True Community

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When Americans think of “community,” they imagine warm and snuggly things. The word conjures a host of wholesome associations. It reminds us of neighbors sharing loaves of home-baked bread, of children playing in a safe backyard, of grownups meeting face to face to solve problems with good, old-fashioned common sense. The term sounds very Currier and Ives. Until we step back and take a good, hard look at those who use it.

These days, it’s thrown around by people who seem uninterested in grownups solving their own problems. A more honest term for how we’re seen would probably be “herd.” It seems calculated to keep us bunched together too closely to remember that we are individuals. It’s the way our teachers used to speak to us in the third grade. If you put Currier and Ives into a blender with Lyndon B. Johnson and Mister Rogers, this is likely what you’d get.

We elected a president who touted his experience as a “community organizer.” He stands at the podium and lectures us about what’s best for us, as if we lacked the sense to figure that out for ourselves. The impression that unmistakably comes across is that he thought he was far smarter than any of those dolts in the “communities” he organized. And that as president, he is certain the voters are so stupid we don’t see that his own reelection — his glorious little career — is factored into every move he makes.

Recently, I bought a new computer. I’ve been very happy with it, because it does a lot of wonderful, whiz-bang things. But I am unfamiliar with some of its programs. I had a screenplay to write — something I hadn’t done since college — and I couldn’t figure out how to set up my document in the proper format.

I managed to figure it out by myself, except for one crucial detail. Geek Squad wouldn’t simply answer my question, but they’d access my system from headquarters and fix the problem themselves — for 60 bucks. I threw it out to some online groups, and kept getting people who would gladly give me an answer — in exchange for my credit card number. From “the community,” I must admit, I wasn’t feeling much love.

Are our government-anointed “community organizers” right? I began to wonder. Have we lost the capacity to solve even the simplest of problems without their guidance? A whole industry has arisen to do for us, for money, what we know in our guts we should be able to do for ourselves — or at least with the help of somebody who won’t charge us for it.

People resent this, but their resentment is often exploited by those who don’t believe in private industry. Devotees of the government collective cluck their tongues about the hucksters out there who’ll take our money to answer questions with which they might help us for free. But are they to blame for wanting payment because we lack the imagination to look for solutions we don’t have to pay for? If our stupidity and helplessness keeps a roof over their heads, is that their fault or ours?

Refusing to give up too easily, I went to the meeting of a group to which I belong — one of those voluntary associations we’re forever being told no longer exist. I asked my question to some friends before the meeting, and within minutes somebody provided an answer. Afterwards I went home, tried it out, and it worked. And I was not one penny poorer.

Community — the real deal — still exists. If we’re willing to trust it. What that means is that we must remember how to trust each other. The real community is us, not an organizing "leader." But we can only trust each other if we dare to trust ourselves. When we allow ourselves to be treated like sheep, we are ripe for plunder by wolves.

The best ideas still come, not from any central committee of self-appointed smarties, but from our friends, our neighbors, sometimes even our children, and ourselves. A little bit of resourcefulness, of self-reliance, of trust in the everyday folks we know, can save us a lot of cash. In the long run, it may save our freedom.

And here's an important point: those in government who claim they will solve our problems for us will not do it for free. That is always the assumption, when they insist on helping us. But it's never true. We will pay for everything we get — and often for things we don't get — in money, time, inconvenience, and anger. And it increasingly looks as if the price they’re demanding is our very souls.




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Thoughts on Crony Capitalism

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The Obama regime has become synonymous with the kind of crony capitalism that characterizes, say, Russia. Crony capitalism is a sort of faux capitalism found in a society where many citizens desire socialism but don’t want to embrace it openly, because of the disrepute into which socialism has fallen. The 20th century was the century of socialism, and it cost the lives of perhaps 150 million people and brought unrelieved poverty to the nations that succumbed to its siren call of “equality.”

Crony capitalism characterizes regimes, such as Vladimir Putin’s, that follow the collapse of overtly socialistic economic systems (which invariably die, sooner or later, whenever — as Dame Thatcher famously observed — they run out of other people’s money). It also characterizes regimes such as Obama’s that occur in countries where the elites want socialism but realize that they can’t openly sell it to the public in its naked form.

A crony capitalist regime is sustained by favorable economic feedback loops between the regime’s leaders and key, corrupt leaders in the “private” sector (such as business and labor organizations). The regime’s leaders award these favored business and labor leaders (the “cronies”) sweetheart contracts for governmental projects; arrange financing from the public purse or banks that are funded by the public but controlled by the regime; use regulatory and tax policies to reward their supporters and punish their competitors; and so on. The regime’s players are paid back by the corrupt private sector players in various ways: by cushy jobs given to the bureaucrats when they “retire” from “public service;” by favorable deals for buying homes or business franchises; by monetary bribes (campaign “contributions,” or — especially when the regime is located in a third-world cesspool, such as Uganda or Chicago — in cash). The regime thus increases its power, and is able to pay off more corrupt businesses.

It is all very convenient for the players, however inconvenient it may be for the ripped-off taxpayers and the honest businesspeople who are denied a level playing field.

The crony capitalism of the Obama regime comes in several major flavors — that is, the many industries it has corrupted or hijacked. Lately on display is its crony green capitalism. The regime has received massive financial support from various wealthy investors in so-called “green” energy technologies and from the major environmentalist groups. It has repaid them by doing its best to block domestic drilling for oil and gas, even as it pushes grotesquely inefficient wind and solar technologies. The crony green capitalism has been exposed to the light of public notice in the Solyndra case and others.

But we must not forget the regime’s crony car capitalism. It created Government Motors in a colossally corrupt bankruptcy that stiffed secured creditors and stockholders alike in favor of the UAW, a lavish supporter of the regime. This led to the waste of billions in taxpayer dollars, a huge tax preference given to GM and Chrysler to the disadvantage of Ford, the UAW being given obscenely unjust stakes in the new companies, and later to the singling out, by the regime’s secretary of transportation, of a competitor of Government Motors (Toyota) for harassment.

Crony capitalism is a sort of faux capitalism found in a society where many citizens desire socialism but don’t want to embrace it openly.

As a result, the UAW — which should have been decertified by its members for destroying the companies for which they worked — was given new life. Lately it has been portraying itself as a trustworthy companion to automakers, existing only to help improve worker morale. It has gotten some traction, amazingly, with a German automaker, Volkswagen.

The latest interesting wrinkle is that Ford felt compelled to pull a highly effective ad that implicitly criticized its American competitors for taking part in the corrupt bankruptcy deal.

Ford ran a series of ads that had actual customers telling what made them buy a Ford. What caused a flap was the testimony from a man named Chris McDaniel, who said:

I wasn’t going to buy another car that was bailed out by our government. I was going to buy from a manufacturer that’s standing on its own: win, lose, or draw. That’s what America is about is [sic] taking the chance to succeed and understanding when you fail that you gotta pick yourself up and go back to work. Ford is that company for me.

Not only does Chris McDaniel feel that way, but others do too. A Rasmussen poll recently revealed that nearly one in five Ford buyers chose Ford because they resented the government-manipulated bailout of its competitors. Nevertheless, the ad aroused fury in the sycophant media. Some even accused Ford of hypocrisy, because it had in the past accepted loans from the government and lobbied the government for support.

But that doesn’t pass the laugh test. The fact stands that Ford didn’t collude with the feds and the UAW to screw its creditors in a jury-rigged bankruptcy, while GM and Chrysler surely did.

Also noteworthy is the fact that the same critics of Ford’s alleged hypocrisy were conspicuously silent when GM ran ads in the wake of the Toyota brake hysteria, saying that GM cars were safer — thus hypocritically ignoring its own sorry record of recalls. These critics were also silent about GM’s attempt to get a class-action lawsuit dismissed, a suit by owners of Chevy Impalas wanting GM to honor its warranties. Considering the number of people crippled and killed over the decades by its own defective vehicles, GM was being hyper-hypocritical.

After Ford pulled its ad, Chris McDaniel honorably stuck to his guns. As he later put it,

I still stand by what I said, and that is, as Americans, we need to decide if we’re going to be run by a government or if we’re going to be run by free enterprise. That’s really the debate we are facing today. So I applaud Ford, still, to this day, for having the courage to put that ad on the TV and spur the debate.

Indeed, sir.

Now, an interesting theory has been aired by no less a writer than Daniel Howes, associate business editor for the Detroit News. He has suggested that Ford pulled its apt, accurate, and reasonable ad after a phone call from the White House expressing, well, discontent. Howes noted that the White House later denied the story. But we have a right to be skeptical.

After all, this is the most mendacious regime in recent history, Nixon notwithstanding. In a short time, it has lied and deceived about more major matters than any others.

Some of this has come to the attention of Rep. Darrell Issa (R-CA), chair of the House Oversight Committee, who sent a letter to Ford asking whether it removed the ad under White House or other pressure. Ford responded on Facebook and Twitter that it hadn’t removed the ad permanently, but Issa wants a response in writing.

I suggest that what Issa really needs to do is to hold hearings on the whole affair: the crony bankruptcy, the UAW funding of Democrats over the period leading up to the crooked affair, the subsequent federal actions devoted to running GM and hurting GM’s competitors, etc. Let’s see all the internal memos, emails, and other documents, and let’s question everyone involved — under oath before the House Committee. Turn over this rock, and shine a light on the roaches underneath. Then we will all understand the nature of crony capitalism better, and in more detail.




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Financial Responsibility

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The recent recession, which some call the Great Recession, has been around for years, yet it simply refuses to go away. I believe that American business is strong enough that not even Obama’s socialist agenda can permanently destroy our prosperity. But even if a Republican is elected in 2012 and this recession ends, what is to prevent another one?

The question of what causes recessions is perhaps the single most important and most highly political question that the science of economics seeks to answer. The Keynesians and socialists have one answer, the Austrians have quite another. Perhaps the Federal Reserve’s manipulation of interest rates has caused or exacerbated the recession. However, I think that from an empirical, factual standpoint the linchpin of the Great Recession was the American public's financial irresponsibility, as manifested in the collapse of the real estate bubble. Many thousands of Americans irrationally believed that home prices could only go up, and they incurred real estate mortgage indebtedness far in excess of what a financially responsible person would incur. When real estate prices collapsed, very many mortgages went into default, which led to foreclosure sales, which further reduced home values, which triggered a downward spiral. It is probably true that government efforts to encourage low-income home ownership and government home mortgage guarantees contributed to inflating the real estate bubble. But the disaster would not have been so widespread if more home buyers had been committed to living within their means or had been more risk-averse.

This is the most dangerous matter, and also the easiest to correct. If the American public, especially the lower middle class, learned to understand the concept of “financial responsibility” then this syndrome would never happen again.

What precisely is financial responsibility? I think that the main point that people should understand is that money does not grow on trees, and there is no such thing as a free lunch or easy money, and that money is not magical and cannot be created by waving a magic wand. The great Randian contribution to economic theory is the idea that in a free market people trade value for value, and to “make money” is to create value. (Yes, Ayn Rand did not invent this idea, but she perfected it.) In order to make money you have to do work to produce the value; in other words, you need to make the money that you trade with others when you buy things from them. If you don’t produce value, then you have nothing to trade.

This not only means that people earn and deserve their salary by working at their job; it also means that people do not deserve to consume more value than what the other traders in the free market are willing to purchase in exchange for money. From each as he chooses, to each as he is chosen, to quote a Robert Nozick saying that captures this concept.

Financial responsibility is the understanding that you cannot spend more money than the amount you earned because of the work you did, unless someone gives you charity or you steal wealth from others, and that you cannot consume a value that has not been produced by someone. To use Rand’s old-fashioned phrasing, you can’t have your cake and eat it too, or as I would prefer to say, you can’t eat your cake before you bake it. Understand this, and you will probably not spend money that you don’t have or use borrowed money to buy stuff when you can’t repay your loans. If you want to buy something, then you will be more likely to do the work necessary to earn the money before trying to get what you want.

This understanding that money is finite and must be created before it can be spent is the essence of financial responsibility. Implicit in the concept, however, is the notion that charity and theft are exceptions, and the general rule is that you, and only you, must do what is necessary to make your own money and control your individual financial destiny.

But if you understand this principle then you will be very careful about economic risk, because you will understand that you will be required to assume responsibility if you make a mistake.  You will be on the hook for your losses and no government will bail you out. Financial responsibility means being held responsible, which means that you are held accountable and you will accept the rewards and punishments that result from your economic choices. Thus, you will not assume risks in excess of the amount of sweat or skill you are willing to put in to compensate for your mistakes. A person who is financially responsible would not assume a gigantic mortgage on real estate he had an annual income in the lower-middle class range, because he would understand that the debt would actually need to be repaid.

If the public were financially responsible, it would not put up with a government that steals money from others or borrows excessively and spends money that it does not have.

It seems to me that the solution to the problem is for high schools or colleges to incorporate personal finance management training into their liberal arts educations. Simply teaching people how to write up a personal budget that matches income and expenditures, sort of like a balance sheet, would go far toward creating the practical skills of financial responsibility. Some high schools have such classes, but they are treated like trivial afterthoughts compared to the more important subjects. Also, merely teaching students how to spend money is not enough; the financial responsibility class would somehow have to simulate earning income in proportion to productivity, possibly by tying fake money to GPA or class performance, to give students a feel for the fact that you cannot spend what you have not earned. The ideal personal finance class would teach career ambition, how to budget to spend within your means, and the crucial importance of saving money and not borrowing beyond your ability to repay.

One would expect the poor to appreciate the crucial importance of saving money. But it is precisely the low-income families that are most vulnerable to financial irresponsibility. The poor face a dark temptation to borrow beyond their ability to repay and not worry about repayment until it is too late, so that for a short time they can live a more affluent lifestyle before their debts catch up with them. The temptation to take shortcuts to one’s desires is deeply seductive even to rational, honest people. But people with no money to spare can least afford to make mistakes. Good finance classes in high school would help poor families budget properly, save for retirement, and avoid predatory lenders. This would help the poor much more than all the modern-liberal nonsense of entitlement spending, welfare, food stamps, etc.

Middle- and upper-income people could also benefit. A study cited on Yahoo claims that the average New Yorker is $200,000 in debt and the average Californian is $300,000 in debt. The American economic system encourages credit card debt, home mortgage debt, and student loan debt. I personally have struggled with handling my finances, which were recently made worse by roughly $90,000 in law school student loans that I needed to incur; and I wish that there had been a serious class in this subject that I could have taken, particularly in college where young people are supposed to learn how to live like adults.

If such classes were commonly available, the average American would actually be exposed to the concept of financial responsibility, and the odds of another recession happening would be greatly reduced. If it were customary for every American student to take a class in financial responsibility, it would be more likely for voters to vote for financially responsible fiscal policy. And if American politicians had taken such classes, they might have better training in the art of living within a budget and be more appreciative of a balanced budget and the dangers of excessive debt.

Of course, if the public were financially responsible, it would not put up with a government that steals money from others or borrows excessively and spends money that it does not have. So the leftists who control most colleges and the teachers' unions who control the high schools would fight to keep people from understanding the truth about financial responsibility and how to prevent another recession.  But while government is the primary source of economic problems, even in a libertarian anarchy they would still exist, if the majority of individuals were financially irresponsible.




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Bachmann the Ominous

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“Don’t settle!”

So Representative Michele Bachmann shrilled repeatedly in a speech at Liberty University in late September, a speech rebroadcast on C-SPAN. Curiously, she never said what she meant by that theme of her entire speech. To judge from all the recounting of her own religious experiences, she meant: “Don’t settle for less than total commitment to Jesus Christ.”

But a campaign speech must have meant more than that. By implication, anyway, Bachmann meant: “Don’t settle for less than ideal public policies; do not compromise or even discuss compromise or delay.”

Bachmann described miserable conditions in the Plymouth Colony in 1630, when the colonists were nevertheless persuaded not to return to England. The lesson she was evidently drawing was: “Stick to the projects you have embarked upon,” and, by implication: “Never change course; never recognize and learn from mistakes.”

For scientific research, “Don’t settle” is sound advice. Scientific questions are not settled by compromise, by counting scientists’ heads, by argumentum ad hominem or ad populum, by personal abuse, or by what Ayn Rand called “argument from intimidation.” Scientific questions are settled, but only provisionally, by evidence and reasoning, with scientists double-checking each others’ work and being willing to revise their own judgments.

But Bachmann was not delivering a speech on scientific method. In her political context, she meant: “Don’t compromise on ideal public policy as it has been infallibly revealed to me and to you.” Such a mindset is ominous in anyone and especially in an aspirant for high office.




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Enron, Solyndra, and Double Standards

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In the wake of the Solyndra debacle, no less than the head of the Solar Energy Industries Association — one Rhone Resch — opined, “It’s going to be very similar to Enron’s legacy in the oil and gas industry” (though he quickly added, “Just in the sense of a history that flared out fairly quickly and fairly publicly”). Enron, we all recall, was the energy company that hit the wall after misleading investors with fraudulent financial reports.

Pace Resch, I think that the comparison between Solyndra and Enron is a false analogy. It overlooks their salient differences. First and foremost, when Enron went bust, it didn’t burn the American taxpayer, which Solyndra most assuredly did. It had nearly a half billion bucks in guaranteed loans, which the taxpayer must now cover.

Second, while Solyndra’s CEO was a major supporter of Obama, as Enron’s was of Bush, when Enron’s CEO called the White House for help, he got none; but when Solyndra’s head called his buddy in the White House, he got plenty.

Third, the mainstream media trumpeted the Enron fiasco for months, using it as a handy cudgel with which to bash Bush; but the media have been virtually silent about the Solyndra mess, even in the face of the Solyndra execs pleading the Fifth before a congressional committee trying to investigate the mess.

Fourth, it is doubtful that Hollywood will make a movie about Solyndra, as it did with Enron (The Smartest Guys in the Room), indicting both the industry and the president. The Green neo-socialists — aka Watermelons — are much too worshipful of both the solar industry and Obama.




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Making Sauerkraut

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Last spring, I took advantage of low cabbage prices and the still cool temperatures in the cellar to make my biannual batch of sauerkraut. I spent a pleasant hour turning ten dollars in raw materials into 50 dollars worth of kraut. Making the kraut requires hand mixing of salt, cabbage, onions, etc., a process that always makes me think of John Locke and property.

Locke’s Second Treatise talks about the individual taking raw, worthless land (as in America) and converting it into property if “he had mixed his labor with it and joined it to something of his own and thereby made it his property.” Locke undoubtedly knew that the word “property” comes from the Latin proprius and means “one’s own” or part of the very person himself. Locke (and Ayn Rand) felt that property was that which the individual needed to earn a living and avoid being a slave.

In Locke’s time, raw forest and prairie abounded and was worthless. Productive farmland was needed to make a living by most people — hence his emphasis on the effect of work on raw land. Nowadays, farmland in much of the U.S. is reverting to forest, but there has emerged plenty of raw material open to anyone for exploitation — an innovative business idea, and possibly a vague theoretical concept that could be turned into a brilliant invention or, as in my case, cheap cabbage to make sauerkraut. No matter what the raw material, adding labor makes it become the property, a part of the very substance, of whoever found and developed the unexploited potential.

Property in this Lockean sense seems to be restricted to things that an individual develops, evolves, or uses and are part of how he makes a living, what he thinks, or how he fits in with others. The property owner, personally involved in the production and enjoyment of his property, becomes so closely identified with the object that it becomes almost indistinguishable from himself. It’s only a small leap to see that the lived life of the individual also develops from raw potential.

I’ll illustrate this framework with my personal circumstances. My education and training, work history, experience, and business contacts are my formal means of making a living. My home, automobile, the books and computers that I use to entertain myself are certainly my property. My thoughts and dreams, the videos that I make, my conversations, the articles that I write, my family, friends, and my civic life (serving on several voluntary boards, etc.) — in short, the stuff that constitutes my daily lived experience, was either conjured out of nothing by focused work or grew out during a long quiet life. All this must be reckoned among my properties. I consider the customs, habits and hopes that can be construed as features of a moral life as part of my being and so my property as well.

But there is the second sense of “property” that is more troubling for me. As a result of working hard and living frugally I’ve accumulated unexpended work as savings and pensions that are invested in various financial instruments. I’d like to reflect on how this form of property, which I’ll call “investments,” differs from the property of my day-to-day lived life.

Let’s say that I buy 100 shares of some large corporation. Was my involvement anything more than doing some research on that stock and putting it into my online stock account? Is this investment really embedded in my life? The corporation was started many years ago by individual owners who made it their property and embedded in their lives. Ownership was eventually divided among an ever enlarging circle of partners, share holders, and lenders. It’s now divided in a million ways, but very few of the present owners either understand or have the information necessary to make good business decisions. Most are not critically dependent on this one stock and see it only as an accounting entry in a properly diversified portfolio.

This company has in fact become a public-private partnership run by an incestuous gang of managers and directors, all cooperating with government officials and forming a kind of nomenklatura. It typically plays fast and loose with ethical business practices, sponsors ad hoc laws to restrict competition, obfuscates losses, makes money with which it handsomely rewards the in-group, buys politicians, and keeps the stockholders placid.

Such companies can be vindicated to some extent. They cause big things to happen; large projects get built, and markets remain tranquil. The accusation of greed (one of the seven deadly sins) makes no sense when directed at these impersonal entities. Corporations are at once property and also hold property, and those property rights must be respected. Analytically, corporations are fungible, that is, can be bought and sold on a whim (try to sell my professional status on the stock market). It is individuals, not corporations, that hold the spoon; these companies are surprisingly vulnerable to changes in public tastes.

From my perspective, investments have evolved naturally in a normal free-market economy as the main insurance we have against age and illness. Stocks and bonds (and a Social Security check, if I can cut a chunk out of the pig’s ass as it waddles past) are necessary for a time when I can no longer earn a living by using my Lockean property. My CPA points out that wealth is important, not because it allows the individual to do nothing, but because it allows the individual to make better decisions. Investments do affect the owner in good ways.

But it irks me that I have no choice but to invest in such Juggernauts (an apt metaphor for ponderous objects of worship that sometimes crushed their devotees). I’m alienated from these investments; their methods and effects do not reflect my moral and intellectual values. They often operate against the commonweal and employ arbitrary political power that is foreign to my nature. They are impersonal and therefore amoral. Their investments are often mysterious, chaotic, and irrational. They are unprincipled, untethered from moral codes.

How can I deal with my disquiet?

I could follow news events regarding my holdings and sell my stock when I see something that particularly irks me. Boycotts can be employed when corporations cross some ill-defined moral line. I can vote or run against politicians who take money or do favors for corporations. Corporations won’t hire anarchists like me, so working on the inside is not an option.

In short, I can’t do very much. It's not the least bit like making sauerkraut.

 

 

 

 

 

 

 

          




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Counterproductive

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President Obama makes speech after insistent speech about his remedies for our country's economic and fiscal distress. Does he really think that this demagogic overexposure does more to build than to destroy confidence?

The president should remain silent while learning basic economics. Then another — but quite different — speech might do some good.




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Risky Business

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There I was, minding my own business and rereading Emerson’s Nature (with the intent of writing something about how the Transcendentalists would reject out of hand today’s “green” cult) when I was interrupted by rhetoric so strikingly stupid I was compelled to put down the old book.

The president was on the television, babbling:

And when you look at what independent economists are saying about the American Jobs Act, my jobs plan, uniformly what they are saying is, this buys us insurance against a double-dip recession, and it almost certainly helps the economy grow and will put more people back to work, and that's what the American people want . . .

It’s excruciating to me how this affirmative action-borne halfwit misuses the word “insurance.” And this is more than just a semantic objection — the stupidity that statists show about matters of risk and insurance are a major reason America is stumbling toward bankruptcy.

I make my living writing about risk and insurance for professionals and interested laymen. It’s important stuff, a nexus of philosophy and finance. So it galls me particularly when some hack yammers about “insurance against . . . recession.” That’s like insurance against bad luck or unhappiness. There’s no such thing.

Insurance entails many elements but two are most important: risk identification and risk transfer. The first involves understanding and organizing the specific causes of loss that a person or entity faces in given circumstances. The second involves finding a counterparty willing — for a fee — to indemnify the person or entity against the losses that occur from those specific causes.

The point here is that no one, and no form of insurance, can eliminate risk. All that insurance does is move the risk around. Done well, it moves the risk in a way that makes economic sense to all parties involved.

The president believes that his latest spending spree is insurance. If so, who’s the person or entity identifying the risk? He? We? And who’s the counterparty agreeing to indemnify against the specific losses? They? A bunch of rich guys who aren’t Jeffrey Immelt?

The answer, of course, is nihil and null set. The American Jobs Act transfers nothing and insures against nothing. And I hazard the prediction that will accomplish nothing.

Hacks like Obama confuse the concepts “insurance” and “subsidy.” And this isn’t a new mistake for the president. Four years ago, when I reviewed his meager campaign document The Audacity of Hope for this magazine, I wrote:

Obama’s most tortured pages are the ones that deal with issues of risk and security in public policy. Like most statists, he has a weak understanding of risk theory.

“The bigger the pool of insured, the more risk is spread, the more coverage provided, and the lower the cost. Sometimes, though, we can’t buy insurance for certain risks on the marketplace — usually because companies find it unprofitable. Sometimes the insurance we get through our job isn’t enough, and we can’t afford to buy more on our own. Sometimes an unexpected tragedy strikes and it turns out we didn’t have enough insurance. For all these reasons, we ask the government to step in and create an insurance pool for us — a pool that includes all of the American people.” (177–78)

This passage makes Obama seem either ignorant or willfully misleading about risk allocation and insurance. . . . no [counterparty] — including the state — can “step in” and create a risk pool after a loss (in his words, a “tragedy”) has occurred. The purpose of risk pools is to gather resources before a loss occurs, so that they can be allocated when one does.

That part about stepping in and setting up risk pools after a loss is important. It’s essentially what Obama is doing now — arguing for more borrowed money to be spent “creating jobs” after high unemployment numbers have been reported.

This willful stupidity about risk and insurance explains much about Obama’s ineffectiveness as an executive. And I still wonder today what I did four years ago: do statist hacks believe in collectivism because they don’t understand risk and rewards? Or do they believe in collectivism first and then ignore risk because its rules contradict their halfwit pieties?




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Getting There from Here

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Libertarians have little reason for optimism these days. Things could have been different. If government interventions since the 1930s had not crowded out profit-oriented enterprise, then programs for retirement, medical care, relief of poverty, dependable energy, and protection of property rights and of the environment would have evolved in more satisfactory ways. Private enterprise would have taken account of increasing life expectancy, increasing mobility, reduced intergenerational solidarity within families, improving medical technology, and changes in the labor force and labor market. The details of flexible evolution could not have been (and cannot now be) foreseen.

Government has forestalled any such evolution. The Great Depression, itself the consequence of botched policy, brought many experiments, including Social Security and privileges for labor unions. Wage controls in World War II brought employer-centered medical insurance. Politicians now have ample opportunities to urge their bright ideas, including more regulation as well as more spending.

It is easy to recommend limited government in a libertarian society. But how can we get there? “Entitlements” and commitments to police the world have saddled the government with extreme financial burdens on top of the explicit and ever-growing national debt.

Libertarian politicians must be willing to negotiate. Academicians, though, should not fudge their analyses in hopes of political influence. A generation ago, Clarence Philbrook rightly condemned such “realism” (American Economic Review, December 1953). Among politicians, everything should be on the table, even tax increases. I rather admire the sober approach of the Simpson-Bowles commission. It is scandalous that politicians should be intimidated into signing Grover Norquist’s antitax pledge. The recent debt-ceiling increase may have been a legitimate bargaining chip, but it was irresponsible to resist any compromise that included it. It is deplorable to call people like Michelle Bachmann libertarians (as I have heard in conversation). The Republican presidential aspirants (including, apparently, the eager-to-be-drafted Sarah Palin) hardly command enthusiasm. Among academics, dogmatic outright anarchists also harm the cause of a free society.

Getting there requires starting from here, which requires restoring government fiscal health on the way. (Remember about sometimes taking one step back to take two steps forward.) Ways can be found to shrink deficits and debt as fractions of GDP and eventually even in absolute terms. That is feasible, fiscally and economically.

Politically — that is another story. Voters, by and large, have become too dependent on government to tolerate libertarian ideas any time soon. Drift will continue, and the government will eventually have to repudiate its debt and other commitments. Default will not come openly but through inflation, through destruction of the dollar.

I am anxious to be shown wrong. Can anyone offer any plausible grounds for cheer?




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Fiscal Sanity

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When the Tea Party took control of the House of Representatives in 2010, my worry was that they would sell out and become status quo conservatives — like most Republican politicians who have paid lip-service to laissez faire.  After the 2011 debt crisis, my fear is precisely the opposite.  The Tea Party House is too idealistic, too unwilling to compromise.

It seems to me that most Tea Party House members have been influenced (at some distance, granted) by Murray Rothbard, who suggested that you must insist upon total capitalist freedom right now. They have also been influenced by Ayn Rand, who likened compromise to poison. This must make a lot of libertarians happy, but it makes me both scared and happy. There are two reasons why I am scared, and one very different reason why I am happy.

First, as someone who believes in practical idealism, I believe that change must be enacted slowly or it will be doomed to long-term failure. The government has been quasi-socialist since the New Deal, and the American economic system has developed in such a way that it is designed for government to play a role. Simply eliminating all government intervention overnight instead of gradually phasing statism out would almost certainly harm the economy and worsen the recession, as the system would be unable to cope with the gaps in its structure.

Going from freezing to boiling instantly is a shock to any system, whereas increasing temperature gradually enables an organism to adjust and adapt. If the United States government shuts down before the free market has a chance to adapt and develop systems to replace government functions, the result will be chaos.

Second, if the Tea Party House refuses all compromise and continues to insist upon an idealism-or-nothing approach, the American public may become afraid of the dangers of radical change, and popular sentiment may easily turn against the Tea Party and libertarianism. The Tea Party and libertarianism are not identical, but the Tea Party movement is essentially a populist lowbrow form of libertarianism. If the Tea Party brand becomes unpopular it could set the libertarian movement back decades. The majority of the voting public can easily get scared by apparent extremists who threaten economic calamity in the name of abstract ideals.

This is so even though the Tea Party represents the very best ideals embodied in a long history of American patriotism dating back to the American Revolution. As a case in point, many Tea Party House idealists voted against the debt ceiling compromise, meaning that they wanted the government to default on its debt, which would have triggered a doomsday scenario for the American economy. I suspect that this scared many mainstream voters.

Nevertheless, and in spite of the above, I am actually happy as well as scared that the Tea Party House has taken such an insane approach. The Tea Partiers are crazy, but the modern liberals and conservatives are crazy too, and our insanity is better than theirs. A debt default would have been no more insane than ObamaCare or the war in Iraq. Trillions of dollars of unchecked growth in entitlement spending and more tax-and-spend Democratic budget deficits over the next decade would do more harm than a temporary government shutdown. Lofty idealism is a breath of fresh air, given the stagnant corruption that has emanated from Washington for the past century, and “much must be risked in war” (to quote The Return of the King).

I am happy with the Tea Party House’s strategy because the Tea Party could easily lose the House in 2012 and the movement might stall and dissolve, so this 2011–12 era may be our one and only opportunity to shrink government and restore fiscal sanity. Therefore the Tea Party should continue to fight to cut the government as much as possible, and make it difficult for future Congresses to undo its achievements, because the Tea Party may not last forever. The Tea Party House could be our one shot at saving America from an Obama-led collapse into socialism. In the context of my happiness over the Tea Party House’s unyielding idealism, a little bit of fear isn’t really such a bad thing after all.




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