The Fiscal Cliff is in our Rearview Mirror

November 28, 2012

Washington is full of drama.  Americans are constantly being treated to high political suspense.  Whether it’s the scandal ridden death of an ambassador, an outrageous gun dealing policy gone wrong on our southern border, or the spectacle of politicians scurrying frantically at the eleventh hour to raise the federal debt ceiling to keep Uncle Sam running, there is usually no shortage of political theater emanating from the nation’s capital.

At present, the drama centers around the so-called “fiscal cliff” negotiations taking place between the President and congressional leaders.  According to the main stream media, the big question is, can Congress and the President thwart economic catastrophe by agreeing on tax increases on the rich and some spending cuts before a January deadline would automatically terminate Bush era tax cuts and cut military spending deeply thereby causing an economic crisis.

It’s no secret that the fiscal condition of the United States is apocalyptic.  With $16 trillion of current debt and 10s of trillions of dollars more in future unfunded liabilities for Social Security and Medicare, there is no possible way for the United States to ever meet these obligations short of its current strategy of printing money out of thin air.  And, of course, that is a financially suicidal option.

The big problem is that the federal budget is inflexible.  In Fiscal Year 2011, $2.303 trillion in tax revenue was collected by the federal government.  In that same year, the government spent $454.4 billion on interest payments and $2.025 trillion on mandatory spending like Social Security, Medicare, and Medicaid.  Thus, money that Uncle Sam was forced to pay out exceeded all revenue collected by $176.4 billion.  This doesn’t include discretionary spending like defense appropriations.  Mandatory spending and interest payments will only grow as more baby boomers retire and the Treasury goes deeper into debt.

Of course, many progressives believe that all we have to do is raise taxes on the rich to fix our fiscal mess.  They argue that tax cuts since the 1980s which lowered marginal tax rates on the rich from 91 percent to the current 35 percent are responsible for the national debt.  But this is simply not true.  A Congressional Research Study  found that the 91% marginal tax rate on high earners in the 1950s and 1960s produced an effective income tax rate on the top 0.01 percent of only about 45%.  Consequently, high rates on the rich did not produce the windfall for the U.S. Treasury that progressives claim.  In fact, whether the top rate was 91 percent or 35 percent, federal tax receipts for the last 67 years have changed little, averaging about 17 percent of GDP for the time period.

What proponents of soaking the rich like to ignore about the 1950s and 1960s is the real check on government spending which was the gold exchange standard. They ignore it because they know that if a gold standard were reinstituted in the U.S. it would put a real crimp in their plans to maintain the welfare/warfare state they have built since LBJ.

At the end of the day, the current drama over the approaching fiscal cliff in January is utter nonsense.  The fact is we have already gone over the fiscal cliff.  Washington is either in denial, won’t admit it, or doesn’t realize it because we haven’t had the hard landing at the bottom of the canyon yet.  That will come when interest rates begin to rise and the Fed prints even more money to meet obligations.  Then the real drama will begin.

Article first published as The Fiscal Cliff is in Our Rearview Mirror on Blogcritics.

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina


The Right to a Job Doesn’t Exist

November 20, 2012

The idea of the United States of America was born during the Age of Enlightenment (17th and 18th centuries).  The great philosophers of that time challenged the divine right of kings by enunciating a new theory for the social order.  Their theory was articulated by the English philosopher John Locke (1632-1704), who claimed that man originally was born in a state of nature where he had the absolute rights of life, liberty, and property.  Thus, when Thomas Jefferson presented the Continental Congress with the document that would lay the foundation for our government and society, the Declaration of Independence, he included one of the most eloquent and oft quoted statements in the English language:

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness”

In essence, this one profound statement gives all Americans rights that cannot be taken away by any legal authority.  The greatest of these rights is the right to property, which includes an individual’s body as well as possessions he/she has toiled to produce.

So, where is this treatise headed you might ask?

This Friday is Black Friday in the United States and to protest the labor practices of mega-retailer Wal-Mart, some of its employees are planning nationwide walkouts.  On the busiest shopping day of the year in the U.S. supposedly 1000 picket lines are expected at Wal-Mart stores across the country.  Specifically, the activism is meant to draw attention to what strike organizers call Wal-Mart’s “retaliation against employees who speak out for better pay, fair schedules and affordable health care”.

Now, there is no question that Wal-Mart employees are entitled to freedom of speech, guaranteed by the Bill of Rights, just like all other Americans.  And they have enjoyed that right by virtue of the fact that none have been imprisoned or worse for speaking out against their employer.  But, this action by disgruntled Wal-Mart employees has really nothing to do with freedom of speech; it has everything to do with property rights.

In the employer-employee relationship, the employer has property rights to the business which includes, the buildings, inventory, and all other aspects of the enterprise (i.e. good will) not seeded to another entity.  This also includes the paid positions made available to the public by the company.  In this same relationship, the worker has property rights to his/her labor.

This arrangement is consistent with the right to property proclaimed in the Declaration of Independence.  A right which includes an individual’s body as well as possessions he has toiled to produce (in this case the business enterprise) and is the reason why the hiring process includes the worker filling out an application, meeting to be interviewed, and negotiating an employment contract.  Consequently, the right to one’s labor is an indispensable property of the individual.  But the job that he sells his labor to perform is the property of the business.  Thus, the right to a job doesn’t exist because that would be a violation of the property rights of business owners.

Now, I realize there are such things as anti-discrimination laws, collective bargaining laws, and other acts of government which grant workers the right to employment and job security.  But, they violate the unalienable right to property guaranteed first in the Declaration of Independence and then in the U.S. Constitution.  They are also egregious representations of how far we have strayed as a nation from our original ideals of liberty.

If Wal-Mart employees are unhappy with their working conditions, they have a right to petition their employer within the confines of their labor contract.  If their grievances are not met, the choice before them is to either continue to honor their labor contract or resign.  The founding principle which gave birth to American liberty requires this.

A Libertarian’s Hopes for Obama’s Second Term

November 15, 2012

Let’s face it, the Obama Administration has pretty much been a continuation of the Bush years.  In Obama’s first four years in office, Americans continued to give up constitutional rights with renewal of the Patriot Act, enactment of the National Defense Authorization Act, and the institution of a presidential “kill” list.  Our foreign policy was just as interventionist if not more under Obama as he increased troop levels (the “surge”) in Afghanistan, increased drone bombings in Pakistan and Yemen, and invaded Libya under the pretext of imposing a “no-fly zone” to protect Libyan civilians from Qaddafi’s air force.  Lastly, the corporate bailouts, economic stimulus boondoggles, and the Ben Bernanke regime at the Federal Reserve all continued under Obama.  And to think in 2008 that candidate Obama promised Americans “Hope and Change”.

With the recent “referendum” on Obama’s performance, also known as the 2012 Presidential Election, now behind us, the American people have spoken, well sort of, and have granted Barack Obama four more years as president.  Of course, in that election, like all presidential elections since at least 1960, the two publicized choices for the American people were Establishment Frontman A versus Establishment Frontman B.

The point is that Romney would be no better than Obama at being president.  Neither man respects constitutional rights, has a foreign policy that puts Americans first, or has any clue about economics.  Both became the nominees of their respective parties because they represent the status quo – a status quo which has made several influential players and industries a lot of money over the years.

But, I am trying to look on the bright side of things.  Granted that “side” is a sliver and any brightness in it is shadowed by a federal government that under Obama has gotten huge to the point of absurdity

So here goes – three hopes that I have for Obama’s second term that I think have a reasonable chance of happening because he doesn’t have to run for reelection and as president he can do them without congressional support:

Direct the Justice Department to Nullify Federal Marijuana Laws

In a memo sent out in 2009 from the Obama Justice Department to federal prosecutors, the Administration was giving prosecutors wide discretion in determining which medical marijuana cases to pursue and which to ignore based on their interpretation of state not federal laws.  This gave many hope as it appeared that violators of federal drug laws would not be prosecuted as long as they stayed within the bounds of their own state’s law.  As reelection time rolled around, the Administration tightened its stance against pot distributors.

Given Obama’s initial leniency on pot, the fact that he will never run in another election again, and with Colorado and Washington legalizing recreational marijuana, could the time be ripe for the Administration to direct federal prosecutors to ignore federal marijuana laws and not prosecute violators? 

Close the Guantanamo Bay Prisoner of War Camp

Indefinite detention is not only illegal in our system of justice, it causes more harm than good.  As Pulitzer Prize winning journalist Seymour Hersh has indicated, if prisoners at Gitmo weren’t terrorists when they entered, they are now.

By closing Gitmo, Obama could save lots of money and improve America’s image in the world.  This was an unfulfilled promise of his first term.  Now, with no possibility that neo-conservatives will use the issue to scare Americans into preventing his re-election, there is no reason this can’t become a reality.

Meet with Iranian President Mahmoud Ahmadinejad

In Obama’s second term, he should fulfill his offer made in 2007 to meet with Ahmadinejad.  He should meet with him to chart a way forward away from what would be a destructive war for both sides.  Concessions would have to be made on both sides.  It’s hard to say what Iran would ask for in exchange for discontinuing its nuclear program, but Obama does have more than 40 U.S. military bases surrounding Iran to negotiate with.

So there you have it.  Three hopes for a second Obama term for a libertarian.  It’s not much, but just these three things would protect rights, go a long ways toward the promise of America, and make us safer.  Given that, I probably just put the kiss of death on any possibility of these things happening.

Another Unintended Consequence

November 4, 2012

Almost all actions of politicians have unintended consequences.  In times of tragedies their mistakes are amplified.  Last week, before during, and after “Super Storm” Sandy hit the northeastern United States, governors and attorneys general in that part of the country put out blanket warnings that violators of so-called anti-price gouging laws (laws meant to protect consumers from “excessive” pricing of essential goods and services during emergencies) would be thoroughly investigated and brought to justice for violations.  While these actions may be reasonable to the emotional observer, when one applies economic logic to the circumstance it is easy to understand how anti-price gouging laws have actually caused the current gasoline shortages in the Northeast.

In essence, anti-price gouging laws are price controls.  That is to say, they prevent suppliers of goods from charging market prices if those prices are deemed excessive by government.  Needless to say, since suppliers are not in the business of losing money, when the price of any good exceeds a government mandated maximum price, suppliers will stop supplying that good.  They obviously are not going to sell an item at a loss as that is a sure recipe to put yourself out of business.  Consequently, a shortage of that good develops.  We have seen this happen time and again most notably with beef during the Nixon price controls in the early 1970s and rental properties in New York City under rent controls.

So how does this apply to the current gasoline shortages experienced by motorists in the Northeast?

Faced with threats by state officials including reductions in profits, fines, directives to set up reimbursement funds, and other penalties, merchants were intimidated to comply with the anti-price gouging laws.  Consequently, a critically important market mechanism was prevented from kicking in – namely rising prices in the face of potential shortages caused by disruptions to market flow.

You see, in the free market, something valued that is in short supply will always cost more than it does under regular market conditions.  That is why the price of meat rises when there is a drought.   Instead of a drought, the supply of gasoline to the Northeast has been disrupted by a storm.  Although they are different climatic events, the effect is the same.  Yet, governors and attorneys general prevented gas suppliers from raising gas prices to meet market conditions.  Because of anti-price gouging laws consumers were able to purchase gasoline before Sandy at below market prices.  It’s no wonder this temporary price control on gasoline has caused shortages in their states.  Demand was allowed to exceed supply.  If the market were left to its own devices, prices would have been allowed to rise and there would be gasoline in New York City right now for emergency use.  But instead, state officials imposed a cap so every Tom, Dick, and Harry could fill up their tanks unnecessarily before the storm.

At the end of the day, anti-price gouging laws are indicative of how we have been running our economy for decades.  All sorts of schemes have been implemented to help the poor, homeowners, consumers, students, the sick, the handicapped, etc, etc, etc…  They all come with unintended consequences because they are based on emotions not logic.  During normal times their consequences are bad enough.  In times of tragedy they simply make things worse.

Article first published as Another Unintended Consequence on Blogcritics.

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina