“You never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before.” Rahm Emanuel
If you look around your kitchen and garage you’ll find chemicals and appliances that are used every day that can be ‘weaponized’ into a smoke bomb, flame thrower or even worse. Obviously that wasn’t the original intent of the product, but under the right circumstances and wrong intentions bad results occur. Even something as innocuous as a suitcase can be turned into a ‘dirty suitcase bomb’. Remember after the fall of the Russian Empire we were afraid some of their suitcase bombs made it onto the streets?
A similar comparison can be made regarding social values, competing interests and how they are maintained and managed. James Madison called these special interests ‘Factions’ and warned about how divisive they could be in pitting one group against another, but also how healthy, as they provided the right friction in a Republic for order in the marketplace and a stable society. Madison and the other founding era fathers warned against the abuse and instability of democracy.
This week the Supreme Court has taken up two cases that will greatly impact our society, Liz Goodwin, Yahoo! writes regarding the Supreme Court’s decision to take up two gay rights cases, “Supreme Court gay marriage cases could set stage for dramatic societal changes”. On Tuesday the Court will decide whether California’s Proposition 8 ban on gay marriage denies rights and discriminates unfairly against gays. On Wednesday the Court will take up a case that will look at whether the 1996 Defense of Marriage Act which bars the Federal Government from recognizing gay marriage is constitutional.
Out of the two cases the CA Prop 8, Perry v. Hollingsworth is considered by both Pro and Anti-gay rights groups as having the most far reaching effect. “In Perry, there’s a possibility that the court could declare that gays and lesbians have a fundamental right to marriage just as heterosexual couples do. Such a decision would send a message from the court that both same sex and heterosexual relationships must be treated equally in the eyes of the law.”
The trickledown effect could result in restrictions on religious freedoms, adoption and contract law, personal property rights, health care and every other nook and cranny of society. What the Perry case does it reaffirms the Supreme Court and the Federal Government as ‘the law of the land’ and final arbiter. The irony here is that ‘The Majority’ for years has suppressed the rights of a minority (less than 10% of population) to protect societal norms where today the tables might be turned.
Madison in Federalist Papers #10 defines Factions or Special Interest, “By a faction, I understand a number of citizens, whether amounting to a majority or a minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adversed to the rights of other citizens, or to the permanent and aggregate interests of the community.” Madison goes on to write, “The latent causes of faction are thus sown in the nature of man; and we see them everywhere brought into different degrees of activity, according to the different circumstances of civil society. A zeal for different opinions concerning religion, concerning government, and many other points, as well of speculation as of practice; an attachment to different leaders ambitiously contending for pre-eminence and power; or to persons of other descriptions whose fortunes have been interesting to the human passions, have, in turn, divided mankind into parties, inflamed them with mutual animosity, and rendered them much more disposed to vex and oppress each other than to co-operate for their common good.”
Madison as well as the other framers understood the potential for abuse in a democracy as individuals through special interest will line up behind leaders to promote and protect their interests over the interests of others.
Special Interest groups play into the political dynamics as Madison had suggested, ‘an attachment to different leaders ambitiously contending for pre-eminence and power’ which divides men into parties. The Democrats pocket the Unions, Teachers and African Americans, while the Republicans herd family values, business and the defense industry.
“The two great points of difference between a democracy and a republic are: first, the delegation of the government, in the latter, to a small number of citizens elected by the rest; secondly, the greater number of citizens, and greater sphere of country, over which the latter may be extended.” Madison #10
Democracy if it works at all works best at lower rungs of government as there tends to be more homogeneity and common interests. The Constitution was constructed to restrain democratic rule, as Madison suggested “Factions tend to nullify each other.” This applies to other ‘Weaponized Causes’ like Gun Ownership, Security, Commerce, Education, Abortion, and Welfare as well. Today however, slimmer majorities rule over larger minorities and remove individual liberties for a ‘common good’. Early nationalists like Alexander Hamilton who were leery of individuals to behave correctly, were more in favor of an aristocratic rule but were in the minority, as the US Constitution protected state sovereignty and limited delegated power restrained the federal government and the instability of democracy. Factions (Special Interest) fought their battles at the state level and in the marketplace. Today however, at the whim of the next social or economic crisis Washington removes the rights and freedoms of one group in order to provide for another.
In a recent interview, Sandra Day O’Connor recalled fond memories of her colleague Chief Justice William Rehnquist with whom she graduated with from Stanford University and served with on the Stanford Law Review. In the interview she alluded to the progress the Chief Justice had made in ‘ruling for the majority’ when it came to landmark issues, inferring a greater importance of majority rule rather than constitutional rule of law. While the cautions of democracy have gone unheeded over the past century, with power concentrated in Washington, it now has been left in the hands of the democracy of nine to rule over the 315 million.
Recently, Mark Victor a Defense Attorney and Radio Host in Phoenix AZ speaking before a Republican group for Liberty asked, “With a show of hands how many are for Freedom!” Hands went up all around the room with many shouts. Next he started to ask, “How many believe in the freedom to practice your faith!” Again, hands up and screams around the room. After Mark was through the list of freedoms that appeal to Conservative Republicans, he asked, “How many are for the freedom to use drugs?” All of a sudden it fell quiet. Again, “How many are for the freedom to be gay or choose a nontraditional lifestyle?” No one raised their hands. Mark says he does that in Progressive Democrat meetings as well, and no one applauded or raised their hands in support of freedom of individuals to keep their paychecks, choose their schools, choose their health care or the rights of the unborn. Do you see the problem?
Thomas Jefferson put it this way, “I would rather be exposed to the inconveniences attending too much liberty than to those attending too small a degree of it”.
Madison’s remedy was the Constitution which created bicameral powers and dual sovereignty of state and federal governments that avoided systemic failure that was a characteristic of democracies in the past. Through decentralized state powers it allowed for government closer to the people and experimentation in solving social and economic maladies that allowed for failure and success. “The influence of factious leaders may kindle a flame within their particular States, but will be unable to spread a general conflagration through the other States. A religious sect may degenerate into a political faction in a part of the Confederacy; but the variety of sects dispersed over the entire face of it must secure the national councils against any danger from that source. A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project, will be less apt to pervade the whole body of the Union than a particular member of it; in the same proportion as such a malady is more likely to taint a particular county or district, than an entire State.”
At the end of the Constitutional Convention in 1787, a lady (Mrs. Powell) asked Benjamin Franklin, “Well Doctor what have we got a republic or a monarchy? To which he replied, “A republic if you can keep it.”
While the rights of each individual and the natural law freedoms that supersede government are in play through these rulings, an important issue lost in the fray is the federalist system that our nation was created from and maintains those freedoms. Jonathan Alder writing in Reason Magazine in defense of state constitutional power that keeps in check federal power, “The system of federalism is an essential guarantor of individual liberty and constraint on governmental power. As the Supreme Court noted in a unanimous 2011 decision, “federalism secures the freedom of the individual.” It does this by, among other things, forcing states to compete with one another for citizens by providing different mixes of policies (taxes, services, and legal guarantees) in an effort to discover the best mix. Where states get it wrong, such as by imposing excessive taxes or unjust laws, people remain free to “vote with their feet” and move to a jurisdiction with laws more in line with their beliefs.”
The question to ask ourselves today is ‘Can we restore the integrity of the Republic?’, where most decisions that are made today in Washington would be made in private transactions, through local communities and State Houses. Or should nine jurors in Washington supersede individual liberty and rule for Special Interests?
Christopher Mahon, Editor
NOW, THEREFORE, it is hereby ordered that, before the filing of any notices, or taking
of any testimony or adjudication of or finding on any issues of fact or law herein, and without
this Order constituting an admission or denial by Citigroup of any allegation made or implied by
the Board of Governors in connection with this matter, and solely for the purpose of settling this 4
matter without a formal proceeding being filed and without the necessity for protracted or
extended hearings or testimony, pursuant to sections 8(b)(1) and (3) of the FDI Act (12 U.S.C.
§§1818(b)(1) and 1818(b)(3)), Citigroup and its institution-affiliated parties shall cease and
desist and take affirmative action as follows:
Source of Strength
1. The board of directors of Citigroup shall take appropriate steps to fully utilize
Citigroup’s financial and managerial resources, pursuant to section 38A of the FDI Act
(12 U.S.C. § 1831o-1) and section 225.4(a) of Regulation Y of the Board of Governors (12 C.F.R.
§ 225.4(a)), to serve as a source of strength to each of the Banks, including, but not limited to,
taking stepsto ensure that each of the Banks complies with the Consent Orders issued by their
respective banking agency supervisors and any other supervisory actions taken by their respective
banking agency supervisors.
2. Within 60 days of this Order, Citigroup’s board of directors shall submit to the
Reserve Bank an acceptable written plan to continue ongoing enhancements to the board’s
oversight of Citigroup’s firmwide compliance risk management program with regard to
compliance with BSA/AML Requirements. The plan shall describe the actions that the board of
directors has taken since the Consent Orders became effective and will take to improve
Citigroup’s firmwide compliance risk management with regard to BSA/AML Requirements,
including, but not limited to, ensuring that such compliance risk is effectively managed across
Citigroup, including within and across business lines, support units, legal entities, and
jurisdictions in which Citigroup and its subsidiaries operate. The plan shall, at a minimum,
address, consider, and include: 5
(a) Funding for personnel, systems, and other resources as are needed to
operate a BSA/AML compliance risk management program that is commensurate with the
compliance risk profile of the organization and that fully addresses the organization’s
compliance risks on a timely and effective basis;
(b) policies to instill a proactive approach throughout the organization in
identifying, communicating, and managing BSA/AML compliance risks;
(c) measures to ensure adherence to approved BSA/AML compliance
policies, procedures, and standards, and ensure the timely completion of related projects and
(d) measures to ensure the resolution of BSA/AML-related audit, compliance
reviews, and examination findings.
Compliance Risk Management Program
3. Within 60 days of this Order, Citigroup shall submit an acceptable written plan to
the Reserve Bank to continue to improve the governance, structure, and operations of the
compliance risk management program with regard to BSA/AML Requirements and the
regulations issued by the Office of Foreign Assets Control of the United States Department of
the Treasury (“OFAC”) (31 C.F.R. Chapter V). The plan shall, at a minimum, address, consider,
(a) The structure and composition of Citigroup’s compliance committees and
a determination of the optimum structure and composition needed to provide adequate oversight
of Citigroup’s firmwide compliance risk management;
(b) enhanced written policies, procedures, and compliance risk management
(c) the independence and authority of the compliance functions and related
(d) the duties and responsibilities of the heads of compliance for global
business lines, the BSA/AML global program, and legal entities, as applicable, including the
reporting lines within Citigroup, and between Citigroup and its business lines and legal entities;
(e) a process for periodically reevaluating staffing needs in relation to the
organization’s compliance risk profile, and management succession planning for key compliance
(f) the scope and frequency of compliance risk assessments;
(g) measures to ensure compliance and improve accountability within
business lines and legal entities and their respective compliance functions;
(h) procedures for the periodic testing of the effectiveness of the compliance
risk management program;
(i) consistency with the Board of Governors’ guidance regarding Compliance
Risk Management Programs and Oversight at Large Banking Organizations with Complex
Compliance Profiles, dated October 16, 2008 (SR 08-8); and
(j) the findings and recommendations of the consultant engaged by Citibank
pursuant to Article V of Citibank’s Consent Order with the OCC.
BSA/AML Compliance Program
4. Within 90 days of this Order, Citigroup shall complete a review of the
effectiveness of Citigroup’s firmwide BSA/AML compliance program (the “BSA/AML Review”)
and prepare a written report of findings and recommendations (the “BSA/AML Report”). The
BSA/AML Review shall, at a minimum, address, consider, and include: 7
(a) The structure of Citigroup’s firmwide BSA/AML compliance program,
including reporting lines and taking into account the functions that Citigroup performs for the
Banks and Citigroup’s other subsidiaries;
(b) standards for BSA/AML compliance that apply on a firmwide basis,
including business lines and legal entities;
(c) the duties, responsibilities, and authority of Citigroup’s chief BSA/AML
compliance official, including reporting lines within Citigroup and from Citigroup’s business lines
and legal entities to the chief BSA/AML compliance official;
(d) communication of BSA/AML-related roles and responsibilities across the
(e) coordination among corporate BSA/AML compliance and the BSA/AML
compliance functions of the Banks, Citigroup’s other subsidiaries, and business lines;
(f) processes for monitoring business line and legal entity compliance with
Citigroup’s BSA/AML policies and procedures and BSA/AML requirements;
(g) policies, procedures, and processes, including, but not limited to, those for
identifying and investigating suspicious activity, and for filing suspicious activity reports;
(h) the scope and frequency of reporting with respect to BSA/AML compliance
within Citigroup, at a minimum, to senior management and board committees, as well as between
Citigroup and its business lines and legal entities;
(i) BSA/AML-related risk assessments;
(j) measures to ensure that any BSA/AML compliance functions, including,
but not limited to, transaction monitoring and suspicious activity reporting, that are performed by 8
Citigroup’s nonbank subsidiaries for the Banks or the Edge Act corporation are performed to meet
(k) independent testing within Citigroup entities subject to BSA/AML
(l) training; and
(m) the findings and recommendations of the consultant engaged by Citibank
pursuant to Article V of Citibank’s Consent Order with the OCC.
5. Within 120 days of this Order, the board of directors of Citigroup shall review the
BSA/AML Report and shall submit an acceptable written plan to the Reserve Bank that includes a
description of the specific actions that Citigroup will take to continue to strengthen the
management and oversight of Citigroup’s firmwide BSA/AML compliance program, taking into
account the requirements of the appropriate federal or state supervisor of Citigroup’s functionally
6. Within 30 days after the end of each calendar quarter following the date of this
Order, the board of directors of Citigroup or an authorized committee thereof shall submit to the
Reserve Bank written progress reports detailing the form and manner of all actions taken to secure
compliance with this Order, a timetable and schedule to implement specific remedial actions to be
taken to address the recommendation in the Report, and the results thereof.
Approval and Implementation of Plans
7. (a) Citigroup shall submit written plans that are acceptable to the Reserve
Bank within the applicable time periods set forth in paragraphs 2, 3, and 5 of this Order. 9
(b) Within 10 days of approval by the Reserve Bank, Citigroup shall adopt the
approved plans. Upon adoption, Citigroup shall promptly implement the approved plans and
thereafter fully comply with them.
(c) During the term of this Order, the approved plans shall not be amended or
rescinded without the prior written approval of the Reserve Bank.
8. All communications regarding this Order shall be sent to:
(a) Jonathan Polk
Senior Vice President
Federal Reserve Bank of New York
33 Liberty Street
New York, New York 10045
(b) Kevin L. Thurm
Chief Compliance Officer
399 Park Avenue
New York, New York 10022
9. Notwithstanding any provision of this Order to the contrary, the Reserve Bank
may, in its sole discretion, grant written extensions of time to Citigroup to comply with any
provision of this Order.
10. The provisions of this Order shall be binding upon Citigroup and its institutionaffiliated parties, in their capacities as such, and their successors and assigns.
11. Each provision of this Order shall remain effective and enforceable until stayed,
modified, terminated, or suspended in writing by the Reserve Bank. 10
12. The provisions of this Order shall not bar, estop, or otherwise prevent the Board
of Governors, the Reserve Bank, or any other federal or state agency from taking any other
action affecting Citigroup, the Banks, any nonbank subsidiary of Citigroup, or any of their
current or former institution-affiliated parties and their successors and assigns.
By Order of the Board of Governors effective this 21st day of March, 2013.
CITIGROUP INC. BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
The President last week was challenged by Congress to be specific in its ‘Drone Policy’ and other military permissible actions on US soil. Through Attorney General Eric Holder, he admitted it was ‘inappropriate’ and after Senator Rand Paul’s 13 hour filibuster of CIA Director nominee John Brennan, admitted in a letter the next day, “It has come to my attention that you have now asked an additional question: ‘Does the President have the authority to use a weaponized drone to kill an American not engaged in combat on American soil?’ The answer to that question is no.”
Was the President’s answer adequate enough and by what authority is that ‘NO’ tied to?
Senator Paul framed the issue in the first hour of the filibuster, “If there’s a gentleman or a woman with a grenade launcher attacking our buildings or our Capitol, we use lethal force. You don’t get due process if you’re involved with actively attacking us, our soldiers or our government. You don’t get due process if you’re overseas in a battle shooting at our soldiers. But that’s not what we’re talking about. The Wall Street Journal reported and said that the bulk of the drone attacks are signature attacks. They don’t even know the name of the person. A line or a caravan is going from a place where we think there are bad people to a place where we think they might commit harm and we kill the caravan, not the person. Is that the standard that we will now use in America?”
“I will speak today until the President responds and says no, we won’t kill Americans in cafes; no, we won’t kill you at home in your bed at night; no, we won’t drop bombs on restaurants. Is that so hard?”
Senator Paul’s response to AG Holder’s letter the day after the filibuster was ‘Hooray!’ as he felt that those who staged the filibuster received the answer they were looking for and the American people are better off in hearing it. But while the Administration was dragged from ‘inappropriate’ to ‘No’, and there may even be an implied constitutional principle rather than arbitrary power that makes that decision, it is vague at best.
“Having unlimited power; uncontrolled or unrestricted by law; despotic; tyrannical: an arbitrary government.”
John Locke, a seventeenth century philosopher that some refer to as the ‘Father of Classical Liberalism’ who’s ideas the founding era fathers called upon in creating the US Constitution said, “This freedom from absolute, arbitrary power, is so necessary to, and closely joined with a man’s preservation, that he cannot part with it”. The mortal sin of government is arbitrary power, while a government restrained by law (constitution) will survive.
This has been the history of the United States, even while constitutional boundaries have been slowly broken down and powers arbitrarily assumed by Washington have become more prevalent, the ‘SS America’ though her belly full with assumed authority in Washington still navigates and protects its precious cargo and passengers to some degree. But what transpired last week is very important in understanding the condition and restoration needed to right this Republic.
While the week started out very interesting as Washington rarely does, ‘aired its dirty laundry’ it became even more so as Senators John McCain and Lindsay Graham criticized Senator Paul and his colleagues that staged the filibuster the next morning. Senator McCain called some of Paul’s comments ‘Ridiculous’ and said, “So we’ve done a, I think, a disservice to a lot Americans by making them believe that somehow they’re in danger from their government They’re not. But we are in danger. We are in danger from a dedicated, longstanding, easily replaceable leadership enemy that is hellbent on our destruction. And this leads us to having to do things that perhaps we haven’t had to do in other more conventional wars.”
Senator Graham added a rebuke and challenge to why now, “We should be talking about it. I welcome a reasoned discussion. But to my Republican colleagues, I don’t remember any of you coming down here suggesting that President Bush was going to kill anybody with a drone.”
To help Senator Graham’s memory, there were those in Congress (not many GOP) that criticized the Patriot Act and violations of FISA (Foreign Intelligence Surveillance Act) in unwarranted monitoring of emails and cell phone calls as there was a great public shift in tolerance at the time to give up personal freedoms for security. Many of the legislative and executive actions back then have paved the way for more aggressive legislation that could possibly violate state non delegated power and personal liberties like due process today. NDAA 2012 is a good example of that as around 20 states are in the process of creating resolutions and laws to ‘nullify’ it.
Senator Rand’s response to McCain and Graham was, “They are on the wrong side of history on this one. They believe that war is everywhere and there kind of with the President who believes there’s no geographic limitations. They also say that the laws of war apply, what the laws of war apply means is that you don’t get Due Process and I can understand that in a battlefield, you don’t read Miranda Rights, if you are shooting at me, we kill you. But they say America’s a battlefield and that’s a huge mistake. If we bring what is in effect Marshall Law to America, Americans will be really upset. These are the same people (McCain and Graham) that want to detain American citizens indefinitely without a trial.”
While to the ‘untrained eye’ these last few days may seem like a lot to do about nothing and they may automatically tune out politics or just can’t see drone strikes or other military actions on American soil. But consider, in ‘broad daylight’ we have an administration that can only muster up ‘inappropriate’ to describe the act of the federal government killing Americans without due process and many in Congress berating the questioners. If this is the response in public, what could happen in the ‘Fog of War’? Isn’t it important to tie these arbitrary powers to law and a system of authorization?
While filibusters are unique in that they happen infrequently, the filibuster by Senator Rand Paul and others was unique in that it called for less federal military intervention which we haven’t heard from in more than six decades. Interesting, a filibuster in 1917 by Republicans to kill pro-intervention into World War 1 was defeated by senate Democrats through cloture at the urging of President Woodrow Wilson.
Up until the early 1950s, many conservatives were non-interventionists and the ‘Old Right’ was committed to restraining executive powers until the late 1960s when neoconservatives began to endorse interventionism in opposition to the USSR.
The Right were generally dragged kicking and screaming into both world wars and as McCain et al demonstrated this past week, neoconservatives are having a very difficult time justifying the precious lives of our children, the destruction of important military assets and the sacrifice of individual liberty in a futile effort to buy off world support through aid and occupation and the pretense of security at home through paternalism.
As Ecclesiastes 1.9 says, “There’s nothing new under the sun.” What has been done is being done and whether it’s Conservative or Progressive ideology that you think is ‘new’, you are mistaken my friend.
But there is a ‘Plumbline’, a measuring stick that allows these old ideas to be rehashed and it protects liberty in the process. It’s the US Constitution, which says ‘No’ to federal power except for which has been specifically delegated and ‘Yes’ to the states for all other non delegated power.
James Madison writing in Federalist Papers 10 warned against the loss of personal freedoms in a ‘centralized government’, “A pure democracy can admit no cure for the mischiefs of faction(s) (special interests).. Hence it is, that democracies have ever been found incompatible with personal security or the rights of property; and have, in general, been as short in their lives as they have been violent in their deaths”.
Missing from the President’s and AG Holder’s response, as well as the media coverage and the critics of the filibuster is the US Constitution and a discussion of the limits of government power under it. Washington as we know it HAS TO live under arbitrary power to consolidate more power and the money that goes with it. For Individual Liberty to prevail and a healthy society as a result, constitutional authority must be reestablished.
To be blunt, it is the ‘Rand Pauls’ and Ron Wydens (sole Democratic Senator to speak at filibuster) whose job it is to dismantle (not change) Washington and it is the state legislatures around the nation whose job it is to resurrect State Authority in order to bring back Constitutional alignment.
Christopher M. Mahon, Editor
Christopher Mahon is the Editor of Ambidextrous Civic Discourse, ‘Where the Right and Left meet’; a place where you can find information about economics, philosophical and political issues that challenge those on the ‘right’ or the ‘left’ on what works best in society. At ACD you can find articles, essays and book classics on the subjects mentioned above that contrast differences like Keynesian vs. Classical Economics or the function of government – Negative vs. Positive Liberty. Please peruse our Library and videos. Chris has a Masters in Accounting and Financial Management. Learn more at – www.ambidextrouscivicdiscourse.com
Jerome Powell, board member of the Federal Reserve teed up his speech on ‘too big to fail’ At the Institute of International Bankers 2013 Washington Conference, Washington, D.C. on March 4, 2013 by saying, “In broad terms, these reforms (Dodd-Frank) seek to eliminate the expectation of bailouts in two ways–by significantly reducing the likelihood of systemic firm failures, and by greatly limiting the costs to society of such failures. When failures are unusual and the costs of such a failure are modest, the expectation at the heart of too big to fail will be substantially eliminated. My focus today is principally on the second of these two aspects of reform–containing the costs and systemic risks from failures, a goal being advanced by work to create a credible resolution authority.”
Powell who was appointed to the position May of 2012 and served as an Assistant Secretary and as Undersecretary of the Treasury under President George H.W. Bush and had worked for the Carlyle Group 1997-2005 graduated from Princeton and received his law degree from Georgetown went on to say,
“It is worth noting that too big to fail is not simply about size. A big institution is “too big” when there is an expectation that government will do whatever it takes to rescue that institution from failure, thus bestowing an effective risk premium subsidy. Reforms to end too big to fail must address the causes of this expectation.”
Powell remembering back to the Savings and Loan debacle, goes on to justify Fed intervention, “It happened in January 1991, at a time of great stress in the financial system and the broader economy, and only days after 45 depository institutions in the region had been closed and 300,000 deposit accounts frozen. My Treasury colleagues and I joined representatives of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board in a conference room on a Sunday morning. We came to understand that either the FDIC would protect all of the bank’s depositors, without regard to deposit insurance limits, or there would likely be a run on all the money center banks the next morning–the first such run since 1933. We chose the first option, without dissent.”
Powell believes that between the capitalization requirements in Basel III and the new oversights produced through Dodd-Frank of creating a ‘Single Port of Entry’ and a ‘Living Will’ type liquidation through Orderly Liquidation Authority (OLA) which he describes as similar to the bankruptcy process, that a banking systemic failure is less likely and that generally the financial markets are healthier today as a result.
“Under single point of entry, the FDIC will be appointed receiver of only the top-tier parent holding company of the failed financial group. Promptly after the parent holding company is placed into receivership, the FDIC will transfer the assets of the parent company (primarily its investments in subsidiaries) to a bridge holding company. Equity claims of the failed parent company’s shareholders will be wiped out, and claims of its unsecured debt holders will be written down as necessary to reflect any losses in the receivership that the shareholders cannot cover. To capitalize the bridge holding company and the operating subsidiaries, and to permit transfer of ownership and control of the bridge company back to private hands, the FDIC will exchange the remaining claims of unsecured creditors of the parent for equity and/or debt claims of the bridge company. If necessary, the FDIC would provide temporary liquidity to the bridge company until the “bail-in” of the failed parent company’s creditors can be accomplished.”
Critics of the OLA and other Dodd-Frank legislation say that basically the legislation promotes further Moral Hazard and ‘enshrines the taxpayer’ in the bailout process. In addition, it firmly places the federal government in the position of ‘choosing winners and losses’ as JP Morgan did himself during the Bank Panic of 1907, settling grudges and eliminating competition.
The ‘Living Will’ legislation requires ‘too big to fail’ entities to create a financial/legal document that outlines how the entity should be liquidated in case of ‘death’. Kind of like today’s Medical Proxies where care and decisions are given to someone else (receivership). It’s ironic that ‘end of life’ decisions, medical (Affordable Care Act) and financial (Dodd-Frank) all are ending up in the control of the federal government.
It was noted above that Mr Powell worked for the US Treasury prior to the Fed Reserve position which is fairly common and some view as producing a myopic view of financial problems and solutions. In addition, his work at Carlyle in Global investments reinforces the potential to maintain the status quo of a centralized financial system rather than alternatives that would diversify and minimize ‘long tail’ risks and systemic failure. As with many of our problems today, more government stands in the way of market solutions that allow failure that is not systemic, that is productive and the process reallocates resources to their more efficient uses rather than sophisticated ‘Crony Capitalism’.
To read the speech by Jerome Powell in its entirety.
Please share your thoughts with us and comment below. Thanks.
Christopher M. Mahon, Editor
A very interesting exchange on Foxnews Sunday with Chris Wallace as Karl Rove, one of the panelists is asked about recent comments from Talk Radio host Mark Levin who said, “He’s also up there with that stupid little third grade white board of his, with his fourth-grade writing style, talking about how they committed $30 million to Tea Party candidates. Bring on your little white board. We’re ready!”
Levin, like many other media critics, grassroots Republican Party groups like the Tea Party are still hurting from the devastating loss the party suffered in 2012 and who blame Rove in part with supporting nominees and a ‘runaway platform’ after the convention last August that many states, local districts and the grassroots like the Tea Party didn’t support.
Karl Rove, a ‘Republican Strategist’ has been involved with the political process since 1968 and has worked with mostly ‘modern traditional’ Republican candidates whose policies generally support a large military footprint and supply side business incentives. Rove has played a part in both George H and George W Bush campaigns and other campaigns like Ronald Reagan’s.
Rove has been in the news lately when it was announced earlier this year that he was starting up the Conservative Victory Project, which is described on Wikipedia as, “the prominent Republican political activist, and the super-PAC American Crossroads. Its purpose was to support “electable” conservative political candidates for political office in the United States. The effort was prompted by embarrassing failures of several Tea Party and independent conservative candidates in the elections of 2012. The project has been strongly criticized by some other conservative activists.”
Rove goes on to make the point later in the Foxnews show, “Right. And our (Conservative Victory Project) object is, to avoid having stupid candidates who can’t win general elections, who are undisciplined, can’t raise money, aren’t putting together the support necessary to win a general election campaign, because this money is too difficult to raise to be spending it on behalf of candidates who have little chance of winning in a general election.” Wallace then goes on to ask this question to Bob Woodward, “Bob, what does it say about the Republican Party when you have Karl Rove stepping in there to say we have got to try to police those Republican primary voters — I mean, it’s part of the process, I’m not saying there is anything wrong with that, but they are trying to police who Republican primary voters are going to pick to go up against Democrats (interrupted).. and let me just finish the question. And, when you have Marco Rubio, who is pretty conservative and a Tea Party favorite giving the Republican response and the Tea Party thinks they have to have somebody else to give a response to the response?” Woodward then responds, “My last book is going to be called “Some People Never Go Away,” and Karl is going to get his own chapter (LAUGHTER) because he never goes away.”
Woodward goes on to point out, “I think the problem in the Republican Party is really not money. I think they’ve got lots of it. I think it is – theory of the case, why are we here, what is our message, how to connect to the real world and this idea about 30 million here, we’re going to do that, I think is the wrong track…you’re going to set yourself up as a kind of politburo, vetting these candidates …I mean the whole theory of Republicanism is to let the local state or a district decide.”
Is Karl Rove or other party advocates needed to sift out ‘unelectable’ candidates or can that be done through the ‘primary marketplace’ (as Rand Paul suggested) or from the ground up through local and district support for candidates and issues? If Rove is a problem is he merely a symptom of a greater problem that lies at the feet of the Republican National Committee (RNC)?
Many have tried to pin down a reason for the GOP’s victory in the 2010 election results: An economy in crisis, a rejection of Obama and the Tea Party and other grassroots movements that were calling for ‘limited government’ and ‘fiscal responsibility’. While incumbents were fair game, it was generally a big year for Republicans. Among record turnout, the GOP saw increased numbers in most categories and young people in particular.
The college students that were turning out for Tea Party and other grassroots movements that centered on ‘Liberty’, ‘Limited Government’ and the Constitution seemed to strike a chord with the message. But then they saw their candidate Ron Paul vilified and marginalized in both the news media and the debates. The issues that were important to them – limiting federal power, free markets, keeping federal government out of social issues and a ‘constitutional compass’ weren’t taken seriously. But they were told, even though their candidate was battered and bruised all was not for nothing as the Convention in August (2012) would show that they were heard loud and clear and that some of those issues would make it onto the RNC platform.
In ‘RNC Rule 12: The Death of The GOP?’ during the RNC Convention last year I wrote about the latest RNC rule change to control the national platform. “The RNC Rule 12 that was enacted yesterday gives the ability of the GOP establishment in Washington the power to change rules and regulations quickly to destabilize grassroots movements that have less funds and influence in order to centralize power and the platform. Tea Party-type fires will be extinguished way earlier and if you happen to be in a majority interest today, good luck when the majority changes tomorrow due to special interest winds – platform will follow favor and money. Any creative grassroots movement going forward unfortunately will occur outside the GOP brand.”
The history of the Republican Party starts in 1854. The history of the RNC starts in 1856, launched with the goal of equal representation throughout the states through one representative from each state. The idea was that through local and diverse representation the people would be heard and constitutional liberty would be protected and ideas and solutions would germinate locally and arrive in Washington to create a national platform. As years have passed that representation has changed and power has moved from the rural and urban locales to Washington, DC. Ironically, Woodward unlike some of the GOP panelists picked up on that.
If the Republican Party can solve their problem of representation and the irresistible urge to centralize power in Washington, maybe that can be reflected in their national platform that puts the authority of the Constitution first in governing under the delegated powers and protecting the non delegated powers that were to remain in the states. Is the fate of the ‘Grand Ole Party’ the fate of a Nation?
Christopher Mahon, editor
Apparently Senator Rand Paul, R-KY is not looking to ’round up illegals’ and send them back to Mexico, as the AP had to retract a quote from a Fox News interview where they forgot to include a small but important word ‘don’t’ in their transcript.
Sen. Paul, in the original AP article using Fox News’ misquoted transcript writes, “he sees some in the his party favoring a 2016 presidential candidate with an immigration policy that would “round up people … and send them back to Mexico.” That article was written after Paul’s appearance on the Fox News Sunday with Chris Wallace.
The corrected transcript actual reads, “I think people want a little different phase on immigration frankly. They don’t want someone somebody who wants to round people up, put in camps and send them back to Mexico.”
Paul has hinted, even on the show that he was a likely 2016 Presidential candidate. Paul and Junior Senator Marco Rubio, R-FL, have received high profile exposure in the media lately as contenders in 2016, but while Rubio hasn’t been misquoted lately, his State Of The Union response, now referred to as ‘The Water Reach’ and suggesting he’s ‘The Thirsty Candidate’ has been fair game for the media and late night shows.
What should be interesting is how the media handles both candidates if it’s a competitive GOP Primary race leading up to 2016 as was the 2008 Democrat Primary and the treatment of Hillary Clinton and Barak Obama.
Christopher M. Mahon, Editor
Erskine Bowles and Alan Simpson of the President’s National Commission on Fiscal Responsibility and Reform which released a budget proposal on December 1, 2010, proposed $4 billion in deficit cuts and to a balance budget by 2035, Congressman Paul Ryan(R) was also on that committee and came out with his own plan that proposed to eliminate the US deficit in 30 years and to reduce the US debt, the 2012 version passed the House along party lines in 2011. Unfortunately nothing passed the Senate and nothing made it to the President’s desk to sign.
The new Bowles-Simpson plan is a little lighter as it would cut $2.4 billion over 10 years, cutting $600 billion from Medicare and Medicaid, $600 billion from new tax deductions and tax revenues, while $1.2 Billion in discretionary spending would be cut. It would also consider changes to slow increases in Social Security and other federal retirement payouts.
Last night at an Arizona Maricopa County Legislative District meeting, US Congressman David Schweikert(R), former Committee Member on Financial Services, shared his frustration in solving the budget and deficit problem and spoke of the urgency of a budget and how four years without one has meant no formal financial decisions made and that borrowed money goes to post budget commitments or status quo which compounds many financial problems within government.
Schweikert also hinted at a ‘news making’ tax policy announcement to be released by the GOP later this month, that would be ‘Flat tax’ in nature and could be a game changer in the Sequestration drama. Could mortgage interest, 179 deductions (accelerated depreciation) for business be on the table? Would GE (years ago paid no taxes on profit) or Face Book this year have to ante up? Schweikert believes this will force the Democrats to have to use logic and numbers in approaching spending and not emotional appeal to the public that he says quite frankly has been working.
The skeptic in me thinks this may be more of another stall to kick the can down the road a few more months for another ‘financial cliff’ or sequestration crisis. We’ll see.
Christopher M. Mahon, Editor
We live in a time of furious federal legislation that assaults constitutional integrity that limits government power through the specific delegated (enumerated) powers that the states have granted to the Federal Government. Unfortunately like in the late 18th century and as we are finding out today, pragmatic attempts at solving socio-economic ills lead to attempts to violate these protections. If the lofty competitive universities of today and yesteryear teach anything, it’s that the ‘ends justify the means’ and as Plato mapped out in his Republic, there is an elite group that has been bred, taught and primed to lead and govern all men. They reside in Washington but power share through government-business relationships on Wall Street and other places that reinforce that power arrangement.
In the Virginia Legislature, January 23rd, 1799 addressing their concerns over the federal Alien and Sedition Acts of 1798 and its ambitious attempt to solve what the ‘Nationalists’ of their time perceived as an immigration problem, they passed law that violated state sovereignty for a ‘Greater Good’; and in Thomas Wood’s book, Nullification: How To Resist Federal Tyranny in the 21st Century’, and his quote below, tell me if this doesn’t sound like the recent battle that Arizona had through SB 1070 and where the Constitution speaks regarding state and federal powers or some of the federal legislation coming from Washington regarding NDAA, Gun and most recent Immigration legislation that contains ‘unpacked’ language that potentially violate ‘Due Process’ and other rights for expediency:
“If a suspicion that aliens are dangerous, constitutes the justification of that power exercised over them by Congress then a similar suspicion will justify the exercise of a similar power over natives (citizens); because there is nothing in the Constitution distinguishing between the power of a state to permit the residence of natives and aliens. It is, therefore, a right originally possessed, and never surrendered, by the respective states, and which is rendered dear and valuable to Virginia, because it is assailed through the bosom of the Constitution, and because her peculiar situation renders the easy admission of artisans and laborers an interest of vast importance. But this bill contains other features, still more alarming and dangerous. It dispenses with the trial by jury; it violates the judicial system; it confounds legislative, executive, and judicial powers; it punishes without trial; and it bestows upon the President despotic power over a numerous class of men. Are such measures consistent with our constitutional principles? And will an accumulation of power so extensive in the hands of the executive, over aliens, secure to natives (citizens) the blessings of republican liberty?”
This is a time that Edmund Burke would point to in his often quoted, “All it takes for evil to prevail is for good men to do nothing.” If you want to get involved, going to Washington is not necessary and in most cases nonproductive. Rather, find your local political party affiliation meeting or look for a social connection on FaceBook, Meetup, etc where you can join forces on issues that should concern you. The ‘Tenth Amendment Center’ has an excellent tracking page for different issues and great articles, please visit it and get informed on how you can help in your state. Many states are in different phases of drafting legislation to thwart federal overreach, so get up off the couch or from your well warmed chair at Starbucks and get involved. It’s time to stand up for your family, your community and your state to keep government powers diffused, competitive and effective in protecting (not granting) the rights of each individual.
The market itself, unencumbered by federal intervention and minimally by state and local government, in its free and voluntary social and economic associations and transactions that marginalizes the ‘bad actors’, is the best system we have to safeguard the liberty of each and every one of us, and is at the heart of what the founding era Patriots believed and created.
Christopher M. Mahon, Editor
On the heels of the Sandy Hook shooting, New York State becomes the first to issue new gun legislation. “The Secure Ammunition and Firearms Enforcement Act, or SAFE Act, gives New York the toughest gun laws in the nation and touches on the mental health issues that both pro-gun and anti-gun activists say should be part of any new legislation.“
Many pro and anti-gun control advocates saw New York’s decision as a model for the President and Federal legislation, which he just signed moments ago as Executive Orders, which include: Mental Health requirements, Universal Background Checks, restore ban on military style (restrict manufacturing) and 10 round limit on magazines, tougher laws on sale of guns (possibly enforced by BATF) and federal funding to ‘put more cops back on streets’. But here’s where it gets both historically interesting and potentially dangerous for individual liberties and the unintended consequences that always follow in the wake of federal intervention into markets.
The Second Amendment that has been quoted by both sides of the gun control issue is unfortunately sorely misunderstood. Part of the Bill of Rights, the second amendment like the other amendments address specific rights based on natural (Divine) law that restricts federal power and emphasizes the delegated and non-delegated powers between the federal government and the states. The Bill was in part due to Virginia and other states that needed better clarification that protected state sovereignty and also two colonies that hadn’t ratified the Constitution yet, North Carolina and Rhode Island weren’t convinced that state sovereignty was protected by the document well enough. The Bill was proposed in Congress September 25, 1789 and North Carolina later that year ratified the Constitution and Rhode Island (the last to ratify) in June 1790. Regarding the Bill of Rights, most ratified the Bill through 1791 with, Massachusetts, Georgia and Connecticut ratifying in 1939 as part of the Bill of Rights sesquicentennial celebrations.
Does the 2nd Amendment (Bill of Rights) have power over all government or specifically written to restrict federal power?
The founding era framers and ratifiers feared that what they were creating in a document to protect individual liberty and to limit the power of the state would later be destroyed through ‘unpacking’ its language and interpretation. Words like ‘Welfare’ which defined the proportionality of the ‘Benefit Principle’ and restricted federal power and not the egalitarian intentions to ‘create equality’; or ‘Commerce’ which had a narrow intent in refereeing state interrelationships and not the broad interventionist meaning of today, which would undermine a federative republic and dissolve into a centralized system of Monarchy/Democracy, from which they fled from earlier.
In creating the Bill of Rights, left on the writers’ floor was proposed language from James Madison, “No state shall violate the equal rights of conscience, or the freedom of the press, or the trial by jury in criminal cases.” In some ways this language (while not all encompassing) was uncharacteristic of Madison who in Federalist Papers #39, very adeptly laid out the balance of power (sovereignty) between federal and national governments inferred in the Constitution. The avoidance in the final Bill drafted of the language was purposeful as they understood both the importance of a federal government that oversaw conflicts between the states and the involvement of the states in foreign relations, but they also saw the value of a decentralized system (federation) of government in the states and municipalities that had their own charters/constitutions, closer to the people in handling social and economic issues that go hand in hand. David Brooks of the NYTimes recently on a Sunday talk show commenting on gun control said that the needs of a small rural town in Wyoming are different than the needs in New York City. In NYC a police station is literally around the corner, while in rural Wyoming they may arrive in an hour.
It was understood early on that the Bill of Rights, like the Constitution, specifically addressed federal power and not the States. Even up until 1833 in Barron v. Baltimore, the Supreme Court specifically ruled that the Bill of Rights provided “security against the apprehended encroachments of the general government—not against those of local governments.” But unfortunately that all changed with a Civil War, an Amendment and new courts. In 1925 in Gitlow v. New York, the Supreme Court ruled that the 14th Amendment allowed that the Bill of Rights applied to the states as well. What the founding era generation feared was starting to unfold, as America headed toward a centralized Democracy, monolithic, fragile and impervious to competition or change.
A Constitutional Republic that was created to protect the liberties of the individual and the market for free and voluntary association and exchange which leads to social cooperation is being replaced by a Platonic society of visionaries and experts in a centralized government that plans for social cooperation through limiting the freedoms of the individual and focusing on ‘collectives’ and managing markets toward outcomes instead. That’s why an issue like gun control makes sense to the latter: ‘limit the freedom of the individual in order to create a better outcome of ‘less gun violence’ and a ‘better society’. What they don’t account for is the unintended consequences that result instead. Rather, the founding era if they could speak to us from their graves would say, ‘Government closer to the people works better’ and that gun control legislation at lower levels of government (in a decentralized system) even when they fail can be profitable as failure is cast aside while success can be adopted by others. Also, there’s different needs and wants in Texas versus New York.
Finally, there is good news. As with other federal infringements like the Affordable Care Act and the changes in the National Defense Authorization Act (2012) many states are taking positions of resisting the effects on state sovereignty. Through pragmatic state actions that can be interpreted as ‘Nullification’, ‘Interposition’ or there’s even been discussion of ‘Article V’ Convention of the States as in the Founding Era period as states rushed back then to protect the Constitution and it’s integrity that they created. If gun rights are to be infringed upon, the states (their constitutions permitting) can experiment with that and we’ll all benefit indirectly, but a federal government which uses the ‘if we can save one life’ straw dog argument to promote a collective equality or freedom is way, way, way out of bounds and should be challenged by the states.
Christopher M. Mahon, Editor
While I’m not a professional fly fisherman, I have slept at a Holiday Inn Express. I’m obviously joking and appreciate Holiday Inn’s commercials. But I was on a trip last year with a couple of fly fishermen and I’ve been in a social gathering where the sport has been discussed.
What has stood out to me is the hypnotic stare and elevated excitement as the stories unfold of catching fish and the different techniques. The interesting thing is to hear about the fly lures they put at the end of their fishing rods depending upon the type of fish they are after. Some look like literal flies, while others like worms or mimic the environment where they hang out. You almost can’t see the hook hiding behind the design. Also they’ll tell you where to wade – ‘over by that rock’ or in ‘deeper current’ in determining ‘best location’ for different fish.
Politics is very much similar to this. The hypnotic stare and elevated conversations that can happen around a holiday table, bar or even a senior citizen centers as you and I give our opinions and expertise on what Washington needs to do and what the important issues are; which of course generally run along side our particular proclivities: Pro Life/Pro Choice, Education, Social Security, Entitlements, Social Issues, Defense, etc.
Both the national Republican and Democrat parties like professional fly fishermen also choose specific fly lures (issues) and look to wade in specific areas of our nation in order to find you and I and ‘hook’ us, drag us into their boat or box to be filet, gutted and cooked later on. OK enough word pictures, I’m hoping you’re following this.
Except for Defense and squabbles that arise between the states and the states and foreign entities in which the Federal Government takes on the role of agent, all the issues above were intended to be functions of the states/colonies and even more importantly the function of a free market. A central system becomes monolithic, fragile and resistant to ideas and change; and when (not if) failure results it is catastrophic. Decentralized systems (the states retaining most powers) on the other hand, allows for competitive models to social and economic problems, failure is actually beneficial as unproductive resources are reallocated and success is imitated. Also, democracy can exist in the lower levels of government as the potential for homogeneity and similar interests are more likely ‘closer to the ground’ than at ’40,000 ft in Washington’.
When you and I drool like a fish and leap for nationalizing social issues of banning drugs, homosexuality or economic issues of ‘tax the rich’, wealth redistribution, universal healthcare or promises of better government Social Security and Medicare we really are leaping for a disguised hook of central government control of our lives that will limit individual freedom and just like the mirage of the hook will never deliver the promises made. It’s the free market of voluntary association and exchange that best accomplishes the goals (proclivities) you seek. Even in the controversial areas of Drugs, Marriage and even Abortion (which I believe is murder at some point) should be decided at the state, local and personal levels as was the intent of the Constitution. The Constitution delegated very few powers to the federal government but the feds have usurped more power through our weakness in seeing our beliefs ‘nationalized’.
In the movie ‘Finding Nemo’ the warning was to watch out for the nets that the commercial fishermen lowered from their boats. But for some it was irresistible as they swam into captivity. You and I MUST resist the ‘captivity’ of more central power even if the mirage seems so real.
I think my new slogan for 2013 is, ‘Don’t Get Hooked!’, and if you are currently dangling from a GOP or Democrat party promise of Equality, Justice, World Peace or whatever your proclivity, I hope that you can set yourself free. This starts by understanding the ratifiers intent in the US Constitution and why a ‘runaway’ federal government is dangerous to Liberty.
Christopher M. Mahon
As America returns to work today, nursing hangovers, fatigue and wincing at FaceBook pictures, so Washington and the media return to figure out what exactly happened in the wee hours of the night of the ‘Fiscal Cliff’.
If the Chinese Zodiac proclaimed 2012 the ‘Year of the Dragon’, politically it was the ‘Year of the Donkey’ as Progressives and the Democrat Party celebrates a pretty good year: Affordable Care Act upheld by SCOTUS, a vanquished GOP Presidential candidate, winning most national congressional challenges and a potential budget deal (sequestration aside) that raises taxes on 77% of Americans and virtually no spending cuts.
As we entered into 2012 and considered the consumer confidence level, unemployment, debt and a sluggish economy it seemed more likely the ‘Year of the Elephant’ but, that was a year that wasn’t. Just as Tony Romo or a Mark Sanchez were able to clutch defeat from the hands of victory, so at the beginning of 2013 after approving what one analyst called a ‘Hobson’s Choice’ in the budget bill in the midnight hours closing out the year, GOP politicians run for cover, and the Republican Party ponders not only it’s future but also it’s purpose.
Contrary to Jay Leno’s skit ‘Jaywalking’ where Leno asks people questions about current news and other topics in public areas around Los Angeles and get answers like: ‘Abraham Lincoln was the first President’ or are stumped when asked, ‘What color is the White House?’; the ‘Man on the Street’ is a lot smarter and intuitive regarding what’s pertinent to his/her world and what is on their life’s ‘windshield. While they find most of Washington irrelevant, they will make the necessary adjustments to react to a ‘Gamed system’. Welfare recipients will stay on Welfare regardless of any public condemnation because the math tells them that the effort expended through employment has no net benefit than receiving cash and benefits through government subsidies. But it is not only the individual who is intuitively smarter than Washington, it is the small employer groups too. As they watch big business, industry groups and unions cut deals in Washington through their invitations to K Street, the smaller business owner/investor seeks out shelter and creative accounting to avoid paying growing levels of tax and regulations. Just today I witnessed a conversation on a social network of avoiding the Affordable Care Requirements and increases in payroll taxes by creating ‘Independent Contractor’ (1099) relationships with their current employees. Even under reporting revenues is becoming increasingly morally acceptable.
In an article in the NYTimes by columnist Maureen Dowd, The Man Who Said ‘Nay’ that references Senator Michael Bennet’s (D-CO) tough decision to part with his party’s support of the last minute budget deal in the Senate. Bennet says, “The burden of proof has to shift from the people who want to change the system to the people who want to keep it the same,” he said. “I think if we can get people focused to do what we need to do to keep our kids from being stuck with this debt that they didn’t accrue, you might be surprised at how far we can move this conversation.
“Washington politics no longer follows the example of our parents and our grandparents who saw as their first job creating more opportunity, not less, for the people who came after. My mother’s parents were refugees from Warsaw who came here after World War II because they could rebuild their shattered lives. But the political debate now is a zero-sum game that creates more problems than solutions.”
While we can understand Senator Bennet’s frustration in Washington as power and the game goes back and forth from one side of the table to the other with little accomplished, as the GOP wins in certain years (1968, 1980, 2000) while the Democrats win in other years (1992, 2008, 2012). The frustration of the ‘Jaywalker’, small business owner, ‘Man on the Street’ is that power and choice remains in Washington and that ever increasing Federal power and potential to intervene into his/her life further is readily apparent with no evidence of abatement.
Washington power elites scoff at individuals and small businesses as they tin foil and duct tape their lives around the latest Federal Laws that threaten to encroach their personal liberties, threatening fines and incarceration; meanwhile there’s a growing resentment around the country as more and more are figuring out that the ‘Utopian Promises’ of both parties aren’t being delivered, only excuses and demands for more money and more control. The Right’s promise of a ‘Moral America’ and a better ‘World Order’ through laws like Defense of Marriage Act, stronger Drug enforcement and foreign Military intervention has wrung at best hollow while the unintendeds are readily apparent. The same is true on the Left as Progressivism of the late nineteenth century through private initiatives like: the Settlement Houses, Mutual Aid and other private charities went a long way to solving social problems as workable solutions were funded and others either adapted or failed. However, this drastically changed as Progressivism became entrenched and made it’s home in the political process; the idea was, what works on a local level in Chicago, should work on an even grander scale through Washington. Of course the disappointment and failure of this theory continues to come home to roost as Progressive goals of Education, Poverty and Equality continue to be missed with the excuse: ‘More money and control needed’.
The good news going into 2013 is that just as people outside of Washington go about their business and figure ways to ‘creatively’ cope and adjust to overreaching policies in Washington, so the States are becoming more proactive in the process. Controversial concepts like: Nullification, Interposition and Article V Conventions are being bantered about more and more. While even more encouraging is that many states are actually exercising those powers, as Michigan’s state house approved 151-0 to not comply with NDAA 2012 that allows for the Federal government to commandeer state resources and many states refuse to create an Insurance Exchange as required by the Affordable Care Act and draw up language in their state’s charter/constitution to prevent further federal intervention.
A year from now how will we close out 2013? Will it be the ‘Year of the Elephant (GOP) or the Donkey (Democrats)? Or could this be the ‘Year of the Eagle (Individual Liberty) through state initiatives and individual’s who refuse to comply with federal mandates, taxes and regulations?
Wishing you a great year!
Christopher M. Mahon, Editor
The recent shootings in CT this past week has brought to the forefront the call for new Federal Gun Control legislation to ‘Criminalize’ certain types of gun ownership. Will the cost of removing further personal liberties of the Individual and the rise of centralized federal power be effective in diminishing firearm deaths? Has it been effective in the ‘Drug War’ or Alcohol Prohibition of the Past? As I write this article this morning, 10 were shot in Chicago, a city with some of the toughest anti-gun laws, but a city that remains one of the most violent in gun injuries and deaths.
In a Cato Institute Study, Alcohol Prohibition was a Failure, of 1920s Prohibition, they found the federal law besides being an infringement on Individual liberty was quite ineffective in what it set out to do: Reduce Alcohol related deaths and the social ills that are associated with the freedom to imbibe alcohol and that the unintended consequences were horrifically worse. Organized crime, prostitution and other social maladies prospered under the well meaning legislation. The Temperance Movement supported by churches, mutual aid societies and government proved to be a disaster and was later rescinded in 1933.
Arguably the Drug War a much larger war than Alcohol Prohibition is at least if not more unsuccessful as Billions of dollars and half the prison population full of ‘drug offenders’ lay society’s resources wasted and the ‘unintendeds’ of a border war, hybrid drugs that kill and the increase in ancillary social maladies are the byproduct. This begs the question, “What would society look like with harsh Federal Gun legislation that ‘Criminalizes’ gun ownership?”
There are two assumptions that many people make about government and social problems in arriving at a ‘Remedy’. The first is that in taking a position against using Federal power (either through a strict Constitutional interpretation or pragmatic position that lower levels of government like the States can do it more effective) means that you are sympathetic to what is perceived to be a social ill or cause like in the case of marriage, drugs and lifestyle choices. The other assumption is that laws and public policies are built around that the individual will obey the laws and there won’t be unintended consequences that result from government intervention.
Both of these assumptions are wrong and history has shown the unintended consequences are terrible. When the ‘Free Market’ is violated by government intervention, the values in that marketplace will be distorted as in the case of Alcohol Prohibition which due to lack of supply (the demand while reduced somewhat due to legislation was still high enough to create a market) sent prices soaring and both an underground and ‘illegal’ supply resulted and a para-industry was born – Bootlegging. The same is true today for drugs, again the assumption is law will eliminate demand and solve the social problems but the unintended is that behavior adapts to circumvent the law as happens with federal regulations over business or even tax legislation and the cost to comply or not.
Unfortunately, if harsh federal gun criminalization is the answer to this past week’s horror, the result will not only be the steady stream of Drugs and Prostitution over our borders but firearms as well, and just as we’ve seen the awful hybrids of alcohol (moonshine) and today’s dangerous drugs (Meth, Ecstasy) that result from prohibition as users want the ‘biggest bang for the buck’, can you imagine the potency of firearms that will be available in your neighborhoods and schools in the near future?
The Second Amendment was part of the Bill of Rights, 12 (10 ratified) Amendments over federal powers to protect the natural rights of individual liberty and property and to answer the concerns of the holdout colonies/states yet to ratify the Constitution. It is very important to understand that the Second Amendment didn’t apply to state powers, those powers are delegated through the states’ Constitutions. So each state or municipality if their constitution permits can pass legislation whether it will help or not.
While there will always will be social maladies among us, the best way to handle them are through the ‘friction’ of the marketplace and when deemed necessary by local government where there is the potential for greater homogeneity, cooperation and the potential to maintain greater individual liberty.
Let’s be ready for what Rahm Emmanuel says, “Don’t let a good crisis go to waste” and for federal government to infringe on personal freedoms (for a greater good), instead let clearer heads and rational thinking rule the day.
Christopher M. Mahon, Editor
The shooting in Newtown, CA December 14th 2012 was heart breaking as families and a nation have been grieving.
Unfortunately, while many focus on the incident in consoling those who’ve lost so much and examining the security and whether procedures were followed correctly, others are using the ‘crisis’ as opportunity to push a polemic agenda of more (or less) government involvement.
As our country’s founders understood that the ‘natural process of Government was to grow’, this is particularly cogent when a ‘crisis’ occurs. But how do we as Individuals and citizens of municipalities, states and a Federal Government sleep at night knowing that we could be at the mercy of the next crisis which through well meaning public policies could further limit our freedoms for a ‘Common Good’?
While many understand that the Constitution was designed with two systems of government in mind, Federal and State powers, there is disagreement on what powers each possess. Does Federal trump State and if there is belief that the Federal or a State has ‘overstepped’ and abused it’s power as in the recent conflicts with ‘Obamacare’ or in Arizona’s battle with SB1070 on immigration, who or where is the governing body to make an impartial decision on which party is correct?
Thomas Woods writes in his book ‘Nullification: How To Resist Federal Tyranny in The 21st Century’, “When the Constitution was ratified, the people were assured that it established a government of limited powers (primarily related to foreign policy and the regulation of interstate commerce), that the states retained all powers not delegated to the new government, and that the federal government could exercise no additional powers without their consent, given in the form of constitutional amendments. This is not a peculiarly conservative or libertarian reading of the historical record. This is the historical record.”
Today, we see many States resisting what they perceive as Federal overreach in prescribing policies for social and economic ills through Washington. Almost thirty states have either said no to creating Insurance Exchanges or have taken a wait and see approach regarding ‘Patient Protection and Affordable Care Act (2010)’ (Obamacare) and just this week Michigan’s House voted unanimously to defend itself against NDAA 2012 which it deems unconstitutional regarding the commandeering of State assets. Add to that the Sheriff Initiative Act and other individual States acting through ‘assumed’ Nullification powers have decided on their own not to enforce certain Federal laws.
Washington and many in the media challenge the constitutional legitimacy of Nullification and it’s even more evil sister ‘Secession’. For the last eighty years the universities have taught that these issues were decided through Civil War and subsequent court precedent. However, Robert Natelson in his 2010 book, ‘The Original Constitution’ approaches the split powers of the Federal and State governments slightly different as he draws upon what the ‘Founders-era’ intents were and their understanding of law, reason and the dialogue of the state conventions that the ‘Ratifiers’ understood when signing the Constitution.
Natelson, brings out an important question that would help to define better the relationship of the States and Federal governments and the proper recourse when Federal power abuses the States as many have come to believe is happening today. While ‘Nullification’ is the buzz on twitter and other social networks, Natelson takes us through the Founders-era understanding of the Constitution and how the states defended their sovereign powers through ‘Article V Conventions’ which were different than a ‘Constitution Convention’; Article V allows for specific issues and text to be addressed while not jeopardizing the whole document. He points out, “To be sure, the question of whether there was an “American people as a whole”—or only the peoples of separate states—has been the subject of much debate. Some contend that the Constitution created merely a compact (contract) among the thirteen states—or, more precisely, a compact among thirteen separate political societies. According to this “compact theory,” each of those societies gave up certain aspects of sovereignty to the federal government, retaining the rest. Advocates of this theory point out that the states ratified through individual conventions. Some have employed the compact theory to argue that if the federal government breaks the terms of the contract by exceeding its powers, the states have the right to void (“nullify”) the offending federal actions or even secede from the union. Others argue that the Constitution was less an interstate compact than a popular grant—that is, a grant from the American people of certain powers to the new central government. Powers not given to the central government and already lodged in the respective state governments remained there. What was left was retained by the people. Advocates of this theory contend that ratification by state conventions was merely a concession to practicality, not to imply that states were the parties (or at least not the only parties) to the Constitution.”
As dark clouds of economic and social crisis’ gather, the threat of the abuse of Federal power looms but the silver lining in those clouds is that many States are becoming proactive in blocking what they perceive as harmful and unconstitutional Federal legislation through Nullification and Interposition which has historical precedent, but will the real war engage when we define the relationships of the States and Federal government as Mr. Natelson has suggested, through ‘Compact Theory or Direct Grant’?
Christopher M. Mahon, Editor
For those of us old enough to remember ‘Supply-side’ Economics during the Reagan years can appreciate the nostalgia as it is being bandied about in the media as either an economic pariah or last hope in solving the ‘Fiscal Cliff’. In some ways as most other public policies for either party, this is the other side of the tennis match for Republicans.
The two economic philosophies at play in the budget/tax/spending negotiations is ‘Demand-Side’ economics or Keynesianism (John Maynard Keynes) that the Democrats believe if you stimulate demand by putting money in the consumers’ hands you can spend your way out of a recession. The other philosophy as mentioned earlier is ‘Supply-Side’ economics that believes if you instead put money through tax breaks, credits, subsidies in the producers hands that they will produce more product and presumably less expensive which will in turn cause the consumer to show up in the marketplace.
Both of these philosophies and economic principles are flawed and here are some reasons why:
First, the presumption that belies these beliefs is that government can manage the complexities of the market and has the knowledge of both how much and what the market needs and what the demands and wants are from the consumer.
Second, neither system accounts for malinvestment and human behavior responses, that results from market intervention and neither allows for the correction that the market provides which leads to a healthier economy.
Third, both systems and beliefs are latched onto by the parties precisely because they support the need for larger government that oversees all market activity, rather than the federal government playing a more passive and negative position that ‘stands down’ until the freedoms of the individual and the markets are violated. The private sector through competition, success and yes – failure, does a much better job in regulating economic activities and where necessary states and local government could get involved with the Fed as a far away ‘watch dog’ mostly interceding where there’s disputes between the states. The recessions and depressions of the past where there were no centralized banking or financial systems saw failure but they were decentralized, diffused for the most part and allowed for the market to clear resources more efficiently.
Finally, the `Fiscal Cliff’ and the choice in solutions offer an interesting dialogue regarding ‘Tax Cuts, Credits and Deductions’. As was mentioned earlier, Supply-Side uses incentives through tax cuts but also credits and deductions to pass money through to Producers and Higher Income Earners with the philosophy that they would do better with it than the consumer. So a $2,000 car purchase credit would make consumers show up at the local dealerships or a mortgage deduction on Schedule A would make consumers purchase homes. This month around the nation, clients are showing up in Accountants’ offices seeing what new equipment needs to be purchased in order to take advantage of ‘Section 179’ deduction, which allows for certain asset purchases to accelerate depreciation as a ‘onetime expense’ instead of over the life of the asset.
The problem with Section 179 and other deductions is that it creates malinvestments, as market dynamics are temporarily thwarted through government planning and intervention. Just like you and I show up at Costco and buy tins of stuff we don’t need or over purchase, when this is done collectively it leads to malinvestments. Businesses misread the market and see demand rise so they build bigger facilities (tying into long term debt) and start to hire. This can be seen through the housing market crisis as consumers and investors purchased homes, builders built, lender lent, as prices skyrocketed and lost their fortunes as the market (which it always does) brought correction. Both the builders and purchasers suffered greatly as they signed onto long term debt agreements while both prices and demand were artificially inflated. Unfortunately the government which created the mess rather than allowing for the market to clear, thinks it has another solution.
Of course we haven’t touched on spending which is a function of the size of government and should be constitutionally aligned and restrained but that’s for another article. Tax Policy in general should be based on a low (flat) rate, with no deductions or incentives which distorts the markets as we’ve seen. If the GOP could understand this and present lower marginal rates for individuals and corporations but the elimination or phase out of deductions this would go a long way to signaling to the marketplace that a capricious runaway government has been at least for now restrained. This would free up capital on the sidelines (which there’s a lot of) to consider risk and long term investments once again.
Tell us what you think.
Christopher M. Mahon, Editor
In Obama’s Soak-the-’Rich’ article in Cato Institute, the writer Daniel J. Mitchell says,
“Tax Hikes are Worse than the Fiscal Cliff
America actually will fall off two fiscal cliffs in January, but only one of them is bad. The good fiscal cliff is the so-called sequester, which is the inside-the-beltway term for automatic spending cuts. These aren’t really spending cuts, just reductions in the growth of spending. If the sequester takes place, total federal spending will climb by $2 trillion over the next 10 years instead of $2.1 trillion. But anything that restrains the growing burden of government spending is a good idea, so a small step is better than nothing.
The bad fiscal cliff is the automatic tax hike, which exists because the 2001 and 2003 tax cuts are scheduled to expire at the end of the year. This means higher tax rates for all taxpayers, as well as increased double taxation of dividends and capital gains.”
What many economists and politicians don’t recognize is that there is a difference between money saved or spent in the private sector versus the public sector and the ‘unintended consequences’ of behavioral changes by the individual and the marketplace as a result of public policies that increase taxes, create more regulations and which usually means tax avoidance and spending decisions that are short term and counterproductive.
Unfortunately, as government does with most ‘hard political decisions’, politicians in Washington after much saber rattling will compromise on the important decisions of redefining the role of the Federal government and making some significant spending cuts and policy changes in Defense, Social Security, Medicare and other entitlement programs that for the most part should be remanded back to the states. Instead there will be a mirage of spending decreases from the baseline budget as mentioned earlier and there will be a phase out of tax deductions at an income level of $250,000 or so, which like the AMT was never bracketed or indexed and eventually inflated its way into the ‘Middle Class’ where most of the money is. As a result the market response will be to hide more income and investment strategies that moves more capital into the ‘shadow economy’ and overseas.
This past week in a ‘Farewell to Congress’ retiring Rep. Ron Paul took some time to reflect on his 40 year contribution to raising a warning of abusive federal power, “Dependence on our government is the worst it has been in US history..Why does the changing of parties and politicians not change policies, could it be that both parties are essentially the same?..Real Patriotism is challenging the government (and your party) when it’s wrong.”
While we appreciate past generations like those who grew up during the Great Depression and fought in WW2 and Tom Brokaw nicknamed the ‘Greatest Generation’. With deference to that generation, I believe the Greatest Generation is ahead of us, growing up before our eyes, rejecting today’s Historicism being taught of our past and embracing instead the original underpinnings of Individual Liberty that were forged in the US Constitution and which sailed a great Republic.
Hip Hip Hurrah for Elections and Representation! The Status quo won again and as Rep. Ron Paul slips out of public office, will there be a GOP or Democrat party that realigns itself to the Constitution and will there be new voices crying in the wilderness, “This is the way to Liberty, Walk Ye in it!” or are we inevitably headed down the slippery slope of more centralized government?
Christopher M. Mahon, Editor
While the GOP licks it wounds and some flee what they perceive as a ‘sinking ship’, the son of the ‘Father of NeoConservatism’ (Irving Kristol), Bill Kristol says on FoxNews Sunday November 11, 2012:
“The leadership in the Republican Party and the leadership in the conservative movement has to pull back, let people float new ideas…Let’s have a serious debate. Don’t scream and yell when one person says, ‘You know what? It won’t kill the country if we raise taxes a little bit on millionaires.’ It really won’t, I don’t think…I don’t really understand why Republicans don’t take Obama’s offer to freeze taxes for everyone below $250,000 — make it $500,000, make it a million…Really? The Republican Party is going to fall on its sword to defend a bunch of millionaires, half of whom voted Democratic and half of them live in Hollywood?”
While holding the line on taxes by the GOP might be a Pyrrhic victory at best, Kristol’s and other Conservative’s budging on tax policy (increasing) but giving no leeway on social and foreign policy issues belies a much larger problem. Punting on tax policy keeps the ball on the field of big government (federal), while giving up social policies to the states and shrinking US foreign policy engagements and footprint loses the ball from Washington and federal central planning as the canvass.
The history of the GOP is that of having it’s origins in the Progressive movement and it’s nature is to believe in ‘big government’. So while they Mea culpa on increasing taxes which is big government, it still keeps the federal government ball in play; while the GOP leadership resist inevitable changes in social and foreign policies, as states ratify marijuana and marriage laws and the public and US monetary conditions scream for changes in foreign policy. More taxes stays within the auspices of federal power, while decreases in military engagements and on social issues decrease federal power.
The Conservative and Progressive movements today are twin sons of different mothers. Birthed in the late nineteenth century postbellum and with different ‘step dads’ of both parties (in and out of office) siring along the way. The real question and the true sign of GOP capitulation is whether RNC Washington leadership is willing to discuss the purpose and limits of federal power going forward and welcoming Constitutionalists, Libertarians and Classical Conservatives in the vein of Edmund Burke to the table, who believe strongly in the individual and the free market to regulate not only economic values but social values as well.
In Federalist Papers, 10, 39 and 51 Madison eloquently expressed the limited powers of the federal government and the sovereignty of the states. Madison also gave instruction that while factions (special interests) could be dangerous to Individual Liberties, that in a competitive market both private and public (between the states) it allowed for the best ideas and solutions to step forward, failures to be isolated with it’s resources best reallocated and for ‘bad actors’ to be marginalized.
The question today might be asked by John Kennedy’s favorite poet Robert Frost in the 1920 classic ‘The Road Not Taken’,
“Two roads diverged in a wood, and I— I took the one less traveled by, And that has made all the difference.”
The road of ‘Limited, decentralized and constitutional government’ which protected Liberty rather than creating Utopian outcomes was more traveled earlier in US history but the path is today overgrown and distrusted by most in power and in the Universities; can party leadership turn with courage and determination down this path once again? Is there a post-Tea Party Movement waiting in the wings instead?
Please, tell us what you think.
Christopher M. Mahon, Editor
Even in ‘red states’ like Arizona and Florida, results of Democrat wins are still trickling in. As of this writing it looks like Alan West has lost his reelection bid.
The knee jerk reaction of Hamiltonian Conservatives who bring in federal power for their own proclivities and ‘Damn the Constitution’, has to change.
No one likes a bully, whether it’s a Liberal or Conservative.
US Neoconservatism as a world dominant solution (proselytizing of American Excellence) tried over and over again (50+ yrs) is like the NY Yankees thinking they’re going to win the series with ARod, it’s a failed policy and the unintended consequences continue to mount; and Conservatism’s brand of morality has just as much unintended consequences as Progressive values when ‘Weaponized’ by federal power.
The genius of the Constitution was (and should be again) the limited role of the federal government to Article 1 Section 8 (20 planks) with limited interpretations of the ‘Supremacy and Commerce Clauses’, and most importantly leaving all other power to the states to fail or succeed, but not ‘fatally’ as would happen at the federal level. The great social issues of our day Abortion (murder), marriage (lifestyles), drugs, etc should be decided at the state and local levels which follows the wisdom of the Constitution that decentralization protects liberties better and you find greater chance of representative government closer to ground. Our financial systems should be deregulated and decentralized (as before) to protect against moral hazard, cronyism and centralized system failure. The USD should compete in a freer market that would determine true value and protect us against inflation and remove the printing press from Washington.
We are finding that women, Latinos, Independents, Libertarians and even ‘white’ men are walking away from the GOP in greater numbers, the answer is not what Karl Rove and Washington pundits are calling for, “reach out (cater) to these groups for greater constituencies” like the Democrats, because we can’t compete at that level and freedom and big government solutions are mutually exclusive.
The Tea Party and Liberty movements that started after the banking bailout of 2008 point us in the best direction, these were groups of volunteers (thousands), organically organized for the greatest good – Individual Liberty. The Democrats ‘ground game’ is what beat the GOP: there are more registered Democrats than Republicans and through union organizers, special interest that pounded the pavement, they got the vote out, because the workers had a stake in the election. Literally thousand upon thousands who perceived (and were told) their very livelihood and dependence was the State took to the streets and the polling booths. It was as Jefferson and Hamilton (who agreed on very little) would say (paraphrased), “When the voters recognize that the public treasury has become a public trough, they will send to Washington not persons who will promote self-reliance and foster an atmosphere of prosperity, but rather those who will give away the most cash and thereby create dependency.” You can’t compete with that by promising an end to Terrorism and a quasi-Just society through lifestyle prohibitions and abortion regulated at federal levels – butter beats guns, hands down.
We are at 1854 all over again, and as splinter groups like the ‘Free Soilers’ and most of the Whigs walked away from their party due to a prevailing issue of it’s time the Kansas Nebraska Act (Slavery/State Sovereignty), so the prevailing issue of our day which limits all citizens, ‘Individual Liberty’ (self determination and to be left alone) that an unyielding government wishes to suppress; will the outcome be a ‘revamped’ GOP party or will the party like the Whigs be remembered by school children in history books?
Tell us what you think?
Christopher M. Mahon, Editor
Recently over a discussion of the function of government with a good friend of many years we came to a crossroad as he expressed how he didn’t understand my ‘faith’ in Laissez-faire, a marketplace with little to no government regulation. While I think it is a legitimate concern as there are potential abuses in all relationships and transactions including the marketplace, my response back should have been, “While I understand your concerns with individuals taking advantage of one another, I don’t understand your ‘faith’ in government to ‘make it right’ and not to be exponentially more abusive as power is concentrated in the hands of a few and they have the force, law and money to do as they will.”
Whom should we fear more, the millionaire across town who can use his money and influence to deny me and a limited number of other people access or the government with unchecked power that can confiscate our wealth, send our children to war and deplete our livelihoods for a Utopian vision? Even the billionaires we read about have limited powers until they hook that power to government influence and coercion.
There are two assumptions made by both the ‘Left’ and the ‘Right’. The Left believes it has a natural ‘Altruistic’ compass while the Right believes it has a ‘Moral’ compass built in. So that both believe if they as a collective are heading the ship of ‘big government’ that even if for a greater good they need to steer into the cliffs of suppressing Individual Liberties they have the internal fortitude to not destroy the ‘Ship America’. Unfortunately this is either a lie or extremely arrogant and naive.
While my friend’s question ‘how do you have faith in Laissez-faire?’ is difficult to answer because historically societies have had government structure to varying degrees; the settling of the ‘Wild, Wild West’ and the ‘Free Banking Era’ are two good examples to consider in US history. We’ve been lied to by Hollywood and Historians regarding western expansion and the violence it entailed, a study ‘The Not So Wild, Wild West’ by Montana State University Economics Department shows the opposite to be true; the settlements of the western states were a safer place than almost all our major cities today as well as many suburbs. What was unique is that it mostly was settled through private contract law rather than government systems.
Even law enforcement was through private means as they hired Sheriffs and Deputies directly or through contracts like the Pinkerton Services who pursued many ‘outlaws’ like Jesse James. Cattlemen and Frontier Associations and Fraternities were formed out of common interests (voluntarily) to negotiate property rights and easement agreements.
Laissez-faire “is an economic environment in which transactions between private parties are free from tariffs, government subsidies, and enforced monopolies, with only enough government regulations sufficient to protect property rights against theft and aggression.”
Private banking with less government regulation and less centralization of power historically has also worked better. While there were banking crisis’ prior to today’s US centralized banking system, they were generally smaller and the market was quicker to dissolve failures, realign malinvestment and reallocate assets and labor more efficiently. The ‘Panic of 1819′ which was in part due to monetary expansion and debt from the War of 1812 and all other Panics that followed were due to violations of market principles and where economic conditions were less regulated by government the time period for adjustment and recovery was shorter as the market cleared bad investment while determining value. The ‘Free Banking Era’ of 1836-1864 is a bit of a misnomer as there was state regulations at the time but there was competition in the currency market and between banks regulated by the states. During economic growth some banks took greater risks going off species (gold, silver, etc) and offering more competitive portfolio returns and investors bought those risks. When the economy slowed and the market corrected many of the banks who took risk went under and the investors holding those risks took the losses as well. But with less government intervention, the losses, valuations and reallocation of assets was orderly and recovery was quicker. When you consider more recently the history of US banking and Currency laws and the degree of federal intervention since the Bank Panic of 1907 which led up to the Federal Reserve Act of 1913, the last century of centralized banking reveals economic and monetary crises of a monolithic system that lacks competition and is supported by ‘too big to fail’ versus a decentralized system of competitive banks and currencies that allowed for market failure and correction with the latter evidencing more stability. Even as recently as last week Federal Reserve Governor Jerome Powell described the new ‘Single Port of Entry’ provision and ‘Living Will’ that charter banks determine ahead of time to go through a bankruptcy-like procedure that basically enshrines the taxpayer as on the hook for the cost.
Here’s a ‘Jenga’ exercise we should play from time to time. If our Jenga pieces are government structure to maintain a society to protect freedom, how many pieces of today’s government can we dismantle without it falling apart? How many pieces of federal government have centralized power in Washington and created a monolithic system that is impervious to change and fragile to systemic failure? It’s amazing in the game how many pieces we can remove but I think most would be surprised how much of government we can remove that has only gotten in the way, distorted values and restrained the liberties of the Individual. The US Constitution is a good plumb line and starting point.
Christopher M. Mahon, Editor
The NYTimes Editorial today criticized the ‘lack of honesty’ in Paul Ryan’s RNC convention speech last night. “Mr. Ryan, who rose to prominence on the Republican barricades with a plan to turn Medicare into a voucher system, never uttered the word “voucher” to the convention. He said Medicare was there for his grandmother and mother, but neglected to say that he considers it too generous to be there in the same form for future grandmothers (while firmly opposing the higher taxes on the rich that could keep it strong). He never mentioned his plan to abandon Medicaid on the doorstep of the states, or that his budget wouldn’t come close to a balance for 28 years.”
The editorial goes on to say, “The reasons for that are clear: Details are a turn-off, at a boisterous convention or apparently in a full campaign. A New York Times poll last week showed that the Medicare plan advocated by Mr. Ryan and Mitt Romney was highly unpopular in the swing states of Florida, Ohio and Wisconsin. As soon as voters find out that the Republicans plan to offer retirees a fixed amount, they disapprove, clearly preferring the existing system.”
The NYTimes should remember the old adage, “for every finger you point there are 4 pointing back”. While it is true that Ryan didn’t mention ‘vouchers’ and specifics on how a transition to a better system would work (assuming that it is best for the federal government to manage Medicare, which is debatable and probably unconstitutional aligned to ‘original intent’), the article doesn’t point out the Ryan plan either, only to distort and hype what it perceives as ‘negatives’ in the eyes of the elderly.
The Ryan plan would like other plans being offered by GOP members create an ‘age line’ of 55, which would give seniors the choice to continue on their current plan or to go to a voucher type system to choose a plan and to participate in choosing their health care options. Below age 55 would go on the new plan, a similar plan that corporate America offers as well as Congress and the President participate in.
The rhetoric on both sides of the isle and both sides of the political ideology of Government vs Private solutions can’t avoid the economic realities of not only ‘Government Healthcare’, but ‘Government Retirement’ programs through public employee union pensions and Social Security’s as well who’s day of reckoning has arrived too.
Outcome based benefit programs create liabilities for employers (government) today for a future promised benefit tomorrow. The plan, whether pension or health care is actuarially ‘made whole’ each year and as the internal calculations in the plan change (mortality, morbidity, interest rate) the plan requires more or less contribution each year. Unfortunately, the discipline for the plan administrator (employer) to segregate and maintain the reserves to fund the promises has always been a problem and the long term costs of the plan make them prohibitive.
In the late 1980s corporate America started to address the funding and cost problems of their pension plans by moving to ‘Defined Contribution’ plans which work almost the reverse of ‘Defined Benefit’ (outcome based) plans. Instead of defining a benefit in an ‘unknown’ future and creating ‘unfunded liabilities’ they define a contribution based on current factors like a percentage of salary, and make the contribution today removing the potential for unfunded liabilities in a commitment to pay out benefits tomorrow and instead bring the employee into the decision making and risk bearing on his/her future.
At some level this will need to happen because ‘business as usual’ or even worse a burdensome redistribution through taxes on the productive members of society will produce a much worse outcome. The framers had it correct and as Madison described the US in Federalist Papers #39 as a ‘mix’ of a Federal and National system, the intent was to leave to the states the great social experiments like how we treat our elderly and sick and to very much limit federal powers (National) to the well defined enumerated powers of Article 1.8. The tearing down of federalist boundaries within the Constitution over the past 150 years has led to the most profound loss of Individual Liberty and government mischief, a price we can longer afford.
Christopher M Mahon, Editor
Cato Institute in legal battle with co-founder Koch brothers agree to change entity structure and elect new CEO. John Allison former CEO of BB&T is an admirer of Ayn Rand, Classical Conservatism and Libertarianism. While publications like Reason Magazine and Mises Institute have along with Cato done the yeoman’s work in bringing about the ideas of ‘limited government, constitutional alignment and libertarian values’ to the marketplace, it has been Cato which has had the greatest potential for volumes of studies and the development of public policy. Unfortunately, as of late the Koch brother’s and the GOP influence has modified this potential; with a new structure and leadership we can hope this will fortify a greater force for Liberty going forward.
“We are given a false alternative in our society: take advantage of other people or self-sacrifice. Taking unfair advantage of others is self-destructive because people won’t trust you. On the other hand, I ask students, do you have as much right to your own life as anyone else does? What (Ayn) Rand is defending is about giving value for value: life is about creating win-win relationships.”
For additional information please visit the Cato Institute and a recent Forbes article ‘Who Is John…Allison? A Randian, Libertarian Business Icon Takes Over the Cato Institute‘ of which the quote above is taken.
Christopher M. Mahon, Editor
In ‘Money, Method, and the Market Process’ Ludwig Von Mises wrote, “The socialists of Eastern Germany, the self-styled German Democratic Republic, spectacularly admitted the bankruptcy of the Marxian dreams when they built a wall to prevent their comrades from fleeing into the non-socialist part of Germany.” If the East German wall stood as a testament to the failure of German Socialism, then maybe Obamacare and the strict participation into other government managed services like Public Education, Social Security and Medicare stand as a testament to US Socialism failure of the FDR administration and subsequent policymakers who built upon it.
Of course today’s US Socialism is more subtle and genteel as it uses the weapons of regulation, fees and taxes instead of direct public ownership to coerce participation and to make alternative choices punitive.
To be fair, both parties do it. There are GOP socialists as well as Democratic ones, who believe in government support (subsidies) of particular industries (companies) and managing behavior that their policymakers and intelligentsia believe are appropriate for the Utopian common good.
The headline going into the fall election isn’t ‘Romney vs Obama’, that was the safe bet; the headline is the ‘Big Win’ by the national GOP, which marshaled corporate and social activist contributions to defeat those looking for change in party positions. DC GOP policies of a ‘Managed business environment’, ‘Federal power to manage social value goals’ and the continued ‘War on Terrorism’ was on the ‘primary voting block’ over the past year. Some wanting to realign the GOP party to Constitutional principles and others, Libertarian or even more to the Right than the current party positions, but going into the fall it looks like the national party has survived.
Unfortunately for Mises, he did not see the day when the German wall would be torn down, hopefully for us and our children we’ll see the day when the social experiments of a government managed society in education, health care, retirement and even as it dangerously careens into more intimate areas like what we eat and lifestyle choices, we’ll see inroads in the 21th Century that allow Individual Liberty and markets to choose.
Government as Washington warned was a `fearful master’and as Jefferson also suggested, that it’s `nature was to grow’; the US Constitution was designed to limit federal powers and restrain it’s natural encroachment into state sovereignty. Those voices have been silenced for now in the 2012 election, the question going forward is where and when will they surface again in the form of party representation. The Whigs died in the mid-nineteenth century giving rise to the Republican party, will another party rise to replace a current one or will as Nick Gillespie suggests in a coauthored book, ‘Declaration of Independents’ see the death of a `duopolistic’ party system.
Christopher M. Mahon, Editor
A line by Dorothy Gale from Wizard of Oz played by Judy Garland, an allegory written by Frank Baum in the late 19th century that parodies the eastern banks’ desire for a gold system vs the mid-west farmers’ desire to keep silver open as that was what they predominantly owned and traded with.
In the story Dorothy makes her way through following gold (follow the yellow brick road) into the government of OZ where they make all kinds of promises not realizing until later that she had the power to get back to Kansas all along because she was wearing silver (changed to red in 1939 movie) shoes which would get her there. The cowardly lion was William Jennings Bryan who made the case for silver but was no match to the eastern banking interests. The banks not only won on the gold issue as they consolidated their power but they would go on to win even bigger as the 1907 bank panic followed which lead to centralizing the bank system under the Federal Reserve in 1913 legislation.
This morning, the Wizard (Bernanke) once again told congress with a wink, wink, nudge, nudge that the banks could get another ‘helicopter drop’ of cash. Yes, you and I are today’s Dorothy, but instead of following the ‘Yellow Brick Road’ we’re following a different ‘Road to Serfdom’ (Hayek).
The question that we can ask ourselves allegorically is what do we like Dorothy already have that we’ve forgotten about, that will get us back to what had been working for us? The answer has been there all the time: Understanding the power that each state has to defend itself and its people against federal encroachment and the importance of decentralized government and currency. Tools like nullification and state’s party insistence that their candidates be held to the responsibility of saying to the federal government, “Thus far and no further” while at the same time resisting the temptation of federal aid that comes with strings attached. It will take readers of this article, getting involved in state and municipal politics to make the difference and educating themselves on the reason why the Constitution separates the powers of government between limited federal and greater state power. Please help yourself to the articles on this website and the Library tab at top that includes many free books, essays and articles regarding why Liberty should be the goal of government based on a ’Negative’ (nonintervention) posture rather than ‘Positive’ and why free and unmanaged markets do much better in determining value than managed markets.
As the powers in Washington scatter about to preserve their corrupt and crony power that dates back to the Lincoln administration, shouldn’t we start clicking our heels together that a rebalance of constitutional alignment would take place. Find your silver slippers and get going.
Christopher M. Mahon, Editor
In David Brooks’ NYTimes column this morning, When The Good Do Bad, he presents in his view of modern day philosophy-religion that man is born good but some are born evil, “According to this view, most people are naturally good, because nature is good. The monstrosities of the world are caused by the few people (like Hitler or Idi Amin) who are fundamentally warped and evil.”
Brooks illustrates this through the recent slaughter of 16 people (including children) in Iraq by Robert Bales, who those who’ve known him say they are astounded – “Friends and teachers describe him as caring, gregarious and self-confident”.
Brooks digs back into centuries old Christianity and Philosophical thought on Good vs. Evil, quoting John Calvin, GK Chesterton and CS Lewis who believed like the Bible says in Jeremiah 17.9, that the heart of man is deceitful (wicked) above all things and who can truly know it.
The modern worldview of Good vs. Evil is simplistic as Brooks says, “This worldview gives us an easy conscience, because we don’t have to contemplate the evil in ourselves. But when somebody who seems mostly good does something completely awful, we’re rendered mute or confused.” But, in that confusion the modern worldview grapples for answers on how to identify and protect against those external evils in others and isolate them from the good. He identifies the Hitlers and Idi Amin for example.
Brooks ends his article positing this, “According to this older worldview, Robert Bales, like all of us, is a mixture of virtue and depravity. His job is to struggle daily to strengthen the good and resist the evil, policing small transgressions to prevent larger ones. If he didn’t do that, and if he was swept up in a whirlwind, then even a formerly good man is capable of monstrous acts that shock the soul and sear the brain.”
I would take this a step further and propose this question framed within our Presidential election process as the backdrop. Do these two contrasting views of `Man is either Good or Bad’ versus `Man is a combination of Good and Bad’ play a factor in determining the type of Government System we should have?
If you believe that Man is born with different natures of Good and Bad, wouldn’t you try to find `The Best’ to run the country and forfeit the most power to them? On the other hand if Man is a mixture of Good and Bad, wouldn’t you like James Madison and the other framers of the US Constitution and architect of our Nation, build a government designed not for the best to rule, but to protect against the worst?
Our government was designed by men who believed that Man is a combination of potential Good and Evil, that he could do amazing exploits of courage and patriotism but had the potential for the worst depravity and self interest at the expense of his neighbor. They built a government with that in mind, that allowed for the greatest amount of freedom but punished bad acts and they divided the powers of government between federal offices and State Powers. This was also to prevent the same potentials in Man for the depravity of self interest at the expense of others and the power to lord over another from becoming systematic.
So two final questions:
- Do you think in modern worldview as David Brooks subscribes, Man is basically Good but there are some that are Bad? Or do you believe like those in our past that Man is a mixture and has the potential for great exploits or the worst depravity?
- Having decided upon one of those worldviews, do you think that should affect the type of government we should have?
Christopher M. Mahon, Editor
In a March 9th article in Reason Magazine, `Ron Paul Revolution: What Now? Brian Doherty sums up the frustration of Ron Paul supporters as their candidate hasn’t won a single primary or caucus state, and media channels like Politico have written him off. The math of Super Tuesday last week also shows that Congressman Paul has no chance of winning the nomination. So what is left of his candidacy? Who or how can the Constitution and Individual Liberty be brought to the forefront as Washington Insider interests jockey for power with large funding resources and powerful media connections?
Doherty mulls over a brokered convention in Tampa, “Given the general attitudes of the average GOP stalwart, though, it’s hard to imagine Ron Paul coming out of one a winner. Ronald Reagan in 1976 made quite the push to deny leader Gerald Ford the nomination when Ford lacked a clear majority going into the convention, and even Reagan, god-saint of modern Republicanism, failed. Former GOP super-strategist Roger Stone, who lived through those days, reminded me that Reagan actually represented the views and enthusiasms of the mass of GOP activists in his day in a way Ron Paul does not now. This makes it even less likely Paul will succeed with any last-minute Tampa coup.”
But all is not lost. Ron Paul and his campaign support bring a couple of surprises to a brokered convention. First, the media has discounted loyal delegate support for Ron Paul in states where delegates are not bound and can move their support, and in the training and volunteer effort that the Paul camp has made since 2008 in getting their people into key precinct positions in each state will help. While it may be a long, long shot when considering Reagan failed, still Paul’s influence will be felt at the convention.
Finally, when you again run through the numbers and where Ron Paul runs strong: Independents, Reagan Democrats and the Youth (twenty somethings); even without the holdout for a brokered convention, just as the King of Israel contended with Elijah so will the eventual GOP nominee need Paul support going into November. Unlike deals made with past failed candidacies, to get Ron Paul support and a successful national campaign there will need to be tangible evidence of foreign and domestic policy revisions that align with constitutional principles.
If Mitt Romney runs against President Obama with $1billion cut in spending in the first year, a new military footprint and a Defense rather than Military Intervention policy that respects national sovereignty around the globe – until they violate ours; and an audit of the Federal Reserve with a change in objective from Employment/Inflation to inflation only and creates a committee in his first year to look at role of Federal Reserve going forward, then we can consider the Paul campaign of 2012 very successful.
My friends, don’t give up the good fight! Evangelize those around you to the Constitution and Individual Liberty as vital to a healthy society and the well being of a nation. As Madison suggested in Federalist Papers #39, our success hinges on `Self-Government’.
NOTE: If you wish to be more involved, contact your county party office that you are registered with and find out how you can be involved. You could become a committee member and precinct representative. Each state is vital in the fight against federal power encroachment, the best weapon the states have against that encroachment sits rusty and unused – Nullification. Finally, many are standing up to Universal Health Care. Get involved.
Christopher M. Mahon, Editor
The Iowa Caucus is less than a week away and political rhetoric by all candidates is at a high level, a good part of that is directed at Ron Paul who currently is the leader as indicated from most polls. He not only pulls from Independent and Libertarian voters but also Conservatives who have become disenfranchised with almost 10 years of military conflict at the expense of a balanced budget and debt. The latest accusations portray Congressman Paul as not only out of the `mainstream’ in his ideas on federal powers (even though by all accounts they are constitutional) but also that a Ron Paul presidency would be dangerous for the US as Iran could go nuclear and Paul is an `Isolationist’.
In a November 2011 Cato Institute article Ted Galen Carpenter makes the opposite claim that Military Interventionists and NeoCons like Gingrich, Santorum and Bachmann do us much more harm than good. For interventionists to not realize the beneficiary of a war with Iraq was Iran was a failure….“For neoconservatves to argue that the withdrawal of the few thousand remaining U.S. troops from Iraq significantly worsens that aspect is either obtuse or disingenuous. If they didn’t want Iran t…o gain significant influence in the region, they should have thought of that danger in 2002 and early 2003, instead of lobbying feverishly for U.S. military intervention against Iraq. The United States has paid a terrible cost — some $850 billion and more than 4,400 dead American soldiers — to make Iran the most influential power in Iraq.”
In another article by Per Bylund, Bylund makes the case how the `Endowment Effect’ theory, (people place more value on things they own versus things they do not) illustrates the shortcomings of economic and military intervention in not understanding human action (Praxeology) and the unintended consequences. Or why Ron Paul’s theories on domestic and foreign policies while more aligned to constitutional principles are also more sound than policies of the other candidates.
Does US military policy of Intervention into the affairs of other nations (occupation, embargo, etc), prop up the dictators of the world like Hugo Chavez or Mahmoud Ahmadinejad who rally their people and crusade against US military might and US monetary policy? What part did Federal Reserve Quantitative Easing (1 and 2) play in the Middle East uprisings and other struggling nation’s financial affairs? What part did troops in Iraq, Afghanistan and Pakistan play? Tell us what you think?
Christopher M. Mahon, Editor
2011 saw a word or phrase that leaped into the media’s lexicon in coverage of politics and economics as governments, institutions and financial systems that have worked for the most part over the past several decades, now appear to be crumbling or at least listing. The `Unintendeds’ of decision making in centralized systems like Social Security, Medicare and Wall Street here in the US and the European financial system, Middle East governance and general global central planning has resulted in scenarios that most have not anticipated.
Unintended (Consequences) is a term that has been around at least since the writings of economist, Adam Smith (Wealth of Nations) and mentioned by economists and authors like: Jean-Baptiste Say, Frederic Bastiat, Ludwig Von Mises and Frederic Hayek who have all either used the term or the meaning of it while describing the potential disastrous outcome of using government central planning power in solving society’s maladies such as poverty, unemployment and immorality rather than allowing `Free Markets’ to determine price, value and allocations. The market itself is a `regulator’ and better one at that than governments or monopolistic markets that distort value and price and produce the unintended consequences like shortages (under price) and bubbles (overprice).
Rudolph (RJ) Rummel, University of Hawaii estimates in his 1994 controversial study `Death By Government‘ that 168 million people were killed as a result of Communist and Socialist governments since 1900 and giving the phenomena a name – Democide. Most due to outright violence inherent in the system but estimates are that a considerable amount suffered indirectly due to the unintended consequences of political justice and equality, poverty and neglect that is the outcome when government’s through central planning control economic and social functions.
Here in the US more government intervention in both choosing military options in the Middle East and in solving the US economic recession has been met by public resistance. The Tea Party and Occupy Wall Street movements have been a manifest outcome in some way to the resistance. In the EU as there has been planning and negotiating for more government intervention into their banking crisis and conflicts between state sovereignty and EU interests there has been growing resistance by the UK, Germany and other states/nations not to comply.
So while considering the battle that will rage going into next year between the Individual and a free society vs government intervention, what will be the Word (Phrase) for 2012? Totalitarianism or Laissez-faire? Tell us what you think?
Christopher M. Mahon, Editor
CONSIDERING RON PAUL AND THE RISKS-REWARDS OF US MILITARY INTERVENTION
“The armies separated; and, it is said, Pyrrhus replied to one that gave him joy of his victory that one more such victory would utterly undo him. For he had lost a great part of the forces he brought with him, and almost all his particular friends and principal commanders; there were no others there to make recruits, and he found the confederates in Italy backward. On the other hand, as from a fountain continually flowing out of the city, the Roman camp was quickly and plentifully filled up with fresh men, not at all abating in courage for the loss they sustained, but even from their very anger gaining new force and resolution to go on with the war.” Plutarch
Plutarch’s observation, which is where the phrase a `Pyrrhic Victory’ comes from suggests that while a win (War Victory) is good, if not managed properly could be the undoing or collapse of a nation. Even in the best (for lack of better word) or most moralistic war, while the citizenry keeps its freedom it’s the State, the pilot fish (Corporations through huge government contracts) and the financiers of their excursions that make substantial gains. This group is ready to wage war again: gain territory and advantages, build weapons at a premium and of course finance it, but the citizenry is exhausted, depleted and emotionally, spiritually and physically bankrupt from the last victory (or defeat).
Ron Paul has been dismissed as naive and with outcries of `Appeaser’ or `Coward’ when he suggests the dangers of another war (Iran) and to verify (Reagan) intelligence carefully and to consider the risks before moving ahead. Critics who favor military intervention will highlight the `dangers’ of a nuclear Iran meanwhile not consider the full scope of risk to Individual Liberty (from bills like NDAA 2012) or the financial impact to an already dire US and global economic condition. Interventionists also don’t consider the motives and reward of the State, their corporate relationships and the banks who survive from one stimulus bill or appropriations bill to the next and look forward to the next big government excursion. In Reason Magazine, ‘Ron Paul Challenges Mindless Militarism’, Jacob Sullum writes, “This week the U.S. officially ended its war in Iraq, nearly nine years after launching it based on the false claim that Saddam Hussein posed a threat to us because he had weapons of mass destruction. The war, which replaced a brutal dictator with a corrupt, wobbly elected government that may not be able to defend Iraq’s borders or maintain peace in a country driven by sectarian violence, cost the U.S. $800 billion and nearly 4,500 American lives. More than 100,000 civilians were killed during the invasion and its aftermath.
The regime installed by the U.S. in Afghanistan to replace Al Qaeda’s Taliban allies is even weaker and more corrupt than the one in Iraq. Ten years after the invasion, we still have 100,000 troops in Afghanistan, and so far the war has cost about $500 billion, 1,800 American lives, and thousands of civilian casualties.”
The irony in Plutarch’s statement and warning was that they were conquered by a conqueror that later would make the same mistake. Are we too myopic and blind to the dangers of `Empire Building’? Has war like the automobile industry or `Green Technology’ become a `preferred’ industry that the government funnels money into? Washington, Jefferson, Eisenhower, Kennedy and Reagan warned of the proliferation of militaristic power rather than defense; a strong constitutionally based Defense is right they would have argued, but today if you utter a word questioning the wisdom of an aggressive military footprint and preemptive attacks you are drown out by rhetoric and name calling.
While the zeal of the Neo-Conservative GOP base is to be the `leader’ in managing world affairs and using military intervention as a tool for peace while contemplating a war with Iran and putting aside the blaring consequences of these policies the other obvious reality is that with over $15.13 Trillion in debt (more than our GDP), the USD is leveraged more than 40:1 and we can’t afford the current military footprint let alone expanding it further. Isn’t it time to talk sensibly about a well balanced strategy of Defense that is constitutionally based and fits within our budget? Can we learn lessons from Rome and Great Britain that while they achieved Empires for a time, they expanded beyond their ability to manage their affairs effectively and Individual Liberties were sacrificed in the process?
Woodrow Wilson wasn’t wrong because he was an `Appeaser’, he was wrong because he was an early `Empire Builder’ and a globalist which oversteps constitutional authority of Federal power. There was no sovereign threat to the US at the time of WW1 except possibly to the banks as they were financing the war, and that’s a harbinger on `Too big to fail’ and Moral Hazard.
Sullum concludes, “For 35 years Ron Paul has been speaking truths that the foreign policy mavens of both parties prefer to ignore: that the Constitution gives Congress alone the power to declare war, that unjustified interventions breed resentment that undermines our security, that there is a difference between military spending and defense spending, that foreign aid rewards autocrats and their cronies, and that economic sanctions are an “an act of war” that hurts people in the name of punishing the governments that oppress them. If there really is no room for these arguments in the Republican Party, that is the party’s fault, not Paul’s.”
Today, as we take a `full assessment’ of external and internal threats to our sovereignty we need to weigh the real threats to State sovereignty from terrorism and invasion from abroad, against fragilities of our financial house and the cost to Individual Liberty while tipping our hats to individuals like Ron Paul who are courageous in that they don’t back down but speak out against tyranny and the political marginalization of alternative views.
The real terror today is that the US Constitution with its separation of powers between the states and federal government and protection against the concentration of power into the hands of a few has become unfamiliar and even peculiar to most of our population who perceive it as `dangerous’ and a threat to their way of life. When you consider Pyrrhus’ warning, the irony is thick.
Christopher M. Mahon, Editor
I was recently reading the history of National Review, a magazine started up in the late 1950s by William Buckley and how he and the magazine back then helped orchestrate a `fusion’ movement to pull – classical, neo, social and libertarian-leaning conservatives together to make a political move which helped to bring about the Reagan Revolution. While there’s disagreement on how successful the Reagan Revolution was, they were able to put aside the rhetoric and started to define boundaries and sensible goals at the time while keeping the Constitution in sight. In light of the heated discussion going on today, is a second fusion possible and do you think that it could help the GOP party in the campaign process?
As a `Libertarian-leaning’ Conservative I want a decentralized government system like laid out in the Constitution that was part of the genius of our founders who understood Montesquieu’s Separation of Powers theory which protects against concentration of monolithic power and isolates failure and allows for better governance (closer and tailored to the citizenry) and as Madison pointed out in the Federalist Papers it permits for the `Grand Experiments’ of the states. I also believe that our military intervention has failed but obviously we need a military footprint but the question is where and how big. Having said all that however, I realize that movement in those directions is not unreasonable but not being able to budge/compromise is. The question is can each group mentioned come away with a sense of `progress’ and success, while still falling short of their goals?
Granted it’s complicated as even within each group there’s disagreement, within the Libertarians for example, there are differences between `Rights’ based and Consequentialists. Rights- based support the Individual and his Rights in the marketplace (Laissez-faire) above the State; while Consequentialist Libertarians will accept the use of the State if it can produce an intended outcome more `efficiently’ while ignoring constitutional barriers.
But there is common footing that can be found like between Social Conservatives and Libertarians, where if you’re on a social networking site or watch some of the political debates on the news programs and witness the hyperbole, vitriol and name calling you wouldn’t think so. Where social conservatives want to see traditional values maintained, like in marriage, family and lifestyle choices, many Libertarians have similar views with the difference being how are those values maintained or restored? Where the Social Conservative sees value in government intervention to create appropriate outcomes (Drugs, Pornography, Marriage, etc) the Libertarian believes the marketplace is a better regulator than the government. Where the canyon can be bridged however is through the Constitution in that it permits state and local intervention for those causes (Drugs, Marriage, etc) but disallows it at the federal level.
So with an open invitation to the different groups of the GOP that basically asks `what realistically are you able to compromise on and what are deal breakers?’, could there be a `buy-in’ to a realistic platform for today that cuts taxes and spending (not only growth), rolls back federal regulations (Dodd-Frank, Sarbanes-Oxley), audits but keeps the Federal Reserve (redefined to a single goal of guarding against Inflation), maintains DOMA and other values focused federal laws and to maintain some of the attrition savings in Defense while at the same time a Congressional review with strong input from our military that looks at our Defense policies and deployment `footprint’ going forward, while long term an eye on future plans to phase out federal laws, programs and departments based on relinquishing unconstitutional powers back to the states?
Can we like Ron Burgundy in Anchorman, `agree to disagree’ but still work together? How important is it for you and your ideals to win a Pyrrhic victory? You are successful in your favorite candidate wins the Primary only to lose the 2012 election and allow for the US to continue down the slide of financial insolvency and the continued loss of Individual freedoms, through a centralized `one size fits all’ collectivist state that Statesmen like Jefferson, Madison, Lord Acton, Eisenhower and Reagan warned against. As disciplined as you are in being passionate for your cause, can you be as disciplined in controlling that passion and channeling it in a way that not only helps your cause but creates better chances at Life, Liberty and the Individual’s pursuit of Happiness?
Christopher M. Mahon, Editor
5,4,3,2,1 BLAST OFF! I remember as a young boy in the heyday of the NASA Space Program the thrill of watching on TV the Apollo missions blasting into space. What pageantry, what courage and what technology! The intellectual capital and cooperative effort that it must have taken. The other day while golfing on one of my local courses, I noticed an elderly couple behind me that was enjoying the afternoon. As we moved from hole to hole I was somewhat surprised at how adept the wife was at maneuvering the golf cart. Though somewhat limited in her physical ability she was able to operate the vehicle quite well.
I contrast those two scenes to highlight the degree of difficulty and the prospects of participation in both of those vehicles. Obviously it takes a high skill set to build and or operate a Rocket Ship, while a golf cart was purposefully built so that the broadest amount of people could participate. The question then is, `Did the framers of the Constitution (our government) construct it so that only very few and those highly skilled could represent it or was it built for the greatest amount of participation?
Today in the GOP race to become the Presidential Candidate the news highlights almost each day the gaffs, stammers and lack of knowledge of the candidates. Even Herman Cain’s question `How to say hot dog in Cuban’? As if assuming he didn’t know it was Spanish while he could have easily meant the different dialect and as in UK or US English there are different words to describe a bathroom, apartment and elevator. Even in the United States, Soda and Sandwiches (Grinder, Hero, wedge) have different expressions in different parts of the country. It seems the election process is more of a weeding out of those who don’t know the intricacies of the `Washington System’ and the very specific international information that one would only pickup if a world traveler or through growing up in certain social settings. Is that what we want in a candidate?
What are the dangers of letting anyone into Office vs narrowing the selection?
Of course the dangers would be scaled to the amount of power available and the potential for critical or even fatal failure. In the UK, the powers of the Monarchy are virtually nonexistent as the Throne is a figurehead position today, so the Brits don’t lose sleep over who’s next in line. The framers discussed this at length as they considered many resources at the time like: Baron Montesquieu’s theory on `Separation of Powers’ which stated that centralized power was more likely to lead to tyranny and cataclysmic failure while decentralized power diffused the impact. They also observed the mistakes made by Europe’s Monarchal and primitive central bank systems. In the Federalist Papers Hamilton and Madison disagreed on the function of government, while Hamilton admired a European Monarchal and Parliamentary system, particularly in banking, Madison preferred the protections of a decentralized Republic.
In a highly `specialized’ system of government that is centralized into a federal system that is far reaching into the intimate lives of each individual and as a result has developed intricate systems of welfare, taxation, regulation and the necessary University structures to support it would have to by nature be very selective and restrictive in candidate selection. On the other hand, in a decentralized system, that has specific and limited powers (enumerated) for the federal system and much broader powers to the states, local and community systems, the selection process can be much broader based, particularly as you get closer to the community levels.
So these two views (Rocket Ship vs Golf Cart) really can change your selection process. If `Rocket Ship’ then as the media suggests, a well educated (in governmental systems), world traveled and leadership-oriented candidate ONLY will do. But if like the founders who understood the potential for the `downside risk’ built instead a `Golf Cart’, isn’t it more of an examination to who can protect that constitutional design and ultimately put the protection of Individual Liberty first?
While the pageantry and beauty of a rocket ship is awesome to behold, unfortunately even in the hands of the greatest minds there’s system errors and they do fall from the sky at a great cost. The framer’s didn’t want to put the fate of a Great Nation in the hands of a few but designed through decentralize powers (in bits) to be put in the hands of many. Think about it, a little grey haired woman (golf cart) in a small town in Florida as a town alderman could overrule Washington because of constitutional design. Which of today’s candidates and current officeholders are best capable to maintain and restore that design?
Christopher M. Mahon
In Greek mythology, the story is told of an evil torturer named Procrustes who lured weary travelers to his home where he would force them into his bed of steel. If they were too tall, he’d hack off their arms, legs and if need be, head; if too short he would stretch them to fit the design of his macabre bed. In an article I wrote earlier this year which you can read The Cruel Procrustes Bed of Government Policy we draw the analogy of Procrustes and the bed to an out of control Federal Government that looks to fit the Individual into a macabre social policy formula through central planning in the likes of welfare, healthcare, military interventionism, market regulations and even down to the most intimate social issues like drugs, sexual relations, marriage and food. At the end of the story, Theseus, King of Athens, the son of Poseidon, tricks Procrustes to enter his own bed which ends the reign of terror. The question today regarding the 2012 elections and the financial, moral and general welfare of the USA is, `Can we find a Theseus who could put the State back into it’s own bed of restraint and set the Individual free?’
Thomas Jefferson was the forward looking Theseus of his time, warning that the natural process of government was to grow and stressed the need for restraint. “A wise and frugal government which shall restrain men from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government.”
In the previous article we determined that, “A Procrustes bed is used as a modern analogy of an arbitrary standard by which exact conformity is required. It has been used as comparisons in literature, math and computer science. In his recently released book, ‘The Procrustes Bed: Philosophical and Practical Aphorisms’ Nassim Taleb says that it is not only that many times we try to fit into wrong boxes, but that the emphasis is on the box rather than the object. He also points out the danger of overestimating or under estimating variables as in Modern Portfolio Theory that uses risk assessment like Bell Curve distribution sigmas to gauge investment pairing and balancing. In a sense, Modern Portfolio Theory is a Procrustes Bed as it lops off 3rd or 4th sigma risk as inconsequential, only to find out later as we have with the recent financial crisis those variables played a greater role.”
The US through the Constitution was founded with the intention to restrain centralized power and allow for the greatest amount of personal liberty that only could be lost through an act that would deny the liberties of another. Today, that is no longer the case, as the Federal Government has crept into every area of our lives directly and indirectly. In a 2010 article in The Economist, they illustrate the case of George Norris who was 65 at the time and an avid Orchid collector who had his front door smashed in, house ransacked, imprisoned and forced to confess to an unknown to him crime at the time of selling Orchids without a license. He received a sentence of 17 months. The article goes on to criticize US laws and prison system which is complicated and overcrowded.
In the approaching 2012 elections there’s a lot of promises and campaign rhetoric, some of which is good to hear, `Balanced Budgets, Jobs, Spending Cuts and Economic Growth’; but if the Federal Government is Procrustes in the story and the steel bed which causes harm to the Individual is Federal laws and policies, then isn’t what we really need a Theseus and not a revamped steel bed that restrains us and harms us in a different way? Republican solutions of different regulations and directing benefits to their constituencies just like the Dems have done is not what we need, but realigning federal powers back to constitutional designs is the answer. In another article I wrote, Napkin Math, Financial Overhaul Through Constitutional Alignment late last year, it looks at eliminating unconstitutional departments and programs of the Federal Government, phasing some out over a period of time with each state having the choice to take them on and a 35% cut across the board in spending. Oddly enough some of the recent budget proposals have similar ideas.
Suggestions as we turn the corner on 2011 and the campaign really heats up: Become familiar with the US Constitution and use it as a plumbline measurement. Also, find out what the candidates will do and if they have a track record, review it in light of legitimate constitutional powers. Can they actually do it? Like Theseus, there had been many through Procrustes’ house of terror but it was Theseus who was able to restrain him. Who of the current pool of candidates understands what needs to be done and can accomplish it? Who is our Theseus?
Christopher M. Mahon
In bygone days news traveled slowly. There wasn’t an Internet or Mutimedia or even XBox. I remember my grandfather telling me a story of a hillbilly being found on an obscure part of a West Virginia mountain not knowing that WW1 had ended. There were traveling salesmen who’d go into the country and sell `snake oil’ as a cure for anything from cancer to canker sores. The `Big City’ huckster made out big, while the small town `rube’ lost his money.
One of the criticisms that John Maynard Keynes had of Classical Economics was the timing of information arriving into the hands of the comsumer/investor in being able to establish a `competitive’ price. He believed that a Laissez-faire approach to financial markets in establishing prices couldn’t exist because the information needed to make a buying decision arrived either too late, distorted or in parts. Thus the need for a regulated centralized system best done by governments became major policy since the 1930s as an answer to the Great Depression.
Now, depending upon which schools you’ve attended either you uphold and maybe have subscribed to Keynesianism 1.0 or 2.0, 3.0, etc or maybe like many economists (schooled and arm chair) are starting to question modern macroeconomic theory that has relied upon Keynesian theories of monetary stimulus and the importance of `Aggregate Demand’. The results of Quantitative Easing and Federal Stimulus since the 2008 crisis has been an arguable failure and the glaring lack of tools that Secretary of Treasury Geithner and Federal Reserve Chairman Bernanke had at their disposal has caused Austrian (Classical) Economic books, tapes and videos to fly off the shelves and set record downloads on Amazon.
Today’s government has been designed on an old belief that the individual (consumer, investor) is less informed and that pricing, products, wages and markets in general need to be regulated and that in the long run it will cause economic stability. Now without going into a Mises or Hayekian discussion of why Keynes was wrong, even if he was right at the time, do those same dynamics apply to today? And is government today an obstacle or an aid in bringing about economic stability?
The United States has experienced two types of government function throughout it’s history, one based on Negative Liberty and the other Positive Liberty. Negative Liberty is where government `stands down’ until a law has been violated by an individual or entity, JS Mill’s `Harm Principle’ describes it well, where the only legitimate use of coercive force by government is when an individual or entity takes away the Liberty of another. Otherwise, society is left to the voluntary and free exchanges and associations (in trade, friendships, etc) that determine outcomes and at times provides for `self correction’. Positive Liberty on the other hand is where government plays an active role of participation in order to try and achieve a desired outcome or social goal. Societal values are determined ahead of time and government sets laws and policies (which can be altered along the way) to achieve those goals. Negative Liberty affords the greatest amount of Liberty to the Individual, while Positive Liberty through government `managing’ the Individual allows for the least. The framers of our government and the intent of the US Constitution was to restrict federal powers to what are `enumerated’ but also to the philosophy of Negative Liberty, while with heeded warning they allowed the experimentation of Positive Liberty among the States.
Today unfortunately, it is the government itself who is the cause of economic and social instability. Laws and regulations designed to produce social and economic outcomes (employment, housing, family) instead cause unintended consequences, uncertainty and distortion of capital allocations. The government functioning in the role of provider or producer of `desired societal outcomes’ is antiquated at best or has been at the root of economic and social instability in our recent past.
So, just as we upgrade our browser or app programs on our phones from time to time, isn’t it time for a government upgrade? While it may not be government itself that is obslolete, it is the government structure we currently have. How about a Negative Liberty federal government that protects individual liberties and access to open markets? We can leave the experimentation of health care, retirement, and all social behavior to the states, local governments and ultimately between individuals.
Today’s teens, college kids and young adults while mocked on TV by Jay Leno for not being able to identify Vice President Joe Biden can find the music they want quickly and know how to spend their time and money. Positive government, which we have now, wants to change that, while Negative government, the intent of our founders, would leave them free to succeed, fail and through free and voluntary association and exchange come to their own conclusions on `what’s working and what’s not’ in their own lives. In a society where the Individual is free, society `self corrects’, but in a society where the Individual is `managed’, society’s maladies are incubated.
While the TV News and Internet argue who won the `Debt Deal’ the Democrats or the Republicans, the Progressives or the Conservatives, the Tea Party or ….? But if you read the bill when the smoke has cleared away you can see that the real winners are the State and those who feed off of it – media, politicians, educators, think tanks and lobbyists.
In the legislation there’s a provision for a panel made up of 12 that would work on revenue and spending proposals to be presented to Congress before Thanksgiving and the panel would come with special rights as the Huffington post reports, “a committee of 12 lawmakers evenly divided between the two parties and two chambers. This so-called Super Congress would have to present its cuts by Thanksgiving, and the rest of Congress could not amend or filibuster the recommendations.”
Two things are becoming more apparent, the losers are the Tea Party and other citizen grassroots movements that try to change the way Washington does business in the future and that behind closed doors before the end of the year there will be revenue increases and any promises of spending cuts will fade away.
Default will become more and more a reality despite the likelihood of credit downgrades due to the shift from USD reserve manged by the US Federal Reserve to a global currency (Special Drawing Rights: basket of 3-4 currencies) managed by the IMF (International Monetary Fund). Before, the US could print it’s way out of disaster, that will no longer be possible.
Over the weekend of April 8th 2011, two conferences which were sponsored by George Soros were held just miles apart. One was a four day conference held at the historic Mount Washington Resort in Bretton Woods, NH attended by over 200 `Who’s Who’ of global economists, financiers and politicians. The theme of the conference was, “Crisis and Renewal: International Political Economy at the Crossroads.” The speakers included: Gordon Brown, former PM of Great Britain, Larry Summers, former director of WH National Economic Council and George Soros, financier. The second was also celebrated and a `Who’s Who’ in media, internet and politics and was held in Boston, MA. Nancy Pelosi, current US Representative and former House Speaker, missed out on the last days of the 2011 budget battle in order to attend the conference.
What made the two meetings not only interesting but potentially groundbreaking is that both looked to set new international standards in governance, currency, economic policy, and media: including internet regulations. Here’s what George Soros said about the Bretton Woods conference,
“A new Bretton Woods conference, like the one that established the international financial architecture after World War II, is needed to establish new international rules, including treatment of financial institutions considered too big to fail and the role of capital controls. It would also have to reconstitute the International Monetary Fund to reflect better the prevailing pecking order among states and to revise its methods of operation.
In addition, a new Bretton Woods would have to reform the currency system. The postwar order, which made the U.S. more equal than others, produced dangerous imbalances. The dollar no longer enjoys the trust and confidence that it once did, yet no other currency can take its place.”
The first conference held in Bretton Woods in 1944 was a secret meeting to determine a centralized global system of trade, banking, and governance between countries and the establishment of the International Monetary Fund which would be used as a vehicle to exchange currencies and determine aid in rebuilding parts of Europe and Asia. What it did was set the US Dollar as the reserve currency which most other currencies were pegged to and played a large role in the US’ growth to prosperity and to a leading role in the world community as a `Super Power’. Unfortunately, partly due to lack of competition, the US has abused that role.
Lately, there have been public outcries by world leaders that the Federal Reserve’s policy of quantitative easing has dumped $9 trillion of `hot money’ into the world economy. After November 2010 Basel iii Accord meetings, a decision had been made to move away from USD reserve to a mixture of currencies that would be controlled through the IMF in a `basket’ of SDRs (Special Drawing Rights), The French, German and Japanese finance ministers have all referred to the coming changes, and even Ben Bernanke, Fed Reserve Chairman and Timothy Geithner, US Treasury Secretary, have alluded to the inevitable.
As the world’s governments continue to centralize power and resources, world leaders are looking to effectively link those governments into one global centralized structure that would oversee: finance, trade, travel and governance that would have an impact on cultures and societies. But ironically, as government leaders and globalists look to centralize power and resources, nations are seeing uprisings and resistance by its citizens as if to say, `not so fast’.
While Europe attempts to reform many of its generous social programs, Europeans take to the streets. In the Middle East, nations face unrest and potential overthrow as its citizens take to the streets for some say, `Democracy’ but even more for the basics: food, shelter and employment. Even the US is no longer immune, as the States face dwindling revenues and escalating expenses and facing hard choices on where to make the cuts. Wisconsin, Ohio and other states have seen unrest similar to the rest of the world.
So if centralized national governmental power and globalization is inevitable, what will circumvent the potential for abuse of power and loss of freedoms?
In an article written last week by Pat Buchanan, “Is Tribalism The Future?” he reflects on the attempts by governments in the past to unite people groups within nation boundaries and the potential for conflicts. Eastern European lines were drawn from WW2 victories and Middle Eastern lines were drawn throughout history by battles but most recently brokered through the Balfour Declaration of 1917 (which established Palestine for Israel) and by subsequent political deals. Even after the Six Day War, Israel has been walked back somewhat by political channels.
The term `Tribalism’ has conjured up negative connotations of rural tribes that are uneducated, barbaric and ruthless: Insert political joke here (……..). Recent studies however, while not removing the stereotypes completely, have shown that tribal living was more harmonious, sustainable and surprisingly `individual building’ than most governmental systems.
When governments become abusive, history shows that the individual turns to tribal characteristics of family, locale, culture and overall homogeneity. In some ways it’s a charge of retreat to what he knows, but in other ways it’s what strengthens the individual; the more intense the coercion by governments to create economic and social exchanges and associations the more likely the retreat.
While world leaders negotiate the next steps in global power sharing, as they divide up the booty and draw new rules and boundaries for societal interchange; will there be a rise in tribalism in response? If so what could it look like?
The underground economy, which is a type of Tribalism, ebbs and flows in relationship to the severity of government taxation and burdensome regulations; it’s highest when government taxes take more away from the individual risk taker than it leaves in his or her pocket; and when regulations prevent reasonable port of entry into markets and industry. The `New Tribalism’ while constituting some of the familiar characteristics of Tribalism past: common language, locale and other homogeneous traits; it also will include a new phenomenon: Social Networking.
In a recent book by Gary Vaynerchuk, “The Thank You Economy” he outlines how social networking is changing how we do business and how we relate to one another. He points out that many of our grandparents lived in small neighborhoods (tribal) and spent their money, exchanging services and associations with those they knew. Vaynerchuk said, with the advent of malls and suburban sprawl our parents didn’t have the same experiences. If our grandparents had a gripe with their butcher, they’d tell all their friends in the village square, church or synagogue not to go there. The butcher felt the impact, and there was an incentive to treat their customers well. When our parents complained to Macy’s or Gimbels they didn’t see the same result.
Unfortunately, Gimbels is no longer around (my mother loved it), but Macy’s and other retailers have found their way to this new technology the internet. First it was to create a static web page just to say ‘we’re modern and on the internet’, but later they found they could sell stuff, and lots of it with low labor cost. It looked like we had inherited our parents relationships as consumers with very little influence and at the mercy of the big retailers. Government was of little help, they created the economic policies that allowed these businesses to grow to monolithic size, by removing competition and allowing them access to finances that wasn’t afforded to anyone else. If a big name celebrity complained about a bad consumer experience, maybe we stood a chance but the average consumer’s complaint fell on deaf ears. That was until Social Networking sites like Face Book and communities started to connect online to review buying or dining experiences from different companies like Walmart, Target or even a small wine store or cafe around the corner. All of a sudden the consumer’s world became smaller and their buying choices and experience more important to the seller.
Social Networking in its infant stage was a way for kids and college students to connect. Many saw it as a passing fad but of little commercial value. Today, social networking has played a part in changing public policies, the European and Middle East unrest and with a single post can assemble a ‘Flash Mob’ of thousands of people. The Tea Party success is in part due to organization and dissemination of information through social networks.
In some ways Tribalism and Social Networking are the Kryptonite of Globalization; new internet regulation reforms have already been put forth by many governments, and was a key subject at the global media conference in Boston this past weekend. Even the US has adopted a `kill switch’ option if deemed `necessary’.
Globalization, like all centralized systems are unsustainable because they force individuals into relationships and behavior not of their own choosing. The greatest life force is whatever is self sustaining for each individual, and they will obtain the freedom to seek out whatever that is. Whether Underground Economies, Tribalism or Social Networking are the tools, it still remains to be seen and are unimportant in that they are not the goal but merely vehicles in the journey.
Before you sit back in your easy chair and turn on reruns of Lou Rukeyser’s Wall Street Week, there’s probably something else you should consider; the same group of soothsayers were spreading the elixir of calm and `happy days are here again’ in 2008 and using pretty much the same message.
Zandi, speaking before the National Governor’s Assn winter meeting in Washington said, “I think that the very loud hand-wringing over the prospects for major municipal-bond defaults is entirely misplaced.”
The Bloomberg article ‘Risk of Widespread Municipal Defaults’ by Mark Niquette and William Selway goes on, “Thomas Doe, founder and chief executive officer of Concord, Massachusetts-based Municipal Market Advisors, said he has seen nothing to change his view that general-obligation debt at both the state and local level is secure.“I don’t want to be Pollyanna about it,” Doe told the governors. “I have great confidence in you all, the markets do have confidence in you as well, and the informed investor, the institutional investor, understands that your debt is good.”
What Zandi and Doe fail to see or recognize is that much of the past year’s state revenues were subsidized in part by the Federal bailout that was a ‘one and done’ stimulus to teachers and other state employees which is now gone. Also as Meredith Whitney of the Whitney Group and other muni bond analysts have commented that 49 out of 50 states have mandatory balanced budget requirements and there needs to be substantial cuts in spending (particularly retirement/health care for govt employees) which is now starting to be addressed as seen in some of the collective bargaining controversies stirring in a few states.
Zandi and Doe and others who are now forecasting recovery and dismissing troubles in the muni market are the same ones who called bottoms too early in the housing collapse and never even saw the financial crisis of 2008. Zandi is a student and believer of Keynesian economics in the same vein as Krugman and Bernanke, that if government steps in to support the economy when private industry and household spending falters then recovery is right around the corner. Ironically, Zandi wrote a report on economic stimulus packages and their effect on the United States economy which was cited in Christine Romer’s report back to President Obama which influenced bailout legislation (American Recovery and Reinvestment Plan). Harvard economist Robert J. Barro and many other economists are now questioning Zandi’s model and the need for federal government intervention.
While Whitney and others who forewarned the 2008 financial crisis are hopeful, they are also realistic in gauging the political and wrong-headed economic principles like Zandi’s that governs public policies. There is a way out of this mess but it doesn’t come from creating more debt, quantative easing or any other government led options; it is rather cutting government, reassuring markets that there aren’t any government surprises coming so that prices will stabilize and surpluses (housing inventory) will wind down through private market mechanics.
In another ill forecasted article by Mark Zandi, he proclaimed, “I’m an Optimist!” Are you an optimist when it comes to government stimulus packages or federal reserve quantitative easing schemes? Well just like Burt Lancaster’s character in Elmer Gantry, they are firing up the revival organs to the sound of ‘happy days are here again’ as the message is being preached of government salvation that comes at a great price…your money and your freedom. ‘Do you hear me brothers and sisters!’
While new home sales took an ‘unexpected’ drop of 12.6% in January, the jobs report showed promise as new jobless claims dipped below the 400,000 level. But does the jobless number really reflect what is happening in the jobs market? We know that individuals who can’t find employment after a ‘reasonable’ amount of time give up looking and might rotate in and out of jobless numbers, but is there an unregulated, unstructured ‘jobs market’ that is unaccounted for?
In a December 2009 article by Cato Institute’s Richard Rahn,’New Underground Economy’ lays out the characteristics of how underground economies ebb and flow. He starts out, “Here is the evidence. The Federal Deposit Insurance Corp. (FDIC) released a report last week concluding that 7.7 percent of U.S. households, containing at least 17 million adults, are unbanked (i.e. those who do not have bank accounts), and an “estimated 17.9 percent of U.S. households, roughly 21 million, are underbanked” (i.e., those who rely heavily on nonbank institutions, such as check cashing and money transmitting services). As an economy becomes richer and incomes rise, the normal expectation is that the proportion of the unbanked population falls and does not rise as is now happening in the United States.”
Rahn, in his article goes on to say that the underground economy is affected by federal and state tax, regulatory policies and inflation. When Sarbanes-Oxley was implemented in 2003 as a reaction to companies like Enron who didn’t account for off balance sheet liabilities in their reporting, it had the unintended consequences of building huge costs for large and mid-size companies to come into compliance. Most complied but some started to move headquarters out of US. Even today, while new start ups have slowed due to economic environment, there’s an increasing ratio of new companies starting up in Europe or Asia.
The smaller US businessowner has different alternatives than mid-size and large companies that are more public, they can simply take their business offline or underground.The trades and some services are more likely to go ‘offline’ to avoid heavy local, state and federal taxes which can eat up substantial profits and add time consuming additional recordkeeping and compliance. Carpenters, painters, lawn maintenance, home cleaning and many other small businesses who reported income for years are taking risks by pulling if not all their business, a good part out of the above ground economy. This is reflected in January 2011 federal tax revenues which are up from the previous year. “Total government revenues rose by $21.4 billion for the month (Jan 2011) from a year ago to $226.6 billion, a 10.4% increase. Year to date, revenues are up by $65.4 billion to $758.4 billion or by 9.4%. Total outlays for the month though increased by $28.4 billion or by 11.5%. Fiscal year to date, spending is up by $53.4 billion, or by 4.8%” Dirk Van Dijk, CFA ‘Federal Red Ink Less Than Expected.
When you look closer at federal revenue for January however, you see that payroll revenue is down even when factoring in the lowered employee tax rate by 2% (6.4 to 4.4), which only took affect in January and that the increase had more to do with liquidation of qualified money out of IRAs and 401(k)s, profit taking and asset repositioning as the estate tax issue wasn’t settled until year end.
In the trades like Carpentry, an owner might take his full business underground and work for cash without reporting or he may take his labor offline by hiring help that they pay in cash. The worker takes the risk of not entering social security and of possibly not building his credit profile and the employer takes the risk on an unlikely audit or insurance claim if payroll not accounted for. These are risks that are considered either consciously or unconsciously everyday as the cost of business continues to rise.
The budget battles happening in Washington and in the states like Wisconsin and now breaking out in other states like IL, OH and NJ is of particular interest to businessowners who hope for spending cuts but weigh the advantages and disadvantages of moving out of states or the country for larger companies and for small business owners, cutting another employee or taking their business underground.
In an article last year we warned of a possible Muni default crisis, this is an update to that article which you can find at ‘The Coming Municipal Bond Collapse’.
The recent Wisconsin stand off between the GOP Governor Scott Walker, his legislature and the teacher’s union has now started to break out in other states like Ohio who are battling budget deficits. Yield spreads are starting to reflect growing possibilities of defaults. Meredith Whitney of Whitney Group, bank and Muni analyst had came out early and suggests short positions, but even PIMCO says, “Now, however, with many states and local governments struggling to close large deficits, it’s time to acknowledge that defaults could happen, even in large and systemically important municipal issuers.”
In a CNBC article by John Carney, ‘The Bulls and Bears Agree’, ”The debate underway now is about the likely severity and scale of Muni defaults. Or, more precisely, we have a debate about how to fairly price the default risks inherent in Muni credits. On the one hand, there are analysts like Meredith Whitney and hedge fund managers like Jim Chanos who warn that investors are taking on too much risk for too little yield. Whitney has predicted a “wave of defaults” that could be in the hundreds of billions of dollars. On the other hand, there are the bond fund managers and economists like CNBC reporter Steve Liesman, most of who are more bullish on Muni credits.” As a footnote, Whitney has been fairly accurate in forecasting banking and real estate crisis, while Liesman has not.
John Carney in a second part of the Muni Series explains why he doesn’t trust muni managers. He reflects back on the 2008 financial crisis and points to overconfidence in models and risk assessment which were exposed to be flawed as the dust clears from the subsequent collapse. Carney says, “The reason I find this so striking is that this is the same sort of thing we’re now hearing about muni-bonds. The “muni people” are pretty much united in the view that munis are safe, that talk of large losses is irresponsible and the product of novice minds looking at a market they don’t understand. After all, investment grade munis never default.I’m worried that the same kind of tunnel vision that blinded so many of the smartest minds on Wall Street to the fragility of the mortgage market may be operating in munis.
Of course, as Nassim Taleb, Peter Schiff and Nouriel Roubini have pointed, modern portfolio management theory is vulnerable to fragility due to models that underestimate risk. Taleb goes even further in his NYTimes Best Seller, ‘The Black Swan’ saying that our current financial system is designed to ‘blow up’ every 25 years or so. With growing unrest around the world and in US States, the shift in currency and credit markets, it’s a good idea to reassess risks in our portfolios.
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In Greek Mythology, Procrustes (who’s name means ‘The Stretcher’) the son of Poseidon, lured weary travelers from Athens to Eleusis to stay with him where he would make them stay on his iron bed. He would stretch those too short to fit his bed and amputate the legs of those too long. Procrustes continued his reign of terror until Theseus traveling the same route killed Procrustes, by convincing him to fit himself to his own bed.
A Procrustes bed is used as a modern analogy of an arbitrary standard by which exact conformity is required. It has been used as comparisons in literature, math and computer science. In his recently released book, ‘The Procrustes Bed: Philosophical and Practical Aphorisms’ Nassim Taleb says that it is not only that many times we try to fit into wrong boxes, but that the emphasis is on the box rather than the object. He also points out the danger of overestimating or under estimating variables as in Modern Portfolio Theory that uses risk assessment like Bell Curve distribution sigmas to gauge investment pairing and balancing. In a sense, Modern Portfolio Theory is a Procrustes Bed as it lops off 3rd or 4th sigma risk as inconsequential, only to find out later as we have with the recent financial crisis those variables played a greater role.
The Procrustes Bed analogy of government policy can be made in areas like health care and education. As Procrustes would stretch his shorter victims and amputate his taller ones, government health care policy would give more health care to the healthy and less to the very sick. Individuals with health care needs ‘out of the bed’ of protocol would either have to look for it on the private or black market while the healthiest would be required an annual exam and other benefits that they don’t want. The analogy could also apply regarding cost sharing as healthy and unhealthy would be in the bed with the same premiums. Alternative care options which even now are generally only available to those with discretionary income, might under government health care be outlawed or even more expensive. Those who have the money might be joining those already fleeing other nation’s government health care, like a Danny Williams former Canadian MP who flew to Miami, FL for a heart procedure last year.
The Procrustes Bed of public education as it exists today is particularly cruel. I’d refer to an earlier article on a brief history of US education, that was loosely state regulated, decentralized and adaptable to different regions of the country and even up until the early 20th century was local and neighborhood focused. Today education is highly centralized through the Dept of Education, federal mandates and state enticements of money and credits to cash strapped states. Public school children are at the mercy of every new lab project coming through teacher colleges like Columbia, that weigh priorities of traditional skills of reading, writing, arithmetic and critical learning against socialisation and tolerance which was John Dewey’s goal in the early 20th century, who believed changes in societies have to start in the classrooms. But the experiments are failing dramatically as US test scores have plummeted against other nations and the US has even pulled out of some competition. Hindsight being 20/20 if these experiments had been done on a decentralized state by state basis as was the original system, the failure would have been isolated, less impacting nationally and there most probably would have been successful models in orther states to adapt to.
The Procrustes Bed can be applied in so many areas where federal government in particular creates arbitrary policy with rigid compliance. There is almost a unamimous conclusion that something is wrong in Washington, DC, while some consider the government as being ineffective and needs to be ‘fine tuned’, most believe it is doing too much and needs to do less.
As a fitting (pun intended) end of the mythological story, Procrustes is done in by his own device. Wouldn’t a fitting end to an uncontrollable and runaway federal government be a Procrustes Bed of Constitutional measures?
Statists, Governmentalists, Collectivists for over a century now have lured weary citizen travelers journeying through life, into the secure and comfortable bed of federal government powers to solve all problems, only to find out too late the limits it put on individual freedom. There is an inverse relationship between Government and Individual Liberty – as government power increases, individual liberty decreases. The framers of the Constitution understood the natural process of government was to grow and that it needed to be limited through constitutional restraint.
Is there a Theseus who can lure the Federal Government back into the bed of constitutional restraint so we can once again ‘fit it’ so it functions as was intended as a protector of individual liberties and not as a provider of rights and services.
One summer my brother and I stayed with relatives in a tony area of Connecticut; our family was middle class from a suburb of NYC and not schooled in the finer things, we were however, very good in sports. We’d show up at the tennis courts in mismatched shorts and tees, torn sneakers (high-tops not Tennis) but we’d kill anybody we’d play. The elites at the club tolerated us for a time, but refused to recognize our skills and couldn’t wait for us to leave.
In a recent interview with Bill O’Reilly, Charles Krauthammer commenting on CPAC (Conservative Political Action Committee), and their year after year top vote for Ron Paul in their straw Poll, belittled Paul’s support for ending the Federal Reserve, calls for substantial cuts in the defense budget and his constitutional discipline of separating federal and state power that would extremely realign not only government but also political fortunes.
While Krauthammer is my favorite elitist and intellectual he does unfortunately suffer from a condition, ‘Elitist Intellectual Ailment’ (EIA), which is characterized by ideas and policies that emanate from a small group of schools and think tanks that has a love for information and the need to connect causality. I call it the ‘Joe Frazier’ Socio-political style of `leading with your head’. This group believes that there isn’t a problem that can’t be intellectually worked out in a lab on an Ivy League campus through the hands of elitists (sons and daughters of the same) who then can through government management of society process their answers. To elitists, Government has never been the problem, the problem has been either differing elitist theories on the use of government or the improper use of government by the rare occasions that Commoners (non-elitists) have been in power. While Progressives favor the government as a re-distributor of wealth and income and Conservatives favor government as a protector of traditional values, they both favor government. They reject the ideas of Ron Paul and true free market believers who suggest that in an open society, through voluntary exchange and association, societies don’t necessarily collapse but ‘self-correct’.
Krauthammer who honored in political and economic studies, has a degree from Harvard Medical School in Psychiatry and practiced until 1978 when he went to work for the Carter Administration is like many Conservative and Progressive elitists, they at times can move back and forth between political philosophies and political parties. While they may hang out in different areas of the ‘Country Club’, at the end of the day they still sit down at the same table and enjoy hot toddies in front of the same fire. Both believe that society is better managed by experts (another name for elites) who can steer resources, labor and values for the greater good.
To Krauthammer and other elitists, Ron Paul is the most peculiar of anomalies; he is bright, well educated, understands Washington like elitists, but yet he doesn’t see government as the overriding solution to society.
In a NYTimes best seller, ‘The Black Swan’, Nassim Taleb (University of Paris, Wharton School) wrote about the fragility that was inherent in financial, economic and public policy models coming out of the best schools and think tanks, that didn’t account for unknown variables. He says unlike nature which protects against exponential growth and centralization, the hybrid derivatives built in the financial markets and the government built banking behemoths would lead to a financial crisis. “If I shot an elephant, the biggest animal on earth you’d be unhappy. I will probably get some bad press as well. Will it impact the ecology of the planet though? No. If, before the financial crisis 2 years ago, I shot a company called Lehman Brothers, would it have had an impact on the world economy? Yes. The lesson learned here from the elephant is that it is not too big. Companies get too big” Taleb.
The reason that companies get too big, is the same reason that values like home prices, USD and drugs are distorted because of public policies built upon flawed interpretation of data and not properly accounting for risk. You could never have monopolies or the size companies we have today without government regulations that protect industries and corporations from competition and provide subsidized capital. But monolithic structures become prone to stress and create system failures when they fall. Nature allows for the largest tree in the forest to fall with little impact, while if the largest entity in almost any industry failed it could cause substantial impact to a community, state or a nation’s economy.
In another book, ‘Open Society’, Karl Popper traces the elitism of Conservative and Progressive theories back to Plato. Plato saw societies as machinery that would decay and become obsolete over time if not managed and planned for, he felt decay could be forestalled by ‘managing’ society to an ideal that would need to be reinterpreted over time. This would be done by a special class of individuals called ‘Philosopher-Kings’ who would set the vision. They would need to go to special schools for training and most likely come from a select (elite) group of people. He envisioned a second class of people, ‘The Warriors’ who would enforce the vision of the ‘Philosopher-Kings’, these would be police, politicians and judges; and then there would be a third class, ‘The Workers’ who followed the rules and allowed themselves to be managed and receive the benefits of a better society. As today, it would be unconscionable to move from class to class for the most part, and there would always be a need for the philosopher (political) class to manage society.
To quote Popper, “Our knowledge can only be finite, while our ignorance must necessarily be infinite.” In Popper’s theory of Falsification, he says every theory and policy is prone to failure and must be assumed so until proven so. Theories ‘cooked’ in the lab, proven on a very small data sample, could have tremendous unintended downside consequences or at a minimum – distort values.
Elitists don’t like ‘old fashion’ ideas of limited government and constitutional principles that separate government powers between the individual, states, and the federal government. Which allows for currency, food and values to self-regulate through voluntary exchange and association. To them it is too much power in too many hands. The idea of everyone doing whatever they wanted, would destroy a society, the very thing that Plato, Hegel and Marx warned against.
A truly free society, where government merely intervenes to protect individual liberties and men and women are free to succeed or fail? No, no, society must be managed and even though we have times of crisis, the boys and the girls in the labs of Princeton and Harvard will have the next great public policy solution and with a little more government control in their hands (and less in yours), elitists will enable Plato’s vision to continue.
As a follow up to an earlier article, ‘The Elephant In The Room: Conservatives And Libertarians, and to comment on the strains within GOP and CPAC members and leadership leading up to their conference this week; the ‘elephant in the room’ is still social issues and causes within the GOP and have been highlighted with GOProud (A self proclaimed Gay Conservative Organization) joining CPAC conferences. While the GOP is a big tent party, social issues have driven a wedge that gapes and contracts at different times. The GOP and particularly Conservatives seem to unite around economic causes with calls for limited government but chasm when social issues are brought to the table.
Classical Conservatism was more about ‘conserving’ individual liberties (even at times when they were counter cultural), understanding that the same free markets that correct price and value will also ‘self correct’ human behavior in society through voluntary exchange and association. Unfortunately modern and neoconservatism chooses the short cut of government intervention just like progressives within the Democrat Party. The ‘Zeal of the Weal’ (Greater Good) can be a danger to freedom when it is ‘weaponized’ by government power and determined as an outcome; whether that is solving poverty or controlling life style choices, in the end it is a Pyrrhic victory as freedoms are lost and values are distorted in the hands of government planners.
Government power as our founders understood, should be negative in nature and not an activist for any causes, if there is any room for positive experimentation it is at the state and local level. While (modern) conservatives are ‘making an exit’ out of the CPAC meeting; libertarians and classical conservatives are making an exit out of the Tea Party movement and that is most unfortunate.
Federal powers need to be restrained by constitutional principles and state and local government powers need to be open to competitive models.
“YOU NEED ME!” Says a devoted spouse to their successful other half. Now as the GOP emerges back onto center stage, the Conservative Majority seems to be putting a little distance from its `better half’. Conservatism and Libertarianism run like two tributaries that run parallel at times but other times appear juxtaposed as they spill into the GOP.
Where Conservatism and Libertarianism clash most is regarding social issues. We’ve heard the term ‘Fiscal Conservative’ used to describe a candidate who while meeting the economic criteria for Conservatism, fails the litmus test on social values by not taking positions of government intervention to preserve ‘marriage’, ‘family’, `drug prevention’ or a host of other social issues. Mixed into that labelled group of ‘Fiscal Conservatives’ are candidates who have mixed the two party’s (Dems/GOP) ideologies, favoring freer markets in economic policy, while favoring government redistributive social policy. Libertarians lumped into that group however, are different in that their ideology favors less intervention of government into both economic and social issues and support laws that are `negative’ in nature. It is very important, if not crucial for Conservatives to understand and embrace their `other half’ in the fight for freedom in our country and if the GOP is to survive as an alternative to the `Government as the Solution’ party which `manages’ behavior and freedoms for the greater good.
In order to do this Conservatives would do well to understand the dynamics of Libertarianism, and some of the differences between Classical Conservatism and Modern Conservatism and how they look at the function of Government.
Most Libertarians and Conservatives have similar `ends’ in sight for what society should look like: traditional marriage, sobriety, industry, moral, spiritual and overall belief that the stronger and more self sufficient the individual is the better society will become. Where they differ is in the `means’ for that to occur. Libertarian and Classical Conservative ideology were analogous in their understanding of the proper role of Government and their confidence in the individual and `self correcting’ free markets for many years; but as streams separate, so have the two movements. While most Conservatives today believe in a laissez-fare approach to economic markets (unfortunately not all do – as witnessed by 2008 bank bailout), most don’t believe in the same laissez-fare (free market) approach when it comes to social issues. But for years they did, changing significantly after the FDR New Deal era and the Civil Rights movement of the 1950s-60s. This could be due to the `Overton Window’ phenomena or my personal theory is that while Conservatives of those eras fought the Progressive march on the Left, they either consciously or subconsciously took notice to how affective government could be at getting stuff done now. Giving up the sometimes long and arduous process of laissez-fare, and losing confidence in the Individual to make the right choices, they opted for Government as the Final Solution. In a book I hope to have finished by the end of the 1st quarter 2011, I use the term `Zeal for the Weal’, in describing myopic social movements of both the Right and the Left and the unintended damages that has been done through abuse of power and removing individual liberties for the greater good when the movements gain traction through government legislation and regulations. The old adage is true, `Beware of those bearing good intentions’.
The key to the success of laissez-fare (free market) is that markets self correct for the most part and superior ideas, products, systems and lifestyles survive, while inferior ones either fail completely, adapt or are marginalized. Both economic and social values need the same free market dynamics with a government that protects negative liberties, because both values work congruently in society, this is key to understanding Classical Conservatism. This allows for society to run at its best and allows for minority opinions, lifestyles, systems, etc to coexist with much less influence; and most importantly it protects individual liberties. In a Classical Conservative or Libertarian model, Governments only intervene when negative laws are broken - ex: individuals or institutions tread on the rights of another to exist, prosper or suffer loss of property. Social ills like poverty, drug abuse or hunger are allowed to improve by individual and private institutional initiatives where in the free market money and resources follows success.
Conservatism has had a long history of failed policies: trade, foreign affairs, drug, immigration, etc; all `bearing good intentions’ but have produced unintended results. Just as Cuba sits as a `pimple’ for over 50 years on the arse of US foreign policy, so does the failed war on drugs that’s also linked to the immigration problem. The unintended consequences of our drug policy has been violence, prison overcrowding with wasting human life and death in its wake. Our borders are war zones, distorted pricing, supply and demand are results of shortsighted policies that have perpetuated our problems. Government that brings positive laws as a solution is packed with unintended consequences that are unpacked for years afterward.
As the US sits on the precipice of great social and financial perils, Conservatism needs to turn back to its classical roots in allowing for individuals through free exchange and association to make the right (and wrong decisions), admit its policy failures and embrace the limited but important part Government can play today which is outlined in the Constitution.
On The CBS show `Face The Nation’ on January 16th 2011, Rudy Giuliani commenting on the Tucson shooting suggested that we need to catch those with mental illness earlier in the process in order to decrease incidents like Tucson from happening as often. He went on to infer that there needed to be a profiling process for mental illness and a way to access potential risks among the general public.
First, while many are suggesting that there needs to be a `National Debate’ around political discourse, gun laws and mental illness, I would suggest instead this needs to be a local debate between family members first, individuals in their local community and any legislation (I would tread carefully) should come out of the states and not as federal laws. Government becomes less effective, less accommodating, more costly and treads on individual liberties the further away from the people and closer to Washington DC into a centralized system.
Ex-Mayor Giuliani’s suggestion of monitoring mental illness in our society at face value seems reasonable but like any laws and controls on behavior there is the ‘pebble in the water’ ripple effect or Unintended Consequences’. To paraphrase Ludwig Von Mises, ” Classical Economist of the early 20th Century, “A good economist not only considers what is seen and affects now, but also anticipates to the best of his knowledge that which he can’t see and exists in the future.” Mental Health, like Economics is an inexact science as it considers human social behavior in creating models and treatment therapies for the mentally ill; while assessing the mental health of one individual and the potential risk he might be to society is daunting, creating national formulas or profiles for all individuals is impossible.
The insurance industry has struggled in assessing risk for mental illness in their life and disability insurance policies for over a century. Most policies have an exclusion for suicide the first few years of the policy and underwriting the disease has been very difficult in general. Most insurance companies when underwriting for mental illness history will either decline the applicant or will put a rider on the policy to not cover the disease and could ask for higher annual premiums (money). Ironically, the most challenging class of people to underwrite for policies are those in the mental health profession, like Psychiatrists and Psychologists as they obviously believe in the service and will receive services as preemptive care or a general mental health checkup .
So what are the potential unintended consequences of the federal government creating a database for government officials and law enforcement to monitor the general public for security threats? One consequence might be fewer individuals turning to the mental health profession for answers. Fearing the possibility of ending up on a government watch list, many sufferers of the illness might choose to suffer in silence, some potentially deteriorating into a risk to their families or society. Another consequence is those of us who have already chosen to seek mental health services who could potentially wind up on a list somewhere in Washington, as your local mental health provider is forced to give up client file information in the creation of the national database. When federal laws are created they are administered by experts brought in by Washington, who decide what data is significant or not and how social and psychological models should be created. You could see the potential for real harm and abuse to individuals, the loss of privacy being the best outcome.
The tragedy of Tucson shouldn’t turn into a double tragedy, the loss of precious lives and the taking away of the individual freedoms of those left behind. In order for that not to happen, we need to be led by the Constitution regarding the federal limitation to only make sure the 2nd Amendment is not tread upon by the states, and for states at their most local levels to have voluntary discussions about responsible gun ownership and the mental and spiritual health of their communities. Who knows maybe through private discourse and initiative, another Loughner family that has given up and closed its doors to its neighbors and society might with another knock on the door reconsider and find the help they need.
What is best about ‘Progressive’ and ‘Conservative’ ideologies is where they focus on individual liberties; what is worst is where they focus on ‘managed’ outcomes of economic and social values. Unfortunately in ‘mixed’ government, instead of getting the best of, we get the worst of.
The passion of the Democratic party through the ideology of Progressivism is to redistribute wealth through ‘managing’ the economy. So taxes, regulation of business, transfer of property all come into play such as in the beliefs of Jeremy Bentham (exported Socialism to the US in early 19th century), Karl Marx and Friedrich Engels (founders of Communism). Their philosophy is that while a man can be freed from physical restraints, he isn’t really free unless he is free economically.
The passion of the GOP through the ideology of Conservatism is to manage tradition values. So Right to Life, Don’t Ask Don’t Tell, Constitutional Amendments on Marriage are passionate issues to conservative GOP members.
Unfortunately, what is not passionately represented in the dynamics of the two is INDIVIDUAL LIBERTY which is sacrificed on the ‘ALTAR’ of ‘GREATER GOOD’.
The result has been ‘Gradualism’ of more government power encroaching upon the freedoms of all. As in the movie ‘Fountainhead’ and the book by Ayn Rand, collectivism is wrong, ““But the mind is an attribute of the individual. There is no such thing as a collective brain. There is no such thing as a collective thought. An agreement reached by a group of men is only a compromise or an average drawn upon many individual thoughts. It is a secondary consequence. The primary act—the process of reason—must be performed by each man alone. We can divide a meal among many men. We cannot digest it in a collective stomach. No man can use his lungs to breathe for another man. No man can use his brain to think for another. All the functions of body and spirit are private. They cannot be shared or transferred.”
The reality is men are not equal. Not in their physicality, not in their intellect, not in their desires and temperament. What collectivism in the form of some Conservative and Progressive ideology attempts to do is homogenize men into common denominators and minimize the differences or perceived inequalities (economic and social). Ludwig Von Mises put it this way, “It is because of man’s differences and inequalities that bring about cooperation and social harmony.” In other words, one man’s strength and one man’s intellect separately cannot accomplish what together through voluntary exchange and association they are able to produce.
The Constitution protected against these interferences on a federal level by both interests that would look to ‘manage’ man’s economy and social behavior through the concept of ‘Negative Liberty’ and the separation of powers of the Federal and State governments. In general, the further away the power is, the more general and less invasive it should be, if for no other reason that it doesn’t possess enough specific information and it’s economic and social models are prone to fail at greater levels of impact.
For more information on the concepts of Negative vs Positive Liberty and how they affect our understanding of the Constitution and in creating law, please go to my article in a series: Constitutional Liberty Series: Into, I have the second in the series coming out tomorrow.
What started out thirty years ago as a crusade to drive Christian morality into politics and thus into the laws of our nation and statehood, has ended not with a bang but in a puff of vapor. Its leadership is gone or faded into the social background and where as political parties desperately courted the movement, today there’s a definite disassociation. So what happened and what has it left behind in its wake? I would suggest that the antithesis of the Moral Majority is the Progressive Movement that now shepherds universal health care, environmental legislation and re-distributive policies designed (in their minds) to bring about social justice and equality. Being a part of the Moral Majority Movement in the 1980s and 1990s, and reflecting on what the movement was trying to accomplish, I unfortunately today realize it was misdirected. Some of it might even seem obvious now: ‘The majority forcing its will on a minority’ (like censorship) or ‘limit personal freedoms for the greater good’ (homosexuality). The gospel message starts small like a seed and grows; it changes the life of an individual who then can effect change in his family and community. Christianity to be effective changes mankind one individual at a time, and individuals change society. With a wind at its back and a great candidate in Ronald Reagan, the Moral Majority tried to use its political capital to enforce its moral will on American Society through the use of State powers and it was ugly and shameful. Through the gospel we preached and tried to demonstrate love in our personal relationships, but in our political affiliations and support of heavy handed ‘Pro-Christian’ legislation we demonstrated intolerance for personal freedoms under the law. Our motives might have been for the well being of the ‘sinner’ but in our disregard for the US Constitution and personal freedoms we hardened more hearts than we helped and in my opinion helped to mobilize the progressive movement in opposition.
While the progressive movement dates as far back as Plato and Aristotle and the modern movement from Hegel, Marx and Stuart in response to the Industrial Revolution which embodied itself in US politics with Theodore Roosevelt, Woodrow Wilson and FDR’s ‘New Deal’; it had become dormant in the 1970s, but revived partly in opposition to the Moral Majority Movement in the 1980s, you can read the history of the progressive movement that I wrote on my blog at (The Progressive Movement: Individual Regressivism) for some additional insight. While the philosophies of the Progressive and Moral Majority movements may be different, their delivery system is very similar. The Moral Majority starts out from the perspective, ‘God is not fairly represented in society’, while the Progressive Movement says, ‘There are inequities and abuses in society’. The Moral Majority and Progressive movements are Collectivists in their approach to ideas and in using government, by identifying groups or classes in society. Collectivism is grounded in Holism which believes that the individual is part of a system and inseparable, so in Collectivism the state is emphasized over the individual – ‘the greater good’. Both the Moral Majority and Progressive movements believe that the government was to be used to carry out their policy agendas. The government would use its power to force the will of the many onto the will of the few. Neither one of the movements has shown success at accomplishing their goals; the prohibition movement of the 1920s was a disaster (Alcohol Prohibition Was a Failure) as are drug laws today at promoting morality, and many of the wealth redistribution and government social programs from FDR’s New Deal have produced unintended consequences and huge deficits.
So, the Progressive Movement which unlike the Moral Majority movement has some political capital left in its arsenal. The question is, will it go the way of the Moral Majority and other socio-political movements of the past, which gain power and try to force its will on its subjects only to be eventually rebuffed? Or will it (where I believe the Moral Majority failed) try to protect all freedoms (left and right) and encourage social change (as Moral Majority should have) through society privately with government as a ‘defender’ of freedoms instead of playing an `offensive’ role as a provider. There’s an old idiom, “You can lead a horse to water but you can’t make it drink”, that could be upgraded to “You can lead a horse to water but not only can you not make it drink but you can make it hate water and you as well.” Social movements that use state control and force, even those well intended and containing admirable goals will create more unintended consequences, raise suspicions of the state with possible overreactions and eventually will be turned away by the people in the end.
Christopher M. Mahon, Editor 2009