Monthly Archives: April 2012

It’s Not My Fault

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In his diatribe against the Supreme Court over its potential (not realized) to overturn the Patient Protection and Affordable Care Act, President Obama is not demonstrating a breathtaking ignorance of our Constitution or of the Federal Courts’ power of review of Congressional legislation.  Instead, he’s just beating an old familiar drum: any failure is somebody else’s fault.

In “framing the court as a potential villain that substitutes its judgment for that of elected legislators,” he’s just setting up the next set of villains in his serial pulp novel, I Didn’t Do It.

Mr. Obama ticked off a string of popular benefits that would disappear if the law is shot down….

Thus, Obama cynically ignores the fact that, were they good ideas, they could have been enacted, after public debate rather than locked door deals, through constitutional legislation.  Or he could have let a free market agree that they’re good ideas and generate a (potentially large) niche for them.

But Mr. Obama…said he was confident the high court would not [strike down PPACA], partly because conservatives—who are in the majority on the court—have long argued against what some refer to as legislating from the bench.

He, just as cynically, conflates upholding the Constitution as judicial activism.  Also,

He said that without the mandate, it would be impossible to require insurance companies to cover everybody, including those with pre-existing conditions, at a reasonable price.

He ignores the fact that it’s impossible to require this at any price.  A free market, however, would allow such coverages at costs commensurate with the risks being transferred.

President Obama, through his Press Secretary Jay Carney, even argues with a straight face that for the Court to overturn PPACA would be to undo 80 years of precedent vis-à-vis the Commerce Clause.  This disingenuously ignores recent Commerce Clause overturnings that others have described.  Even more disingenuously, it ignores the fact that those “80 years of precedent” began with Supreme Court’s overturning of 100+ years of Commerce Clause precedent in Jones & Laughlin and Wickard—the former by a Court thoroughly intimidated by FDR’s court packing effort, and the latter carried out by an FDR-packed Court, a Court in which 8 of the 9 Justices were FDR appointees.

And it puts Obama in the strange position of implying that Brown was wrong because it overturned 80 years of precedent flowing from Plessy.

It’s not my fault.  The devil made me do it.

Our Government at Work

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This time, it’s Homeland Security, and its move to confuse and then steal from, an American family, that is hard at work.  The present case involves a couple and their two-year-old daughter traveling from George Bush International Airport in Houston, TX, to Addis Ababa, Ethiopia, the wife’s city of birth and a cash-and-carry city, where they planned to stay for two months visiting her family.  At the airport, TSA agents confiscated every dollar the family had on them because they were confused both about what constituted “currency” in the agents’ eyes and were uncertain about the amount of money they had on them and in their luggage.

Their case wound up in Federal District Court for the Southern District of Texas; here are some excerpts from District Judge Lynn N. Hughes’ ruling [emphasis mine]:

The government presented no evidence—none—that the Joneses intended to evade the reporting requirements.  Kyle told Hernandez that he did not know the amount of money he was carrying.  Saying “I do not know” is not a deliberate failure to report.  After Hernandez insisted on an answer, Kyle said that he would have to guess.  Guessing is not a material omission or a misstatement of fact—certainly not one the government can use to steal the money.

and

These public servants sought to earn credit with their agency by collecting money.  Some of it is returned to the agency—like justices of the peace whose pay is derived directly from the fines they impose. They focused on bureaucratic imperatives—not their duties to the public and law.

and

A lack of leadership at the agency allowed this.  Its mission statement—which none of the officers could recall at the trial—is to serve the American public with vigilance, integrity, and professionalism.  They displayed none of these.  The agency says that integrity is its cornerstone; that its officers are guided by the highest ethical and moral principles.  A gang of armed security officers bullied this family—a family who cooperated with the officers to their detriment.  Our homeland will not be secure by these rascals.

While Mr and Mrs Jones, the parents in this traveling family, might be derided for not knowing how much money they had with them, this is neither illegal, evidence of illegality, nor actionable under any other guise of interest to Homeland Security.  Nevertheless, on being pressed to fill out (legitimately required) forms declaring the amount of money the Jones were taking out of the US based solely on their guess, their money then had been seized in its entirety, without allowing the Jones to correct their error.  It’s also important to note that the amount stolenseized was over $31,000 and that the recommended penalty for an actual evasion of this type is a forfeiture of $500-$5,000.

Judge Hughes ordered the Jones’ full $31,131, the amount seized, returned to them and she awarded the Jones court costs and legal fees.  I would have added to that the $1,500 the Jones were required to pay for a new airline ticket, this assault having forced them to miss their scheduled flight; the cost of the hotel room they were forced to get while waiting for that next-day flight; and the value of their time consumed by this wholly unnecessary delay.

The complete opinion is short and to the point, and it can be found here.

Note, though, that despite my (and others’) pontificating on this, it’s not Homeland Security’s fault.  After all, as DHL Secretary Janet Napolitano said in another case,

Look, everybody has a role to play. … And if people don’t want to play that role, if they want to travel by some other means, of course that’s their right. This is the United States….

A Bill Under the Commerce Clause

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Some view the Constitution’s Commerce Clause as granting to the Congress expansive powers of Federal control of intrastate activities, individual activities, and even the thoughts of private citizens.  A supine Supreme Court has supported this view.  Wickard v Filburn, for instance, agrees that Congress can regulate privately carried out agricultural activities, and NLRB v Jones & Laughlin extends that to manufacturing activity that occurs wholly within a state—an activity that prior to Jones & Laughlin was considered separate and distinct from any commerce-related process.  With these rulings in mind, a Federal District judge, Gladys Kessler, has even held that this Commerce Clause control extends into the private thoughts of individual citizens (Mead v Holder).

The line of reasoning for this startling evolution can be summarized in Chief Justice Charles Evans Hughes’ majority opinion in Jones & Laughlin: activities that are intrastate in character (which rather tautologically includes those individual activities) are regulable under the Commerce Clause when they bear a “close and substantial relation to interstate commerce.”

Agriculture is such an intrastate activity when the processes of field preparation, sewing, growing, and harvesting are considered separately, and separately from any subsequent process of bringing that harvest to market.  Likewise, manufacturing is such an intrastate activity when the processes of gathering equipment and locally procured supplies, the assembly of those supplies into finished product, and their in-plant inspection are considered separately, and separately from any subsequent process of bringing those finished products to market.  However, since Wickard and Jones & Laughlin hold such activities to bear a “close and substantial relation to interstate commerce,” it is reasonable to hold that any activity that impacts those processes of agriculture and manufacturing also bear a “close and substantial relation to interstate commerce.”  Such activities here plainly include union strikes and boycotts.

Accordingly, I propose a simple, one-page bill (no 2,000+ pages for me) that bans union strikes and boycotts, citing the Commerce Clause as the constitutional authority for such a ban.

It would be interesting to hear the Commerce Clause objections to such a bill.  What rationalizations might be offered?

Government Tax Increases and Government Spending Cuts

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Stipulate, arguendo, that government spending is stimulative.  In order to pay for the stimulative spending, government must collect taxes or borrow.  Taxes taken away from the citizens, though, is money the citizens no longer can spend.  Raising taxes to pay for increased stimulative spending is even more money that those citizens now cannot spend.  This reduced private spending offsets the public spending funded by that taxation.

Increased taxes to support increased public spending reduces private spending even more than the amount of the tax increase, though.  The increment above the simple reduction in private spending comes from individuals and businesses now being especially careful to husband their monies: they increase their savings so as to improve their ability to handle unforeseen problems, such as a medical emergency, a roof repair, a capital plant problem, another increase in their tax bill beyond the one just suffered.  Thus, private spending is reduced further by increased saving, and a tax increase results in a net reduction in the sum of private and public spending.

This offset doesn’t change when government borrowing, rather than tax increases, is used to fund stimulative (government) spending.  Americans aren’t stupid.  We all recognize that today’s government borrowing is just tomorrow’s increased taxes and/or rising inflation, and so the above husbanding still occurs.

This is a relatively symmetric relationship.  A reduction in tax rates achieves two positive things (although after a minimum threshold, the second positive becomes a wasteful negative).  The first positive thing is that more money is left in the hands of private individuals and private businesses.  This additional money is either spent, which is directly stimulative, or it is saved against one of those unforeseen events, or for a planned large expenditure, future retirement, or future investment.

Thus, saving is stimulative tomorrow, and more than that, the saved money actually serves two stimulative roles.  One role is that this is the money private individuals and our businesses are going to spend tomorrow for one of the reasons just described.  The other role is through private or commercial lending/borrowing.  Those savings are assets that banks and other financial institutions can lend to our neighboring private individuals and to our businesses, so our neighbors and businesses have increased money for their current spending.

The second positive thing is that with these reduced tax rates, economic growth is encouraged, and that increased economic activity generates more revenue for the government beyond the direct reduction from those reduced rates.  However, since government has no need of money beyond funding the few things our government was created to effect, any amount beyond that level is wasteful and so provides room for reducing tax rates even further.

Finally, in the real world, where (Keynesian) stimulus spending has been shown to be wrong empirically (vis., FDR’s “stimulus” spending during the Great Depression, which prolonged the Depression; and Obama’s “stimulus” spending in the present deep recession, which is prolonging the recession), reduced government spending also is net stimulative.  Government spending crowds out private spending through at least two mechanisms.  Government demand artificially elevates prices compared to the level at which those prices would exist in the face of solely private demand, and private spending is reduced by lack of need to purchase: the government will buy and transfer the goods to the private individuals.  Reduced government spending reduces that crowding out, and private individuals and businesses return to the market place.

The Fed’s Change of Subject

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Richard W. Fisher and Harvey Rosenblum, President and CEO and  Executive Vice President and Director of Research, respectively, of the Federal Reserve Bank of Dallas, wrote in Wednesday’s WSJ op-ed pages,

The phrase “too big to fail” is misleading. It really means too complex to manage. Not just for top bank executives, but too complex as well for creditors and shareholders to exert market discipline. And too big and complex for bank supervisors to exert regulatory discipline when internal management discipline and market discipline are lacking.

This is a cynically Alinsky-esque change of subject.  “Too big to fail” and “too complex to manage” are entirely separate concepts.  While there is some overlap—size does contribute to complexity—”too big to fail” is a purely political concept created to justify increased government interference in the private management of private enterprises.  “Too complex to manage” is at once a management and an economic concept.  It’s the managers who cannot keep up with the complexities of their enterprise (or, in fact they can; government has nothing legitimate to say here), and it is a free market economy that will demonstrate and react to the overcomplexification in a wholly appropriate manner: the truly too complex, and so poorly managed, enterprises will fail.

The proof of the political purpose of “too big to fail” is in that phrase “too big and complex for bank supervisors to exert regulatory discipline.”  But they add to that proof:

TBTF is a misnomer in another way. The phrase creates the impression that these banks cannot fail. … Suffice it to say, institutions holding one-third of U.S. banking system assets did essentially fail in 2008-09….  They were quasi-nationalized—bailed out….

Oh, and

…TBTF banks…contributed to reducing the impact of the Federal Reserve’s accommodative monetary policy.

The typical Progressive meme: it’s not my fault; it’s that other guy’s fault.  Never mind that the Fed’s “accommodative monetary policy” not only was, and is, not necessary, the inflation threat the Fed is creating with this policy is enormously and increasingly dangerous.

They also write, dismissively, that while principles (e.g., of “market capitalism”) count, economic performance also counts.  They use that superpositioning to justify government pressure to break up enterprises that the Fed (not the free market) considers too big.  In doing so, they ignore the fact that it is free market principles that maximize the capacity for performance.  They ignore the fact that while concentration can cause severe dislocation when the concentrated entities fail, the bankruptcy system of our particular free market system works very well.  That bankruptcy system has a habit of breaking up too complex, and/or “too big” enterprises that have failed—Merrill Lynch comes to mind, which was reduced in size and acquired by another enterprise; as does Lehman Brothers, which was allowed to disappear altogether and its assets sold to a multiplicity of other enterprises; and AIG, which is undergoing breakup and shrinkage today.  And the bankruptcy produces results far faster than can the government—just look at how many of our nationalized banks, and car companies, still have significant government ownership positions.

Government has to run things.  The free market system has to be centrally managed.  Our existing bankruptcy system has to be bypassed.  All this because government Knows Better.  A free market can’t be allowed to make its own decisions; that’s too messy for our antiseptic Progressive patróns.  And too far beyond their control.