Tuesday, July 25, 2017

Don't Insult Swamps

I think calling DC a swamp is an insult to swamps. Trump's big mistake was not completely ridding himself of anyone who has ever stepped foot in that shit hole. He should literally fire everyone he can fire and start with a copy of the Constitution and take anyone who is willing to volunteer or work for minimum. Goal should be to repeal every law and start over. Federal government should be scaled back to original enumerated powers: affairs of state, reasonable military, police, and justice department for interstate disputes . That's it. That's all they were set up to do and is all they should ever do. Trump is swimming in the swamp, not draining it.

Tuesday, July 18, 2017

Are Religious People More Tolerant Than Atheists?

I watched Amy Peikoff on Tucker Carlson address a study which purports to show that religious people are more tolerant than atheists.  And, while she was reasonable and touched on it, she missed a chance to elucidate the major point in my opinion, and that is, that "open mindedness" in and of itself is not a virtue. Rationality is the virtue, while open mindedness is only a virtue in the context of searching for non-contradictory knowledge, not in a willingness to entertain the logically impossible or arbitrary. If open-mindedness means willing to believe anything, regardless of evidence, that is irrational and dangerous, and most certainly not a virtue.

Rationality demands evidence, and that's why it's consistent to uphold individual rights, capitalism, and atheism.
She also missed a chance to distinguish the rational atheist from the modern leftist atheist (which is the same thing in many conservative minds). She could have pointed out that the militant leftist is closed minded in an irrational way, with respect to being open to facts that do contradict their Marxist post-modern political and ethical philosophy. In this context, saying the left is closed-minded is a rational criticism. Again, rationality is the compass, not the false alternative of "closed minded versus open minded or tolerant vs. intolerant."

Monday, July 17, 2017

Obamacare's Contradiction

As I wrote about in more depth here, the problem with Republicans repealing Obamacare is not related to infighting or an inability to compromise, it's the failure to challenge an inherent contradiction from the beginning. Insurance MEANS excluding pre-existing conditions. What business would write insurance policies only to people who just wrecked their car? The purpose of insurance is for groups of people WITHOUT pre-existing conditions to pool risk in such a way that the collective premiums pay for an unlikely event. How could any pool work when everyone gets paid out more than they pay in?! If someone wants others to pay their bill, they should ask for a loan or for charity. But let's not call it insurance and let's not base the whole system on a contradictory premise.

Thursday, May 18, 2017

Why the Left Hates Trump and the Implications for Civil War

Trump Derangement Syndrome is real, and this article by Jeffrey A. Tucker comes closest to expressing my own view as to why the left is apoplectic over his presidency.  In the article, the author rightly characterizes the left's relationship to statism as a form of religion with the president its "high priest." The author writes: 
The state is their favorite tool for all the good they aspire to do in this world. It must be protected, guarded, defended, celebrated. The illusion that the government is not a taker but a giver and the source of all good things must be maintained. The gloss of the democratic process must be constantly refurbished so that the essential sanctity of the public sector can be constantly cited as the highest calling.
To these types, it is not just that government is important or needs to function more efficiently in its limited role protecting liberty, rather, the government is the primary force in human life. The left regards government as not just important, but metaphysically essential to human life.  It is, in a literal sense, their God.    

Why is this? The left shares the christian doctrine of Original Sin but in a slightly different way.  The left, like Christians, regards people as fundamentally, metaphysically flawed, but not because man disobeyed God in the Garden of Eden.  Rather, modern academic intellectuals (leftists) regard the mind to be essentially faulty.  They hold that people do not have free will or choices, and believe there is no such thing as absolute truth, while largely rejecting the idea of objective ethical precepts such as good and evil.  They see people as being largely determined by accidental factors such as race, gender or ethnicity. As a result, they demand that government play the role of a kind of omniscient caretaker leveling society in pursuit of their egalitarian Utopia.  They believe that without government overseeing and regulating every aspect of man's life, factory owners would pour cyanide into rivers while widows and orphans bleed out in the streets.  

On the other hand, the objectivist-libertarian right upholds individualism and sees government as a means to protect the rights of individuals in pursuit of their own happiness. They hold that the job of the government is to protect the rights of individuals by enforcing contracts and arresting criminals who initiate force against innocent people. This philosophy regards government as important, but only as a means to deal with the criminal exceptions.  Such a view is predicated on the idea of man as metaphysically efficacious.  That is, man is capable of understanding the world through the faculty of reason and succeeding in pursuit of rational values.  Consequently, they hold that freedom of action and voluntary cooperation leads to a harmony of interests between rational individuals, i.e., it leads to human flourishing.     

These philosophies determine and modulate the level of outrage over various politicians.  The right sees someone like Trump and says "maybe he is a bozo....but whatever...government can and should only do so much anyway and maybe he will repeal or stop some crazy new laws."   Alternatively, the left sees Trump, a boorish neophyte to government, as an affront to their greatest value - state power. The author writes:
Trump has profoundly disturbed the balance. He overthrew the respective establishments of two parties, tore right into the legitimacy of the national press, humiliated every expert who predicted his demise, and is now stumbling around Washington like a bum in a jewelry store. He is not actually cutting back on the size of the state; he is doing something even more terrifying from the center-left point of view: he is ruining the mystery of the state, and thereby discrediting their holy institutions.
Note that Obama was treated by the left wing establishment as a messianic character despite the fact that Obama actually deported more immigrants than George Bush, was at war every day of his presidency, and routinely violated the civil liberties of the press and individuals. As demonstrated by the fact that he was awarded the Nobel Peace Prize before did anything, he reflected the left's ideal of the statist president because he had "good intentions" according to their moral code. His articulate style and suave stature projected a kind of majestic central planner, heroically serving the state, despite his actual actions. Alternatively, despite his actual middle of the road policies, Trump projects hostility towards the essence of the left's God, the Washington establishment, and his boorish style flouts the idealized myth of the central planning Philosopher King.  Tucker writes:   
The center-left has at least one hundred years of work and resources invested in the state’s health, well being, reputation, and exalted moral status. Nothing must be allowed to threaten it or take it down a peg or two. Any failures must be deemed as temporary setbacks. The slightest sign of some success must be trumpeted constantly. The population must be subjected to unrelenting homilies on the essential holiness of the public sector. 
Their education told them this. Their degrees and ruling-class pedigree were hard earned. This is what has inspired them. They believe so strongly that they can make the world a better place through the managerial state that it has become their religion. It’s their very core!  
Above all else, the president is supposed to represent. His duty is to reflect and broadcast this sensibility.
Trump, even if his policies were to comport with left wing values, does not "reflect and broadcast this sensibility."  In contrast, a middle of the road, milquetoast Republican Mr. X (cough, John Kasich, cough) might be bad enough to the left, but given that Mr. X would still be an insider and willing to play ball, they would see him as a transitory figure with whom some compromise might be necessary but not a fundamental divergence from the larger statist trend.  Despite being a middle of the road Republican himself with populist leanings, Trump is hardly a real threat to the statist Washington establishment, but the left realizes that his "drain the swamp" mentality symbolizes their biggest threat.  Many of his supporters are people that really want to throttle government power and upend the statist trend and in their frustration sent a political amateur like Trump into the presidency.  In this sense, the Trump phenomenon is not just a temporary distraction, but an existential threat. 

The larger point is not Trump or the various political characters hysterically bellowing from cable news.  The important point is that the philosophies underlying this battle cannot be reconciled.  The left rejects reason and demands government force while the objectivist-libertarian view upholds reason and freedom.  The left's view of government is not rooted in reason but in a religious devotion to self-sacrifice and the state.  Political correctness in the universities is furthering the epistemological breakdown by asserting truth to be a function not of universals, but of race, class, and gender.  Consequently, rather than debate, the left is tuning out any opposition to their ideas, on principle, as the various attempts to violently censor and shout down their opponents clearly demonstrates.   Ayn Rand observed that faith and force are corollaries.  She wrote: 
Reason is the only objective means of communication and of understanding among men; when men deal with one another by means of reason, reality is their objective standard and frame of reference.  But when men claim to possess supernatural means of knowledge, no persuasion, communication or understanding are impossible. 
This is why we are now witnessing the first stages of civil war - physical conflict in the streets between people representing irreconcilable philosophies.  Trump Derangement Syndrome is but a symptom of a much larger and more frightening development.          

Friday, March 17, 2017

Health Insurance Negation Plan (re-post)

If you have a "pre-existing" car problem, would anyone sell you car insurance...?

It's not like I wrote this in 2009 or anything

Monday, June 13, 2016

Is Islam a Religion?

[author's note: the below is a summary of several posts I published in 2010]

During World War II, if the Emperor of Japan or Adolph Hitler had attempted to set up a recruitment office in the center of New York, the U.S. government would have had every right to shut it down. Whether the recruiters were motivated by Shinto or Nazism would not have made a difference, i.e., free speech was not an issue since these persons were actively engaged in an actual war with America.

So, at what point does a "religion" or any doctrine move beyond a mere body of abstract thought or ideas, deserving protection under the First Amendment, into a philosophical or legal area wherein a proper government has objective moral and legal grounds to prevent followers from pursuing recruitment, dissemination, assembly or political organization? To me, this is the essential question underlying the refugee crisis in Europe and the United States as well as the broader question of how to defend civilization from radical Islamists.  In this context, the question is whether Islam is a "religion" in the sense that it is meant within the Constitution or more broadly construed under the principle of individual rights, or whether it should be considered a "political movement" that is actively at war with America and/or the broader legal and cultural framework of western civilization.

Philosophically, faith is the acceptance of an idea in the absence of evidence and is the characteristic which distinguishes religion from science. The concept of "faith" is not relevant in a legal context, i.e., the essential epistemological foundation for a view point is not relevant. What is relevant is whether a body of thought or set of doctrines espoused by some organization can exist within a broad legal framework founded upon rational definitions of individual rights such as free speech, freedom of the press, property rights, and basic civil liberties. Whether or not a certain ideology takes issue with applications of these principles is not important. However, if an ideology by its nature opposes the very foundation of this framework AND its adherents actively seek to undermine the system through violent means, i.e., the initiation of physical force, the movement goes from the status of "religion" or "ideology" to an active enemy of civilization. Whether or not the state has formally declared war on such an ideology is not important as many instances of this type of organization could exist or spring up.

Although I am not an expert on Islam, from what I understand, there is very little separation between its doctrines and their manifestation in the political life of its adherents. It's followers advocate Sharia law which is a set of legal traditions that stand in complete and total opposition to western precepts of individual rights. Husbands can beat and rape their wives. Stonings and hangings are common to those who speak out against the religion or convert to another (apostasy). It is intolerant and hostile to non-believers in the most vile, racist, and violent ways imaginable. Its goal is the complete enslavement of mankind under a global caliphate, i.e., global theocracy, and it has killed tens of thousands in this effort.

Rather than be seen as a "religion of peace" with a few extremists tarnishing its essence, it should be seen as a global political and military force that seeks to spread throughout the world. If this movement were contained to other nations, I would argue as a matter of foreign policy that we have no interest in opposing it militarily. However, as this movement has repeatedly attacked western interests and made its motivations and goals crystal clear to anyone who will listen, the U.S. government should officially regard Islam as our ideological enemy and take any steps towards thwarting its spread within our borders and by supporting allied efforts to do the same.

Some argue that only some Muslims are "radicals" and it is a gross mischaracterization to regard Islam as a violent and evil political force. However, just as every Nazi was not a Hitler or Goebbels, and not every Japanese citizen was a kamikaze during World War II, this argument is not relevant. What is relevant is the actions of its most consistent advocates and its leadership alongside the inaction of its so-called silent majority. It is up to them to rise up and moderate or reform their "religion" in such a way that it can co-exist with the West while broadly respecting the basic principles of individual rights. If, by its very nature, it can not exist in this way, then we should not respect the rights of its followers as they do not respect ours.

What principles should be considered when identifying an objective threat? First, the ideology by its nature must be antithetical to the principles of individual rights and a constitutional republican form of government. Second, the ideology must be actively engaged in attempting to subvert or overthrow our government, i.e., advocating for or actually engaged in the use of force.

Shinto is an ancient Japanese religion and did not present a threat to the United States until it received state sponsorship and became part of a nationalist movement which sought global domination and attacked the United States in 1941. Communism actually began as a religious movement in the centuries before Marx secularized it in the 19th century. Even then, it was still not a "threat" until it too received state sponsorship and it's followers made their goal military conquest and global domination. Once an ideology receives state or some form of organized sponsorship and actively seeks to overthrow western governments, it becomes a criminal enterprise. Any offshoot, whether it is actually sympathetic or not to the more radical leadership, is then fair game to be investigated by our government. Certainly, it should be a cardinal issue in determining immigration status.

During World War II, any organization sympathetic to the goals of the Japanese Empire or the Nazi's would have rightly been shut down or arrested by the U.S. government and treated as enemy combatants depending on the extent of their activities. Communism was merely a philosophy until the Bolshevik revolution of 1917 followed by other movements which swept Europe and Asia, i.e., it was not a threat until it found state sponsorship and attained the goal of global domination, threatened our interests, or engaged in either outright or proxy wars with the United States. At that point, communist organizations which espoused this ideology ceased to be protected under the First Amendment, and became an objective threat to the existence of our government.

Many have said that the fact that there is not an obvious state sponsor of Islam and the fact that it seems to have many degrees of radicalism makes it more difficult to identify whom we are to fight.

First, once the proper principles are identified, the task becomes much easier. One needs to ascertain the state sponsors in terms of organization, finances, and training starting with the most radical first. Once these sponsors are crushed, the various offshoots become marginal, just as some random sympathetic Communist, Nazi, or Shinto organizations were neutered once the Soviet Union, Nazi Germany, and the Japanese Empire fell. Until the time at which state sponsorship and a global threat is neutralized, anyone identifying themselves with Islam must be regarded with suspicion and there should be an objective legal framework for investigating any ties to more violent organizations as we did with Communists in the 1950's or the Japanese and Nazi's during World War II or British loyalists during the American Revolution. I would make the same argument against Catholics if the Vatican declared its goal to be world domination under the rule of the Pope and Vatican law and were to actively fund and train an army in this effort.

Second, I think the primary state sponsors of totalitarian Islam are obvious. Iran, Saudi Arabia, and Syria are the heart and soul of this movement. Rather than focus on rogue tribes hiding in the mountains of Afghanistan, we should be confronting the elephant in the room - these countries and their countless financial and military allies which fund, train, and support radical Islamic groups throughout the world. While this occurs, Islamic organizations in the United States should not be treated as a protected "religion," but as sympathizers to America's enemies and since they identify with our legal and objective enemy, the burden of proof must be on them to show that they are not sympathetic or do not in any way directly aid and abet these global sponsors.

Third, because the freedom to speak and practice religion are sacred pillars of the American system, it is vital to objectively define and delimit the government's function as it relates to defense, i.e., define precisely when it is necessary for the state to use force in the protection and furtherance of individual rights. I have no illusion that the current American regime has any ability to fulfill this obligation, and I understand those who are concerned that such powers could be used as a precedent to persecute any political opponent of the state arbitrarily deemed to be "dangerous." I suggest the above as a blueprint precisely because the situation calls for a strictly objective formulation in order to delimit this use of force.

While one could debate the particulars related to the legal and practical application of the above principles, it is clear that this is the debate that should be taking place. For libertarians like Ron Paul to argue that Islam is only incidental to the 9/11 terrorist attacks or any of the various terrorist attacks against Western targets over the years or as incidental as their preference for "soccer," is a massive evasion. It is on exactly such grounds that anti "profilers" tells us that 90 year old grandma's are just as likely to be terrorists as young Muslim males leaving a madrassa run by the Taliban.

But why does Paul make such an error? Fundamentally, I believe it has to do with not grounding the concept of liberty in a more fundamental philosophic framework. To the libertarian politician, "liberty" is the fundamental concept by which all policy applications are evaluated. However, without a more fundamental basis, this concept becomes an out of context abstraction and it can not be properly applied except in the most trivial circumstances.

For example, objectively identifying threats and understanding what constitutes an act of coercion is essential to actual liberty, that is, the proper application of the principle of individual rights. If someone is walking around with a bomb and a bag of cash from the Iranian government, chanting "Death to America", could Paul not bring himself to usurp this man's "liberty" until he actually explodes the bomb? At what point should an organization be considered a criminal organization? At what point should another country be considered an objective threat? At what point should we declare war? Do they have to be in Manhattan harbor shooting at us before we take action? Of course, this is not a simple question and does involve a lot of legal philosophy, context, and evidence, but it should at least be clear that we should be debating these kinds of legal standards.

For Paul and others to simply dismiss these issues as "demagoguery" or a form of racism is not only wrong - it is suicidal.

Thursday, September 24, 2015

The Pope and the Religious Left

In the wake of the Papal visit to America and his support for left wing causes, I am linking to an article I wrote in 2008 titled, "The Religious Left."

Friday, August 28, 2015

Principles of Immigration in a Free Society

The issue of immigration is a hot button issue in the U.S. and has even caused a rift among Objectivist and libertarian minded activists who typically agree on a great many things. There are disparate views ranging from those who argue for open borders, with nothing but a welcome sign, to others who advocate more restrictive policies.

When many generally reasonable, thoughtful people disagree vehemently over some topic, it is a sign that the topic is complicated and requires difficult, principled analysis where it is easy to make honest mistakes.  Furthermore, the horrendous state of the world and our statist government makes the situation even more complicated to analyze.  Consequently, it makes sense to analyze a simpler context, e.g., immigration policy within a free country with a rights respecting government.  If we can establish these principles within a simpler context, it becomes a little clearer how to deal with the current actual mess. So, for example, since the very real concern over those seeking to come to the U.S. for welfare benefits exists as a consequence of welfare statism, it will not be addressed here, nor will primitive economic claims of the "they're stealing our jobs" variety be analyzed since those arguments have been debunked a thousand times.   It is always beneficial economically to have more hard working, law abiding people than less, i.e, have an even greater division of labor.    

The first principles of government in a free society is that it exists to protect individual rights.  Objectivists hold that the government should consist primarily of police to protect individuals from local criminals, an army to protect against foreign threats, and a court system to settle disputes.  The pertinent aspect of this principle for immigration is how it relates to the government's obligation to protect individuals from foreign threats.  

While individuals have inalienable rights by their nature, not as a privilege bestowed by government, it is a fact that the government which protects those rights must exist somewhere within proximity to those it represents.  Local governments are necessary because they are closer to the people they represent.  A government, by its nature, is limited to a certain jurisdiction, i.e., a geographical boundary within which it may apply the laws agreed to by individuals within it.  The purpose of such a boundary is that it provides an objective legal demarcation line within which it can define and execute its legal jurisdiction. Anyone residing within that jurisdiction accedes to its laws and agrees that issues pertaining to the jurisdiction as a whole are managed by elected representatives.  This allows its representatives to engage in agreements with neighboring jurisdictions over various issues.

For example, the sovereign states joined together to form the United States with the Constitution as the legal framework for dealing with cross border or national issues.  The states within this union broadly agreed on the nature and scope of government, and a byproduct of this union was unrestricted travel across state lines.  Texas and other states joined this union while other jurisdictions, such as Mexico, did not.

Since other countries exist outside this jurisdiction, and may or may not agree with our principles of government and may or may not be a threat, one of the functions of the government, the body of representatives that deal with issues of state, is to provide for a common defense.  With respect to immigration, essentially, the problem boils down to the question: is the person a threat or not?  It is important to emphasize that this question must be asked if the government is to perform its proper function. That is why there must be some immigration policy.  The idea of a completely open border with nothing but a welcome sign would represent a violation of this principle.  Such an "open" policy provides no means for the government to ascertain whether persons are invading or immigrating, much less whether they are known criminals or carry infectious disease.      

If the government's proper foreign policy endeavors to identify and eliminate existential threats from overseas by procuring intelligence and launching attacks against enemy states, why wouldn't its foreign policy seek to identify existential threats from those on its border seeking to enter the country?  Why wouldn't we apply at least as much scrutiny if not more to those actually entering the country?  Would a proper foreign policy have to wait for Iran to actually launch a nuclear bomb before taking action against them?  Would we have to wait for an armada of jihadists in the New York harbor to actually fire their guns before apprehending them or granting them visas?  Can the government prevent a business from selling military secrets to our enemies?

The idea that we can eliminate the threat by crushing our enemies overseas and therefore allow virtually anyone to subsequently enter the country does not recognize the nature of reality.  The fact is that there are always bad guys out there, and the government's job is to protect its citizens from them.  Although crushing our enemies would help, there will never be a time when the government can cease to police its own border.  Only in some future fantasy world in which all states agreed to some form of union under western principles of law and individual liberty could we contemplate a border less nation.  

The idea that there should be a presumption of innocence with respect to immigrants is a violation of the principle of self-defense for the same reasons one does not grant a presumption of innocence to someone who has rung the doorbell.  The presumption of innocence is a principle applicable in a criminal proceeding where an individual has been charged with a crime.  Prospective immigrants have not been charged with a crime, they are seeking to cross the legally established border from an area which may or may not share the same principles of law, and it is the government's proper function, indeed, primary function, to ascertain whether they represent a threat or not.  The goal should be to define a policy for determining what constitutes an objective threat and decide upon that basis whom to allow into the country.  

The precise policy defining what constitutes a threat could be debated, but generally I think there are a couple of primary forms.  Someone with a criminal record or who carries an infectious disease represents a direct physical threat.  One who directly or indirectly seeks to alter or abolish our form of government is a threat. This does not have to literally be a foreign spy or military agent but could be someone who has supported anti-freedom causes.  Certainly, without any evidence to the contrary, we should be suspicious of anyone immigrating from a country with which we are at war, have limited diplomatic relations or have deemed an enemy. It could be argued that those who possess no regard or understanding of the legal principles of the country, who do not speak English, and have no relation to anyone in the U.S. are less likely to broadly assimilate and should be regarded as more likely to constitute a threat.  This is not to say that there should be blanket prohibitions based on some of these factors, but in the absence of contrary evidence, they are relevant evidential factors.

In this regard, the burden of proof must be on the immigrant.  The easier it is to check someones history then the more likely they are to be granted entry.  A British national with a PhD from Oxford that is coming here to work for an American company whose criminal and medical records can be easily checked should obviously be granted entry.  If someone comes from a third world country with a history of dictatorship and sponsorship of jihadists, with no sponsorship from someone already here and no ability to directly check his record, then he should be at the bottom of the list if not outright rejected for entry.  While there should be a legal process for determining whether someone meets the criterion, the process by which we determine those standards should be a matter of objective policy consistent with the government's obligation to protect the rights of its people.  

Thursday, March 26, 2015

Meet the Left's Newest Capitalist Straw Man: The Shareholder as Mafia Boss

In a recent Washington Post op-ed, Harold Meyerson, an avowed socialist, compares corporations who buy back their own shares to Las Vegas mafia bosses who used to skim casino profits.  The basis for his smear is "a recent paper by J.W. Mason, an economist at the City University of New York and a fellow at the Roosevelt Institute, [who] documents the great shift in what U.S. corporations have done with their money."  Based on this paper, Meyerson writes:
In the 1960s and ’70s, about 40 cents of every dollar that a corporation either borrowed or realized in net earnings went into investment in its facilities, research or new hires. Since the ’80s, however, just 10 cents of those dollars have gone to investment. As a result of the shareholder revolution, the money that once went to expansion and new ventures has gone instead into shareholders’ pockets. 
Ironically, Meyerson decries the lack of capital investment and follows Mason (who follows William Lazonick and others) to imply that this purported lack of investment represents a kind of new class struggle between shareholder activists and employees who apparently stand to benefit only if the company invests its cash in something.  Meyerson writes:
Unlike the Vegas skim, which still allowed for sufficient floor show investment, the new skim, which is both ongoing and nationwide, has greatly reduced productive investment in the United States. The new skimmers have been the nation’s largest investors, and although they haven’t had anybody whacked, they have managed, as the mob never did, to bring America’s middle class to its knees.
So, have shareholders always been just a moral notch above mafia killers who brutally execute their enemies or has something changed?  According to Meyerson, the answer is that modern businessmen have become more greedy. You see, in the good old decades after World War II (you know, back when socialists like Meyerson were great advocates of big business), corporate investment was under the control of "the managers" whose high-minded "investments, chiefly from retained earnings, led to a generation of high productivity growth accompanied by steadily rising worker incomes, thanks to substantial unionization." [emphasis mine].  Then, along came Milton Friedman who "propounded the belief that the sole corporate mission was to reward shareholders" and corporations began linking top managers' performance to stock performance (pay based on performance - those darn capitalists!). This caused a new generation of evil businessmen from Wall Street to replace the good businessmen who used to not care so much about money.  He writes:
In the 1980s,...the managerially controlled firm was challenged by corporate raiders who sought to create leaner firms with lower wages in order to return more money to shareholders. A newly deregulated financial sector encouraged corporations to fund their endeavors more from borrowing — which enriched Wall Street — than from earnings.
These ideas appear to be reflecting throughout various left wing echo chambers and even promise to be a political issue in 2016 as "there are hints that Democrats might revisit it in the presidential campaign next year."  Meyerson and his ilk have created yet another capitalist straw man known as "large investors" (Big Investor?) who they attack for "skimming profits" and bringing "the middle class to its knees" while their leftist brethren surely nod their zombie heads in approval.

So, is it true, as Meyerson suggests, that linking manager pay to stock performance and distributing gains to shareholders is tantamount to violent criminal behavior?  Are the pension funds, 401k, and IRA participants (the middle class!) that benefit from rising stock prices really being brought to their knees?  Is it necessarily bad if corporations, on a relative basis, return a larger portion of earnings to shareholders rather than investing in new projects? What are these wonderful "new ventures" cited by Meyerson that should be funded by "the managers?" Does he presume the shareholders will reinvest the money in worse (less profitable) projects than the new projects he imagines?  Are the benefactors of the shareholders' new investments less worthy than those who would benefit from the projects envisioned by Meyerson?  Are "the managers" of corporations or central planners in Washington omniscient oracles who really know what's best?

If a business believes their capital is best deployed in X rather than Y then they will move their capital to X from Y.  Any one businessman or company can make egregious errors in their calculations, but the market will punish them with losses, and if they continue to make errors they will be put out of business.  In the long run and in aggregate, capitalism, ensures that capital will be allocated as profitably as human beings are capable of allocating.  Only government policies, in many different forms, can divert capital from its highest and best use.  So, if Meyerson is truly concerned that capital is being misallocated, he should start by analyzing Marxist inspired political policies themselves as the explanation.

For starters, Mason's own paper suggests that Meyerson (and perhaps Mason) has his logic backward.  Rather than view the 1980's as a turning point from the management practices of high minded businessmen to the vicious tactics of corporate raiders, it could be argued that it was various legal and regulatory changes which finally liberated shareholders to force stodgy corporations into being more productive and accountable. Mason provides a very good synopsis of the intellectual, legal, and institutional changes in financial markets that made the takeover movement possible.  For example, he cites "a number of legislative and administrative reforms that made it more feasible for shareholders to assert their notional power over management:"
Among these were legal challenges to laws limiting hostile takeovers of corporations, including the Supreme Court’s 1982 decision in Edgar v. MITE striking down Illinois’s anti-takeover law and similar laws in other states (Davis 2009). Also important was the revision of anti-trust regulations by the Reagan Justice Department, also in 1982, which relaxed the limits on concentration within industries. This opened up new possibilities for intra-industry mergers and undermined the logic of conglomerates, the major initial target of hostile takeovers (Roe 1996).
The "adoption of Rule 10b-18 by the SEC in 1982,... made large-scale share repurchases legal for the first time (Grullon and Michaely 2002)" and "made shareholder value the operational principle of corporate finance,  He notes that "institutional changes in financial markets...made takeovers and other changes of control more feasible." For example, the relaxation of "the rules on the classes of investments permissible by various institutional funds" resulted in a "broadening of the funds available to finance changes in corporate control" while compensation practices like stock options put top executives closer to the "worldview" of shareholders.

If anything, these changes should be seen as positive developments that utterly transformed the corporate landscape, and ironically, served as a factor in causing real wages to ultimately rise. Since it is productivity that actually raises real wages for labor, any policy which constrains or restricts productivity, diminishes the increase in real wages, a principle about which Meyerson is surely ignorant. The disruptions caused by intellectual, regulatory, and institutional changes in the 1980s actually benefited all to the extent that these changes resulted in more freedom, more productivity, and higher real wages.  To his credit, Mason recognizes this possibility:
Supporters of the shareholder revolution would argue that this is a change for the better and that the high level of internally funded projects under the old managerial regime included a large proportion of white elephants whose expected returns were too low to justify their expense. Whether or not the shareholder-dominated firm chooses its projects more wisely is beyond the scope of this paper.
So even Mason admits that shareholders actually can prevent managers from investing in "white elephants," a conclusion that Meyerson not only doesn't acknowledge in his diatribe, but contradicts when he claims "it was the coming of both globalization and the shareholder revolution in the 1980s that undid the broadly shared prosperity that Americans had enjoyed in the mid-20th century."    

Perhaps Meyerson was referring to the main theme of Mason's paper centered upon his empirical observation of the "weakening correlations of cash flow and borrowing with investment and a strengthening of correlations with shareholder payouts" - a development he attributes to a "shift from managerialism to rentier dominance."   In other words, he argues that since the managers lost control to the shareholders, there has been an increase in shareholder payouts and a decline in corporate investment.  He recognizes that "when profits are low and credit is expensive, there will not be much difference between the two regimes." However, he recognizes the role of cheap credit in creating this regime shift: 
[W]hen profits are high and credit is cheap, it’s a different story. If the cost of borrowing is less than the rentier opportunity cost, it will make sense for the rentier dominated firm to incur debt simply in order to increase payouts to shareholders — something the managerial firm would never do. [emphasis mine]
In other words, he identifies the distinguishing characteristic between the two regimes as an economic state in which profits are high and credit is cheap.  What causes such a state?    We know that credit expansion, brought about primarily by the government, affects the interest rate by creating a larger pool of funds and creating less demand for money holding in the short run.  It also boosts profits by inflating business revenue relative to costs which are depreciated over a longer time period.  Of course, credit expansion can affect the share buyback process by artificially decreasing interest rates and creating less demand for cash holding.  If interest rates are low and profits are high then it can pay for a company to borrow cheaply and buy back its shares and return profits to investors now versus investing in some longer term project.  Can this go on forever? 

In a free market, as corporations issue more and more debt to buy the shares, interest rates would tend to rise, while rising stock prices would result in higher (less attractive) valuations at the same or declining profit levels.  At some level of interest rate, it would no longer pay for a corporation to buy back its own shares.  The government can short circuit this natural process only by artificially keeping interest rates low by accelerating its credit expansion.  This is exactly what the Fed has accomplished through its various QE programs, and stock buybacks funded through corporate debt issuance have been taking place at an unprecedented rate.  

The creation of money out of thin air does not create real wealth, but it massively distorts the capital markets and enriches holders of assets in nominal terms relative to everybody else. The actual source of capital misallocation is credit expansion which distorts the interest rate and sends false signals to investors putting businessmen in the position of a doctor who takes an x-ray while some other force distorts the output. 

Rather than focusing on the causes of a persistent state of high profits and cheap credit, Mason attributes the empirical data to the conflicting interests (hurdle rates) of managers and shareholders. This leads to his arbitrary claim that payouts to shareholders are "something the managerial firm would never do."  Why?  Maybe it's true that managers would not borrow to buy back shares.  Maybe they would invest the capital instead.  But, in what?  Why are we to assume that investment, any investment, is necessarily good and that share buybacks are necessarily not as productive?    When the Fed distorts the market, there is no way to know. Even Mason seems to acknowledge the Fed's role in this mess but is at a loss to explain the outcome: 
In particular, the fact that low interest rates have encouraged increased corporate lending and borrowing without any accompanying boom in real investment should raise doubts about whether we can expect to achieve full employment through measures aimed at increasing the credit supply.
So, creating money out of thin air doesn't lead to real output and employment gains?  Mountains of government regulations, spiraling government debt, and the highest corporate tax rate in the developed world isn't working?  So will Meyerson argue for abolishing the Fed and returning to a system of private banking and laissez faire?    

Meyerson's and Mason's inability to reach the conclusion that it is government intervention in the economy that distorts capital markets, destroys productivity, and leads to declining real wages stems from a deep underlying premise - the Marxist premise that profit seeking behavior is necessarily exploitative, i.e., that one person's gain necessitates another person's loss. Meyerson's corporate raider (the term is a smear) is likened to a Mafia kingpin who crushes and destroys his enemy for personal gain and now serves as the latest capitalist straw man for pundits like him to justify, yes, more government intervention.   To them, the non-profit manager is a kind of omniscient caretaker looking out for the good of everybody, who would have the good sense not to buy back shares, and certainly not foolish enough print money to keep interest rates artificially low...   

Monday, March 9, 2015

The Deception of Central Banking - A Parable

Let's say a guy is about to counterfeit millions of dollars and spend it in his town (he's been empowered by secret government commission) with the goal of producing a perceived economic boom.  To have the greatest effect, would he be better off publicly announcing his intention to counterfeit with the proviso that if prices go up too much he will stop, or would he be better off spending the counterfeit money in secret?

If he announces his intentions, banks and businesses in the town will immediately begin to factor his future spending into their prices and inventory decisions.  His promise to stop counterfeiting if prices go up too much will also be taken into account.  Knowing that an indefinite counterfeiting operation will ultimately force prices higher, they will conclude that it is unlikely he will counterfeit indefinitely and will regard the increased spending as temporary.  As he buys more of their goods, they will experience an improved bottom line in the near term, but they will not be incentivized to expand their operations or hoard inventory in the hopes that prices will just keep going up and up as he spends and spends.  The boom is unlikely to ever materialize.    

On the other hand, if he secretly counterfeits and begins spending the money, businesses will notice that they are selling more and more.  Even if they raise their prices a little they will see their sales increase and conclude it is part of a new trend.  As prices go up everywhere, they will realize they can purchase more inventory and just wait for prices to go up further.  Banks will be flush with deposits and able to make loans on more generous terms.  Businesses will expand their operations.  The town will believe they are experiencing a boom.

Notice that for his counterfeiting to result in a perceived boom, he had to trick everyone into thinking that the increased spending volume is real and would continue indefinitely.  It needed to appear that the increased deposits in the bank reflected the real desire of individuals to save more money for longer periods so that businessmen would be fooled into pursuing longer term projects that consume massive amounts of capital.  Conversely, when the businesses anticipated the end of counterfeiting, the whole effect of his actions was relatively inconsequential.  As Ludwig Von Mises wrote in his economic treatise Human Action:
The boom-creating tendency of credit expansion can fail to come only if another factor simultaneously counterbalances its growth.  If, for instance, while the banks expand credit, it is expected that the government will completely tax away the businessmen's "excess" profits or that it will stop the further progress of credit expansion as soon as"pump-priming" will have resulted in rising prices, no boom can develop.  The entrepreneurs will abstain from expanding their ventures with the aid of the cheap credits offered by the banks because they cannot expect to increase their gains.  
Unless the businesses believed they could continually gain from the trend, they will not act to expand their business.  In this way, the example shows that even if the man had kept counterfeiting, he would have had to accelerate his pace of counterfeiting to keep the boom going (increasing the gains of the gains) and eventually he would have destroyed the town's monetary system. Von Mises wrote:
The boom can last only as long as the credit expansion progresses at an ever-accelerated pace.  The boom comes to an end as soon as additional quantities of fiduciary media are no longer thrown upon the loan market.  But it could not last forever even if inflation and credit expansion were to go on endlessly.  It would then encounter the barriers which prevent the boundless expansion of circulation credit.  It would lead to the crack-up boom and the breakdown of the whole monetary system.  
Von Mises's principles relate to recent events.  In the housing bubble leading up to the 2008 crisis, it was believed that home prices would rise indefinitely.  Credit expansion supported by central bank rate policy, fractional reserve banking, and the federal government's underwriting of mortgages through GSE's caused a massive boom in real estate prices.  More credit begat home price increases and house price increases begat more credit.    

Since that bubble burst in the 2008 crisis, global central banks such as the Federal Reserve, ECB, and Bank of Japan have embarked on an effort seemingly to create another phony credit boom.  But this time, they have maintained a policy of publicly announcing their so-called "quantitative easing" efforts in advance.  They have generally pledged to buy their government's bonds (with fake money) of a certain magnitude for a certain period of time with the goal of increasing consumer prices along with the proviso that if prices rise too quickly then they will stop and potentially even go in reverse, i.e., remove money from the monetary system.    As we would expect based on the above, despite their best efforts, these central banks have been unable to create the kind of phony boom they so desperately crave.

Central banking requires that government bureaucrats act in a way to distort the entire economic system by introducing counterfeit credit into the monetary system in such a way that businessmen are continually fooled into acting in a way that mimics the behavior of businessmen operating in an actual economic boom.  The fact that central banking requires deception does not imply that we should advocate deception. On the contrary, the point is that central banking, by its nature, requires massive deception and is a symptom of its evil and impracticality.