.  This faith is that agreements made among sovereign nations in the creation of the currency, and that underlie the nature of that currency and its usability, will be kept.

With the euro, neither of these conditions obtain.  If we look at “northern” Europe we see a common attitude that still values smaller governments (if not as small as many Americans believe appropriate) with limited roles in lives and economies.  We also see a general culture that values individual work ethic, initiative, and a degree of frugality.  This tends to be the case of “eastern” Europe, as well: Poland, Estonia, and Slovakia, nations that experienced directly the failures of large government  involvement are examples of this.  Additionally, the memories of the failures of this large, controlling government involvement are still fresh in their minds, pushing them further in the direction of individual responsibility.

Mediterranean Europe operates from an entirely different culture, one whose work ethic seems centered on working to obtain as early a retirement as possible.  This is a culture, also, that holds that government’s role is to take care of the citizens in all respects.  This is a culture that sees currency, not as a store of value to be divided between current needs and desires on the one hand and future needs and desires on the other, but to be used solely for current consumption (that future being a purpose of government).  Regardless of what one might think of the merits of the two different mores, they do not mix.

We’re also seeing the routine breakdown of those agreements solemnly entered into at the creation of the euro.  The agreement that only stable nations, with sound economies, would be allowed to join has proven to be a chimera.  Greece’s membership demonstrates that.  That the signs were visible ahead of its joining is apparent in the contrast with Slovakia, which had much the same economic condition, only more so, as Greece when Slovakia began discussions to join the euro zone.  The differences starkly demonstrate the visibility of those signs.  Slovakia had to undergo severe “austerity” measures to get its economy and debt in order so that it could join, and the people set about to do that.  The Greeks lied about their progress in making the necessary changes and presented falsified books to the EU in order to gain accession, yet those falsifications would have been readily apparent to any serious audit.  And today the Greeks riot in the streets at each set of austerity measures demanded as a condition of bailout.

Italy’s political instability and its resulting inability even to think about cutting spending below revenues is another example of that broken commitment.

The member nations also were assured by the agreements that created the euro and the euro zone that their taxpayers would not be held liable for the debts of any other member.  But we have two bailout packages—and a looming third—for Greece that are built explicitly in the wallets of French, German, Slovakian, Swedish, et al., taxpayers.

On the assumption that the European Central Bank is the only mechanism available to save the euro and the euro zone, this is plainly false.  If ECB were to print money to pay individual national debts, there would occur explosive inflation from that enormous spike in circulating money, and this would blow up the euro.  The ECB cannot be involved in this at all.

The real question the euro zone faces is whether there will be a monetary union or a stable currency.  With the current composition of the euro zone, the two are mutually exclusive requirements.  To save the euro, the zone must be pruned, if not divided into two separate zones, each with its own common currency.   “Northern” Europe and likely eastern Europe must form their own “euro” zone, and let the Mediterranean members go their own way or form their own “mediterrano” zone.  Within each zone there will exist the commonality of purpose and of culture that will give their respective common currencies a chance to survive for the long term.  This, of course, elides the questions for either zone of what entity should have control over the parameters of the common currency, and of how far that control should extend.

Justice’s View of the Law

Posted on by
Reply

“When the [Attorney General] does it, that means that it is not illegal.”

In the aftermath of the 11th Circuit issuing an injunction, pending fuller appeal, against Alabama’s enforcement of the (major) portions of its new immigration law that a lower court had let stand, Attorney General Eric Holder’s Justice Department is demonstrating a breathtaking—even for this administration—arrogance.

Among other things, the injunction blocks Alabama school districts from collecting immigration information from its enrolled students.  Holder’s DoJ, bypassing the districts’ legal representation, the State’s Attorney General (Luther Strange), has gone straight to the districts to demand they surrender to Justice copies of all such immigration information (information which they now are enjoined from collecting).

Yet, despite explicit and repeated requests from Strange that Holder cite the authority by which he conducts his “investigation” of an internal State matter, Holder has steadfastly refused to identify that authority.  Instead, he simply keeps repeating his bald assertion that he has it.  In a letter which his Assistant US Attorney General, Thomas Perez, wrote to Strange, this is all he had to say:

The Civil Rights Division of the Justice Department is tasked with investigating potential violations of civil rights laws that protect educational opportunities for schoolchildren.  We know that the longstanding legal tradition in this country of ensuring the right to attend school without being subject to discrimination on any impermissible ground is as critically important to you, as the Attorney General of the State of Alabama, as it is to the Civil Rights Division.

This is just a cynical obfuscation of the matter.  Asserting that an arm of Justice “is tasked” wholly evades Strange’s question of “by what authority.”

It would seem more appropriate, since Holder seems unable to identify the source of his asserted authority (else surely he would do so), that he look more to doing his job.  As Senator Jeff Sessions (R, AL) suggested in a related context,

…I would suggest that the Attorney General take a little timeout from his lawsuit against Arizona or Alabama or other states, and focus a little bit of his attention on…jurisdiction[s] that [are] willfully and deliberately acting to undermine federal law enforcement.

Sessions said this in response to Senator Dick Durbin’s (D, IL) beef that Alabama actually was trying to enforce immigration law, but the remark applies just as well to Holder in the context of his invasion of AL over its schools.

Are the Republicans Panicking?

Posted on by
2

It’s beginning to look like the Republicans are losing their nerve and starting to duck away from the fight that must be fought for our nation’s soul.

House Speaker John Boehner looks like he’s beginning to bend on the matter of tax increases; he’s conceding that a final deal, from the super committee or in Congress, could include revenue increases; although he maintains that “there clearly is a limit.”  Additionally, 100 Representatives, including 40 Republicans, have signed a letter to the super committee that insists that “all options for mandatory and discretionary spending and revenues” be considered.  Unfortunately, we know what the limit invariably is, once the camel’s nose is in the tent.

Senator Jim DeMint (R, SC), while professing general optimism, notes that one of the reasons he’s not endorsing any of the present Republican candidates for President is that he wants to focus on getting a greater number of conservative Republicans elected to the Senate in 2012.  He’s already seen in the past week, for instance, 32 of his colleagues side with Senate Democrats to block an amendment offered by Senator Tom Coburn (R, OK) that would have cut spending by $1 billion through reducing funding for the Rural Development Agency.  In the same week, 11 Republican Senators, together with the Democratic Party, couldn’t even figure out how to cut $6 million from the Small Community Air Service Development Program.  Senator DeMint has been forced to take a different route than he did in 2008 when he endorsed then-candidate Mitt Romney:

I want to do better for our next president than we did for George Bush. [He] had a Congress that wanted to spend money, and if he wanted anything done, he had to agree to that spending….”

Apparently too many Republicans, in the Senate, at least, have lost their stomach for this fight to reduce government and cut spending.

We cut our deficit and our debt by cutting spending.  Period.  This isn’t rocket science.  The government has too much money, already; there’s no need to raise taxes.  Eliminate loopholes—starting with the energy subsidies, both oil and gas and “green” energy subsidies—absolutely, and this will raise revenue sufficient to Boehner’s “revenue increases,” but it does so without raising taxes, without raising tax rates.  The surest way to increase government revenue, and the most economically sound way, the most moral way, is to get government out of the way of our economy, out of the way of our businesses, and let our economy recover and our citizens get back to work.  This demands, as a first step, spending reductions.  This requires cutting wherever the opportunities arise.  This requires forcing the Democrats—alone—onto the record as voting for spending increases.

If we need to alter our taxes, and we do, we need to do so by reforming our present system by replacing it in its entirety with a flat tax that has no subsidies, no credits, no loopholes, and that has everyone paying something.  Ten percent of Americans paying 70% of the nation’s income tax, while 50% of us pay 3%-4%, is a system that cries out for wholesale replacement.

The Republicans need to find their…sticking-place…and rescrew their courage to it.  One sitting Senator understands this need.

Thoughts on Taxes and Property

Posted on by
Reply

I’ve written elsewhere about the property nature of money that is taxed, and how that property is owned by the individual and not by any government.  In this post, I’d like to talk about another aspect of taxes and about the concept of eminent domain as a kind of tax.

The House Committee on Small Business, a few days ago, held hearings to see what the major target (whether intended or not) of the Obama increase-taxes paradigm thought about taxes and what a tax régime out to look like.  The question of interest here was Congressman Joe Walsh’s (R-IL), and he asked this of a number of small business owners.

When it comes to this issue, tax reform and specifically how it impacts pass through entities*, what’s one word of caution or one word of advocacy — what would you advocate for if you had a moment or two in front of the super committee?

To a man, they decried the uncertainty in the current administration’s proposals.  They can’t plan for the future when they can’t know that their costs—of which taxes are a major part—will be reasonably stable.  When businesses can’t plan from one year to the next, there are a lot of other things they can’t do: they can’t predict the cost of components for their own production, since their suppliers can’t predict their costs, so purchase are held down, and production is held down; they can’t plan for R&D since they can’t know the tax costs, or subsidy availability, of those, so R&D falls off; they’re inhibited from hiring, since one of the costs of an employee is the incremental tax cost just from having him on the payroll.

And they want lower tax rates.  This isn’t just a self-serving matter, either.  Money the government taxes is money the business does not have to spend on its own needs.  What are those needs?  Supplies for their own production, R&D, labor.  And in the present administration, part of that labor cost is the mandated set of benefits levied on them.  Additional costs, which high(er) tax rates reduce their funds for covering, include regulation compliance costs from financial reporting, environmental reporting, privacy reporting, and the like.

But these businessmen aren’t alone.  Americans, generally, are tired of the constant drumbeat of raising taxes to claim monies for government to spend on politicians’ purposes.  Coloradans, a number of years ago, passed a state constitutional amendment requiring that the citizens of Colorado, not the politicians, approve any new tax, tax rate increase, emergency tax spending, or any tax policy change that causes a tax revenue increase or creates more debt.  In special elections just concluded, Coloradans suited these words to action.  Earlier this week, Colorado’s citizens defeated, roughly 2-1, a state measure that would have increased income and sales taxes, ostensibly to provide funding to the state’s K-12 schools.  The rejection was local, also.  More than 10 separate local tax questions, with the funds claimed to be aimed at schools, were put to local communities.  They all were voted down.  This, though, wasn’t a decision by Coloradans to reject supporting their education system; it was a rejection of higher taxes as a useful or effective means of doing that.  It was a rejection of higher taxes.

Aside from that, some taxes are simply capriciousness, which brings me to eminent domain.  Under our Constitution, governments have the authority to seize private property, paying the erstwhile owner “just compensation.”  But even though compensation is paid, this is little more than a tax on the individual whose property is confiscated.  It’s true enough that the man gets something of value back, but that’s the idea behind taxes, generally—a public good (roads, education, national defense)—is returned to each man for the money property taken as taxes.  Indeed, as the 5th Amendment is written, the government’s sole legitimate purpose for such a seizure is that the property taken had to be for public use—to provide a public good.

20th Century Supreme Court decisions, though, have morphed that public good requirement into a simple need asserted by a private commercial interest for whom a man’s house has greater value than that house has to the man who owns it.  Google on Kelo v. City of New London, for instance.  The claim here is that there is in fact, some sort of public good resulting from this: jobs, perhaps, and certainly higher tax income for the government exercising that eminent domain.

One of  the fallouts of this is a referendum next week in Mississippi that, if passed, will essentially bar the state of Mississippi, or any jurisdiction within it, from exercising eminent domain for such purely private commercial/economic purposes.  One brief discussion of this can be heard here (click on the video link, and sorry about the lead-in commercial).  The eminent domain part can be heard beginning at about 5:30 of the video.  Oddly, Gov. Haley Barbour is hoping the referendum is defeated; he insists the economic gains are worth the costs of such an eminent domain tax—and the costs to freedom.

Stephen Hayes makes a very good case concerning the centrality of individual property rights, a natural right, to American freedom.  Charles Lane, though, makes the governor’s case, and he utterly misses the point of property rights (and so of taxes levied on property, whether money property or real).  Lane assures us that a man’s land wouldn’t just be taken from him; he’d be paid for it.  But other taxes are agreed to by the citizenry as a whole through their elected representatives and through those citizens’ collective decision concerning who should represent them.  The man whose land is seized has no say in the matter.

In the Mississippi case, the man wouldn’t even share in a public good—his land would be turned over to another private enterprise for that enterprise’s benefit, which might also have a general economic benefit for the region.  But there’s a problem here.  The rights to private property are durable, long-lasting (I won’t get into their inalienable nature in this post).  The economic benefits are not long-term, and often they’re pure chimera.  That seminal Kelo case provides an illustration.  A private developer got the city of New London, CT, to condemn a neighborhood-full of private houses so he could develop the property for a shopping mall.  The public good these displaced homeowners (assuming they could stay in the area, absent any homes) and the remaining community were to get were jobs, a new shopping mall, and more taxes for their city government.  In the end, the developer was unable to finalize financing, the mall never was built, and the jobs and tax income never materialized.  The homeowners are still out of their homes, though.

More than that, the 5th Amendment demands “just compensation.”  But there is not enough money in the world to pay a man, there is no way at all to make him whole from his loss, if what is taken from him is something with which he does not wish to part.

 

*Pass-through entities, according to Congressman Walsh, are partnerships, S-Corporations, LLCs, sole proprietorships, and so on.

Democracy

Posted on by
Reply

From Spiegel Online International:

Not even a day after [German Chancellor Merkel] and French President Nicolas Sarkozy suspended aid payments to Greece pending the results of a bailout referendum called by the government in Athens, Prime Minister Giorgios Papandreou has backed away from his plan.

And this, from the Greeks’ own government:

On Thursday, Papandreou [yielded] to demands that he enter into negotiations with the opposition on the formation of a cross-party caretaker government. Shortly thereafter, plans were scrapped to hold the controversial referendum….  Papandreou’s own finance minister broke ranks.

The people will not be allowed to speak on the matter, save through continued riots.  And their own government will not hear them.

Greek democracy, RIP.