Archive for July, 2011

Give us Barabbas!

July 31, 2011

And it was the preparation of the passover, and about the sixth hour: and he saith unto the Jews, Behold your King!  But they cried out, Away with him, crucify him.  Pilate saith unto them, Shall I crucify your King?  The chief priests answered, we have no king but Caesar.  Then delivered he him therefore unto them, to be crucified.  And they took Jesus, and led him away.” St. John, Chapter 19, versus 14-16

The corrupt priests of the Washington temple are working as I write this column to deliver the balanced budget to an eagerly awaiting  Caesar for public execution on Capitol Hill before a chanting multitude of  assembled profligates.  There will not even be a Pontius Pilate to ask that its fate be spared.  The common thief that  will be  released in some scrambled deal to satisfy the assembled masses will be a modern-day Barabbas. How the foolish masses will rejoice that one of their own kind has been released while their fiscal savior is appended to the Cross.

Sic transit gloria mundi!

(Thus passes the glory of the world)

United States has no government; the state of nature beckons

July 30, 2011

The Founding Fathers crafted well to ensure that checks and balances limited the reach of the political system.  On the assumption that checks and balances work, government would never overreach, and debt crises would not occur. 

Unfortunately, the checks and balances have eroded over two centuries, partly as a consequence of three major wars (1860-65, 1917-18, 1941-45), partly as a consequence of three presidents prepared to violate the Constitution (Abraham Lincoln, Woodrow Wilson, and FDR), partly as a consequence of increasing rent-seeking and rent-extraction within the legislative branch, and partly as a consequence of a Supreme Court that repeatedly has mis-interpreted the Constitution. 

The result is the debt crisis now confronting the United States economy and the absence of any effective government to resolve that crisis.

When a country has no government, it essentially returns to the state of nature, where individuals fend for themselves under a law of nature. The law of nature provides individuals with a natural right to life, liberty, and property.  The rights to life and liberty are inalienable (i.e. no one morally may take away those rights nor may individuals morally voluntarily sacrifice those rights).  The right to property is imprescriptible (i.e. no one may morally seize those rights but individuals voluntarily may alienate themselves from such rights).

A state of nature is not always a terrible place to inhabit. A population accustomed to honoring the moral code will develop mechanisms for protecting their natural rights without recourse to a central government. It is a place endowed with some uncertainty and some inconvenience – individuals cannot always protect their rights against non-conforming predators.  It may well be superior to a political society that is in the final stages of internal collapse – such as the United States in the late summer of 2011.

If the non-government of the United States fails to resolve in a timely fashion  the debt crisis that it has created the People may sensibly choose to shut down their political society and to return to the state of nature that they perhaps unwisely chose to leave behind at the end of the War of Revolution in the late eighteeenth century.

Political dead-beats hide their empty wallets

July 29, 2011

The People’s Representatives, led by President Barack Obama, Speaker John Boehner, Senate Majority Leader Harry Reid, House Minority Leader Nancy Pelosi and Senate Majority Leader Mitch McConnell, are all skulking inside their secured gated communities shivering with moral cowardice as they attempt to hide their remaining assets inside their boxer shorts, or blouses, as once-trusting creditors pace angrily outside, anticipating the debt default that is to come.

These Representatives are frauds and sharpsters, every one of them. The political system so carefully crafted by the Founders has been destroyed from within by their corruption and by their greed. In a fundamental sense, they have placed themselves in a state of war against the People. From the philosophical  perspective of John Locke, the People now have a natural right to remove them from office and to start afresh to protect their lives, liberties and properties, either within a state of nature, or within a newly-crafted civil society.

Patrick Henry, we need your powerful voice once again!


Debt ceiling must be raised

July 29, 2011

Like any morally upright citizen, a morally upright government must not default on its debt. In this respect, there is no difference between the individual and the state. Individuals who default on their debt are rightly shunned by society, treated as lepers within their communities, denied forever the trust of their peers.  So it is, and so it should be, with governments.  There is no redemption for such dishonor.

The threat of default now hangs heavily over Washington because of the dysfunction of its political system.  The political class is a disgrace to its masters, the American People. The servants have become the masters. The lunatics truly run the lunatic asylum. The very individuals who have racked up the debt by their incompetence and political greed are now refusing to sign the checks for the bills that inevitably come due. Republican or Democrat, it makes no difference. Both parties are equally guilty of a long-term unwillingness to balance their pocket-books.

By its political ineptitude, the Tea Party is ensuring that the Democrats will regain control of the House in November 2012, will retain control of the Senate, and will retain the presidency. Talk about seizing defeat from the jaws of victory! The Tea Party will go down in the elections and in history as the truly stupid party, if it fails to support the Speaker in his bid to hold President Obama’s toes to the fiscal fire that he has fueled by progressive excesses.

If John Boehner does not have the GOP votes to pass his bill through the House of Representatives in the absence of any Democratic votes, then he has an inescapable duty of honor and responsibility. He must bring the Reid bill before the House and drive it through with bi- partisan votes, thereby isolating the Tea Party from the effective political process. This would be the act of a statesman, even if it signals the end of his political career. I suspect, if he has to take this measure, that it will also close the careers of all but a miniscule remnant of  Tea Party members in the House of Representatives in November 2012. That is the price of unacceptable political and economic stupidity and of obnoxious immorality.

Were I Speaker of the House, that is what I would threaten, and, if my threat failed to marshall my troops, that is what I would do. James Madison must be wringing his hands in Heaven as he looks down upon his ruined legacy.

Arab spring moves into deep winter

July 28, 2011

The Arab Spring is now long gone.  The blossoms are off the trees, the buds and tender shoots of the desert spring were all stillborn. The landscape itself is all but lifeless, a desert sand, bereft of  life-giving irrigation. All that remain are a few deep-rooted, little-valued weeds, holding on in Tahrir Square.

Six months after popular unrest, supported by Western intervention, began spreading across North Africa and into the Gulf, only two autocratic leaders have been toppled – both former allies of the West – in Egypt and Tunisia. Serious questions remain concerning who will wield power in both countries – and none of the likely suspects show signs of wanting an alliance with the West. In the meantime, uprisings in Syria and Bahrain have been brutally repressed – with no intervention by the West – and Nato military action in Libya has proved incapable of removing a tinpot dictator who would have been rubbed out within three days by a General Patton and his U.S. tank-cavalry.

Those who continue to occupy Egypt’s  Tahrir Square  suggest indeed that the corrupt, property-endowed elite military junta has cut a deal with the Islamic Brotherhood in order to retain its own pre-revolutionary loot while sharing any additional  revolutionary spoils with Islamic militants:

“the outburst against the generals is partly fuelled by suspicion of a secret deal with the Brotherhood intended to deliver political influence to the Islamists in exchange for guarantees for the generals.” Roula Khalaf, ‘Transition to democracy suffers painful birth pangs’, Financial Times, July 28, 2011

Any initial democratic gains of the Arab Spring have been overwhelmed by sectarian strife, struggling increasingly socialistic economies, and counter-revolutions.  So warned British Foreign Minister, William Hague, on July 27, 2011.  Fledgling democracies produced by waves of people power might well prove too weak to deal with the deep-rooted problems that they now confront, the Foreign Minister told The London Times.  ‘There are a lot of problems and even convulsions to come in the region’, he suggests. Worse still, he warns of bloodshed across the Middle East and the Maghreb as religious groups turn against each other: ‘One of the risks in the Arab Spring is the unleashing of sectarian divisions.’  Progress is bound to be uncertain, and will take up to 30 years to unfold. ‘We are going to be working at this for the rest of our lives.’

Well, I have a response to these words by William Hague – a response that I suspect is shared by many Westerners:

 ‘You may choose to work at this for the rest of your years, Mr. Foreign Minister. But we shall not stand shoulder to shoulder with you. If the Arab Spring should fail – as fail it already has – that is a problem for the Middle East, and not for us. We in the West  now fully understand that the more we try to help, the more we flagellate ourselves, like President Obama, for the sins of our ancestors, the more we are hated and despised by those who receive our aid and shrug off our apologies. So, let us awaken to realities and seek to help ourselves and to leave others free to follow suit.’

Do not play the Martin Shubik ‘dollar bill auction’ game

July 27, 2011

“The game theorist Martin Shubik invented an unpleasant economists’ party game called the dollar bill auction.  The players agree to auction a dollar bill with one cent increments in the bids.  As usual, the dollar goes to the highest bidder.  The twist is that both the highest bidder and the second-highest bidder must pay.” John Kay, ‘Kipling’s game theory lessons for Greece’, Financial Times, July 27, 2011

In such a game, offers will quickly escalate towards a dollar, with the highest bid at 99 cents and the underbid at 98 cents. At this point it pays the underbidder to to offer a dollar. He makes no gain but avoids a loss of 98 cents. This game, however, will not stop there. It now pays the underbidder to bid $1.01, converting a loss of 99 cents to one of a single cent. And so the plays continue. The underbidder always comes back to avert a greater loss.  The game eventually may end, but never well for any participant.  There are reports that over $200 has been paid for a single dollar in Shubik’s game.

Shubik proposed the paradox as a problem to which game theory offers no solution. However, there is a solution if one perceives the nature of the game in time.  Avoid like the plague situations that mimic the structure of this game. The great English  poet, Rudyard Kipling, anticipated Shubik’s paradox and resolved it with respect to pre-Norman England:

“We’ve proved it again and again,

that if once you paid him dane-geld,

you never get rid of the Dane.”

So the United Kingdom was prescient in refusing to join the Euro-zone.  For the Danes are now located in the south of Europe, not the north. They are called the PIIGS. And the Euro-zone is locked into the Shubik dollar bill auction:

“the essence of Shubik’s problem is that it always seems worthwhile to offer a small amount to avert a larger loss.  It is plainly better to write down Greece’s debt, even to agree to a permanent underwriting of the Greek economy, than to risk the breakdown of European economic integration” John Kay, ibid.

At this point I depart from the usually impeccable logic of John Kay. Immediately one perceives the nature of this game, it pays everyone to quit the game, including the random winner. So it is wise for Germany to quit the Euro-zone now.  It was wise for the Bush administration to allow Lehman Brothers to die, it was wise of Margaret Thatcher to confront the British miners in a bloody 18 month confrontation, it will be wise for the GOP to confront its right-wing tail and for the Democratic Party to confront its left-wing tail in order to maintain the financial integrity of  U.S. government debt in international markets.

Take one’s money off the table before the Danes take it all. That is Rudyard Kipling’s message and the warning to us all in this era of increasingly  arrogant Viking invasions. There is no point in playing the game and hoping Canute-like, that the rules will change and that the tides will turn according to your wishes. For assuredly, that will never happen while the dane-geld remains on the table.

President Obama plays 2012 politics instead of leading nation

July 26, 2011

In a prime time address, on Monday July 25, 2011, President Obama demonstrated precisely why he is unfit to occupy the White House.

This is the address that a great president would have made to an increasingly worried public:

“My fellow Americans:

I come to engage in conversation with you this evening about the dangerous debt crisis that confronts our nation in order to reassure you that the debt ceiling will be raised and a down-grading of the U.S. debt will not occur. Let me explain the nature of this crisis.

The crisis reflects two realities. First, it is important for all of us to understand that the U.S. national debt has increased dramatically over the last three years – from 40 per cent of gross domestic product in 2008 to 72 per cent in 2011 and rising. This has occurred because of a fall in tax revenues during the recession coupled with a significant increase in government spending, partly brought about by automatic stabilizers but accentuated by three major stimulus packages.  Unless this is addressed effectively, U.S. Treasurys will be downgraded whether or not the debt ceiling is increased. Second, U.S. Treasurys will be downgraded on August 2, 2011 if the debt ceiling is not increased, because that ceiling will be breached on that date as a consequence of daily spending exceeding daily revenues as an inevitable consequence of budgetary decisions that are currently effective.

From this perspective, simply increasing the debt ceiling cannot prevent a credit downgrade.  For that will do nothing to correct the ongoing imbalance between revenues and spending.  Now, in dealing with this issue, in a divided political arena, I must tell you that I have made two serious errors of judgment, for which I come to ask your forgiveness.  First, I entered the debt debate far too late.  I should have focused my State of the Union Address on this issue several months ago, when my Debt  Commission reported clearly and effectively on the magnitude of the problem. Instead, I wasted that opportunity in presenting a broader progressive statement that largely went unheeded in the new more conservative domestic climate following the 2010 elections.

Second, I negotiated an essentially fair deal with Speaker John Boehner several days ago that had a genuine chance of  legislative success.  That deal called for some $4 trillion of spending cuts over ten years, including sensible  structural reforms to Medicare and Medicaid, supplemented by a modest increase in revenues deemed unlikely to throw the U.S. economy back into a recession. With some presidential pressure placed on my fellow- Democrats in the Senate, I feel sure that this deal would have been successful. Unfortunately, I allowed myself to be trapped into a serious negotiating blunder. Knowing that ex-Speaker Nancy Pelosi did not have the political weight to abort the deal, I should have avoided entering into post-deal discussions with her that resulted in my breaching the hand-shake deal with the Speaker and demanding some $400 billion of increased revenues over the ten year period. That request was a breach of trust on my part, and a deal-breaker for Speaker John Boehner.

So, tonight I acknowledge publicly why the fair deal that had been negotiated between myself and the Speaker broke down and I apologize to the Speaker for this error, which resulted from my limited experience in dealing at this highest level of political negotiation. I ask Speaker Boehner and Senate Majority Leader Harry Reid to join me at 6 am tomorrow morning in the Oval Office in order to reconstitute the elements of that fair deal. If we are successful, I intend to shake hands with both fine political leaders and great Americans on that deal before a full press gathering on the lawns of the White  House.

God bless America

Barack Obama, the People’s President

President Obama abandons the tiller of the ship of state

July 25, 2011

President Obama in January 2009 swore an oath of office to preserve and to protect the United States. In the middle of a major debt crisis, the President essentially has abandoned the tiller of the ship of state  and has quit the bridge, perhaps recognizing that he lacks the ability and the will  to maneuver the vessel through the storm.  He may well be correct in this judgment. The debt debate was bobbing around without focus – the freedom of a boat without a compass – under his futile ‘leadership’.

Once the vessel has been steered safely through the storm, as hopefully will be the case, by more experienced and more energetic seamen than the captain, it will be interesting to see whether the captain will accuse those who grasped the vacated tiller of mutiny, or whether he will pretend that he never left the bridge and assume the credit for averting catastrophe.

If American learn anything from this debacle it should be the supreme danger of electing into high office a man with no record of success anywhere in his career and an abundant record of accumulated failure. Judge would-be political leaders by their actions, and not by their words, is the warning that should be flashing through all intelligent minds. On that basis, Barack Obama would have been eliminated from the Democratic Party primaries in the 2008 season.  And the entire world would be a better and a safer place.

The domain of constitutional economics

July 24, 2011

“There is a categorical distinction to be made between constitutional economics and non-constitutional , or ordinary economics…In ordinary or orthodox economics…analysis is concentrated on choices made within constraints that are, themselves, imposed exogenously to the person or persons charged with making the choice.  The constraints that restrict the set of feasible choice options may be imposed by nature, by history, by a sequence of past choices, by other persons, by laws and institutional arrangements, or even by custom and convention…

Constitutional economics directs attention to the choice among constraints…The derivation of institutional constraints is based on a calculus of individual interests, which in turn, requires the introduction and use of an exchange paradigm as opposed to the idealists’ search for the unique good…there is no extension of the choice calculus from the individual to collectivities as such…emphasis is centered directly on the selection of rules, or institutions, that will, in turn, limit the behavior of the persons who operate within them.” James Buchanan*, 1990, 5

From previous columns in this sequence, readers will recognize that only a scholar working within the market order approach to economics could open up such a constitutional economics research program. 

Neoclassical economists, focused on the utility maximization, allocative efficiency paradigm through which they seek to impose their own preferences on other individuals, are extremely unlikely to switch, at the constitutional  level, to an approach that focuses attention on individual choices and which appreciates that  ‘truth’ does not exist in the absence of consent among  all participating individuals. 

 Furthermore, the very idea that individuals – lacking the superior wisdom of neoclassical economics – are capable of imposing restrictions on themselves and on each other through universal consent is incomprehensible to non-market economist- bureaucrats who so frequently despise market process as a lower form of human activity.

So it is not at all surprising to discover that the roots of constitutional economics are located in classical political economy, not in neoclassical economics.  Classical political economy – especially as reflected in the scholarship of Adam Smith – was directed toward offering an explanation and understanding of how a set of markets  function well in the absence of detailed political intervention.  Smith’s emphasis was on the generalization of gains over all persons and all classes available from a shift from mercantilism to laissez-faire.  From this perspective Smith’s enterprise fell squarely within the domain of constitutional political economy.  Once the constitution has been universally endorsed – from his perspective the rejection of mercantilism and the embracing of free markets – individuals will engage in market exchanges constrained by the constitutional rules. In Smith’s judgment, such constrained choices maximize individual liberty and, incidentally, the wealth of nations.

*James M. Buchanan, ‘The Domain of Constitutional Economics’ Constitutional Political Economy, 1990, Volume 1, pp. 1-18

Light bulbs and internal combustion engines: the cost of ignoring the wisdom of James Buchanan

July 23, 2011

In two recent columns, I outlined the essence of James Buchanan’s challenge to neoclassical economics with respect to the nature of individualism and the meaning of market order.  Consistently, Buchanan promotes the importance of individual choice and of market exchange against the alternative paradigm of economic efficiency maximization.

Well folks, if you love your cheap incandescent light bulbs and your cheap internal combustion engines, pull your heads out of the neoclassical economics sand and breathe some free market oxygen. Because, if you do not do so, you can kiss these well-loved commodities goodbye. Should you choose to illuminate the darkness and/or to utilize mechanized  wheels to move from place to place, you will soon pay much more for very much less. And neoclassical economists will be significantly responsible for your plight. Plus of course,  and inevitably, a slew of progressive politicians supported by a progressive President or two.

Neoclassical economists, much more than advocates of spontaneous orders, are always on the look-out for problems with market exchange. In this respect, how they love negative externalities. For negative externalities provide the perfect excuse for them to indulge their appetites for imposing their preferences on the ‘great unwashed’.  Global warming has provided not just a gift from the Sun, but a gift from Heaven, for such power-hungry homunculi.

So two terminological inexactitudes are currently flooding the journals of economics and moving their way relentlessly into political imposition across the United States: namely that the removal of the incandescent light bulb and the shackling of the  internal combustion engine represent increases in the range of  genuine consumer choice. Gee! how we all want to pay $6 each for an inferior version of a 25 cent light bulb! And how we  all relish paying $2,000 more for an auto engine that flunks out after 25 miles and has a top speed of 50 mph! 

The House of Representatives last week failed to secure the super-majority required to overturn regulations prohibiting the sale of cheap light bulbs beginning in January 2012.  The force behind these regulations is the watermelon (green outside- red inside) lobby. The mechanism is that of forcing a switch from incandescent to fluorescent light bulbs. As a sop to the great unwashed, the watermelons will allow the purchase of 72-watt halogen bulbs – at a stiff price premium – until the next round of choice-expansion. For those of you who have not compared the 72-watt halogen with the 150-watt incandescent bulb, well all I can say is that you will grope your way to a quick understanding of what the watermelons have in mind. Remember that the bad guys always prefer darkness to light. And watermelons ripen in the dark.

The watermelons are also ripening at the prospect of handicapping the internal combustion engine. Working through the Department of Energy – a North Korean agency innovation – proposals are now afoot to raise Corporate Average Fuel Efficiency (CAFE) requirements to unattainable levels. Currently, automobile manufacturers achieve an average rating of 30.3.  A few manufacturers, like Ferrari, score just 16.2.  By elevating CAFE levels to 40 or 50, and by increasing non-compliance penalties, the watermelons will make sure that everyone who drives a new car will clunk around in expensive, poorly-functioning hybrids or in impractical electric cars.  The watermelons are especially gleeful that raising CAFE levels will take 2.4 million new cars out of the market-place and eliminate 212,000 auto jobs. Wow!  What an increase in individual choice that will represent, with the added bonus of further reducing the resident population of Detroit – the  true heartland of the great unwashed!

Hey guys! Don’t listen to Professor Buchanan. You know that this is good for economic efficiency!  And  rest assured that aggregate happiness – which we can now measure neuro-economically by brain-scans –  will increase dramatically in this watermelon economy! The most impressive rise in happiness will be found in the cloisters of Harvard, Yale, Stanford, Ann Arbor, and Berkeley. Virginia? Where is Virginia? Hey! Isn’t that a boonie state somewhere in the South. After all. who won the war?

Hat Tip: ‘The left’s brilliant lie’, The Washington Times, July 22, 2011