Reflections  

Political amusement — All the official candidates for their parties' nominations disappoint me (even Ron Paul, with his simplistic and irresponsible ideas about how the United States might shed its overcommitments abroad). For this reason I am glad to see front-runners humiliated, like Clinton and McCain in Iowa and possibly again in New Hampshire.

One hope, however unrealistic, is that an acceptable dark horse might emerge after all. Something more realistic to salvage from the process is amusement (which would gratify H.L. Mencken). Furthermore, almost everyone has some opinion about politics, making it a conversation-starter rivaling weather and sports. — Leland Yeager

They found a way — As a libertarian, I naturally lean towards limited government and minimal tax rates, but I have to give credit to New York state's taxmongers for their creativity.

Although Congress has extended for seven more years the moratorium on taxing the internet, Albany thinks it has found a way around this inconvenience. The Supreme Court has ruled that mail order houses can be required to collect sales taxes only if they have a physical presence in a certain state. Amazon and other e-retailers often provide links to other sites in return for a commission on any resultant sale. New York incredibly claims that this is the equivalent of an actual salesperson or storefront and that, therefore, these sales are taxable.

When the New York Sun exposed this tax grab late last year, Gov. Eliot Spitzer buried the plan; he had, after all, made campaign promises not to raise taxes. The state's Department of Taxation and Finance may try again, however, now that the spotlight's been off them for a while. As budget director Paul Francis said, "I don't regard it as a tax increase. It's only a tax increase to the person who is paying it." I couldn't have said it better. — John D. Swanson

Don't want no fat people — I thought Mike Huckabee was a bad Republican because (among other things) his anti-obesity crusade involved sending report cards home telling parents their kids are fat. But every time you think the Republicans can't get any worse, they do. A few miles southeast of Little Rock, Rep. W.T. Mayhall Jr. has introduced a bill in the Mississippi legislature to bar restaurants from serving food to obese people. This is what it says:

Any food establishment to which this section applies shall not be allowed to serve food to any person who is obese, based on criteria prescribed by the State Department of Health after consultation with the Mississippi Council on Obesity Prevention and Management.

As a writer for the New Republic — no doubt a Yankee — noted, this law would surely devastate the Mississippi restaurant business. Mayhall's bill isn't likely to pass but it had two co-sponsors, another Republican and a Democrat. And, you know, it did occur to me: there are laws prohibiting bars from serving alcohol to the drunk, so why not prohibit restaurants from serving food to the fat?

The difference in the two laws is clear and fundamental. Drunks might endanger the rest of us on the roads. Fat people are only endangering themselves. How much I drink may be a matter of public concern, if I'm using roads that other people drive on. How much I eat is nobody's business but my own.

Americans used to understand distinctions like that. Barry Goldwater, the man who turned Mississippi into a Republican state, warned, "A government big enough to give you all you want is big enough to take away all you have."

And that's what we see here. Mayhall cites the costs that obese people impose on the taxpayers through the Medicaid system. Barry would understand: you create a government health care system, and sooner or later the government is not only going to ration care, it's going to try to regulate people's lives to hold down costs. Barry just wouldn't have predicted that it would be the Republicans who would try to interpose the government between a man and his fried chicken. — David Boaz

Ethnography of the Left — I have lived for 20 years in Santa Cruz, CA, one of the more reliable political time warps in America. I am a libertarian-leaning conservative, now also a leisurely retired college professor. Unavoidably (and I do nothing to avoid it), I interact daily with many liberals, progressives, radicals, and such.

To save myself from going crazy, I have adopted a pseudo-scientific stance toward those people. I am engaged in a permanent ethnographic study of the Left. (It's genuine ethnography because I am able to observe it in its own habitat.) As a pop-ethnographer, I have been puzzled by the following simple phenomenon: individuals in my age range (early boomers), with life trajectories resembling mine, whose lifestyle is undistinguishable from mine, whose values are even similar to mine, nevertheless seem to hold political positions dramatically different from mine.

I am puzzled in part because I am slow to demonize my adversaries. (It would be difficult to do so anyway. In this small town, their lives are open books. It's obvious most of them are not evil.) Also, I avoid carefully the temptation to affix a psychiatric label to what's far from my own understanding of reality. (Nevertheless, I have developed fast and dirty tests to save me from wasting my time with the broadly insane.) So, I am speaking here about apparently rational people.

Here is what I think I have found among this particular category of political animals:

1. a strong and consistent preference for bad news;
2. a tendency to switch quickly from topic to topic;
3. cognitive dissonance; although their sources of information often overlap mine to a surprising extent, they often don't understand what they hear and what they read. This lack of comprehension extends to basic concepts and to numbers, both. Thus, I have caught formally well-educated leftists confusing "budget deficit" with "trade deficit" and the national debt with the aggregate debt that Americans have incurred on their credit cards. (I am not making this up!) When I point out to them that their attacks on "corporations" would, if successful, undermine my own financial safety as a retiree, they act stunned or incredulous. Similarly, they have, in general, no idea that 4% unemployment is low or that a 4% national economic growth is high. Often, they combine the two forms of incompetence: I have won many bets by guessing correctly that leftists believe that military expenditures consume 20% of GDP. They understand neither GDP nor % (I have stopped betting because they rarely pay up but, that's another story);
4. access to esoteric sources of information that might just as well be secret because I can rarely track them down. They forget to send me the reference they promised, or the item does not say what they say it says, or the source simply does not exist.

This is only a compound of informal observations, not a religious creed. I don't mind being corrected. Above all, I would like to find out what other readers of Liberty have to say on the same topic. — Jacques Delacroix

With friends like these — While visiting the United States in mid-January, Iraqi Defense Minister Abdul Qadir let it be known that Iraq will require a U.S. military presence for another ten to twelve years.

According to Qadir, Iraq's armed forces may be ready to provide internal security on their own by 2012. The guarding of Iraq's borders without U.S. assistance will have to wait until 2018 or 2020. That's the good news, folks.

The bad news is that Qadir's timeline has gotten longer since he last offered a prediction in 2007. Furthermore, if even this distant goal is to be achieved, Iraq, according to Quadir, will require a massive infusion of U.S. arms, including advanced warplanes. And whom do we think will be paying for these modern, very expensive weapons? Yep, it'll be the American taxpayer, otherwise known as thee and me. Despite its oil riches, Iraq's basket case economy and ruined infrastructure will more than absorb every dime it earns for many years to come.

Such are the fruits of "victory" in Iraq. But perhaps the next president will offer some hope for a change of course? Perhaps he or she will take the steps necessary to save us from such a triumph and bring us back home where we belong?

Don't count on it. John McCain looks more and more like the Republican presidential nominee. He's committed to staying the course in Iraq, no matter how long it takes. McCain's main rival, Mitt Romney, is equally hard-line.

On the Democrat side, you've got Hillary or Obama. No matter what they say, neither one is going to liquidate the Iraq commitment. If we were to pull out of Iraq next year, and anti-U.S. elements took over, the wave of recriminations would make "who lost China?" look like a garden party. The O'Reillys and Hannitys and Limbaughs, with ex-Vice President Cheney (assuming he hasn't dropped dead from his 17th heart attack in the meantime) at their backs, would maintain a drumbeat of denunciation and slander. No administration could withstand that and get reelected.

So don't bet on the November election changing much. A Democrat may get us out in five years' time. Any Republican will likely keep us there for at least ten. Of course, events may force the issue. If Pakistan falls to Islamists, or Israel drags us into a war with Iran, then things may change, and quickly. If not, be ready for more lists of the fallen, and an additional couple trillion dollars down the drain, in the name of "winning the war on terrorism."

Oh, and keep an eye out for an appearance by the goddess Nemesis, probably when you least expect her. — Jon Harrison

Le grand désastre de la Société Générale — France does not usually collect gold medals when it comes to finance. Oh, sure, it has a staggering public debt. Also, the tax rate is one of the highest among developed countries — Paris bureaucrats absorb 54% of the GNP and there are six levels of local government that pay themselves with local taxes.

But, overall, financial news from France — the world's sixth largest economy — is usually rather tepid. That's why the recent Société Générale fraud scandal came as such a surprise. With its eye-popping figures, its photogenic, noble perpetrator, and its display of embarrassed elites, it had every ingredient of a great story.

To recap: In late January, a large volume of sales in futures trades created a worldwide market slump. A few days later, one Jerôme Kerviel, a lowly trader from respected French bank Société Générale (or SocGen) walked into a police station and fessed up to a multibillion euro fraud. At $1.47 per euro, that's real money. Soon, juicy details started to emerge: Kerviel, an unremarkable 31-year-old securities trader, somehow acquired futures contracts for amounts far above his authorized limits. He ended up with positions worth about 50 billion euro — or $70 billion. Discovering the mess, the bank unloaded Kerviel's stash of futures within three days, creating a worldwide market slump. The bank lost 3 billion euro in this fire sale. Add another 2 billion euro in losses from other activities — conveniently announced at the same time — and Kerviel seemed the culprit of a 5 billion euro loss.

Kerviel's management was let go, but when Daniel Bouton, the bank's CEO, presented his resignation to the board, it was rejected. How nice of the board.

The parallel with another trading scandal was obvious. In February 1995, trader Nick Leeson single-handedly brought down another old and respectable institution, Barings Bank. He too cooked the books, taking unauthorized positions that resulted in massive losses. But the parallel stops there. First, Leeson's losses were a mere 827 million pounds — less than $2 billion, and a fraction of the SocGen losses. Second, the British trader cowardly fled to Kuala Lumpur whereas Kerviel, owing to his mistake like the Gallic man he is, squarely went to the police. Finally, greedy Leeson was trying to get a fat bonus, whereas Kerviel, on salary, only sought to make money for his employer. Take that, perfidious Albion!

Analysts started to wonder. How could one entry-level employee create such havoc? Was he a financial mastermind? Or maybe a super-hacker capable of manipulating trading computers? And, wait a minute, how come France's tough and complex banking regulations didn't prevent this?

There are controls and regulations in the French banking system, all right. There are so many, actually, that nobody knows them all. The European Commission — a bunch of non-elected bureaucrats now responsible for more than 80% of the laws and regulations in the EU — emits a continuous flow of new rules, which adds to (and sometimes conflicts with) national laws. Now, add the internal procedure manuals that routinely plague banks. You cannot possibly keep up. You cannot obey the law because you cannot know the law. As a result, the only way to be safe is to Obey The Boss. Kerviel did. That's why he feels he is a scapegoat today. It remains to be seen if upper management was aware of his activities.

As for high tech wizardry, Kerviel simply used a few old tricks. He used colleagues' passwords to log transactions under their names: passwords are routinely written down on sticky notes in many brokerages, since rules force employees to change them often. He also created fictitious customer accounts to hold his illicit stash of contracts. He probably edited out any red flag from the unprotected Excel spreadsheets that pass for auditing tools on most trading floors, explaining away inconsistencies by the notorious inaccuracies and errors that are the norm in these slapped-together pieces of work.

Auditing by spreadsheet is a recipe for disaster everywhere and banks are no exception. But the rules are changing so often that creating a real auditing application would be impractical, since it would be obsolete before its deployment anyway.

Inevitably, voices are now clamoring for more extensive, tighter regulations. Never mind that the ones in place are inefficient, badly implemented, and mostly disregarded. Never mind that when a scandal threatens some executive, he passes responsibility down the line and is allowed to keep his highly paid position by his gang of Good Old Boys. Never mind that politicians often extract kickbacks from the organization that they can control. For the statist mind-frame that prevails in Europe, the lines are drawn: profit is a swear word, banks are nests of conniving capitalists pigs, and more laws from a benevolent state are the only thing that can protect the unsuspecting public from these malevolent financiers. Mere facts need not apply. — Fred Mora

Prospects of a third option — If it is Hillary versus McCain in November, the door is open for an antiwar, small-government third-party candidate. Significant constituencies in both parties may be ready to bolt.

In the Republican party, conservative loathing of McCain is both widespread and intense. Rush Limbaugh, Sean Hannity, and Glenn Beck will probably fall into line, when push comes to shove; but many others dislike and distrust McCain so much that they'll look elsewhere. And they may even overlook the antiwar views of a true small-government candidate.

While the hatred for Hillary on the Left is not quite as strong, her nomination will still give ample pickings to a more consistent anti-war candidate. (Members of the "netroots" and Daily Kos internet communities distrust Hillary's prowar votes and have made noises about seeking out left-libertarian candidates.) An Obama nomination, on the other hand, will greatly weaken the potential of a third ticket. The antiwar left may grumble about Obama's evasiveness, but it will stick with him.

Should the opportunity arise, Ron Paul can take on the burden of continuing his campaign . . . if he wants to. But he has said that he will not. Instead, perhaps, he might give his blessing to another, younger, libertarian candidate. A dream choice for libertarians in November, a person who could also appeal to the Left and conservatives, would be former governor Gary Johnson of New Mexico. Johnson is a zealous defender of the 2nd Amendment, a critic of the Iraq War, and a supporter of drug legalization. — David Beito

Changing how college works — A small segment of the policy world — the higher education segment — is obsessed by the idea that a few elite universities have amassed multi-billion-dollar endowments and are failing to use them the way they ought to. Sen. Charles Grassley, a Republican from Iowa, has made political hay by threatening to punish these universities. He wants to make them pay out 5% of their endowment every year. (Unlike nonprofit foundations, colleges and universities have no such obligation now.)

This pressure led Harvard, and then Yale, to announce that they will spend more on financial aid. This aid is meant to bolster the middle-class families who don't normally qualify for much financial support. For example, Harvard won't make any family who earns under $180,000 to spend more than 10% of its income on college payments to Harvard.

This innovation didn't win any friends, however. Lynne Munson, a former official of the National Endowment for the Humanities, noted that Harvard's new financing plan would cause it to spend an additional $22 million per year out of an endowment that is currently over $34 billion, and rising.

I don't necessarily endorse the colleges' position as they complain that the public just doesn't understand how hard it is to spend 5% of an endowment (so many funds are restricted, and you always have to save for a rainy day, etc.). And it may be that universities should fall under the same rules as nonprofit foundations — and perhaps neither should be tax-exempt.

But that isn't the motivation for this latest round of political grandstanding and populist punditry.

Universities are big, fat targets and they have caught the attention of people who see the world in terms of class divisions. The New York Times says the rise of the giant endowments is evidence that America's already stratified system of higher education is becoming ever more so.

Oh, come on. There is stratification, but so what? My guess is that what is really fueling this antagonism is not the wealth of the universities, but their selectivity.

For various reasons, a few schools are so much in demand that the chance of a merely bright and studious youngster getting into them has plummeted. The fact that the nation's most famous schools are closed off to most children, even those of the cultural elite, is a more likely cause of the current hostility than the billions of dollars that loyal alumni have donated and talented financiers have managed. Attacking wealth and championing the little guy (in this case, the schools that have endowments of mere millions) is always popular, and this campaign gives some cover to what may simply be envy. — Jane S. Shaw

© Copyright 2008, Liberty Foundation

Send editorial comments to letters@libertyunbound.com.
All letters to the editor are assumed to be for publication unless otherwise indicated.

Send web site comments to webmaster@libertyunbound.com.