Galileo Blogs

Finance Reform: A Bullet to the Brain

2010-04-29T12:24:00.004-04:00

The issues underlying financial "reform" are incredibly complex. Yet, it is utterly banal, average people, with average (or less) knowledge of the subject who will pass laws to force financial practitioners to act in a certain way. Imagine a quack who could pass a law telling a dentist how to pull a tooth. Financial "reform" will be equally painful, although the pain will be spread over decades and be much harder to detect. If one needs a visualization of how regulation is simply force that negates the mind, think of that dentist and the quack-regulator.

The other consequence of the complexity of the financial mess is that it becomes nearly impossible to fight financial "reform" except at the philosophical level. Philosophically, the broad case for capitalism is made by Ayn Rand's philosophy of Objectivism. It validates reason and individual rights, the base of capitalism. However, the battle must also be fought at the level of economics, and on that level the issues are simply too complex to fight something as "real-time" as this bill.

At the level of economics, unraveling the mess means understanding how a history of financial intervention dating back to our country's founding has cumulated into the current mess. We have the consequences of the state laws against branch banking, the government's ossification of the gold standard after the Civil War, the establishment of the Federal Reserve Bank, the 1930s laws (Glass-Steagall, the SEC), government-sponsored securitization of mortgage finance (Fannie Mae and Freddie Mac, also beginning in the 1930s), Regulation Q, laws against corporate takeovers, the final abandonment of the gold standard in the late 1960s, laws that restrict the trading of derivatives on exchanges, etc.

The consequences of each of these laws can be traced, sometimes through spans of time longer than a century, all the way up to the present day. Each of them was involved in the current crisis (and each was passed in response to bad consequences stemming from the prior laws). The solution requires the repeal of all of them, and the establishment of free, private banking in a form that has never existed in this country.

This is the type of case that must be made on economic terms and is the proper context for the congressional hearings on financial reform. However, very few people can present such a case. Certainly, none of them have appeared in these hearings.

Bottom line: The quacks are going to tell those of us in finance how to practice our craft. Finance is the "brains" of capitalism. It allocates capital to where it can create the most wealth. Our economy's brain is about to take another bullet.

Healthcare Is Not a Right

2010-02-06T09:24:00.004-05:00

Healthcare is not a right. It is a good and service to be bought voluntarily from willing providers, like anything else. Do I tell my barber that a haircut is my right, and then force him to provide me with the haircut of my choice at the price that I dictate to him? That is what socialized medicine does to doctors.

If it is my right to that haircut, what has happened to the right of the barber to offer his service on terms agreeable to him? And if his rights are violated -- if he is reduced to the status of an unwilling servant -- imagine how lousy my haircuts will look, as he rushes them along to provide them at the price set by government.

Now consider that this same scenario plays out right now with a far more vital service, one upon which all of our lives depend. Today about 50% of medical costs are paid for by the government under terms set by government. We have 50%-socialized medicine in the United States. The problems we have are due to this high level of socialism that already exists.

The solution is not to drink the whole bottle of poison and condemn all of us, doctors and their patients, to life-shortening medical "care" by rights-less doctors and their disgruntled, sick patients.

The solution is freedom. It has never really been tried. Abolish government funding of medical care. Eliminate the rules that bind insurance companies and doctors from offering the care that customers want. Respect the rights of doctors and their patients to freely contract with each other for medical services.

Healthcare is not a right, and our lives depend on acknowledging this fact.

Say "no" to any scheme to further entrench socialized medicine.

***

I just posted this here on a website that is soliciting solutions for the problems in healthcare. Register your vote.

Net Neutrality Means an Unfree, Slow, and "Stupid" Internet

2009-10-09T15:26:00.004-04:00

by Raymond C. Niles

(This introduction was originally posted at the "Principles in Practice" website where a free version of Mr. Niles' article originally in The Objective Standard, "Net Neutrality: Toward a Stupid Internet," has been made available.)

The chairman of the FCC recently called for applying “net neutrality” to the wireless spectrum. Such a measure would dramatically extend the reach of proposed “net neutrality” rules, which were originally slated to govern the delivery of Internet content via wire—cable and DSL lines—but not via wireless signals. The expanded rules would govern the delivery of Internet content to cell phones, iPhones, Kindles, and other wireless devices. The advocates of net neutrality claim they are seeking to preserve a “free” and “open” Internet and to prohibit the “unfair” policies of Internet service providers that favor some content over others. According to them, to preserve this openness and freedom, the FCC must be granted vastly greater powers to coercively determine the business practices of Internet service providers.

That claim, however, is a sham.

An “open” and “free” Internet cannot be achieved by means of further FCC regulations. Extending FCC controls to the wireless spectrum would not “open” anything or free anyone; rather it would further violate the rights of Americans to produce and trade according to their own judgment and thus thwart this vital new realm of life-serving technology. It would unleash a torrent of government control over every aspect of the Internet, granting the government power to dictate how content is to be delivered and at what price, making it less profitable for Internet service providers to invest in costly infrastructure, and thereby quashing their incentive to innovate.

To the extent that “net neutrality” is implemented, the result will be a slower, less robust Internet—a “stupid” Internet, as one of the chief advocates of this pernicious idea aptly describes it. For an elaboration on how “net neutrality” violates the rights of Internet service providers and users alike, and why it is a bad idea for the wired Internet and by implication the wireless spectrum, read my article “Net Neutrality: Toward a Stupid Internet.”

Stealing the Commanding Heights

2009-10-07T20:01:00.003-04:00

The Federal Reserve recently announced that it would establish rules governing the pay of employees at essentially all bank and financial corporations in the United States. This goes well beyond just targeting CEOs at banks who received federal bailout money last year. According to the New York Times, the proposed rules would apply to 5,000 bank holding companies and state-chartered banks. And it would apply to traders, loan officers and other employees, not just top bank executives.

Ostensibly, the purpose of the rules is to reduce “systemic risk.” Allegedly, by having government regulators determine the pay of bankers, those bankers will no longer have the incentive to make risky loans to individuals and corporations.

Such a policy evades the fundamental cause of that risky behavior, namely government policies that fostered artificially cheap credit and mandated risky loans. The Fed itself is the author of these policies. It flooded the economy with cheap credit and 1% interest rates in 2003-2004, which fed the orgy of subprime borrowing. The Fed also enforced the Community Reinvestment Act that forced bankers to meet quantitative targets of loans to uncreditworthy borrowers. Moreover, Fannie Mae and Freddie Mac, two government-sponsored enterprises, guaranteed mortgages against default, thus ensuring that bankers would have no incentive to monitor credit risk.

The government’s subsidies, guarantees against default, and promiscuously cheap credit created an atmosphere in which private bankers were rewarded for taking excessive risks, and made to look like suckers if they prudently restrained themselves.

Yet the government blames the bankers for this mess and now wants to control their pay.

Over the past year we have seen Barney Frank (October 2008) call for a moratorium on Wall Street bonuses and President Obama (February 2009) call for limiting the bonuses of CEOs to $500,000. At the time, I warned that when government arrogates such a power to itself, do not assume that it will be confined to a few Wall Street executives. Now we see the Fed claim for itself the power to control the pay of tens of thousands of employees at every banking institution across the land.

Government fostered the financial crisis by violating the rights of private citizens through its reckless policy of subsidy and cheap credit. Now it proposes to “solve” the problem by further violating rights, including the right of employer and employee to voluntarily agree on the terms of employment.

The end game of this dangerous grab for power should be obvious. The government will not stop until it has taken complete control of the commanding heights of the economy. And it has already largely succeeded. With its progressive takeover of banking, government is now assuming control of the most important sector of the economy. The banks are fundamental in economic importance because their lending and capital raising decisions directly affect the growth of all other industries. Now the government, through its control of banking, will decide whether a particular company or industry is to receive credit, and succeed or fail.

Do not doubt that the government will use this power. Recently, for example, the Wall Street Journal reported that former Vice President Al Gore used his influence to steer two $500 million federal loans to cronies planning to make expensive “environmentally friendly” cars. Imagine what Al Gore or others will be able to do when the Fed controls the salaries of thousands of private bankers. To whom will they be able to direct loans, and for what type of quid pro quo?

Statist governments operate under a rule. They always seek to control the commanding heights of the economy. Statists know that if they control the key industry upon which all others depend, they can control all industries. Our government is seizing the commanding heights of our economy right before our eyes.

The Human Face of Socialized Medicine

2009-06-14T19:40:00.002-04:00

Some weeks ago a reader of my blog posted the story of his father-in-law, who received treatment under Canada's system of socialized medicine. With his permission, I reproduce his story below. As President Obama this week begins his congressional push for further socializing medicine in America, consider the story of his father-in-law, and think about what socialized medicine will mean for you. Consider the "human face of socialized medicine." My response to him follows his story.

***

"I was born in Canada and have taken Canada’s socialized health care system for granted all my life that it was good - until we needed it.

My father in law, a Filipino immigrant, wasn’t feeling well so we took him in for a check up. We waited for a few more months until the testing could be arranged, and then more waiting since there were, “complications.” He had a lung cancer and we would have to wait for “6 to 8 months” before scheduling treatment.

I think he knew he was going to die and took charge. After a few months of constantly coughing, we tried to pester the doctors to speed up the waiting time. He tried his own remedies to alleviate his worsening condition like drinking Ginger soup but he could delay no longer. He and his wife decided to go back to the Philippines for treatment. The doctors there had immediately started treating him with radiation but it was already too late. He had developed a fast growing form of lung cancer and died a few weeks later.

The doctors seemed concerned but wouldn’t change the waiting times due to limited available machines and Canada’s administrative central control in this field.

The fact the Canadian health care system pretends to be based on equality hides the fact it is a socialist experiment that destroys human life and can never be sufficient enough to heal life when needed. The carrot in Canada’s healthcare system is the so called “affordability for everyone” promise, but it is an inherently bad way to go due to its built in socialization. Lives are constantly lost. Ted Harlson (Toronto, Canada)"

***

Galileo Blogs' response to Mr. Harlson:

Your story saddened and angered me. It is criminal that your father-in-law had to die because of socialized medicine.

Socialized medicine harms everyone, doctors, patients, and their families. It is deadly to human health, as your story illustrates. Socialized medicine kills.

The alternative is to recognize that doctors have the right to freely charge for their services, just as patients have the right to freely select their doctors. No one has a "right" to medical care. That care must be paid for, and when government is the payer, it means rationing care and killing off the "excess" patients that "the system" cannot afford.

No one worries about there being a shortage of cars. People do not wait in line to buy cars, clothing, or houses. That is because those markets are largely free. Each party voluntarily deals with the other. The result is an abundance of these goods willingly bought and sold in the marketplace, at times and in quantities, and at quality levels that both parties mutually and voluntarily agree on.

Recall the long lines in the Soviet Union for bread, shoes, and toilet paper. That was because their entire economy was socialized. Those Soviet-style lines have now come to medical care, because it too has become socialized in Canada and, soon I fear, the United States. Your father-in-law died waiting in one of those lines.

Please take your grief and fight back by denouncing this injustice, as you have by sharing your story.

Please accept my condolences and best wishes.

The Europeans Punish Success, Again

2009-05-13T06:18:00.011-04:00

The European antitrust regulator has just announced it will fine Intel Corporation $1.44 billion (1.06 billion euros) because it "harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years." It did this, essentially, by discounting the price it sold chips to stores that agreed to sell computers containing them in bulk through exclusive agreements.

We've been down this path before. The railroads that served Standard Oil charged him a lower rate because Rockefeller could guarantee large, steady shipments of oil, which the railroads could ship more cheaply. For providing the railroads with product in a way that reduced their costs, and being charged less for providing that, Rockefeller was prosecuted.

In the same manner, a retail store that can guarantee large, steady sales of computers containing Intel chips is more valuable to Intel than a store that buys some of its chips and some of its competitor's chips. Intel can afford to provide a discount.

Those never-to-be-denied European customers benefit from this by getting cheaper Intel chips, yet they were supposedly harmed according to the European antitrust commissioner.

But also evaded by the European antitrust commissioner is that a market for computer chips would not exist at all if Intel did not invent, develop, and constantly innovate the chips that become the brains of computers. Because of Intel's work, each year the chips are faster and smarter. Each computer sold with those chips can do more -- faster processing of material from the Internet, simultaneous handling of video and audio, and numerous other tasks -- because of the relentless intellectual effort of Intel's scientists and engineers.

That is part of what the never-to-be-denied European consumers and all others who buy Intel chips are getting.

To steal $1.44 billion from Intel is to demand that these scientists and engineers work for free. It is to steal the fruit of their effort, which we all benefit from by voluntarily buying their products that they create. As their property created by their minds, they have the right to set the terms under which we gladly buy these products, which we buy because of the great benefits they offer us.

Into all this steps the punishing European antitrust commissioner. She violates Intel's property rights and the rights of Intel's customers to do business with Intel on mutually agreed-upon terms. And by so doing, she ensures that Intel has $1.44 billion less in which to reward the efforts of those scientists and engineers who create the marvelous Intel chips.

If our computers are a little slower than they could be and our freedoms more diminished, thank Neelie Kroes, the European antitrust commissioner, and the legions of apologist economists who rationalize the pernicious doctrine of antitrust that gives her this power.

New York Tea Party

2009-04-16T11:22:00.008-04:00

I joined thousands of other protesters yesterday at the "Tea Party" protest at City Hall Park in downtown New York. My sign read on one side, "Reason & Capitalism. No Creeping Socialism!" On the other, it read, "Ayn Rand Is Right." I saw many signs referring to Atlas Shrugged and Ayn Rand. One Objectivist joined me with his sign that read, "Who Is John Galt?"

We found a strategic spot right alongside Broadway. Many busloads and carloads of commuters got to see "Ayn Rand Is Right" and "Who Is John Galt?" on their way home from work. One person asked us who John Galt was. We told him that if he wants to understand what is wrong with the world and what should be done about it, read Atlas Shrugged. He said he would.

I was pleased overall by the event. It was remarkably secular. There were few references to God and the conservative Republicans only showed themselves in a tentative manner. (I think they know how responsible the Bush-era Big Government and Religious Right Republicans are for the crisis we're in.)

Overall, the impression I had was one of a true grassroots protest. People were angry at the violation of our rights. People expressed it in terms of outrage over spending and taxation.

The speakers weren't very good overall, but they were sincere and angry.

This is the first protest I have ever gone to. I have always thought that the battle of ideas is won through conventionally intellectual pursuits: writing and teaching.

But there is a time to speak out in the form of a protest. This was one of those times.

I hope we see more Tea Parties.

Thank you, Rick "Sam Adams" Santelli for issuing the clarion call that was heard around the country.

The Case for Bankruptcy

2009-03-14T09:55:00.004-04:00

What is bankruptcy?

Bankruptcy is the financial state that occurs when a person or business can no longer repay its debts. In the legal sense, bankruptcy begins when a court recognizes that the financial state of bankruptcy exists. The bankruptcy court takes charge of the bankrupt entity and disposes of its assets or reorganizes it to pay off as much of the debts as possible.

A bankruptcy proceeding recovers money for the creditor, but both parties benefit.

The purpose of a bankruptcy proceeding is to facilitate the maximum recovery of the money owed to the creditor. But it also benefits the debtor. After the debtor pays off what he can, his remaining debt is extinguished. This is not a “get of jail free” card; the debtor, whether a person or business, must face the damage to its reputation and a greater difficulty in obtaining credit for a long time into the future. Rather, it is an acknowledgement that the debtor simply cannot repay his debt. For both parties, bankruptcy offers timely resolution to an otherwise unsolvable dilemma. The creditor regains a portion of the money owed, and the debtor, relieved from the burden of a debt he cannot pay, can move on with his life.

Bankruptcy is economically valuable.

In economic terms, a speedy and fair process of bankruptcy allows both assets and people to resume being productive as quickly as possible. The creditor regains cash that it can redeploy as it sees fit. If it is a bank, it has regained funds that it can loan out again to more productive businesses or creditworthy individuals. The creditor can also redeploy the assets of the bankrupt entity into the hands of a more capable manager.

Take the financial malaise of General Motors as an example. Although effectively bankrupt, there has been no legal recognition of this fact (as of this writing in March 2009). As a result, its factories and workers continue to be tied up inefficiently making mediocre cars. General Motors is a drag on the American economy.

Bankruptcy would free General Motors’ factories and employees to be more productive. Once a court legally acknowledges General Motors’ bankruptcy, it could allow General Motors’ new owners, its creditors, to appoint a more competent manager. Or the creditors could sell the plants to a superior car manufacturer, such as Toyota. Either way, after reorganization under bankruptcy, the plants would be used to make cheaper, more attractive cars that customers want to buy.

The creditors may also choose to shut down some or all of the plants and sell them for scrap. But recycling the old plants into new steel that becomes the girders of modern, efficient factories is a better use for those plants if they are obsolete. No party is in a better position to make these judgments than General Motors’ creditors, who have their financial self-interest at stake.

While General Motors is just a single, albeit enormous, example, speedy and fair bankruptcies end the bleeding of money-losing operations across the economy, and re-direct inefficiently utilized assets and capital to more productive activities. In sum, bankruptcy facilitates economic recovery. A failure to permit bankruptcy prolongs stagnation.

Some fallacies about bankruptcy

Bankruptcy always means shutting down a business. This is not true. Creditors, in consultation with the bankruptcy court, decide whether to shut down and liquidate, or to operate under new management. Creditors have every incentive to make the decision that maximizes their pay-out over time, not just the amount of cash that can be had right now.

Bankruptcy is bad for employees. Considered in full context, bankruptcy is good for employees. An economy with speedy and fair bankruptcy procedures is one where healthy, growing companies predominate. Healthy companies can pay employees more because their labor is worth more to them. Therefore, employees benefit from bankruptcy, even if someone occasionally faces dislocation or the uncertainty of working for new management. But, even if employees dislike such occasional dislocation, there is no alternative to bankruptcy if their employer is not financially viable.

Bankruptcy allows deadbeats to avoid meeting honest obligations. When bankruptcy laws are properly drafted and applied, this is the exception rather than the rule. Bankruptcy laws are designed to protect the rights of all parties, not to unfairly favor debtor or creditor. Bankruptcy acknowledges a fact, that the debtor cannot repay all his debts, and it facilitates the repayment of all debts that can be repaid.

Government should stop bankruptcies. During financial panics, governments sometimes try to prevent bankruptcies by putting moratoriums on them, subsidizing bankrupt entities, or changing the laws governing bankruptcy to favor debtors. Such interventions are both unjust and impractical. They are unjust because they deny the legitimate right of the creditors to collect what they are owed. The money they are owed is their property, and they have the right to collect it, to the extent it is reasonably possible. Such interventions are unjust and impractical because they attempt to deny reality. “Stiffing” the creditors or forcing innocent third parties to bail out the bankrupt entity through subsidies does not change the fact that the bankrupt entity cannot repay its debts.

Bankruptcy is moral.

Bankruptcy is just, if resolved through a fair and speedy judicial process. A bankruptcy proceeding acknowledges the actual state of affairs that exists, that the bankrupt entity cannot repay its debts. It resolves this dilemma for the maximum benefit of the creditor, but in so doing allows both parties – debtors and creditors – to resolve this matter with finality, and move on with their lives. Bankruptcy only involves the parties to the debt obligation. It does not require that innocent, third parties be forced to subsidize or bail out creditors or debtors. In doing so, it respects the rights of all concerned.

A just process of bankruptcy is also economically practical. Bankruptcy removes assets from those who have mismanaged them, and puts them into the hands of those who are most capable of putting them to productive and financially responsible use. The institution of bankruptcy is an essential part of a prosperous and just capitalist society.

*****

First published at The One Minute Case and Capitalism Magazine.

Smiling Daggers

2009-02-11T08:09:00.012-05:00

Paul Hsieh has an interesting commentary on President Obama's embrace of something called "libertarian paternalism." Obama appointed Cass Sunstein, who authored this concept, as a senior regulatory official in his administration. The concept says that government should "nudge" us with coercive measures to do "good things" such as eating better foods, saving for retirement, encouraging our children to do their homework, etc.

The nudges involve handing back our tax money to us in the form of credits or deductions, or even paying us for performance, again using the tax money already taken from us. The "nudge" may also be more direct, such as New York City's ban on the use of trans fats in restaurants.

All of this is for our "good." But who determines this good? Answer: Cass Sunstein or sundry other regulatory officials who make it their life's work determining what is good for me, or even President Obama himself. Accepted in this premise is that the judgment of these individuals must forcefully supplant my own judgment about my own life. I am not permitted to make my own decisions on topics that these officials have determined are worthy of their attention.

These nudges come at the expense of my personal liberty. A society where people are nudged about is one where individual rights are absent. That is the society we are being nudged to accept.

As Mr. Sunstein and his cohort of regulators, led by the regulator-in-chief, President Obama, prescribe and proscribe in the minutest detail how we are to live our lives, don't be fooled by confusing phrases such as "libertarian paternalism," or by the broad smile of President Obama as he appoints Mr. Sunstein to take on his duties. "Libertarian" is seemingly based on "liberty"; "paternalism" derives from the Latin word for "father." There is nothing "fatherly" in government ordering adult Americans about; we are not children. Moreover, liberty cannot exist where government is telling us what to do. These terms are meant to confuse. In such confusion, government power is rationalized and expanded. It is a tactic that has been used by dictators throughout history.

In George Orwell's fictional 1984, the dictator "Big Brother" said, "Freedom is slavery." In the same oxymoronic manner, "Liberty is paternalism."

Don't be fooled.

As Wall Street Bonuses Go, So Goes the Liberty of All of Us

2009-02-04T09:32:00.006-05:00

[See update to this post below.]

“There will be a time for [Wall Street executives] to make profits and there will be a time for them to get bonuses. Now is not that time.” So said President Obama on January 29 to reporters (source: “The Kudlow Report,” CNBC).

So we receive President Obama’s declaration that Wall Street bonuses must be cut. According to him, now is not the time for those bonuses, although he allows that there will be a time – determined by him – when bonuses will again become acceptable.

When Obama arrogates to himself the authority to determine whether, when, and in what amount payments shall be made by an employer to an employee, do not think that such power will only be used to lighten the wallets of Wall Street executives. Such a power demanded today becomes one that will be used in the future to cut the wage or bonus that any American is paid, if doing so should please the Presidency.

If you doubt that, consider that at several times in history the American government fixed the wages of nearly all Americans. It happened during World War II and it happened again in the early 1970s. It is neither a Democratic nor a Republican issue, with the former happening under Democratic President Roosevelt and the latter under Republican President Nixon.

It needs to be said, because Americans have become so used to having their liberties encroached: a man’s ownership of his labor is parcel of the ownership of his own life. If he cannot freely contract with an employer to offer his labor at voluntary, mutually agreed upon terms, then his life is no longer his own. Instead of being a free agent offering his services at a voluntary, mutually agreed upon rate to a willing employer, he becomes a serf, whose labor and life is controlled by his lord and master.

That is the meaning of Obama’s attack on Wall Street bonuses. Attacking the private right of employer and employee to voluntarily agree on salaries and bonuses is an attack on the freedom of both parties. In calling for Wall Street executives to be treated like serfs, President Obama is setting the precedent that will make all of us serfs in the future.

Do not be fooled by the issue of government bailouts. Government had no right to hand out that money. It does not belong to government; it belongs to each one of us. Moreover, this crisis would have ended on its own without any government “rescues.” Recessions always end through the economic adjustments of all participants in the economy. It happens on its own, without a “rescue” or despite it. The current recession is no exception and will end, despite Presidents Bush and Obama’s profligate showering of trillions of dollars of taxpayer money on the problem.

However, government committing a wrong by handing out bailout money does not give it the right to compound its wrong by using that as a justification for further violating the rights of employers and employees. Government should not be handing out bailouts, nor should it be telling employers whether they can pay bonuses.

No one, including President Obama, has the right to forcefully tear apart the private employment relationship between employer and employee. When a private individual does it, it is considered fraud or theft. When the President does it, he takes on the scary personage of a dictator.

*****

2/4/09 UPDATE: President Obama now says companies that have been given (or forced to take) bailout money must cap the pay of their senior executives to $500,000 salary plus $500,000 bonus. For the morality of that, see above. In terms of its effect, government will get the quality of executives that it pays for. Guess who runs Wall Street now?

We could see this coming. See my October 27, 2008 post, "The Man Paying the Bill Gets to Determine Who's for Dinner."

*****

This post is re-posted. It was originally posted at www.simplycapitalism.com on February 1, 2009. Also published at www.capmag.com on February 4, 2009.

Dae Jang Geum -- Part II

2009-01-24T21:45:00.005-05:00

I commend to you a new review of a great work of art, Dae Jang Geum. The author of the review contends that it is a "work of Romantic art of the top rank, well worth the attention of anyone who values Romantic art." I agree. Read his review to judge his argument. Better yet, watch the series. (See my review of Dae Jang Geum here.)

The Curiosity Seekers: Modern Economics Is Irrelevant to Life

2009-01-08T16:46:00.012-05:00

When I was an economics undergraduate in the 1980s, I learned an astonishing “joke” among economists: “Torture the data and nature will repent.” My professor, a Chicago School economist who studied under Milton Friedman, used the joke to illustrate how a clever economist armed with the tools of statistics can “torture” the data to reach any conclusion he wished. My professor was an “empiricist” economist.

The other type of economists I encountered taught my classes in Keynesian macroeconomic theory. They spun intricate, mathematical theories divorced from the real world. They were the “theorists.”

Both approaches resulted in “conclusions” that, if they had anything to do with reality, it was only by smuggling in a better approach. Otherwise, the questions asked and answered by these economists were as relevant to human life as the questions debated by a group of peasants standing around a well in the Middle Ages or by a group of scholastic monks peering down at them from their monastery up the hill.

Now we have an article entitled “International bright young things” (The Economist, 12/30/08), which highlights the best and brightest new economists, as selected by their mentors.

One who calls herself a “randomista” uses randomized trials to answer economic questions. She recently demonstrated that “mothers in the Indian state of Rajasthan are three times as likely to have their children vaccinated if they are rewarded with a kilogram of [lentil beans].” The article wonderingly asks, “[who knew] such a modest incentive (worth less than 50 cents) [would] make such a big difference?”

Another has “proven” that regressive inheritance subsidies [that means subsidies for those who receive inheritances] would “take the edge off…the uncertainty” that results from the “biggest roll of the dice in life [which is] the family you are born into.”

Yet another “shows” that government must provide enough unemployment benefits so that “[t]he unemployed decide that an unhurried job search is worth the extra cost of depleting [their additional funds].”

Armed with rigorous tools of statistics and mathematics, and powerful computers, these economists are spinning their wheels answering questions about… nothing.

But they are missing the most powerful tool, the one that will give them the proper method and purpose for their efforts. Without that tool, these practitioners of a vital science have become seekers of unimportant curiosities at best and diminutive statist nostrums at worst.

That tool is a rational philosophy. Every scientist is guided by a philosophy that tells him what is the proper subject of study and how that knowledge can be gained. Today's economists are sorely in need of a rational philosophy, one that will point them to subjects that are more than a handful of lentil beans in importance, and to research methods that are more effective at discovering enduring principles than the randomista's spin of the wheel.

A philosophy like that exists. See Ayn Rand and her philosophy of reason called Objectivism.

***

I originally posted a version of this piece on the Harry Binswanger List forum.

Heroes of Capitalism

2008-12-30T10:14:00.005-05:00

I enjoy many good blogs, many of which are represented on the "My Reading" list that appears on the right side of this blog page. However, I want to draw attention to a great new one I discovered, "Heroes of Capitalism." Each day this blog features a businessman who improved our lives. Actually, the last part of that sentence is redundant because a successful businessman in a capitalist economy always improves our lives by creating goods that we value and purchase from him in trade.

The businessmen cited so far range from the well-known (Henry Ford and Steve Jobs) to the obscure (James Wright and Peter Hodgson, developers of "Silly Putty"), but all of them are benefactors to man. We can all thank them and have already done so, simply by purchasing and using their products, but this website goes further by publicly acknowledging their achievements.

Men like this need to be recognized. They are the "human face" of capitalism, the social system that frees them, and all of us, to produce. If I stop to think about it, nearly every second of my life I am using one of their products and my life has been made healthier, happier, longer, and full of great enjoyable things as a result.

Thank you, businessmen, and thank you to the producers of "Heroes of Capitalism" for bringing their good work to the attention of the world.

Bush Is No Champion of the Free Market

2008-11-15T07:29:00.004-05:00

Bush Is No Champion of the Free Market

November 14, 2008. Reprinted with permission from the Ayn Rand Institute.

Washington, D.C.—In a recent speech on the financial crisis, President Bush said, “If you seek economic growth, if you seek opportunity, if you seek social justice and human dignity, the free market system is the way to go.”

According to Yaron Brook, executive director of the Ayn Rand Center for Individual Rights, “It’s true that free markets are the source of economic prosperity and individual liberty—but President Bush, while he may pay lip service to free markets, has been a consistent opponent of them.

“Did Bush abolish the countless regulations and controls strangling businessmen? No. But he did sign into law Sarbanes-Oxley—the largest expansion of business regulation in decades. Did Bush consistently push for free trade? No. But he did give us a new steel tariff. Did Bush attempt to roll back America’s massive welfare state? No. But he did pass the prescription drug benefit, the largest new entitlement program since Lyndon Johnson’s Great Society. Did Bush curtail government spending? Far from it. Bush presided over an unprecedented increase in the federal budget: from $1 trillion at the time he took office to more than $3 trillion today. This is to say nothing of Bush’s response to the financial crisis. He has completely evaded his administration’s responsibility for the Fed and housing policies that created the housing bubble. Instead, he has led the chorus blaming the market and calling for unprecedented handouts, bailouts, and nationalizations as the cure.

“If Bush is a friend of the free market, who needs enemies? By praising the free market while systematically undermining it, Bush has done more to discredit capitalism than any open critic could. Like a con artist who undercuts the reputation of Mercedes by selling lemon look-alikes, Bush has now led people to associate his failed policies with capitalism. That association needs to be erased. We must make it clear: Bush is no friend of free markets.”

The Obama-Nation: Nightmares from Election Night

2008-11-06T07:38:00.016-05:00

I did not vote for Obama, but I am glad he got elected given the alternative. Yet, I fear we are becoming an Obama-Nation that is most assuredly an abomination. The Obama-Nation part is the insane cult of personality surrounding Obama, such as the Soviet-ish look of his posters, complete with Communist Red coloring.

I went to sleep early on election night but was awakened throughout the night and into the morning by the continuous sound of screaming. Throngs of Obama supporters screamed and swarmed through the streets of New York into the early hours of the morning. I cannot believe that people can scream continuously for so long. The screams gave me nightmares and in those nightmares I saw Obama's face surrounded by a red halo.

What is happening to America that people lose themselves and worship their Dear Leader? American individualism was notably absent during that election night. People became part of a great collective, and they pined for the man, their leader, who will deliver them from their fearful lives.

I will fight for American individualism, the land where each of us is free by right from our neighbors, and the government does no more than protect that right. America is far away from that now. The fight will be long and hard.

The Man Paying the Bill Gets to Determine Who's for Dinner

2008-10-27T09:15:00.021-04:00

In this case, it is Rep. Barney Frank. Of Wall Street bonuses, he says, "There should be a moratorium on bonuses." Just who is Barney Frank to tell private American businesses how much to pay their employees?

Well, he is the spokesman for their new minority owner, the federal government. As Chairman of the House Financial Services Committee, he gets to tell these companies what to do. So does any other politically ambitious petty bureaucrat and tyrant who wants to loudly score political points at these companies' -- and the American economy's -- expense.

What unleashed these ignorant clown-bullies on America's leading corporations is their partial nationalization orchestrated by President Bush, Treasury Secretary Paulson, and endorsed by Republicans and Democrats in Congress.

The real price of the $250 billion partial nationalization of America's leading financial firms will be much larger than just this dollar amount. We are only seeing the first signs of it now. Barney Frank and his minions are just fashioning the bibs to their bellies. Their feasting on America's leading banks and investment banks -- starting with Goldman Sachs, Morgan Stanley, JP Morgan, and Citibank -- has just begun.

Barney Frank claims to pay the bill for this dinner, but it is all of us who will pick up the tab. How much will it cost, not just in money, but in terms of our freedom?

Greenspan the Pragmatist

2008-10-25T10:10:00.114-04:00

The article below is reprinted with permission from the Ayn Rand Institute. My comments follow.

Greenspan Has No Free Market Philosophy

October 24, 2008.

Washington, D.C. --Opponents of the free market are giddy at Alan Greenspan's declaration that the financial crisis has exposed a "flaw" in his "free market ideology." Greenspan says he is "in a state of shocked disbelief" because he "looked to the self-interest of lending institutions to protect shareholder's equity"--and it didn't.

But according to Dr. Yaron Brook, executive director of the Ayn Rand Center for Individual Rights, “any belief Greenspan ever had in truly free markets was abandoned long ago. While Greenspan long ago wrote in favor of a truly free market in banking, including the gold standard that such markets always adopt, he then proceeded to work for two decades as leader and chief advocate of the Federal Reserve, which continually inflates the money supply and manipulates interest rates. Advocates of free banking understand that when the government inflates the currency, it artificially increases prices and causes booms in certain sectors of the economy, followed by inevitable busts. But not only did Greenspan lead the inflation behind the dot-com bubble and the real estate boom, he blamed the market for their treacherous collapses. Greenspan should have recognized that what he wrote in 1966 of the boom preceding the 1929 crash applied here: ‘The excess credit which the Fed pumped into the economy spilled over into the stock market--triggering a fantastic speculative boom.’ Instead, he superficially blamed ‘infectious greed.’

“Should it be any shock that Greenspan now blames the free market for today's meltdown--rather than the Fed's policies, which fueled an inflationary housing boom, which rewarded reckless lenders and borrowers from Wall Street to Main Street? Greenspan didn't mention the word ‘inflation’ once in his testimony.

“Whatever Greenspan's economic philosophy is, it is not anything resembling a free market.”

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Galileo Blogs comments:

I agree with this editorial. Greenspan's testimony on Thursday and his track record in government, particularly as Federal Reserve chief, reveal that he has abandoned a proper economic understanding of capitalism, if he ever had one to begin with. It is difficult to imagine that the man who wrote an article in the 1960s advocating gold-backed money issued by private banks entitled, "Gold and Economic Freedom," in Capitalism: The Unknown Ideal is the same man who flooded our economy with cheap money (such as 1% interest rates), and then failed to acknowledge that such cheap money is the root cause of both the Internet and the housing bubbles.

Instead, he humbly sat before a Congressional witch-hunt committee and joined the chorus in declaring that "self-interest" is the cause of the economic meltdown. What explains Greenspan's meltdown? That is what I will explore here.

Greenspan's congressional testimony and the statements in his recent autobiography show that that it is unlikely that the man who penned the article, "Gold and Economic Freedom," ever properly grasped the principles of capitalism and the moral principles that underlie it, or else he abandoned those principles long ago.

In his autobiography, Greenspan made two interesting revelations. First was the ostensive reason he gave for abandoning the edifice of Objectivism, the philosophy developed by Ayn Rand, which he also advocated in the 1960s. His reason was that he could not understand how capitalism could be financed through voluntary means, i.e., without coercive taxation. The second revelation is Greenspan's declaration that everyone is motivated by a desire for the admiration of others. I will show how both of these views of Greenspan shed light on the collapse of his legacy which reached its apotheosis in the excoriation he faced on Thursday at the House hearings on the financial crisis. To start, I will sketch some elements of Objectivism.

Objectivism is the only philosophy that provides a proper moral foundation for capitalism. That foundation consists of the morality of rational self-interest, which is based on a scientific examination of the requirements of man's survival. Underlying the approach is a commitment to reason, the method of using logic and the evidence provided by our senses to learn what is true. Reason requires the ability to think in principles. (I recommend Ayn Rand's books, The Virtue of Selfishness and Capitalism: The Unknown Ideal, for further explanation. In particular, I recommend the articles in those books entitled, "The Objectivist Ethics," "Man's Rights," "What is Capitalism?", "The Nature of Government," and for the discussion that follows below, "Government Financing in a Free Society.")

The method of thinking in principles is what Mr. Greenspan apparently failed to properly learn. A principle, once properly understood, applies to all instances of a phenomenon. A key principle in Objectivism is the right to property. Properly understood, this means that any person who trades for or creates wealth, gets to keep it. No one, including government, has the right to violate the rights of a property owner by using force against him to take or harm his property or person.

Because government cannot use force against its citizens, this means that it is immoral for government to forcefully expropriate property through taxation, regulation, or any other means. No society truly respects the rights of its citizens if its government employs coercive taxation.

This argument begs the question that apparently tormented Greenspan of how government can possibly finance its expenses through a voluntary means. Ayn Rand answered this question in her short essay entitled, "Government Financing in a Free Society." Ayn Rand makes the case that a government can be practically financed through voluntary means, but only if government had already been shrunk down to its legitimate functions. This means that government would only be spending money on the legitimate functions required to protect individual rights, namely the police, the courts, and the armed forces.

In the context of today's government, this means abandoning all forms of "income transfers" and welfare spending, including Social Security, food stamps, agricultural and business subsidies, "pork barrel spending," and so on. All of these programs entail violating the rights of some individuals as their property is stolen from them and then transferred to other individuals. This widespread government theft that must stop before a system of voluntary financing could even be contemplated.

The reason is not that hard to understand, and partially involves simple arithmetic. Government spending today consumes between 40% and 50% of gross domestic product. Such a heavy burden can only be financed through the expropriatory process of taxation. No voluntary system could work, nor would anyone be willing to make it work, if nearly half of his income went to fund every chiseler, con-artist, widow, orphan, sick person, and corrupt businessman around him. But if all such spending were eliminated, government expenditures would be an order of magnitude less expensive. They would probably consume just 1%-3% of gross domestic product. However, this state of affairs could only happen after a successful revolution in thinking has taken place over the span of decades, just as the original American Revolution did not happen until many decades after the first ideas underlying it were advocated.

This is the state of affairs that must exist for voluntary financing to work. Ayn Rand made this eminently clear in her article. Greenspan was part of a circle of students of Ayn Rand's in the 1960s. He spoke to her often and could have questioned her if any part of her argument was unclear.

Yet in his autobiography he blithely dismisses the edifice of Objectivism because of this single issue. His dismissal is off-handed. Unspoken but implied in his dismissal are the words, "But of course, how silly is it that anyone can take such an idea seriously." Well, anyone who has studied Ayn Rand's writings, seen or heard her speeches, or were so fortunate as to have known her in person, knows just how seriously Ayn Rand took all of her ideas.

Instead, what Greenspan reveals by his comment is that he did not take her ideas seriously, or perhaps more accurately, he did not take her ideas properly. By properly, I mean that he did not fully understand Objectivism as an integrated system of principles. The methodological essence of Objectivism (or any true body of thought), is that it is a statement of principles. Proper principles are validated by reference to facts and to each other.

Bearing that in mind, the issue of government financing is one of the last principles, i.e., the one furthest removed in time from all other aspects of her philosophy. It is almost an act of science fiction imagining at this point in time to demand that every last detail of a system of voluntary financing of government be worked out now before every other aspect of laissez-faire capitalism has been validated and put into practice.

The point is not that such a system of financing is impractical. It is practical. The philosophic case for it has been made, and the essence of its practicality is clear. For details read Ayn Rand's article, but I will just mention two points. First, with government properly confined to its legitimate roles, it would require very little money to be financed, compared with either the gargantuan level of today's government spending, or compared to the enormous productive potential of a future laissez-faire capitalist economy that would finance it. A future laissez-faire economy would be many times wealthier and more productive than today's hampered mixed-economy, and could easily provide the small amounts required to operate government's legitimate functions.

Second, Ayn Rand proposes at least one effective mechanism that would easily fund such a relatively small burden. That method is a simple fee paid for government enforcement of contracts. It would be calculated as a small percentage of the value of contracts. Enforcement of contracts is a core function provided by government in its role as protector of property rights. Such a voluntary fee, paid by those who want government to enforce their contracts, could fund all of government, including the courts and jails, and even a military.

Case made on this issue of the far future; today it is time to focus on more immediate issues such as the case for capitalism and against government intervention, which includes government manipulation of money (as discussed in Greenspan's article, "Gold and Economic Freedom") and all other interventions.

But Greenspan in his autobiography stated that he was unsatisfied with Ayn Rand's argument for voluntary financing of government, and this is the reason why he abandoned Objectivism.

Taking him at his word, this is a failure to properly understand and think in principles. If Greenspan were convinced of all the prior and more fundamental arguments for reason, and then for rational self-interest, and then how rational self-interest forms the moral base for capitalism, and then how capitalism is the only moral and practical social-economic system for man -- if he were convinced of all that, then how could he abandon it because he had reservations about Ayn Rand's thoughts regarding the voluntary financing of government, an issue that is last in this hierarchy of principles?

If Greenspan properly thought in principles, and properly understood the principles of capitalism, he would never have committed such an incredible thinking error.

Greenspan's failure to think in principles is revealed by the other comment he made in his autobiography. He said that everyone is essentially motivated by a desire for admiration by other people. Again, if he understood The Fountainhead and Atlas Shrugged, he knew that this idea is exactly what Ayn Rand denounces. Ayn Rand makes it clear that a person should be motivated solely by his evaluation of what is in his rational self-interest. Therefore, a person must have integrity for his principles. Therefore, the only admiration a person may value is that from people he himself admires, i.e., people who share his values.

But in his autobiography Greenspan states that one seeks the admiration of others, implying that the admiration of "the public" is a good thing. From which members of the public does he want his admiration, from the congressmen who grilled him at Thursday's hearing, such as Representative Henry Waxman? These are the same men who unbelievably denounced "deregulation" as the cause of the current economic crisis (which was actually caused by regulation), and who have demanded (and enacted) caps on the salaries of executives as part of the solution because "greed" and "selfishness," according to them, are the true causes of this crisis. Are these the people from whom Greenspan seeks admiration? Or is it from magazine editors, such as the Newsweek editors who placed him on the cover of their magazine as a member of "The Committee to Save the World"? Or, is it from Bob Woodward, the author of the glowing biography that calls him Maestro? Are these people, all of whom have always thought capitalism and self-interest are dirty words, the ones he wants admiration from?

Ayn Rand has colorful characters such as Peter Keating and Ellsworth Toohey in The Fountainhead, and James Taggart in Atlas Shrugged, and many others, who demonstrate in negation that a person must be of self-made soul. Just where is the soul of Greenspan?

In the final analysis, I believe that Greenspan never did properly think in principles. As a result, he allowed flawed ideas to gradually creep into his thinking so that the young man who circulated with Ayn Rand and wrote his brilliant economic essays in the book, Capitalism: The Unknown Ideal, never really grasped those ideas, and eventually allowed their opposite to germinate in his mind. The particular name of Greenspan's failure to think in principles is pragmatism.

The result of Greenspan's pragmatism was the sad spectacle of this seemingly broken 82 year old man knuckling under to the ignorant Congressional bullies. These are the same bullies who used their podium to hound many great, and not-so-great, captains of industry. They are the same bullies who hounded yesterday the man who could have been their defender. He is the man who either sold his soul, or never properly built it, and therefore gave it away in the pursuit of admiration from those who read Newsweek and vote for Representative Waxman. Yesterday, he sat crucified by these same people.

If I display contempt for Greenspan, it is only because I am jealous of someone who had such an unparalleled opportunity to learn from the great thinker Ayn Rand, and who squandered it and ultimately did worse. He sat at the foot of the congressional inquisitors and agreed with them that "self-interest" is the cause of the current crisis. In that moment, one can almost envision him holding a tattered newspaper in the rain, with a dirty boot print stamped over the face of someone he once claimed to have admired. However, instead of that being Gail Wynand holding the newspaper image of Howard Roark in the movie version of The Fountainhead, it is someone else kneeling in the rain holding a tattered newspaper. A different face appears on the front page.

One must never sell his soul, but to avoid doing that, one must build it on a foundation of properly understood principles.

The World's Tallest Buildings

2008-10-20T17:55:00.011-04:00

Enjoy this compendium of 20 of the world's tallest buildings under construction or planned for completion over the next few years.

My favorites are these:

(1) The Burj Dubai. At half a mile in height, it bears an uncanny resemblance to Frank Lloyd Wright's "The Illinois" proposal for a mile-high skyscraper. I have a print of Frank Lloyd Wright's superb drawing for this never-built skyscraper hanging in my study.

(2) Chicago's The Spire. I heard that work on this 2,000 foot tall residential skyscraper has been temporarily suspended due to the weakened economy. I can accept that setback, but not the regulatory one that nearly knocked this building out. I look forward to the resumption of economic growth eventually propelling the Spire skyward over Chicago.

(3) This is my favorite building, Marina 101. It evokes the rugged, honest skyscrapers of Louis Sullivan in my favorite city of skyscrapers, Chicago. Bracketed by the tall buildings around it and the warmth of the ocean and marina in front of it, it stands as a tall sentinel protecting its surroundings.

The two ugliest buildings are appropriately located in Moscow and Mecca, Saudi Arabia.

In the classic shape of an ancient mausoleum, or a pedestal for human sacrifices, this new Moscow pyramid promises to rise in the capital of the new Soviet state which, in its old and new incarnation, has caused the deaths of so many people.

In the spiritual heart of the land of nihilistic belief will rise this concoction, which could only have been inspired by that great fictional architecture firm of Francon & Keating in the novel The Fountainhead.

Although some of the grandest buildings are rising in the Middle East, the semi-capitalist leaders of the world economy including America, Hong Kong, South Korea (and arguably China) are also building some of the world's tallest new buildings. I cheer them higher!

(Partial) Justice 13 Years Later... O.J. Simpson Is Guilty

2008-10-04T08:44:00.004-04:00

A jury in Nevada convicted O.J. Simpson yesterday of armed robbery. In a poetic reminder of O.J.’s horrendous crime long ago, the verdict came in 13 years to the day that O.J. Simpson was acquitted of murdering his ex-wife, Nicole Brown Simpson, and her friend, Ron Goldman. Although overwhelming evidence confirmed O.J. Simpson’s guilt in those murders, including blood in his car and O.J.’s confessional statements, a largely black jury acquitted him.

The acquittal was unjust and shocking; the reaction to the acquittal was equally shocking. In New York City people feared racial riots before the verdict. Fearful, huddled groups of commuters stood in long bus lines in the middle of the afternoon to escape the city. Because most of the buses were scheduled for end-of-work pick-ups, there were not enough of them. People had to wait in long lines standing on the streets for hours fearing for their physical safety at every moment.

After the verdict, groups of blacks were dancing in the streets, while whites were perplexed and dismayed. Suddenly, people who had seen each other just moments before as individuals to be judged by their own, individual characters, saw each other instead as members of a racial collective. On that day, what mattered was not who you were, but the color of your skin.

That day also provided shocking evidence of how much damage the vital principle of individualism has suffered in this country. Groups of people saw justice in racial terms. For many blacks (and many whites), the essential fact in the O.J. Simpson trial was that blacks had been enslaved and persecuted in the past. Therefore, acquitting O.J. was a justifiable act of revenge for all those years of persecution.

Lost in this illogic is that O.J. Simpson is a single man, and Nicole Brown Simpson and Ron Goldman were single individuals. It was O.J. who murdered them and Simpson and Goldman who were his victims. By appealing to the false standard of “group justice,” justice was denied for each of these individuals. “Group justice” meant that O.J. Simpson would not be punished for his crime.

Collectivist thinking is not just the province of racism. Marxist collectivists also deny our individuality and see our identity solely in terms of belonging to the class of “the rich” or “the poor.” Thus, it is okay to “soak” the rich to “give” money to the poor. Isn’t that the essence of the government’s subsidy of “poor” homeowners over the years that led to our current financial crisis?

As we think not just about this financial crisis but about all matters of justice, remember that the essential unit is the individual. On that basis, I applaud yesterday’s verdict in the O.J. case and commend the prosecutor, judge, and jury. Although O.J. has not been punished for the crime he committed nearly 15 years ago, he is going to jail and that is where he belongs. Yesterday, the primacy of individual justice was affirmed. In that sense, this verdict reverses the grave injustice committed 13 years ago.

Galileo's Quick Take: Capping Pay Is Un-American

2008-09-24T07:26:00.006-04:00

As for the denunciations of greed by John McCain, Wall Street trader Jim Cramer, and so many others, it is just so... un-American! America was founded on the principle of "life, liberty, and the pursuit of happiness." That means that each of us is free to live good, happy, and prosperous lives, to the extent of our abilities. It is no skin off anyone else's back if you or I make a lot of money. In fact, it helps other people because it means I am producing goods and services that other people want to buy.

Well, Congress wants to cap that, literally, by capping the salaries of Wall Street executives. Where does it end?

The One Minute Case for Stock Shorting

2008-09-18T12:49:00.005-04:00

I originally wrote this for the website "The One Minute Case" here. Given that short sellers are once again a scapegoat for a declining stock market, I have decided to re-publish it:

What is stock shorting?

Stock shorting is a method of profiting from a decline in a stock’s price. It is the opposite of investing long, where the investor profits from a rise in the stock’s price. “Going long” or hoping for a gain in the stock’s price is the more familiar method of investing. However, “going short” and profiting from a decline in a stock’s price is an equally valid method of investing.

How does stock shorting work?

Shorting a stock is a little more complicated than going long where a stock is simply bought and then sold later for either a gain or loss. Shorting stock first involves borrowing it from an existing owner. The short seller pays a fee to the owner to borrow his shares. Upon borrowing it, the stock is immediately sold and the proceeds are kept in the short seller’s brokerage account. When the short seller wants to close out his position (or the shares’ owner wants them back), he buys equivalent stock in the marketplace and returns the shares he borrowed back to the owner.

If the stock has fallen in value, he makes a profit that is the difference between the price at which he borrowed the stock and the price at which he bought it back. Conversely, if the stock has risen in value, he suffers a loss since he has to buy back the stock at a higher price than he borrowed it for.

Short sellers fulfill a crucial and productive role in financial markets:

Short sellers bring to light valuable information about poorly run companies.

Short sellers have a strong incentive to uncover poorly run companies. If a short seller successfully discovers ahead of others that a company is destroying value through incompetence, bad luck or even criminal activity, he profits by shorting the stock and publicizing the information. Short sellers are similar to good investigative journalists. They make more money if they can “scoop” others with information that will drive the stock down.

It is this aspect of short selling that many company managers, regulators and others find discomforting. Yet these same managers and regulators have no problem when an investor uncovers a successful company. Why should they be opposed to someone who does the opposite, and uncovers the overvalued, incompetent, lazy or even fraudulently managed companies?

Short sellers help capital go to the best companies.

By taking financial capital away from poorly run companies, short sellers free up money that can go to the best-run companies. Short sellers are the other half of the value-creating process of financial markets whereby capital is continually re-directed to those who can put it to the most valuable use. The existence of short sellers means that capital will more quickly flee the poorly run companies and thereby become available that much faster for the better-run companies. The profit that a short seller makes is his reward for aggressively uncovering the poorly run companies.

Short selling is challenging.

Short selling is not for everyone for the simple reason that stocks generally tend to go up. During the 20th century, stocks gained 9% a year on average, although there was significant yearly variation. Stocks do not decline in value across the board for long periods of time. Because of this, short sellers must time their moves well, and attempt to short at the top of a stock’s move and then close out the position when it has hit bottom. If the short seller mis-times his moves, he will lose money. Such precision in timing is less important for long investors because stocks generally go up.

It is a misconception that short sellers can unfairly cause stock prices to go down.

This is the most common misconception about short sellers. However, short selling is only likely to be successful if companies truly have problems. If a seller shorts a strong or improving company, he will lose money. It is a misconception to think that short sellers (or long investors) can cause stock prices to deviate for meaningful time periods from their true values.

The only power a short or long investor has comes from being right. When he is right, he is rewarded for helping to bring true information to the marketplace. When he is wrong, his wealth is dissipated and his ability to invest further is diminished. If he is wrong often enough, all of his wealth will be dissipated and his ability to influence stocks will be nullified.

Conclusion: Short selling is moral and should be permitted.

Short selling creates value by making the capital markets work more efficiently. Short sellers help bring negative information about companies to the market. By doing so, short sellers provide liquidity to the market and help capital to flow away from the worst companies and toward the best companies. Without short sellers, markets would be less liquid and more volatile. Long investors would have more difficulty buying and selling their positions, and the lack of liquidity would make it more difficult for companies to raise funds in public offerings.

To restrict short selling not only harms the efficiency of the markets, but it violates the right of stock owners to freely dispose of their shares as they see fit. Because their shares belong to them, it is their property, they have the right to do what they want with them, including loan out their shares to short sellers. Conversely, short sellers have the right to borrow those shares.

A proper understanding of short selling demonstrates the valuable and productive role it plays in the financial markets.

***

9/25/08 clarification:
Added "buying and" to last sentence, third paragraph from bottom. It now reads: "Long investors would have more difficulty buying and selling their positions, and the lack of liquidity would make it more difficult for companies to raise funds in public offerings." For the reason, see my answer to J. Henry's question in the comments below.

From De Facto to De Jure: The Nationalization of Fannie Mae and Freddie Mac

2008-09-08T19:41:00.002-04:00

The weekend nationalization of Fannie Mae and Freddie Mac is nothing new. From their creation in the 1930s, these entities were government controlled. Whether government controlled them outright or had partially privatized them, government always called the shots. Government set terms on what types of mortgages they could offer, to whom, and in what amount. Most importantly, government provided a widely understood “implicit” guarantee of the debt issued by these entities. Unlike other financial institutions, Fannie Mae and Freddie Mac could issue debt (which was then lent out to mortgage borrowers) with the backing of the U.S. Treasury and Federal Reserve. That gave Fannie and Freddie an edge over private banks in making mortgage loans, by design. Reportedly, 50% of all outstanding mortgages are guaranteed by Fannie and Freddie, and as much as 75% of all new mortgages in recent years were issued by these agencies.

The government’s purpose in forming these entities was to make mortgages more widely available. Absent Fannie and Freddie, the other way to get mortgages has always been from private, profit-seeking banks, banks that had to safeguard their credit by striving to lend their money only to creditworthy borrowers. The only way Fannie and Freddie could out-compete these banks was by doing the one thing its government backing enabled it to do: lend to less creditworthy borrowers. This is a case of the bad credit driving out the good credit. In the space of 70 years, millions of uncreditworthy borrowers got mortgages as these government agencies pushed out the more prudent private banks and gained the largest market share in the mortgage market.

Now the loans are being called. The credit and stock markets are calling these loans en masse. The sheer weight of thousands of deadbeat borrowers has created a crisis that even the implicit guarantee of Fannie and Freddie’s debt by the U.S. government cannot ameliorate. So, this weekend the implicit guarantee has been made explicit.

That should make it fully clear to everyone, if it wasn’t during the past 70 years of the “implicit” guarantee. The lender to all these deadbeat borrowers, borrowers who didn’t qualify to get loans from private banks, is you, me, and everyone else in this country. We are all on the hook for the bad loans to our neighbors. That is socialism, and now it has been made explicit.

It Doesn't Matter Who Is President

2008-09-07T21:53:00.004-04:00

It is nearly impossible to know what a politician will do in office. I blame pragmatism for that difficulty. Nearly every politician succumbs to pragmatism, and pragmatism means that his ideas are divorced from his actions. Ideas are floating, unreal constructs to him, and actions are taken in response to range-of-the-moment considerations. As a result, any politician who proclaims certain ideals will not take those ideals seriously when he is in office. Instead, when he arrives in office, he responds to the day-to-day pressures that buffet him.

The question then becomes, what kind of pressures buffet him? When Jimmy Carter was president in the 1970s, an intellectual rebellion against regulation had arisen, led by figures such as Milton Friedman. Given the country’s economic malaise that Carter’s and his predecessors’ policies had produced and the need to “do something” new, Carter acquiesced to the de-regulationary proposals of Alfred Kahn and others. As a result, it was under Jimmy Carter’s administration, a left-wing Democrat, that airlines, trucking, and railroads were deregulated in the United States.

Consider also the example of Bill Clinton. Faced with the “swing to the Right” embodied in the 1994 elections, Bill Clinton, a conventional left-winger, relented and inaugurated partial welfare reform that reduced the future growth of welfare spending by billions of dollars.

Then consider the examples of Bush Sr. & Jr. Each Bush claimed to be for free markets. We “read the lips” of Bush Sr. on “no new taxes.” We also heard the claims of Bush Jr. to be for free markets. Yet Bush Sr. raised taxes when he was confronted by the pressure of Democrats and fellow Republicans complaining about a large budget deficit. For his part, despite his avowed “free market” stance, Bush Jr. could not resist the cries for protection from steel producers, most of whom, undoubtedly, donated large amounts of money to his election campaign. Therefore, he raised steel tariffs.

The examples I have cited show that party affiliation is a poor predictor of what a candidate will do in office. Also, his stated views have little bearing on what he will do. Rather, because of pragmatism, each candidate responded in a range-of-the-moment fashion to the general pressures around him. Carter and Clinton, although ostensibly anti-business Democrats, partially reduced regulation and the growth rate of welfare. Bush Sr. & Bush Jr., two ostensibly free market Republicans, presided over tax increases and protectionist policies, among other statist measures.

All four presidents were pragmatically responding to the “pressures of the day,” not the dictates of party or conscience.

I suggest that we try to understand what will be the “pressures of the day” tomorrow that will bear on McBama, when he is elected. I posit that those pressures will determine the policies, not the man. Moreover, I will venture that there are two sets of strong pressures that will influence him: (1) environmentalism, and (2) fear of intransigence vis-à-vis Islam. Thus, the next President, whoever he may be, will continue to enact alternative energy and anti-carbon policies, and will continue to take half-measures against the Islamists. I do not think it matters which man is President.

***

Note: This post first appeared as a response to Burgess Laughlin's comment on my prior post.

"Country First, Country First, Country First"

2008-09-05T07:06:00.001-04:00

These words championed on Republican banners during John McCain’s acceptance speech last night mark a dangerous inversion of the moral principles America was founded upon. Consider the principles as stated in the Declaration of Independence:

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. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed.

Man has certain inalienable rights, and to secure these rights governments are instituted among men. The individual is paramount in the Founders’ vision. The individual’s right to pursue his own happiness and the rights to life, liberty and property, which are his means of achieving it, is the purpose of government. Governments exist solely as the means to secure these rights.

McCain and the new Republican principles reverse that order. For them, it is country first. Service to the state is the ideal. John McCain himself represents that ideal, the patriotic soldier who re-discovered this principle while being tortured for six years in a Hanoi dungeon. In that dungeon, he says that he learned to stop saying “me first,” and learned to say “country first.”

McCain’s new discovery is actually very old. From his earliest days, man has been sacrificing himself to the state. Whether it was embodied in the tribe and king, or the shaman and witch doctor, or the collective, man’s fate was to suffer for others, until the first free country ever clearly enunciated a different moral principle.

The American Revolution was fought to overturn the principle of individual subservience to the state, to overturn the tyranny of kings and their ilk. In America, men could proudly claim their own happiness first. Their patriotism was based on the knowledge that the government existed to protect them from the tyranny of the state and the forceful violations of their rights by their fellow men.

McCain’s old vision is not patriotic, properly understood. Carried to its logical extreme, it will reduce our status to the level of serfs. Man will return to his traditional relationship with the state, that of subservience. Men will be put back in the dungeon.

While McCain himself does not represent that sort of tyrant yet in degree, he does represent it in principle. One of McCain’s heroes is Teddy Roosevelt. Teddy Roosevelt gave us “authoritarianism lite.” Like McCain, he bashed big business. Roosevelt busted up the big trusts, including Big Oil, which McCain also despises. Roosevelt was also an environmentalist, championing the establishment of the massive Parks system.

Expect more of the same from McCain and the new-old Republican Party, for now. For a vision of our longer-term future, study the history of every society that proclaimed the state first. The party of the state is not the ally of each of us who wants to pursue his own happiness. With country first, the individual is subservient.

Adults Have the Right to Drink Alcohol

2008-08-19T19:44:00.008-04:00

A group of 100 college presidents called the Amethyst Initiative has publicly declared its support for lowering the drinking age to 18. I agree with its statement and objective.

The legal principle of "age of majority" establishes when a child legally assumes the responsibilities and obligations of adulthood. Although children vary in their rates of maturation -- some children at 12 are more mature than others at 17 -- the law must establish a general norm at which children are recognized as adults. That age is 18 in the United States. At 18, a child legally becomes an adult and can enter into legally binding contracts governing property, money, and their bodies. Despite this legal recognition of responsibility to enter into contracts, be subject to criminal laws, and to have complete freedom to use their own bodies as they choose, our government infantilizes young adults by banning the drinking of alcohol.

In comparison to the awesome, legally-recognized freedom that comes with adulthood, the drinking of alcohol is a minor matter. To ban it is to insult the very concept of adulthood.

The signers of the Amethyst Initiative observe that the young 18-20 year-old adults routinely violate the 21-years drinking age. Young adults sense the contradiction that they have a legally-sanctioned freedom of action in every matter except one trivial area, the drinking of alcohol. On college campuses, they seek to violate this law, as they should.

The 21-years drinking age should be abolished. It is a contradiction to recognize the greater part of the freedom of adulthood and to deny adults the minor part of that freedom. The ban on under-21 drinking has done that; it infantilizes adulthood. Legally permit the drinking of alcohol and recognize that adults are responsible for their own lives.

***
Minor edit 8/20/08: Changed to "recognize" from "bestow" second sentence, last paragraph.

Property Rights and the Crisis of the Electric Grid

2008-06-19T18:37:00.006-04:00

I am pleased to announce that the above-entitled article, written by (non-pseudonymous) me, has been published by The Objective Standard.

The article addresses what went wrong with the electric grid, and traces its problems to a critical failure to secure a vital asset in the earliest days of the industry. That failure, apparent even before Thomas Edison threw the switch to light up America's first commercial electric grid in Lower Manhattan in 1882, haunts the industry to this day. What is that vital asset? Why and how must it be secured? If it is, what kind of future becomes possible?

My answer is here.

Money Unmoored by Gold

2008-06-09T12:18:00.010-04:00

A stockbroker friend of mine sent me this chart showing the ratio between the Dow Jones Industrial Average (and its equivalent predecessor index) and the price of gold. Notice the greater amplitude of variation in this ratio after Congress established the Federal Reserve Bank in 1913 and severed the connection between gold and money. After 1913, money could be created in arbitrary fashion by the Federal Reserve Bank. Further sundering the connection between gold and money in the 1930s, FDR's New Deal Congress outlawed the private ownership of gold, and clauses in private contracts that called for payment in gold. Finally, Richard Nixon's Congress severed the last vestige of the gold standard in the late 1960s and early 1970s by suspending the U.S. government's promise to pay in gold to settle international claims.

These moves to unmoor the dollar from gold coincided with the stock market swinging to higher highs and lower lows relative to gold. I interpret the chart as showing the effect of monetary inflation in the 1920s, 1960s, and 1990s, and then the impact of recession/Depression in the 1930s and price inflation combined with recession in the 1970s.

When the stock market was relatively high and gold low, in the 1920s, 1960s, and 1990s, the economy genuinely boomed, but that boom was artificially enhanced by easy money. That is why the ratio soared to higher highs than existed in the pre-1913 gold standard era. The result of that monetary inflation was an economic bust, as the dislocations caused by that monetary inflation harmed the economy. Inevitably, the excess money showed up in price inflation, especially evident during the 1970s "stagflation" when both recession and inflation cursed the nation.

Does this chart tell us anything about the future? The author of the chart would have us believe that we are headed for a 1930s or 1970s style economic catastrophe, as shown by the "Target Zone" marked on the chart. Certainly, the precursors for such a catastrophe have been established, and we are seeing the first signs of economic malaise of the 1970s variety. We had monetary inflation in the 1990s and 2000s, which is now manifesting itself in price inflation and incipient recession.

What is your interpretation of the historical meaning of the graph? What do the highs and lows of the various eras mean? Do you agree with my interpretation? What is your thought of the future? Are we headed to a low Dow/high gold ratio that we last saw in the 1930s and 1970s, or will such an economic disaster be averted? In other words, will our economy muddle along for awhile, or must we endure a true economic disaster before the economy improves?

I will offer my opinion later in the comments section.

A Short, Speculative Post

2008-06-03T05:09:00.005-04:00

Congress is blaming speculators for the barreling rise in the price of oil, as of this writing $126 per barrel.

In late 1998, oil dipped briefly below $10 per barrel. Where were the speculators then? Interestingly, at that time the U.S. dollar had been appreciating for about 4 years. It had appreciated roughly 25% by then from its bottom in 1995. The dollar is not the only factor*, but it is a significant one that explains the oil price. A good deal of today's gain in the price of oil, denominated in dollars, reflects the depreciation of the dollar.

Speculators are agents that transmit fact-based expectations about future supply and consumption trends into present prices. As such, they facilitate economizing between present and future supply/consumption. If the expectation is that future consumption will be high and supplies will be constrained -- or that nominal demand expressed in dollars will be high due to dollar depreciation -- then speculators will bid up the price of oil today. That is happening now.

The opposite happened in the late 1990s, at least with regard to the purchasing power of the dollar. Expectations were that its purchasing power would strengthen relative to the world's currencies. Therefore, speculators bid down the price of oil.

In regard to the general point of whether speculators can manipulate the market, they cannot alter the long-term or fundamental course of markets. Market prices incorporate such fundamental information. If a speculator positioned himself (incorrectly) against the long-term trend, he would be bankrupted very quickly. For example, if a speculator in the mid-1990s incorrectly bet that oil would go up, he would have lost his shirt.

Blaming the speculators is a lot like blaming the gas gauge for showing that your tank is empty, except that the "speculator gas gauge" is even smarter. It accounts not just for the amount of gas in your tank right now, but also for the nearness of a gas station down the road. The "speculator gas gauge" will adjust to reflect the ease with which you can fill up your tank in the future, thus encouraging you to either consume more gas or less right now, depending on those facts.

The speculator's role is very valuable. If the government restricts it, it will make the markets work less efficiently. Ultimately, this will mean less oil availability because it will become more costly to finance oil production and refining. Capital will demand a higher premium to invest in the oil industry if financial liquidity and quality market information about future demand/supply are reduced because speculation has been diminished by law.

**********************************************

NOTE

*The key fundamental factors keeping oil prices high in real terms (not just nominal terms, which is affected by the value of the U.S. dollar) are restrictions on Western drilling and the nationalization and cartelization of oil over the past 60 years. These two factors have diminished supply by taking it out of the hands of entrepreneurial oil companies and concentrating it in the hands of a smaller number of unproductive, state-run operations.

On the demand side, large new demand from China would act to keep prices high but in the absence of the supply constraints, prices would not have to rise as much as we are seeing, or could even fall. Consider that oil prices in the United States fell for decades during most of the late 19th and 20th centuries even while U.S. economic growth and oil consumption during much of that time grew at a rate comparable to China's growth rate today.

Thoughts on Safety

2008-05-31T09:44:00.003-04:00

A friend of mine recently renovated his apartment in New York. It was a gut job; the contractor peeled off the walls and removed the floors. After peeling off the surface layer, what did my friend find underneath? He found improperly braced sub-floors; no fire-stopping had been installed between his apartment and his neighbors; support columns were not covered with flame-resistant material; and insulation wasn’t put in around the windows, to name just a few deficiencies.

In the building he lives in, substandard pipes broke in the winter and flooded his apartment. Exterior wall coatings were improperly applied and leaked. Parapets were reinforced with interior-grade (not exterior-grade) wallboard and rotted.

There is an understandable explanation for how this happened. The developer of his building, a conversion of an existing 100 year old commercial building to residential use, went bankrupt during the recession of the early 1990s. He went bankrupt midway through the work on my friend’s building. So, in the midst of a recession and an awful real estate market, an unwilling bank had to take over and finish the job. They did a lousy job.

In a capitalist marketplace, there are bad actors. This developer clearly wasn’t a top-notch developer. He lacked the financial depth and customer base to survive the recession and went bankrupt. Good riddance. Capitalism continually cleanses out bad actors. He is not building anymore or, if he is, he is operating on the fringes.

But the question remains, where were the city inspectors during all this? Many of the conditions my friend discovered during his renovation and undoubtedly many, many more that are still hidden from view, are subject to the thousands of pages of city, state, and federal rules that govern construction. Many of the conditions my friend discovered are explicitly governed by laws designed to promote fire safety. The installation of fire-retardant material that can slow a fire’s spread between apartments, and fire-proofing support columns so that they don’t buckle under the heat of fire (as the columns of the World Trade Center buckled), are clearly within an inspector’s purview. Inspectors, by law, must regularly visit construction sites. Why didn’t they catch these potentially life-endangering failures?

My friend got a clue as to the answer. City inspectors also regularly visit renovation jobsites in New York. One day, as I happened to be in his apartment, a city electrical inspector showed up. A fat, slovenly, surly, disrespectful, and barely literate thing showed up at the door. As the new floors had just been laid down and polished, the project supervisor politely asked him if he could take off his shoes. “No, I don’t do that,” the inspector said. So, he asked, could he wear “booties” that workers wear so they don’t harm finished floors? Same answer.

So, while the slob thudded his way through the apartment to the nearly finished kitchen, he said, “You need a new outlet there.” That was that. I kept my mouth shut, because I knew that if I said anything, it would only anger the inspector and that would not help my friend who was trying to get his renovation done, on time and under budget. I almost spoke up because when I looked around the kitchen, I saw, literally, dozens of outlets. Underneath the cabinets, my friend had installed strips of outlets, spaced one foot apart. There were dozens of outlets in the kitchen, way more than could be needed to meet the minimal requirements of some construction code.

But I kept my mouth shut. So did my friend, and so did the project supervisor. All of us undoubtedly had the same thought on our minds. Keep our mouths shut, put up with this jerk, and wait for him to leave so that the real work could get done.

Now, when I think about the construction cranes that have recently fallen over in New York, I think of that city inspector. A representative of an industry association on television said that the problem is not that there are an insufficient number of inspections. The problem is that the inspectors need more training. Really? Does more training address the root of the problem?

When the city inspector left my friend’s apartment, I asked the project supervisor if he would ever hire a man like that city inspector to work as an electrician. He said that, as a rule, people who become inspectors are the bottom of the barrel. They are the unemployables that private industry would never hire. They become city inspectors because that is the only place they can get work. In fact, one employee his company had to fire became an inspector. Now he must deal with that fired, disgruntled ex-employee, who has the enforcement apparatus of the state to back up his incomprehensible (and possibly vindictive) demands. (Undoubtedly, there are some good inspectors out there, but the failure to demand good work inherent in government employment ensures that they are few and far between.)

When I think about my friend’s apartment renovation, I ask myself what is it that ensures quality and competent work. Is it the presence of city inspectors, or is it something else?

Then I consider how my friend chose his contractor. He interviewed many contractors, he got recommendations and checked references and, most importantly, he visited their work. The work of the contractor he chose spoke clearly. The way the floor boards were tightly joined together, the walls were perfectly smooth and properly finished off, the way all the details matched in a beautiful whole, and the politeness and quiet competence of the men and women he spoke with gave him the answer he needed. His careful effort in selecting the best contractor for the job paid off. The result is a beautifully renovated apartment.

My friend’s rational self-interest is what led to that good outcome. Because he wanted to live in a nice apartment, he selected a good contractor. Then it was the contractor’s good judgment that created a quality product. The pre-renovation apartment he moved into, built in the early 1990s, had been inspected, like all buildings in the city. Those inspections did not prevent a bankrupt developer and a desperate bank from doing a pitiable job finishing the building.

No, it was the lack of self-interest on the part of the developer who went bankrupt that led to his actions. If he had cared for himself more, he would have run his company better, and would have survived the recession. In contrast, consider the firm that my friend chose for his renovation work. It is over 20 years old. It has survived two recessions and it has never laid off an employee. Work comes to them in good times and bad because they are good at what they do.

Capitalism is the system that rewards contractors like the one my friend chose. It is the system that unleashes self-interest to flourish. By the same token, capitalism is ruthless at weeding out the incompetent and the immoral, like the sloppy developer who went bankrupt after doing such a poor job with the building conversion in the early 1990s.

An entire army of city inspectors will never ensure safety. Yes, it will “gum up the works” by wasting the time and energies of good people like the contractors who did such a marvelous job on my friend’s apartment, but it will never ensure safety.

So what will make sure that we live in safe buildings and those disasters like the cranes toppling over in New York City are rare occurrences? More city inspectors are not the answer. There is only one answer, and no one (at least nearly no one) is talking about it.

Criminalizing Work

2008-05-24T10:01:00.002-04:00

In an addendum to the recent federal raids on illegal immigrants around the country, 270 of them have been sentenced to five months in jail for illegally using identity documents to obtain work. The Orwellian nature of their “crime” stems from the fact that they fraudulently used those documents in the first place because of the federal law enacted several years ago requiring employers to verify that their workers are legal residents. In order to comply with the first unjust law, the workers forged or fraudulently used documents. For that they were prosecuted.

The judge stated his position very simply, “I don’t doubt for a moment that you are good, hard-working people who have done what you did to help your families.” “Unfortunately for you, you committed a violation of federal law.” So, according to the judge these people’s actions hurt no one and, in fact, helped their own families. In that sense, the actions of these immigrants were no different than anyone else who earns his living. But, all of that is irrelevant. All that matters is that they broke the law, however unjust.

The judge must enforce the law, but the promulgation of unjust laws and the brutish mentality that pursues enforcement of laws as ends in themselves is the mark of creeping fascism. A favorite tactic of a dictatorship is to promulgate so many restrictive laws that simply to live, one must break the law. That is what these (largely) Guatemalan immigrants have done. In seeking to live through work, they broke the law. For that, they are to be severely punished.

“’My family is worried in Guatemala,’ one defendant, Erick Tajtaj, entreated the federal district judge who sentenced him, Mark W. Bennett. ‘I ask that you deport us as soon as possible, that you do us that kindness so we can be together again with our families.’”

Godspeed, my Guatemalan compadres, and may you one day return to more welcoming arms.

Preservation Equals Destruction

2008-05-07T08:22:00.004-04:00

A rather unusual, ugly building built in 1964 is to be preserved at all costs. So says the unanimous ten member board of New York City’s Landmarks Preservation Commission. In a decision yesterday, each member of the Board stood up to defend the preservation of this building and eight others that comprise the polyglot assortment of buildings of St. Vincent’s Medical Center in Greenwich Village. St. Vincent’s wants to raze their collection of old buildings and build a modern hospital and a condominium tower in their stead. By selling land to the condominium developer, they plan to offset part of the $1.6 billion cost of their hospital redevelopment.

But none of this is to be. The ten member board and their allied activists, such as Andrew Berman, who heads the Greenwich Village Society for Historic Preservation, have nearly absolute authority over real estate development in vast swaths of New York City that are designated “landmark districts.” And they use their authority, in nearly all instances to “just say no” to any development at all. Occasionally, a new building is allowed to go up, but only if it is replacing a building that has collapsed due to old age and neglect, and only if the new building is built to strictly blend in with the old buildings surrounding it. Like envious neighbors, the adjacent buildings’ height and appearance get to graft their tired, old faces onto the shape and form of any new building that goes up. If the Landmarks Commission is successful, the new building will look old; its façade will represent the state-of-the-art in building construction, as it existed 150 years ago.

None of this will suit the managers of St. Vincent’s. Their new building must be larger than the surrounding buildings. Its façade cannot hide the state-of-the-art life-saving machinery that it will house. To save human lives, St. Vincent’s new building must be large, new and modern, each attribute of which is despised by the ten members of the Commission. Like berobed priests of a dead religion, these modern-day ascetics have the power to impose their worship of the old on the rest of us. They can destroy, both the property rights of St. Vincent’s and the lives of all those who would have gained health by using the facilities of a new, modern hospital.

Preserve dead things by destroying new things and life. That should be the motto of the New York City Landmarks Preservation Commission.

Exploit-the-Earth Day

2008-04-22T16:01:00.005-04:00

Guest column. Reprinted by permission.

On April 22, Celebrate Exploit-the-Earth Day

By Craig Biddle

Because Earth Day is intended to further the cause of environmentalism—and because environmentalism is an anti-human ideology—on April 22, those who care about human life should not celebrate Earth Day; they should celebrate Exploit-the-Earth Day.

As I wrote for The Objective Standard’s “Exploit the Earth or Die” campaign:

Either man takes the Earth’s raw materials—such as trees, petroleum, aluminum, and atoms—and transforms them into the requirements of his life, or he dies. To live, man must produce the goods on which his life depends; he must produce homes, automobiles, computers, electricity, and the like; he must seize nature and use it to his advantage. There is no escaping this fact. Even the allegedly “noble” savage must pick or perish. Indeed, even if a person produces nothing, insofar as he remains alive he indirectly exploits the Earth by parasitically surviving off the exploitative efforts of others.

Exploiting the Earth—using the raw materials of nature for one’s life-serving purposes—is a basic requirement of human life. According to environmentalism, however, man should not use nature for his needs; he should keep his hands off “the goods”; he should leave nature alone, come what may.

Environmentalism is not concerned with human health and wellbeing—neither ours nor that of generations to come. If it were, it would advocate the one social system that ensures that the Earth and its elements are used in the most productive, life-serving manner possible: capitalism.

Capitalism is the only social system that recognizes and protects each individual’s right to act in accordance with his basic means of living: the judgment of his mind. Environmentalism, of course, does not and cannot advocate capitalism, because if people are free to act on their judgment, they will strive to produce and prosper; they will transform the raw materials of nature onto the requirements of human life; they will exploit the Earth and live.

Environmentalism rejects the basic moral premise of capitalism—the idea that people should be free to act on their judgment—because it rejects a more fundamental idea on which capitalism rests: the idea that the requirements of human life constitute the standard of moral value. While the standard of value underlying capitalism is human life (meaning, that which is necessary for human beings to live and prosper), the standard of value underlying environmentalism is nature untouched by man.

The basic principle of environmentalism is that nature (i.e., “the environment”) has intrinsic value—value in and of itself, value apart from and irrespective of the requirements of human life—and that this value must be protected from its only adversary: man. Rivers must be left free to flow unimpeded by human dams, which divert natural flows, alter natural landscapes, and disrupt wildlife habitats. Glaciers must be left free to grow or shrink according to natural causes, but any human activity that might affect their size must be prohibited. Naturally generated carbon dioxide (such as that emitted by oceans and volcanoes) and naturally generated methane (such as that emitted by swamps and termites) may contribute to the greenhouse effect, but such gasses must not be produced by man. The globe may warm or cool naturally (e.g., via increases or decreases in sunspot activity), but man must not do anything to affect its temperature. And so on.

In short, according to environmentalism, if nature affects nature, the effect is good; if man affects nature, the effect is evil.

Stating the essence of environmentalism in such stark terms raises some illuminating questions: If the good is nature untouched by man, how is man to live? What is he to eat? What is he to wear? Where is he to reside? How can man do anything his life requires without altering, harming, or destroying some aspect of nature? In order to nourish himself, man must consume meats, vegetables, fruits, and the like. In order to make clothing, he must skin animals, pick cotton, manufacture polyester, and the like. In order to build a house—or even a hut—he must cut down trees, dig up clay, make fires, bake bricks, and so forth. Each and every action man takes to support or sustain his life entails the exploitation of nature. Thus, on the premise of environmentalism, man has no right to exist.

It comes down to this: Each of us has a choice to make. Will I recognize that man’s life is the standard of moral value—that the good is that which sustains and furthers human life—and thus that people have a moral right to use the Earth and its elements for their life-serving needs? Or will I accept the notion that nature has “intrinsic” value—value in and of itself, value apart from and irrespective of human needs—and thus that people have no right to exist?

There is no middle ground here. Either human life is the standard of moral value, or it is not. Either nature has intrinsic value, or it does not.

On April 22, let the world know where you stand. Don’t celebrate Earth Day; celebrate Exploit-the-Earth Day—and let your friends, family, and associates know why.

Dae Jang Geum, My Hero

2008-03-16T10:52:00.008-04:00

[Note: This review contains spoilers. For a shorter review, without spoilers, please look here.]

Dae Jang Geum ("Jang Geum the Great") is both a historical person and the title lead character in the Korean television drama series of the same name. Jang Geum was a historical figure about whom little is known in Korea during the 16th century reign of King Jungjong. What is known is that she was the first female royal court physician. She was the first -- and only -- woman to serve as the king's personal physician. She has been acknowledged in Korean history by a designation few get, and virtually no women: "The Great." With that title, she stands alongside such great Korean leaders as King Sejong the Great, who instigated the Korean Renaissance of the 15th century, and sponsored the creation of Hangul, the simplified alphabet that enabled literacy to become widespread in Korea.

Dae Jang Geum the television drama comprises 54 hour-long episodes. The author of the series, Yeong-hyeon Kim, draws on history and then fills in the gaps to tell the story of Jang Geum, who begins her life as the daughter of a noblewoman cast-out from the palace and the royal palace guard who gave up everything to be with her. They live in hiding, the father as a modest blacksmith, and the mother who keeps house and teaches young Jang Geum her secrets of cooking and medicine.

One of the early scenes in the series is of young 5-year old Jang Geum begging her parents to teach her to read. Her parents are afraid to do it, for fear that Jang Geum will give away their noble backgrounds, and put their lives in danger. But Jang Geum persists and her parents begin to teach her.

Jang Geum makes a mistake one day when some constables mistreat her father and she yells out proudly to them that her father is a royal guard and they have no right to touch him.

Her mistake sends her father to prison, and she and her mother must flee.

From this troubled beginning, young Jang Geum makes her way to the palace, where her mother once worked, and enters the court as a trainee in the royal kitchen. In the class society of ancient Korea, as an orphan Jang Geum is considered the lowliest. But despite the torments of some of her schoolmates and jealous teacher, Jang Geum persists, and she learns to cook in the top kitchen of the land.

The scenes of Jang Geum and the other "kitchen ladies" cooking are something of beauty in terms of the colors, smells (you can almost smell the food!), and the incredible dedication with which the food is made. Jang Geum is taught by her wise teacher, Lady Han, that the kitchen is not a place for palace intrigue. Nothing must compromise the integrity of the food and the meals that they prepare for the royal family.

Even as a young apprentice, Jang Geum shows a mind that works differently than her peers. She investigates everything in a methodical manner. She tests various ingredients, and even different types of water for their various food properties. She discovers the source of spoilage when vegetables mysteriously become bad. She learns how to "draw a taste," that is make tasty, healthy meals by mixing ingredients in ways that have never been tried.

Jang Geum must fight those who stand for tradition every step of the away. Yet she persists.

Eventually, through many plot twists, Jang Geum finds herself cast out of the palace. But even when she is banished to a a small island off of Korea's southern tip, she continues her pursuits with dedication.

Eventually, Jang Geum finds her way back to the palace and becomes a physician lady. The position has lower status than court kitchen lady, but it is her way back in. It is as physician lady that we see Jang Geum's mind fully at work. As a physician, she is a scientist. She conducts field trials and medical research to find out the truth. At every step of the way, she is pitted against the traditionalists, who insist on doing things a certain way because they were always done that way, or because that is how it is written down in some ancient Chinese medical texts. She is pitted against the nobles, who retained their titles by privilege. Yet she persists.

Although many oppose her, Jang Geum has loyal friends along the way, including the man she falls in love with. At the end, she defies all historical precedents and risks everything to save the life of the king.

There is so much to love in this series: Jang Geum the little girl who shows kitchen ladies decades older than her how to properly sterilize water. Jang Geum the apprentice kitchen lady who stands in for her kidnapped mentor and prepares dishes by herself for the king and queen in a food competition. Jang Geum the fighter who will not rest until she avenges those who killed her mother. Jang Geum who is loved so deeply by the court scholar who would kill an army if he had to to save her life. Jang Geum the "lowly" court physician who will risk not just her own life, but even the lives of everyone she loves, to save the king. Jang Geum the scientist (in a day when there were none) who relentlessly asks why, and looks to natural evidence for answers.

I love Jang Geum the hero, the scientist, the little girl and grown woman, in this series.

The supporting characters are also larger than life. Her buffoonish step-father, who secretly spies for her, at the risk of his life. Her fearless doctor-mentor on Jeju Island who was awed even at Jang Geum's courage. Min Jeong-Ho, the court scholar official, who cannot love her by law, and yet stands by her through every crisis. Lady Han, her mother-figure and mentor, whom Jang Geum supported and gave strength.

Even the evil characters are larger than life. Lady Choi, who will relentlessly fight to preserve her family's legacy of serving the royal kitchen. The merchant Choi, who seeks to preserve his business empire based on his monopoly of food trade with China. Choi Keum Yang, who is Jang Geum's equal in the kitchen, but tragically loves the same man Jang Geum does.

I highly recommend this series. You can watch it with English subtitles. Occasionally, the translations don't do full justice to the Korean, which is a beautiful, poetic language, although you can almost always figure out the meaning in context. If you have a Korean-speaking friend, corral him or her to watch it with you. But that is not necessary to thoroughly enjoy this Eastern treasure.

Global-Warming Authoritarianism

2008-02-22T08:29:00.006-05:00

Reprinted with permission from the Ayn Rand Institute. My comments follow.

February 20, 2008.

Irvine, CA--Many people are calling for drastic political action to cope with climate change. But the authors of a new book, The Climate Change Challenge and the Failure of Democracy, go much further, claiming that global warming can be effectively dealt with only by "an authoritarian form of government."

In an article promoting the book, co-author David Shearman praises China's recent ban on plastic shopping bags, expressing special admiration for its authoritarian quality. "The importance of the decision," he writes, "lies in the fact that China can do it by edict and close the factories."

"Views like this reveal an ugly and ominous aspect of the political frenzy surrounding global warming," said Dr. Keith Lockitch, a resident fellow of the Ayn Rand Institute. "Though easy to dismiss as overwrought and atypical, such views expose a very real authoritarianism underlying the calls for action on climate change.

"While few global-warming activists are willing--as Shearman is--to come out in favor of openly dictatorial policies, the kinds of laws and regulations that activists do call for will hand a comparably frightening degree of control over our lives to politicians and environmentalist bureaucrats.

"In one form or another, every minute of our every day involves the emission of carbon dioxide, the primary greenhouse gas claimed to be the cause of climate change. Every moment we spend running our computers, lighting our homes, powering countless labor-saving appliances, driving to work or school or anywhere else--we are using industrial-scale energy to make our lives better.

"But global-warming activists want our use of the fossil fuels that provide the major source of that energy to be strictly controlled by the government and severely curtailed, no matter the harm that causes.

"Despite the constant assertion that global-warming science is 'settled,'" Lockitch said, "it is far from certain that we face any sort of catastrophic global emergency. But in the name of 'saving the world' from unproven threats, such activists want to impose a draconian regimen of taxes, laws, regulations and controls that would affect the minutest details of our existence. Their solution to their projected 'environmental disaster' is to impose an actual economic disaster by restricting the energy that powers our civilization and subjecting its use to severe political control.

"Let us not allow panic over the exaggerated claims of climate alarmists to deliver us into the hands of would-be carbon dictators."

************************************************************************

Galileo Blogs comments:

This is an excellent editorial that captures the essence of what is wrong with those who want to curtail human emissions of carbon dioxide in order to stop the alleged threat of global warming. In essence, it would create an "actual economic disaster" to stop the potential and not yet proven disaster of global warming.

Moreover, it can only do so by imposing dictatorial controls over our daily lives. This is so because "every minute of our day involves the emission of carbon dioxide." How can a government restrict our activities in such an intimate manner without assuming dictatorial powers?

This fight against global warming will enslave us and impoverish us to achieve its purported goal.

The proper image of our future, should the global warming dictators be successful, is Bangladesh, a poor and authoritarian country where thousands of people die every few years from floods. Contrast Bangladesh with Holland. Thousands of Dutch have lived below sea level for hundreds of years, yet they are safe from floods, protected today by a multi-billion dollar system of dikes, high-tech sensors and dams. However, the real protection of the Dutch against floods is their wealth. The Dutch can afford to protect themselves from floods.

Their relative freedom is what makes the Dutch wealthy. In contrast to the freedom and wealth of the Dutch, and the protection they offer against floods and other natural threats, the coming global warming dictatorship will only ensure that the entire world becomes like Bangladesh.

Where would you rather live?

Making Socialized Medicine Real

2008-02-09T16:03:00.000-05:00

This Canadian patient of that country's system of socialized medicine offers a warning to Americans. It will happen here, unless politicians learn that Americans don't want it.

(HT: Truth, Justice and the American Way)

This Is Not Capitalism

2008-02-04T20:23:00.000-05:00

Yesterday, Google began an effort to lobby government to forcefully prevent Microsoft from acquiring Yahoo. Over the weekend, Microsoft had announced an offer to acquire Yahoo. The offer price was a generous one, amounting to a 61% premium for holders of Yahoo stock. This is a serious, attractive offer for Yahoo shares by a serious, deep-pocketed acquiror. Yahoo investors would receive either cash or stock in the new combined company.

Google wants to step in between this pending marriage-by-choice between Microsoft and Yahoo's shareholders. How do they intend to do it? Are they going to offer a higher price? Are they going to attempt to persuade Yahoo's shareholders that the deal is not in their interest?

No.

Google's first stop wasn't to its bankers to make a better offer to Yahoo shareholders or to its public relations experts to make the case to shareholders why the acquisition was not in their interest.

Google's first stop was to Washington. Google immediately instructed its lobbyists to concoct arguments against the merger that would persuade congressmen and regulators to scuttle the deal. This type of "persuasion" hardly costs Google anything. For the price of some hundreds of thousands of dollars in lobbyists' fees, fees that legally bribe congressmen in the form of campaign contributions, wine-and-dine them over dinners and soirees at expensive restaurants or through more nefarious contributions to designated "charities" and honoraria for "speaking engagements," Google can scuttle the potential Microsoft-Yahoo deal on the cheap. Certainly for a lot less money than having to top Microsoft's $42 billion offer for Yahoo.

Google will wrap all of this in some sort of argument about how a Microsoft-Yahoo combination will hurt "the public." That argument is expensive hogwash concocted by mercenary economists and lawyers. Even if Microsoft and Yahoo merged, their combined market share in Internet search would be a fraction of Google's. Google is the big gorilla in Internet search (a position they did earn legitimately) and they would remain the big gorilla even after a Microsoft-Yahoo merger. (Actually, it doesn't matter what Microsoft-Yahoo's market share would be. Even if it would far exceed Google's, it represents no harm to anyone. Such market share was earned in the marketplace and would have to be defended in the marketplace.)

Google earned its impressive leadership in Internet search and advertising by aggressively offering a more valuable service than its competitors. I use Google everyday and I marvel at the elegance and power of how they make the Internet useful to me. Google earned their position, but instead of keeping it through further entrepreneurship, they will use the same method the Mafia uses to keep its "market share": the pointed end of a gun.

The fact that this gun is legally held by the chairman of the Federal Trade Commission or by the Speaker of the House does not change its nature.

Capitalism is the system based on the opposite principle to the Google principle used against Microsoft and Yahoo. Capitalism is not based on force, but on voluntary trade. It is based on a person's right to his own life and the corollary of that right, his right to property. No one has the right to violate another's rights through the use of force.

That is exactly what Google wants to do. It wants to use the government's policing power to violate the rights of Microsoft's and Yahoo's shareholders to associate or not as they see fit.

Remember that Google's actions, in their essence, are no different than a Mafia chieftain who hires a street gang to tear up and destroy businesses that refuse to pay him protection money.

This is not capitalism; this is hooliganism.

Ignorant Billionaire Fashions Noose

2008-01-24T16:32:00.000-05:00

Karl Marx once said, “The last capitalist we hang shall be the one who sold us the rope.” Bill Gates has been selling long stretches of that rope lately. In his speech today at the World Economic Forum, a gathering of leading businessmen, politicians and aid officials, Bill Gates said, “We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well.” He went on to exhort fellow business leaders to devote their personal time and energy to finding ways of helping the poor.

Admittedly, Gates calls on executives to serve “a twin mission” of “making profits” while simultaneously “improving the lives of those who don’t benefit from market forces.” Just how businessmen are to make profits in regions, such as the Third World, that have essentially outlawed market forces is not explained.

Gates’ premise in these statements is that capitalism serves only the rich. Moreover, capitalism, on its own, is incapable of benefiting the poor.

This premise is dangerously wrong. A clear-headed reading of economic history, a clear understanding of economic science and, most importantly, a proper understanding of philosophy, will prove the correct point. Economic history tells us that capitalism is the only system that radically lifted the standard of living of the poor, such that today’s poor in Western, industrialized, semi-capitalistic countries are far wealthier than even the rich of the Middle Ages or ancient times. Their lifespans have more than doubled, they have comforts such as air conditioning and heat and entertainments such as television and the Internet that no one could have imagined in ancient times. These advances did not materialize out of thin air. Rather, they were the result of capitalists who made billions by inventing and selling the life-enhancing and labor-saving devices that improved human lives, such as vaccines, mass-produced automobiles and food, and electricity. High on this list is the benefit of mass-scale, low-cost computing that Bill Gates himself helped to pioneer.

Economics tells us that all wealth must be created by profit-seeking businessmen, or at the very least by self-interested individuals pursuing their own benefit. Without profits, businessmen lack both the incentive and the means to create. Factories are not built out of thin air, nor are salaries paid out of thin air. The accumulated capital borne of profits pays for the creation of factories and the goods those factories produce.

Bill Gates is also ignorant of philosophy. Philosophy teaches us that certain conditions are required for men to exert the effort required to produce goods. Specifically, production depends on having secure property rights, which means the right to make an unlimited profit. Together, philosophy and economics teach us that one man’s gain is another man’s gain, if everyone deals with each other through the principle of trade. This means that no one can use force to steal the wealth of another. Underpinning the right to property and the principle of trade is every person’s right to his own life, which means the right to use his own mind to produce the things he needs, without interference from others.

Bill Gates is not explicitly calling for stealing the wealth of the rich in order to give it to the poor. He hopes, somehow, that businessmen can serve “a twin mission” of “making profits” while simultaneously “improving the lives of those who don’t benefit from market forces.” But isn’t that what businessmen already do today, at least to the degree to which countries respect property rights and allow them to earn a profit?

What Bill Gates is calling for, without explicitly naming it, is for businessmen to give away their wealth and personal energy the way he has to corrupt Third World countries where it is all but impossible to earn a profit. Where businessmen can serve the twin masters of making a profit and helping the poor, they are doing it already. They do it simply by selling their goods for a profit. Isn’t that what Coca-Cola or McDonald’s or Microsoft (to name three products widely enjoyed by both the poor and rich in Western societies) are already doing in Europe, the United States and Japan?

Capitalists are not selling products in Africa because they are subject to the arbitrary vagaries of dictatorial governments that will steal their wealth at every opportunity. They will steal their wealth through arbitrary and confiscatory taxation, nationalizations, inflation and, endemic throughout the Third World, Mafia-style extortion and bribery demanded to do business. Property rights are an unheard-of concept in the Third World. They are violated every day, egregiously, with one consistent result: massive poverty and frequent episodes of death due to disease, starvation and mass murder.

The only cure for all this is one thing: capitalism. But capitalism is what Bill Gates is setting out to destroy whether he intended to or not. Bill Gates is destroying capitalism by smearing it with the Marxist falsehood that it only serves the rich and does not help the poor. Bill Gates cited a laundry list of books that have influenced him, some of which are quite good, such as the writings of the economists Adam Smith, Julian Simon and Hernando de Soto. However, the one author who best explains the roots of capitalism, and therefore the roots of prosperity, is the one not mentioned: philosopher/novelist Ayn Rand. I would commend to him, at a minimum, her novel Atlas Shrugged, and her collection of essays, Capitalism: The Unknown Ideal, if he wishes to learn what it truly takes for individuals and societies to become wealthy.

What Bill Gates doesn’t get is that wealth is only created through the productive efforts of businessmen. Businessmen and everyone who benefits from their products – i.e., all of us -- need capitalism, the system based on the recognition of the right to property and its root, a man’s right to his own life. Bill Gates just doesn’t get it, and the world is poorer as a result.

Bush Bulbs

2008-01-08T17:33:00.000-05:00

Back after a holiday hiatus, I will comment on Bush Bulbs. Hat tip to Gus Van Horn for coining the phrase to refer to the anything-but-incandescent bulbs that we must legally use after incandescent bulbs become illegal in 2014 under the energy bill just signed by President Bush.

I will leave aside reference to the utter lack of moral principle that Bush, a man who at one time opposed the Kyoto Treaty on global warming, displays now that he embraces the environmentalist agenda and enacts legislation that begins to make our lives just a little bit (at first) more nasty, brutish and short.

I will not dwell on the violation of my property rights, my freedom to spend my money as I want to on the things that I value, that is represented by Bush Bulbs.

I will mention just how lousy these bulbs are.

They do not work in dimmer fixtures, which I recently installed throughout my apartment.

They do not turn on quickly.

Their spiral shape is ugly.

Their light is cold and disturbing, reminding me of a sterile office. This is not the feeling I want when I am in my home.

They are extremely expensive.

Their light flickers.

It causes headaches in some people.

The bottom line is that I don't want them.

I tried them once, way before legislation was passed to make them obligatory. That is when I discovered most of these unpleasant characteristics. I am not alone in my opinion, as evidenced by their paltry market share.

But, even if everything about them was great, what is most disturbing about Bush Bulbs is that I am forced to use them.

It is in a shower of small infringements of my freedom such as this one that I will find myself one day drowning in a society that is not free. The American Revolution was fought over stamp taxes and tea duties. But was it really? Our forefathers understood that a government that has the power to dictate even the smallest part of our lives has the power to direct all of our lives.

Bush Bulbs mean not just lights out for incandescent bulbs. Bush Bulbs mean lights out for freedom.

A Thanksgiving Day GUEST COLUMN

2007-11-22T19:22:00.000-05:00

Thank You

by Dr. Michael J. Hurd of DrHurd.com:

Most are thankful to God. I am thankful to man -- specifically, to those individuals who (over the centuries) have created the countless things I need for survival and enjoyment: automobiles, plumbing, mass produced food, medicine, electricity, computers, televisions … the list is endless. I know who many of those inventors are, and I can see, feel and enjoy the benefits of their inventions in my daily life. There are many inventors whom I don't know about -- some of them unsung heroes who never obtained the credit they deserve -- but whose contributions to the wealth and comfort around me are evident all the same.

Most feel that the proper expression of thanks is faith -- in what is not exactly clear, just "faith" in some unknown and never-named source or entity. My expression of thanks is expressed through something entirely different: reverence for reason.

Reason represents the best of the human spirit. It is a capacity that virtually all human beings possess to one degree or another. Yet it can only be exercised through choice. The computer I type on now, the lights which illuminate my office, the health I enjoy -- all of these came into existence because of countless choices made by different individuals at different times in history (coupled with many of my own choices, and the choices of those close to me). From Thomas Edison to the less well-known heroes (in business) who market and distribute products in our (semi-) capitalistic system -- I am grateful and thankful to them all. I am thankful not that they exercised faith or went to church or worshipped a mystical entity -- or spent a few hours at a soup kitchen, feeding the homeless -- but rather that they chose to use their intellects in a way from which I (and many others) could benefit.

Life -- and all that life has to offer -- is the ultimate reward of goodness. Goodness enhances life; it does not destroy or take away from it. Anything or anyone who contributes to life -- my life, your life, or life in general -- deserves thanks. I understand that my benefit was not their goal -- instead, their work and its rewards were their goals. Their quest for financial and/or intellectual profit was, quite properly, their goal. I like it when people are selfish in this sense. The more selfishness people possess, the more (in the exercise of that self-interest) they create and produce. That's the means through which the world becomes a better place.

I look around my office, around the country, around the world, and I see the best and the worst of mankind. I wonder if at any time in history we have seen the presence of such heroic genius and unspeakable evil on one and the same planet. I feel love and gratitude when I look at the benefits of rational, productive, and capitalistic civilization. I despise only those who seek to destroy it. My enemy is the last person I would ever love; I only seek his annihilation -- from my presence, if he's not violent, and from existence, if he is.

I don't want to live in a world with more humility, more "compassion," or more faith. The platitudes most of us will hear today are unbearable. I will not turn on the television and listen to the Pope, the President, or the local homeless shelter manager preach them. This is why I offer you the opposite message: I want to live in a world with much less faith, humility and selflessness, and much more reason, productivity, and quest for profit (material, intellectual, or both). Let reason, freedom, and material prosperity flourish -- and the rest will follow.

If only others shared these ideals, how different the world would be. How much our enemies would fear us, rather than spit upon and seek to destroy us.

Nevertheless, I am delighted and grateful that I live in a world where reason and capitalism and rational self-interest have gained as much ground as they have. For this I am indeed thankful -- though only to those who, through their own choices, helped make it possible.

Re-posted by permission.

Hands Off Barry Bonds

2007-11-17T12:44:00.000-05:00

Barry Bonds, the former San Francisco Giants slugger who has hit more home runs than any other professional baseball player in history, faces jail time for lying to federal prosecutors about his alleged use of steroids. The use of steroids to build up one's muscles and thereby become a more powerful athlete is illegal. Many would argue that steroid use invalidates the achievements of Bonds and the other athletes who have used them. That is not the point here. Whether steroid use invalidates a sporting achievement is strictly a matter between the sports associations, team owners, the players, and their fans. It is a private matter for these parties to sort out themselves, not a criminal governmental matter. (It may involve the government if Bonds violated a contract and there are lawsuits among the affected parties. However, that would be a private dispute being adjudicated by the courts, not a criminal matter.)

The Bonds prosecution is just one more instance of the government assuming de facto ownership of our bodies. Can I ingest a drug of my choosing that my doctor and I believe can treat a rare cancer? No, unless the drug manufacturer invests many tens of millions of dollars to pass bureaucratic hurdles set by the Food and Drug Administration. Can I choose my own medicines, including antibiotics, to treat myself? No, under the prescription laws I must first pay a doctor to make that decision for me. Can I eat foods containing "trans fats" at a restaurant in New York City? No, because the city has banned such foods on the premise that I am incapable of making such choices for myself.

As government officials now make many of the basic decisions affecting our health and well-being, Americans have become infantilized. No longer are we sovereign adults who exercise self-reliance and self-responsibility to govern our own lives. The government makes such choices for us. We now live as children, not free adults.

Every person owns his own body by right. If you own your own body, this includes the right to put any substance you choose into it. If it is illegal for Bonds to make such decisions regarding his body, then his body is no longer his; it now belongs to the government.

If the government owns our bodies, by implication not only can it tell us what we can and cannot put into them, but also what we can do with them, such as whether we can have abortions.

Our freedom will only be restored if each of us individually, fully and without limitation, owns his own body and such ownership right is fully and completely recognized by the government. True ownership of our own bodies means we can do what we want with them, so long as we do not harm another person.

Barry Bonds has hurt no one, except possibly himself, by allegedly taking steroids. That is his right. It is true that Bonds is technically being prosecuted for lying to federal investigators, not steroid use as such. However, he should not have been questioned about steroid use in the first place. Morally, ingesting steroids or any other substance is not a crime.

I say to the government: hands off Barry Bonds. Hands off his body, and hands off mine. I own my own body and have a right to use it as I please.

Frozen Faces and Frozen Minds

2007-11-14T12:45:00.000-05:00

The facades of New York's buildings are like faces. Behind those faces are the minds of the architects and engineers who built them and the minds of the businessmen and residents who work and live in them. Those facades -- the face of the city -- have changed remarkably over the past 125 years. Before the first steel skyscrapers were built around the turn of the last century, building heights were practically limited to not much more than ten stories, and typically much less. Four to six stories was most common.

Despite the emergence of skyscrapers, walk around many streets of New York and, apart from the sight of cars parked on the street and people dressed in modern clothes and talking on their cell phones, you could still swear you were in the 1880s.

That 1880s vista has been frozen in place throughout much of Manhattan by New York City's "landmarking" laws. Those laws ban nearly all construction in the large and growing landmarked zones of the city. If any building is to be allowed, it must be a clone of existing building styles. Although some construction ends up getting built on a vacant lot or at the site of a building that must be razed because it is ready to collapse, no new tall buildings are ever permitted. The rare new building in these landmarked zones, as a rule, must be short and blend in with its ancient surroundings.

The city's landmarked neighborhoods often possess a certain charm. In fact, the Landmarks Commission seeks out the charming neighborhoods to landmark. As of this writing, there are 45 landmarked zones in Manhattan. In addition to the landmarked zones, 1100 individual buildings have been landmarked. While it is difficult to say what percentage of Manhattan's 23 square miles is now essentially off-limits to development, one can get a sense of this number by looking at the sheer size of some of these landmark districts:

The Greenwich Village Historic District (established 1969) covers 86 city blocks.

The Upper East Side Historic District covers 57 city blocks.

The Upper West Side Historic District covers 51 city blocks.

The Tribeca Historic Districts cover 49 city blocks.

The Ladies Mile Historic District covers 19 city blocks.

The Noho Historic District covers 14 city blocks.

These are some of the larger districts. 45 of them now encompass much of Manhattan. New districts and buildings are being added every year.

Interestingly, the formation of these districts tends to coincide with a rise in property values of the frozen regions. Each new landmarked building or neighborhood in New York diminishes the potential supply of new places to live and work. As a result, the value of existing property tends to go up.

New Yorkers who already own property feel wealthier because the value of their property has gone up. Moreover, they marvel at the charming neighborhoods of the city that have been preserved seemingly in perpetuity for their enjoyment.

All of this comes at a price. That price is the violation of their property rights. What of the New Yorker who wants to sell his building to a developer who wants to put up a skyscraper on that land? It is forbidden. What if the owner of a crumbling 1880s-era building wants to replace it with a modern, comfortable building with central air, well-insulated walls and skylights? He can't do it, unless the building he lives in is in imminent danger of collapse. In fact, city officials may require him to install expensive bracing to keep his ancient brickpile aloft. If even expensive retrofitting can keep his building standing, he must employ those methods before he will ever get permission to tear it down or simply let it collapse. If one looks closely, you can see these teetering braced, nearly-ready-to-collapse buildings around the city.

One person's beautiful historic landmark is an uncomfortable, expensive to cool and heat, dreary building to another. Some find 1880s row houses beautiful. Others prefer a gleaming 100-story skyscraper. Regardless, the real debate is not about building esthetics. It is about rights. By what right does one person forbid another the disposition of his property as he sees fit?

Economically, as one would expect, violations of property rights are not without consequences. In the case of New York, as its neighborhoods become expensive "Disneylands for adults" as an unknown commentator described it, businesses and people are being priced out of the city. As the city becomes an uneconomic place to live and work, businesses and people leave the city, or simply do not move here in the first place.

This is not a new trend in New York. The rise of landmarking parallels the rise of other destructive policies that have made New York an expensive place to be for businesses and people. Rent control, imposed at the end of World War II, has made New York's housing the most expensive in the country. Clever and grasping taxes such as taxes on commuters and city taxes on the global earnings of corporations have led most of the Fortune 500 companies that were headquartered here as late as the 1960s to flee the city long ago. To pay for a city-run welfare program including the largest program of free and subsidized municipal public housing in the country, New Yorkers pay the highest taxes in the country, including a combined city and state top marginal income tax rate of 13%. The city's top rate kicks in at incomes that would be considered "middle class."

Like all actions, these actions have consequences, even if they are not obvious to some right now. Eventually, a tipping point will be reached, when the costs of being here become too great. When that day arrives, the owners of their landmarked residences in their charming neighborhoods may find that their property values are falling, instead of rising. They will find that their charming neighborhoods have become less so, now that graffitti is spraypainted on walls and gangs of unemployed hooligans (who live in city housing projects) terrorize them with crime.

New York is, or should be, a city of skyscrapers. Freeze it with landmarking laws and eventually the faces behind those frozen facades will begin to have one expression on them. That expression will be terror.

2007-11-06T06:38:00.001-05:00

"We Are Fighting for the Rule of Law"

On the evening news last night, a Pakistani lawyer spoke these words as explanation for why hundreds of Pakistani lawyers were fighting policemen on the streets of Lahore and other cities in Pakistan. Conservatively dressed, black suited and tied lawyers threw rocks at policemen armed in riot gear who fought back with tear gas and truncheons.

The lawyers were outgunned. Lawyers do not make good soldiers. Used to fighting with words, their rocks were paltry weapons against modern riot gear. Armed in their proper suits and ties to battle in a courtroom, their uniforms were no match for the shields and handcuffs of the riot police. Scores of attorneys were arrested.

The riot was prompted by the actions of General Musharraf, the ruler of Pakistan, to assume dictatorial powers by dissolving the Supreme Court and Parliament, and closing private newspapers. The general also proceeded to install his puppets on the Supreme Court. So far, he has only found enough sycophants for just 5 of the 17 Supreme Court seats. One way the lawyers have said they will fight is by not participating in sham court proceedings headed by cronies appointed by the general.

A lawyer is the essential agent of a society of laws and not men. A lawyer and the courtroom he works in is a forum dedicated to the principle that force shall be governed by reason. Yesterday, we saw the supreme example of the inversion of this principle. Lawyers themselves are being bludgeoned by unrestrained force.

There is some hope for even an Islamic-infused society like Pakistan when scores of its lawyers, some of them trained at top British universities such as Cambridge, will fight for the rule of law. In the long run, reason and the rule of law that is its application in civil society, will always win. However, in the many years between now and that long run in Pakistan, we will see who wins the battle of the streets in Pakistan: the lawyers, the dictator, or the Muslim radicals at their doorstep.

2007-10-29T09:57:00.000-04:00

A Shotgun Blast for Competition

The chairman of the Federal Communications Commission, Kevin J. Martin, has announced that all contracts between owners of apartment buildings and cable providers for exclusive service in their buildings will be nullified. The chairman's blast of his regulatory shotgun, if upheld by the courts, will shred thousands of contracts across the land.

The justification for this assault on the sanctity of contract and property rights is "competition." Somehow, by denying apartment owners the right to negotiate terms with cable companies for service in their buildings, the chairman will be enhancing competition among cable companies. Exactly how this will transpire is not clearly stated. He doesn't have to explain it, since the real justification for his action becomes clear when he says, "cable prices have risen about 93% in ten years," and adds that high cable prices disproportionately affect low income people, particularly Hispanics and blacks, who more often live in apartment buildings.

So, the real reason for this contract shredding has nothing to do with promoting an undefined "competition," but with a desire to forcefully transfer wealth from apartment owners and cable companies to politically favored pressure groups.

The doctrine of altruism states that the purpose of a man is to live for others. He does not have a right to his own life. The shredding of these cable contracts is altruism enforced by the cruel hand of regulation. To hell with property rights if it means providing HBO for less to poor people. The appeal to "competition" is an afterthought thrown in as a meager attempt to justify this action.

Unsurprisingly, not only is the FCC chairman's action immoral, but it will not "help" the poor or anyone else. The key to understanding this is the observation of the cable industry association that "cable companies were often granted exclusive rights to buildings after agreeing to make major capital investments in upgrading systems." Thus, a principal reason for these exclusive deals is so that apartment owners can negotiate with cable companies to pay for the wiring of their buildings. A wiring upgrade means higher bandwidth, and therefore more channels, faster Internet service, and enhanced telecommunications service. Strike down the exclusive deals and you cut out future wiring upgrades and the enhanced services it brings.

Unfortunately, in a literal sense the FCC chairman is correct. His action will reduce the cost of cable service, but the apartment residents will be getting exactly what they pay for: slow Internet speeds, fewer channels, fewer telecommunications options. In other words, they will get cheap service that is lousy.

In direct opposition to fostering "choice" or "competition," the FCC's action will be taking away the free choices of customers and cable companies to get the level of service that they mutually agree to and want. Instead, the FCC chairman singlehandedly interposes himself between these thousands of voluntary agreements and declares, wittingly or not, that no one shall have relatively expensive and high quality cable service.

Competition is an anti-concept. Used by the FCC chairman, it only refers to competition on price, but in an unfettered market competition exists on more dimensions than just price. There is competition in innovation, competition in quality and variety, and competition in price. The chairman of the FCC, by allegedly promoting price competition, is actually destroying competition, if that term has any meaning at all.

He does all this to hand out the goods, goods that aren't his to hand out. Such is the nature of pressure group warfare and the thinly veneered legalized lawlessness it spawns in a mixed economy.

2007-10-27T11:19:00.000-04:00

Man Versus Mussels

The city of Atlanta, Georgia, is running out of water. Despite this, the Army Corps of Engineers has ordered that sufficient water flows be drained out of Lake Lanier, the city's main reservoir, to keep alive the fat threeridge mussel located in Florida's Apalachicola River, some 350 miles away.

While the water level of Lake Lanier is poised to fall below the lowest level it set in 1981, a mandatory 3.2 billion gallons of water are drained each day from the lake to meet the requirement of the Endangered Species Act to keep the endangered mussel alive.

Officials estimate that Atlanta will run out of water in three months unless man takes precedence over mussels, and the water flows are stopped.

To place man above the mussel is illegal under the law. The Endangered Species Act is clear. All species are to be protected at any cost. Only one species is dispensable: man.

The citizens of Atlanta (and all men) only need one idea to protect them from this deadly mussel: man's right to his own life. If man has rights, animals cannot. If man has rights, his interests always come first and this absurd battle of man versus mussel could never arise. This incident illustrates very clearly that for man to survive, he must be completely free to alter nature for his own benefit.

When man's needs conflict with nature, as it must, man must always win: for man to drink, the mussels must die. Man's life depends on his right to his own life being inviolable.

There is a secondary, albeit crucially important idea that the citizens of Atlanta also need: property rights. If profit-seeking, private companies had owned the lakes and rivers and had been supplying water to Atlanta all along, instead of the government, it is unlikely that such a large, fast-growing city would have become so dependent on the smallest watershed in Georgia for its water supply. Even without the deadly mussel, Atlanta was probably vulnerable all along to drought simply because its water supply is so small relative to the city's size. A private company makes money by supplying water and has every incentive to actively develop and maintain adequate water supplies. City politicians do not have the same incentive, thus Atlanta's precarious position.

In conclusion, remember these lessons, Atlantans (and all Americans): your right to life and your right to property are the weapons you need to protect yourselves from all external threats, foreign and domestic. Without those rights, even a tiny, inedible mussel can crush you out of existence.

2007-10-23T09:24:00.000-04:00

On Doctors and Veterinarians

Several months ago, my beloved cat started vomiting frequently and losing weight. I took him to our vet, who recommended a sonogram at the nearby animal hospital. I brought him there the next day and got the bad news. The sonogram showed that he had an enlarged small intestine. The most likely cause was lymphoma. Further tests revealed the bad and (relatively) good news. It was lymphoma, but it was the least virulent form and should respond well to treatment.

The first step was surgery to remove the tumorous mass centered on the lymph nodes in his small intestine. That was done the next day. Unfortunately, complications ensued and a second surgery was required three days later. Our cat is 12 years old, and the two surgeries back-to-back on his intestinal tract nearly killed him. His entire digestive tract shut down and it was touch and go whether he would make it. All told, he spent 13 days in the hospital.

Today our cat is doing fine. He is gaining weight, his old adorable behaviors have returned, and he looks cute as hell wearing little red sweaters that my girlfriend made for him from old T-shirts to hold his feeding tube in place. (He'll have that tube for a while longer to easily administer medicines, even though he is getting all his food by mouth now.) He now sees the hospital's oncologist every three weeks, and those visits should stretch out further if he continues to respond well to chemotherapy, as he is doing now.

We are hopeful that our cat will be with us for several more years. If he had not gotten treatment, the prognosis for survival was a few weeks.

I am very thankful to our veterinarians, and tell them that frequently. Our cat not only got top-flight care every step of the way from them, but also from all the hospital nurses who drew his blood, administered medicines, cleaned and petted our cat, and gave him toys and treats during his stay in the hospital. Even the receptionists were kind and thoughtful, hustling to bring our cat his special fuzzy bed that we brought him when he was in the hospital. On two occasions, our veterinarians gave us their personal cell numbers to call them if we needed help with the cat's care after he came back home.

We are so thankful to our vets and gladly paid their bill. We wanted to send them a thank you and acknowledge everyone who cared for our cat, and asked for a list of everyone who worked on our cat in some capacity. Over 50 people were on the list.

Contrast this with my visits to my personal physician. I have a great personal doctor. He is always on time, and demands that his patients show up on time. His father was a doctor. As an avid runner, he is in excellent physical shape himself. He is serious, extremely knowledgeable, thoroughly competent.

His practice is closed. No one who is not already a patient can get in to see him. It has been closed for some years. I have been seeing him for ten years.

When I see him, I pay a $10 or $20 copay (I can't remember which). It is chump change compared with the value of the services he provides. After all, it is my life.

When I see him for my annual exam, I get about ten minutes of his time. He has a pleasant office where he will briefly consult with me after he briefly gives me my examination. I am thankful for those ten minutes.

One time, my insurer screwed up its payments to him. My doctor blamed me, and I caught myself blaming the insurance company. Later, even though it was clear that the insurance company was at fault, I apologized for the mix-up. After all, I am the one responsible for paying my doctor's bills. Am I not?

I have a great doctor. I feel lucky. I value his ten minutes. Out of pocket, he is a hell of a lot cheaper than my veterinarian. He is a bargain, isn't he?

Come to think of it, he has never given me his cell number.

2007-10-12T16:54:00.001-04:00

Convenient Falsehoods

A British judge ruled that Al Gore's film, "An Inconvenient Truth," could not be presented as factual in British public schools because it contained nine material falsehoods. (In an interim ruling, he had identified eleven falsehoods, but combined several in his final decision.) Here they are:

The film claims that melting snows on Mount Kilimanjaro evidence global warming. The Government’s expert was forced to concede that this is not correct.

The film suggests that evidence from ice cores proves that rising CO2 causes temperature increases over 650,000 years. The Court found that the film was misleading: over that period the rises in CO2 lagged behind the temperature rises by 800-2000 years.

The film uses emotive images of Hurricane Katrina and suggests that this has been caused by global warming. The Government’s expert had to accept that it was “not possible” to attribute one-off events to global warming.

The film shows the drying up of Lake Chad and claims that this was caused by global warming. The Government’s expert had to accept that this was not the case.

The film claims that a study showed that polar bears had drowned due to disappearing arctic ice. It turned out that Mr Gore had misread the study: in fact four polar bears drowned and this was because of a particularly violent storm.

The film threatens that global warming could stop the Gulf Stream throwing Europe into an ice age. The Claimant’s evidence was that this was a scientific impossibility.

The film blames global warming for species losses including coral reef bleaching. The Government could not find any evidence to support this claim.

The film suggests that sea levels could rise by 7m causing the displacement of millions of people. In fact the evidence is that sea levels are expected to rise by about 40cm over the next hundred years and that there is no such threat of massive migration.

The film claims that rising sea levels has caused the evacuation of certain Pacific islands to New Zealand. The Government are unable to substantiate this and the Court observed that this appears to be a false claim.

A judge is not a scientific expert and a courtroom is not the proper place to resolve scientific disputes. However, it just takes an educated person and a little bit of research to see through Gore's propaganda. Thankfully, British standards call for checking the veracity of teaching materials used in their public schools if those materials are represented as factual. I doubt that has ever happened in the United States.

Children and adults everywhere are exposed to the blatant lies of Gore and other supporters of the view that man-made emissions of carbon dioxide must be stopped in order to "save the planet." The only danger the planet needs saving from are the global warming fear-mongers who seek to throttle man by hamstringing the industrial civilization our lives depend on.

I suggest that the Nobel Committee carefully review the judge's full decision. If the committee members have integrity, they cannot award Gore the Nobel Peace Prize unless they are able to convincingly refute with evidence the conclusion of the British High Court.

2007-10-05T09:20:00.000-04:00

Anti-Immigrant Jackboots

The sounds of anti-immigrant jackboots can be heard in different parts of the land. In Long Island, immigration cops kick in doors and arrest 186 Hispanics. Ostensibly to look for gang members, the raids also nabbed American citizens who were forced to defend the authenticity of their citizenship papers. One woman, who is a legal resident, said that "having people burst into her home and breaking doors reminded her of when she lived in El Salvador. 'There, it's the Death Squads and here it's immigration', she said."

Earlier this year, immigration cops arrested and deported 1,297 workers at meat processing plants who were here illegally.

In Los Angeles, again partially to nab gang members, 1,327 were arrested in the largest raids of its kind, and 600 of them have already been deported.

Workers and long-term residents are being lumped in with gang members, herded off to jail, and imprisoned while they await deportation.

When a state rounds up people in mass sweeps, the innocent and "guilty" alike, it has moved closer to statism. I am not Hispanic, so the day when I have to defend my right to be here to a skeptical, orders-following immigration cop who questions the authenticity of the documents I am compelled to show him, is further away. But how much further? And what will it be like to live in a country where fellow residents, Hispanic or not, are rounded up in raids to be processed for deportation, or simply humiliated for living here?

The rights of immigrants to live in this country is parcel of the individual human right to life that all of us possesses, whether we are immigrants ourselves or merely the son or daughter or descendant further removed of immigrants. When we violate the rights of immigrants to live here peaceably who have committed no crimes other than to violate the unjust laws against immigration, we are cutting away at the right to be left alone that all of us possesses. We are empowering the state to become ever more the police state.

Respecting an immigrant's right to live here is respecting our own right to life.

2007-09-28T08:05:00.000-04:00

A Tale of Two Grids

Airplanes are stuck on the tarmac, waiting to take off. The weather is clear and open, but the invisible traffic lanes in the sky are improbably congested. Planes wait for hours, passengers get frustrated, they call their congressmen, and the airlines get blamed.

An overloaded electric transmission line sags and touches a tree in Ohio. It shorts out and a cascade of overloaded lines radiates eastward, across into Canada, and down into New York City, blacking out everything in its path. First Energy, the utility in Ohio who owned the power line that triggered the blackout gets blamed. Fifty million people are without power.

What is the connection between millions of man-hours of air traffic delays and millions of people suffering power blackouts? The answer is an ossified grid.

The air traffic control system and the transmission grid are both stuck in the 1950s. Very little innovation or new investment has improved these systems, while the other parts of these industries, the airplanes and the power plants, have grown apace to keep up with demand that has doubled and re-doubled since then. As people travel more by air and use electricity ever more widely, the grids have became increasingly overburdened until breakdowns – massive delays and blackouts – are now commonplace.

A common element ties these two grids together, and it is not strictly government ownership. The air traffic control system does belong to the federal government; it is operated by the Federal Aviation Administration. However, the long distance transmission grid is largely owned and operated by private electric utilities. The common element is not government ownership as such, but government control. Both grids, whether nominally owned by the government or not, in all essential decisions are operated by the government. Both are effectively government-controlled and operated.

The air traffic control system is stuck with ancient technology. As recently as the 1990s (and possibly still true today), key systems such as the TRACON radar in Long Island that controls the majority of international traffic entering the Northeastern United States, still used vacuum tubes. The invisible air traffic lanes that get congested in clear skies are air traffic routes that were devised in the 1950s and never updated. Air traffic controllers operate as members of a surly union that went on strike in the 1980s and had to be fired.

Satellites using global-positioning satellite (GPS) technology that could permit air traffic to go anywhere, using the entire sky as its "road,” have not been tried. An integrated system that ties airplanes' onboard radars into a central grid, permitting planes to travel closer together, has not been tried.

Government ownership of the airports complicates the problem. Airports are not managed to efficiently optimize takeoffs and landings and to integrate the schedules of all of the airlines. This can be accomplished very simply, and without any form of centralized control, through pricing. If airports were operated by private owners, those owners could set fees for landing slots that bring supply and demand into equilibrium at every point in the day. High landing fees during peak times will ensure that airlines do not over-schedule flights. They will schedule as many flights as the airport can handle, and no more, with the market price for those slots guiding their decisions.

When the airlines were ostensibly deregulated in the late 1970s, only the owners and operators of the planes themselves were freed from government controls on the pricing of airfares and on the scheduling of their routes. The rest of the infrastructure that makes the airline industry work, including the air traffic control system and the airports, remained in the hands of government. The government operators of this vital infrastructure have not kept up with the growth of the deregulated airlines. The government run air traffic control system and the airports have ossified. Growing delays on the tarmac have been the inevitable result.

The power grid suffers from similar problems. Although the transmission grid remains nominally in private hands, every important decision concerning the operation of that grid is dictated by government officials. All important decisions of pricing, construction of new lines, and even the permissible level of profit, are dictated by government boards that require many years of expensive hearings for the utilities to make any significant changes. The expense of such bureaucratic sclerosis and the lack of the opportunity to make a free market profit – in other words, the lack of an incentive to innovate – have conspired to stall grid construction. As a result, expansion of the grid has not kept up with the growth in electricity demand. It also means technological ossification, as the grid fails to use modern computerized technologies to operate more efficiently.

The grid today operates largely as a mechanical system using 1950s-era technology. In the same manner that water flows downhill, electricity travels solely down the path of least resistance. New technologies, such as solid state electronic control circuits to regulate power flows, are very seldom employed on the grid. These technologies can make the grid work more efficiently, driving more power through existing lines, more reliably, preventing problems in one area from cascading into large-scale blackouts. Such control circuits would have prevented a transmission line failure in Ohio from cascading until it became the 2003 Northeast Blackout.

A private owner competing to maximize profits does not run his business in such a lazy, slipshod manner as today’s utilities. The utilities in Ohio and elsewhere are legal monopolies, insulated from competition by law. For every one of their major operating decisions, they must ask permission from a dis-interested bureaucrat.

Like slaves, the regulated utility monopolies move slowly and at every opportunity look to shirk responsibility.

When slaves were freed, they could use their minds to pursue their self-interest. For the first time, they could aggressively and eagerly advance their own lives in a manner that they alone determined.

The only answer to air traffic delays and power blackouts is a similar abolition. It is the abolition of the shackles of government control. It is the freeing of the human mind to creatively come up with better ways of managing the grids. Government should simply get out of the business of air traffic control and the operation of the airports. Let private, profit-seeking individuals enter this business and watch them aggressively build out and innovate this infrastructure to keep up with the growth of the airlines.

Government should also simply get out of the business of managing the electric transmission grid. Recognize the true ownership right of the utilities that today ostensibly own the grid, and then get out of the way. Profit-seeking individuals will build new lines, run existing lines more efficiently with new technology, and the whole grid will more reliably and cheaply transmit power. Blackouts will not completely go away, just like airplane crashes and delays will not completely end. Human errors and natural disasters will happen, but human ingenuity will be free for the first time to make the system work at its best in reality.

2007-09-26T11:11:00.000-04:00

Welfare

The caption says,

When you love strangers so much that you're willing to have government steal money from another stranger to help them out.

I can't say it any better.

Thank you, Truth, Justice, and the American Way for capturing the essence of welfare.

2007-09-21T20:55:00.001-04:00

What Is Religion For?

Dr. Michael Hurd in his Daily Dose of Reason quotes actress Kathy Griffin at the recent Emmy Awards:

"A lot of people come up here and thank Jesus for this award. I want you to know that no one had less to do with this award than Jesus."

Dr. Hurd then comments:

People are frightened by much more than Griffin's seeming snideness about Jesus. I think they're much more terrified at the possibility that she's right: That people are the authors of their own destiny, for better or worse. Let's be honest. Wasn't it this idea that religion was designed to extinguish?

My answer to Dr. Hurd's question is: that is exactly what religion was designed for.

Observe how cheaters, drunks, liars and crooks of every stripe are drawn to religion, Christianity in particular. Of course, those are the obvious ones. The less obvious ones are those who just don't try too hard to pursue their values. They seek out Christianity for the moral anesthesia it provides. Numb to the full reality of their abnegation of self, like a stuporous drunk they stumble through life in mediocrity until they die.

They raise their arms to praise Jesus. Indeed.

On one occasion many years ago I was dragged to a fundamentalist Christian service. What a motley crew they were who sold their souls to the two-bit preacher. Now I know why the church and everyone in it looked so cheap. Afraid of the responsibility of living, they eagerly sold their souls for chump change to the first con artist who came along who told them that everything really would be okay.

2007-09-21T07:57:00.000-04:00

Grim Reaper to Descend on Manhattan

On Tuesday, "President" Ahmadinejad of Iran will again enter U.S. territory, ascend to a podium paid for more by the United States than any other country, part of an institution protected by New York City police officers and New York City taxpayers, and insinuate his Holocaust-denying, Jew-hating, Western-civilization denouncing ghoul-of-Hades voice from beyond the grave to an audience of pampered bureaucrats in a light, air conditioned auditorium on a prime piece of Manhattan real estate, overlooking a vista of green gardens and inspiring river and city views.

The obstacles against his entry into the heart of capitalist, individualist, selfish America were cleared two millennia ago by the peace-loving "philosopher" who teaches us to love our enemies and sacrifice ourselves to our tormentors.

While we endure our spiritual sacrifice on Tuesday, I will look away from Turtle Bay and towards the Empire State Building, the tallest building left standing in Manhattan.

2007-09-16T22:47:00.000-04:00

Greenspan Argues Against the Fed

Former Federal Reserve Chairman Alan Greenspan has not explicitly argued against the Federal Reserve Bank or any other central bank, except in his long-ago essay on gold in the collection of essays entitled Capitalism: The Unknown Ideal. As Chairman of the Fed for 18 years, I find it unlikely he has contemporaneously and explicitly disavowed the institution he helmed for such a long period of time.

Nevertheless, he did make quite an effective, albeit unintentional, argument against the Fed on his 60 Minutes interview Sunday night. The interviewer asked whether he was to blame for the sub-prime mortgage crisis by making credit too easy. Greenspan said that he was aware at the time that questionable mortgage credit was being extended by banks, but he admitted he was unaware how pervasive it was or how impactful on the economy. He just didn't see the problem as it was developing.

That is his argument against the Fed, whether he realizes it or not. No central banker, no matter how good, can possibly hold in his mind all relevant information to centrally manage the money supply and credit of an economy. Such is the fallacy of central planning. It doesn't work in banking, just as it has never worked in any other area of an economy. The collapse of Communism is proof of that. So is the failure of the centrally managed parts of our mixed economy, such as public schooling and public housing.

Greenspan is smart, but no single man or woman is smart enough to be a central planner.

2007-09-16T10:09:00.000-04:00

Musings on Taxation

I posted a version of this post in answer to a question about the "Fair Tax" on Dr. Hurd's blog. The questioner asked whether voluntary taxation is feasible. If not, is the Fair Tax a good alternative?

A cultural sea-change must occur first that will make limited government politically feasible. Then, voluntary financing of government could emerge. It is a worthy topic to consider now, but it is a backburner topic given that it will be many decades before it could even be attempted.

Regarding the idea of a Fair Tax, it is a contradiction in terms. No tax is fair because it involves the forcible taking of one person's property to give to another. Moreover, a more efficient or "fair" form of taxation (if it were possible) will not make government smaller. Quite the opposite is likely. It will be viewed simply as another source of revenue by government officials. Currently, there is no federal consumption or sales tax. Impose one as the Fair Tax would do, and the other taxes will not go away. Government will simply have obtained a new method of extracting money from us, with the result that they will find it easier to spend more of our money.

Government will get bigger, not smaller. I think it is important to resist any new mechanism of taxation. If our current system of income taxation is inefficient, great. That inefficiency in collecting taxes will limit the size of government. I would rather government were truly limited on a principled basis. Until that is possible, even a crude check on government from an inefficient form of taxation is desirable.

Getting back to the idea of voluntary financing of government (I hesitate to use the word "taxation" since it implies coercion), there are two important points to remember:

(1) A small government that focuses on protecting our rights -- i.e., the police, the courts, the jails and the military, and nothing else -- would be very small indeed. Even in today's messed up world where our military and prison systems are unnecessarily large, all of these functions probably consume under 5% of GDP. If we had no irrational laws such as the drug laws that account for more than half of our prison population, and if we had an assertive defense that vanquished our enemies instead of appeased them in endless, expensive wars, these expenditures in a laissez faire society would be much less. I suspect that all of this apparatus of government would consume less than 2% of GDP. This is a very tractable amount to be voluntarily financed by Americans.

(2) Without coercive taxation, destructive regulations, and the theft of our incomes for welfare payments, Americans in the future will be far, far wealthier than they are today. Just as today's technological achievements, such as antibiotics, the internet and jet travel, would be barely believable science fiction to an American of the 19th century, America of the laissez faire capitalist future would be even more highly unimaginable science fiction to Americans today. (Note that all of the achievements I mentioned happened despite a high level of government intervention in the economy. Imagine the unleashing of human ingenuity that would occur if government stayed out of the economy.)

Financing the essential functions of government for such wealthy people of the future would be an afterthought that Americans would voluntarily and easily do, without any sacrifice to themselves.

Finally, I will add a third point. Voluntary financing of government does not necessarily or exclusively mean donations of money to government. Most, if not all, of the expenses of government could be financed through the payment of fees for certain services where that would be practical. In particular, I could imagine a fee paid if parties to a contract want government to stand behind it with their enforcement powers. For example, if you sign a contract to buy a house and you want access to the courts for enforcement, you pay a 2% fee on the transaction. This is a voluntary payment for an essential government service. This principle can be extended to cover many other activities and functions of government.

Also, in a free, entrepreneurial society, imagine the ingenuity that could be applied to solving the problem of financing the (small) government. One idea I particularly like is corporate or individual sponsorship of pieces of government. Sponsor a jail, and you get to name it. Better yet, sponsor a battleship or a missile and you get to put your name on it. Heck, if I knew our missiles would be used to defeat the Muslim terrorists, I would love to have my name on that missile (assuming I could afford it!). I would be a good Dr. Strangelove. I would not be on the missile, but my name would be, as it arced across the sky on its way to Tehran or a terrorist training camp...

Okay, enough dreaming for now, but today's dreams are the beginnings of tomorrow's reality.

2007-09-14T22:24:00.000-04:00

Nuclear Fun

This is the new television advertisement from Areva, the French maker of nuclear power plants. This is great pro-capitalist, pro-business, pro-technology, and pro-cheap energy propaganda. It quickly and effectively makes the connection between production and enjoyment. You start with the uranium mine, process the uranium, and produce electricity from it in a nuclear reactor which, in turn, powers the dancing floor and the cool music the couple is dancing to.

Most (ignorant) people think electricity comes from a wall outlet, and know nothing more about what makes it possible. This ad, in a few seconds, connects the electricity in the wall outlet all the way back to the nuclear reactor and the uranium mines that make it possible. It also reminds us that electricity powers the good life that we all enjoy.

Truthful, clever propaganda that validates a complicated technology feared by many. Every time I see this ad on TV I want to dance.

2007-09-02T08:55:00.000-04:00

Christian Warfare

To visualize the principle of "turn the other cheek" in practice, in warfare, read this article (link below) from the Washington Times. It describes a first-hand account of American soldiers in Afghanistan, sent on a mission behind enemy lines, and confronted by rules of engagement that are based on the Christian principles of "turn the other cheek" and "love thy enemy." Our Christian President has imposed these rules on our soldiers. "Killed by the Rules" could be more broadly stated as "Killed by Altruism." Altruism is the philosophical belief that you must sacrifice yourself to others. It is the philosophical root of Christianity, and the root of this policy.

Our political leaders extol the virtue of sacrifice. See its results on the battlefield.

The alternative to altruist-Christian suicide is Objectivism, the philosophy that validates the morality of rational self-interest. We have the strongest military in human history. If we do not learn that it is moral to defend ourselves, we will never use that military properly. We will keep turning the other cheek until we can no longer do so.

*****

Hat tip for article.

2007-08-27T09:33:00.001-04:00

To Ban It or Subsidize It

The Wall Street Journal today had another excellent editorial piece entitled "Canada's Shooting Gallery" by the Americas columnist Mary Anastasia O'Grady. In it, she describes how the city of Vancouver, Canada, pays for a center that will inject the addicts' drugs into them free of charge. Here is my letter to her:

Dear Mary,

I want to concur in your assessment of Vancouver’s shooting gallery. I traveled to Vancouver recently for the first time, and happened upon East Hastings Street. I have lived in New York for over 20 years, through some rough times such as the crack epidemic of the early 1990s. Yet that left me unprepared for what I saw. Human zombies were wandering everywhere in the middle of the day. People appeared to be inhaling crack from a many-tubed “hookah” that looked like an octopus. Zombies congregated in alleys. It was incredible. I thought of the place as the center of a vortex of whirling bums, drug addicts and prostitutes sucked in from all corners of North America. It was a Mecca of self-imposed human misery, and it was paid for by Canadian taxpayers.

I am completely for legalization of all drugs. If people want to destroy themselves (or enhance themselves with safe mood-altering substances such as alcohol and caffeine which, thankfully, remain legal), it is their right. But the alternative to banning drugs is not to subsidize them. That is the statist solution. A vice is either banned or subsidized. What kind of choice is that? Both answers are wrong. We either lose our liberties, or pay for others’ vices. Lost in this false alternative is individual liberty, where people are simply left alone to live their own lives, productively or not, as they see fit. Reality is punishment enough for drug addicts. Only a minority of people will choose that lifestyle because it is so self-destructive; their numbers are further reduced through early death. Subsidize that? It’s insane.

By the way, apart from East Hastings Street, I really enjoyed Vancouver. Its harbor area full of skyscraper condominiums was gorgeous, if only a little bit too indicative of “zoned perfectionism.” In fact, the flip-side of areas zoned solely for beautiful, stylish skyscrapers is squalid areas that excel in squalor. Making housing of a particular form exclusive through zoning pushes other people into ever more marginal areas, such as E. Hastings.

But that is another discussion...

Yours,

GB

Edited 8/30/07: Changed title. Original title: "Canada's Shooting Gallery."

Published on 8/30/07 as letter to editor in Wall Street Journal by the non-pseudonymous me.

2007-08-26T08:48:00.000-04:00

A Technology-Based Future

Have you ever wondered what Man can achieve? Take a look at these Predictions for a Technological Future. Futurist Brian Wang makes plausible predictions based on technological trends in computing, nanotechnology, materials science, energy, communications and space flight. He provides timelines for each of them.

There is nothing to hold man back from achieving these or similar inventions. Today's world would be barely conceivable science fiction to the 18th century Founding Fathers of our country. Yet, the unleashing of the human mind that was their political achievement has made a fantasy world real. If the philosophic foundation of our country can be re-built, there will be no limits to man's achievement.

I am optimistic. Even if Man must endure another Dark Ages first (which will not happen; that is my prediction), man will:

Use gene therapy to enhance human intelligence
Use the earth's magnetic field to cheaply catapult ships into space
Artificially grow human organs
Double his lifespan
Develop an economy off-earth larger than the economy of Japan
Fly scramjets that will carry cargo 10-20 times the speed of sound

These are a few of the new technologies Brian Wang predicts, all of them achievable before the year 2030. He is right, if man's mind is free to build them.

Philosophers, win the battle for reason, and the world of the future will be ours.

2007-08-18T11:59:00.000-04:00

Helicopter Ben

"Helicopter Ben" is the nickname Federal Reserve Chairman Ben Bernanke reportedly got for a comment he once made regarding how the government should aggressively use monetary policy to prevent a recession. Emphasizing that the key point is to inflate quickly to avert a crisis, he said the government could simply drop money from a helicopter to stimulate the economy.

Federal Reserve chairmen like to fly around in helicopters. Maybe that's their problem. By attempting to manage the money supply from their helicopter vantage, the Federal Reserve fails to see the real action of the economy on the ground. As a result, they make bad decisions. They add too much money or too little. They act too early or too late. The result is an exacerbation of booms and busts in the economy. The booms become unreal, and the busts too severe.

In 2003, the Federal Reserve lowered the interest rate at which it facilitates bank loans to an unprecedented low of 1%. In those years, we saw tremendous investment in real estate and a boom in real estate prices. The excess investment was stoked by cheap credit for mortgages available from banks. Variable interest and interest-only loans keyed to the artificially low federal funds rate enabled homebuyers to bid ever more for larger houses. Easy 100% or more financing enabled those who hadn't saved for a down payment to buy houses on the bank's credit.

Artificially cheap money had led to a flood of financial capital becoming available for mortgage lending by the banks. Lend they did, at terms that did not reflect the true financial risk they were undertaking. Such artificially supplied cheap money is inflation. When the Fed realized that its inflation of the money supply led to inflated asset prices, it tried to limit the damage by tightening credit, eventually raising the bank interest rate to a recent high of 5 1/4%. Now, the reverse process is happening. Over-extended borrowers are defaulting, credit is tightening, and the economy is poised for a slow-down.

All of this is the result of managing monetary policy from way up high in helicopters. How do we bring monetary policy down to earth? The only way to do this is to privatize money. Instead of the Federal Reserve, a sole, legal monopoly issuer of money and credit, all money should be issued by private banks. Private banks do not operate in helicopters. They operate on the ground. They understand the specific financing needs of particular borrowers. They assess their ability to extend credit based on the creditworthiness of the borrower, and on their own availability of funds.

The supply and demand conditions of money and credit that the banks respond to are the real economy. If a new technology creates promising new business opportunities, the banks lend to those businesses. If a regional downturn reduces creditworthiness, they extend less credit. All the time, the banks lend with a view to protecting their own balance sheets and maximizing their own profit. This grounded action by private banks will result in the most efficient deployment of financial capital possible.

Does it mean the end of booms and busts? That is a question I am not sure of, but I think it may not. Nevertheless, the booms and busts that will occur will be shorter in duration and less severe. More importantly, they will reflect real economic events, not artificial changes of the money supply by the helicopter money monopolists.

2007-08-13T15:19:00.000-04:00

Infidel

[WARNING: "PLOT" SPOILERS FOLLOW]

The face of reason confronts Dark Age primitiveness. That summarizes Infidel, the autobiography of Ayaan Hirsi Ali. The face of reason is hers, the beautiful, intransigent face that appears on the cover of her book.

Ms. Ali was born in Somalia. She grew up in that country, Saudi Arabia, Ethiopia and Kenya. Her father fought for a better government in Somalia but he, along with all of the people close to her, were Muslims. Primitivism meant female genital circumcision, which she endured without anesthesia at age 6. Primitivism meant Muslim Brotherhood imams preaching fundamentalism. Primitivism meant women wearing restrictive hidjabs. Primitivism meant having to endure forced marriages and beatings from your husband, if he so chose. Primitivism meant an oppressive clan network that reached all the way into European countries.

Rejecting the primitiveness of her background, Infidel is the story of Ms. Ali’s personal unfolding, and her discovery of the Western values of free speech, the right to one’s own life, and religious freedom. By the end of the book, Ms. Ali declares herself an infidel, since she rejects the Islamic faith that she grew up with. She rejects all religious faith. Step by step over the course of her life, Infidel shows her make the conclusions that brought reason into her life.

For that, for the ideas she publicly stated as a member of Parliament in Holland, for a movie she made, and ultimately for this book, Ayaan Hirsi Ali has had a death sentence placed on her. Like Salman Rushdie, a fatwa is on her life. The director of her movie, Theo Van Gogh, was already murdered in cold blood on the streets of Amsterdam.

Today, Ms. Ali lives in the freest country on earth, the United States. Her book is a warning to us of the nature of the Muslim enemy we fight. Islam is not a religion of peace; it is a religion of unspeakable evil.

UPDATE OCTOBER 2007: Ms. Ali has left the United States after the Dutch government, which had been paying for her protection, stopped doing so. Apparently because Ms. Ali is a Dutch citizen, the U.S. did not take up the slack and offer her protection. By returning to Holland, Ms. Ali can presumably once again be protected by her country.

Question: Has the U.S. government ever spent taxpayer money to provide security protection to this foreign citizen? You can see him on the right side of the picture holding hands with our President. That man is Prince Abdullah of Saudi Arabia. If a double-standard does exist, could it be that the U.S. government is unwilling to protect someone like Ms. Ali, who is an "infidel" and denounces Islam, while offering protection to our "ally" who financially and morally sponsors terrorism against us? Ms. Ali is our ally and the man walking with the President is not. Until we learn that, and it becomes the basis of official government policy, we are gravely at risk. Islam's persecution of Ms. Ali and her flight from this country is a metaphor for what we all face until we gain the wisdom and courage to defend our values.

2007-08-09T20:14:00.000-04:00

The Businessman's Hall of Fame

The New York Times, without intending it, has published the businessman's hall of fame. By ranking these great business figures in order of the wealth they created, the NYT has allowed us to honor the greatest businessmen of the past 200 years, ranked by the measure of their achievement.

Wealth is the measure of the businessman, for what is wealth than the measure of the value of the products he has made? Wealth comes from profit, which is the difference between value received for a product less the cost of manufacturing it. If consumers everywhere pay more for the personal computer or the Model T Ford then it cost to make it, that difference is an objective measure of the value created. If the product is so popular that millions of PC's and Model T's are sold, then millions of customers have benefited from the entrepreneurial ingenuity of the businessmen.

I honor the wealthiest businessmen. They are those who have created the most beneficial, useful, enjoyable products that all of us enjoy. Hats off to Bill Gates (the 5th wealthiest) and Warren Buffett (the 16th wealthiest), for making the software for the fabulously useful personal computer on which I am writing this, and for providing capital to America's most efficient companies, respectively. Hats off to John D. Rockefeller, the leader of the Hall of Fame, who created the modern oil industry, the seminal industry that continues to fuel our industrial economy.

Hats off to all of the Hall of Famers. In a future world, we will see sculptures of your figures in a real world Hall of Fame. Schoolchildren will learn your stories, and emulate you, and some of them will add themselves to your august glory.

[Hat tip to NoodleFood for the link to the New York Times article.]

2007-08-01T12:17:00.000-04:00

What Should We Do About Global Warming?

[The following was my reply to this interesting post. I am re-posting it here.]

The big problem with the AGW (anthropogenic global warming) argument is that it is used by those who hate capitalism to attack capitalism. Whether it is true or not, the argument has been seized upon by those who want to throttle industrial activity by restricting the most fundamental underpinning of our standard of living: the combustion of fossil fuels.

The combustion of fossil fuels provides most of our electricity, heats our homes, and powers our planes, trains and automobiles. Restricting the burning of fossil fuels (by whatever mechanism, such as a "carbon tax") means that all of these activities will be more costly, and will happen less. Our standard of living will fall. That is undeniable.

Now, whether it is moral to sacrifice our standard of living to prevent AGW is not a scientific issue to be addressed by atmospheric scientists or geophysicists or any other "hard" scientists. It is a philosophical, economic and legal issue. That is where Objectivism comes in.

If we assume that AGW is a reality (and a serious one, at that), I contend that it is not a governmental matter. However, "we" should absolutely do something about it. This means that each of us, if we live in a coastal region, should absolutely gradually build up seawalls and embankments to handle the projected 2 foot increase in sea levels that will occur over the next century. It means that "we" should make sure our air conditioners are in working order to handle the couple degree increase in temperatures we will gradually experience over the next 100 years. It means that those of us who are investors and farmers should consider, sometime over the next century, buying valueless land in Canada and Siberia that could become arable over the next 100 years.

It means that we should continue using our free time -- a consequence of our high standard of living, which itself is a consequence in part of having cheap energy that comes from burning fossil fuels -- to research cheaper and better ways to make electricity, air condition our homes, grow crops, develop new medicines and forms of entertainment. In other words, each of us -- using cheap energy and the high standard of living it makes possible -- should use our minds to enjoy our lives, and in so doing, create new technologies that propel our standard of living ever higher.

This ascent of man is itself in part a function of cheap energy. Such ascent is hamstrung by restrictions on that energy that make it more expensive, in order to prevent our atmosphere getting hotter by a couple of degrees and our sea levels from rising by a couple of feet over many decades.

This is the context of the AGW argument, and why those who hate capitalism have gravitated so enthusiastically to it. They see the AGW argument not so much as an "environmental" issue, but rather as a way of attacking man and industrial civilization.

They are right. The AGW argument *is* being used to attack man and industrial civilization. This is not to say that scientifically understanding whether AGW is true, and how severe it is, is not important. Getting a handle on the concretes is important, and does bear on what we should do about it. However, it is unlikely that any scientific understanding of the problem will show that it is of such a magnitude that it merits *governmental* intervention, and the concomitant reduction in our freedom and standard of living.

2007-07-15T18:18:00.000-04:00

Blogging Semi-Hiatus

I will appear less frequently on this blog for awhile. Not gone, just on semi-hiatus. Thank you for your visits - past, present and future.

Cheers,
GB

2007-06-23T18:10:00.001-04:00

Fears of Global Climate Change, Past and Present

Quote:

There are ominous signs that the earth's weather patterns have begun to change dramatically...

[T]hese changes may portend a drastic drop in food production...

The drop in food production could begin quite soon, perhaps only ten years from now.

The evidence in support of these predictions has now begun to accumulate so massively that meteorologists are hard pressed to keep up with it.

"A major climatic change would force economic and social adjustments on a worldwide scale," warns a report by the National Academy of Sciences.

"The world's food producing system," warns Dr. James D. McQuigg of NOAA's Center for Climatic and Environmental Assessment, "is much more sensitive to the weather variable than it was even five years ago."

This was written in 1975 in a Newsweek piece heralding the new consensus among scientists over an impending disastrous climatic change.

What was the feared climatic change? Global cooling.

Okay, so they got it wrong back then. But a commentator today is truly afraid of global climate change. However, his fear is not of global warming (or cooling), but of the destruction of our liberty and prosperity that will ensue in an attempt to end it. That person is Vaclav Klaus, the President of the Czech Republic. Here are a few selected quotes from his recent editorial and interview in the Financial Times.

Quote:

The environmentalists ask for immediate political action because they do not believe in the long-term positive impact of economic growth and ignore both the technological progress that future generations will undoubtedly enjoy, and the proven fact that the higher the wealth of society, the higher is the quality of the environment. They are Malthusian pessimists.

The global warming propaganda is, I agree, similar to the Avian flu propaganda, the Y2K propaganda, the end of resources propaganda, the overpopulation propaganda, etc

There are huge material (very pecuniary) and even bigger psychological incentives for politicians and their bureaucratic fellow-travellers to support environmentalism. It gives them power.

Read both pieces. It is worth it. It takes only one person of courage to change the world. Dissidents such as Klaus who opposed the Soviet domination of their country (from 1945-1989) were such people. They are such people today.

Continue to speak out, President Klaus.

2007-06-18T19:30:00.000-04:00

Bible Lessons

I have been studying the Bible lately. I highly recommend these tools:

(1) The Brick Testament

This is my primary source. It is an illustrated compendium of Bible passages from both the Old and New Testaments. All quotes are 100% accurate Bible quotes.

There is much to enjoy in the Brick Testament, so it is difficult to select favorites. I have much to study. I am a neophyte. Here is my sampler:

Understand Christian ethics in The Teachings of Jesus.

Understand Old Testament principles of living in The Law.

(2) The teachings and wisdom of Mister Swig.

Mr. Swig [or Rev. Swig as I call him] is embarked on a project of summarizing the Bible, book by book. Here it is, so far, as it has appeared on the Web forum Objectivism Online. I will endeavor to update this post as the Rev. Swig completes new books.

(3) Bible Gateway

To look up and verify Bible quotes, I cannot recommend a better resource than the Bible Gateway. You can look up individual passages or entire chapters, just by typing in the name.

I applaud the Rev. Brendan Powell Smith and William Swig (Rev. Swig) who have worked so hard to make the Bible intelligible. What do I think of the Bible? Well, I think the Bible can speak for itself. Everyone should study it, and those of you who are Christians or Jews should carefully consider that what you read here is what you claim to believe in.

As for me, I have stated my thoughts on religion elsewhere.

Keep reading the Bible. Better yet, if you have already formed your opinion, skip the Bible, and work hard at applying reason to understanding this wonderful earth we live in.

2007-06-16T20:01:00.000-04:00

Organ Futures

Why shouldn't people be able to sell their organs in advance, before they die? A company that procures organs could pay you today for the right to harvest your organs when you die. In exchange, say, for $200 or $1000 or whatever the market price determines, you would put your name in a database and carry an organ donor card with you so that when you die, all your usable body parts are harvested and sold to those who need the organs.

This would solve nearly instantaneously the organ shortage in this country. Economics tells us that shortages are caused by price controls. Well, in the case of organs, the legal price is zero. Unfetter the market and sufficient organs will be humanely supplied. The price mechanism will ensure that, with the price of organs rising to make supply and demand meet.

A market for human organs harvested after death would eliminate such gruesome practices as body parts being harvested from Chinese convicts, or living poor people selling their organs. (It should be legal for living people to sell kidneys and other organs; see this editorial arguing for same from the Ayn Rand Institute. However, a legalized market for advance sales of organs to be harvested after death would likely eliminate such a practice. It would be cheaper to buy organs in advance that are harvested from corpses than it would be to pay a living donor, who requires sophisticated medical care and compensation for pain. Living donors also cannot supply many specific organs such as hearts.)

Legalize advance organ sales and what is likely to emerge naturally is a market for organ futures. An organ future is the right to receive a specific donor’s organs after that person dies. Packages of organ futures could be sold in standardized blocks, and traded on exchanges like any other futures. After all, pork bellies, corn and oil are sold on futures markets. Why not markets for human kidney, lung and heart futures? Investors could buy packages of these securities.

The big benefit of organ futures is their liquidity. The existence of a futures market provides a ready pool of capital available to buy future organ rights from donors, and to sell them to harvesting companies. In turn, when the organs are ready for harvesting, after the donor dies, the harvesting companies would sell organs to recipients. Insurance companies would be active participants in this market, since they could sell organ insurance policies and then hedge them by buying futures.

The futures market benefits both parties to an organ donation, the donor who gets cash today while he is alive, and the organ recipient who would otherwise die if the organ futures market did not exist.

The time for legalized organ sales and an organ futures market is now, not the future. Thousands of people suffer excruciatingly while they wait for organs. Many of them die before they ever get them.

Speaking personally, if I could get paid cash today to carry an organ donation card in my wallet, I'd do it. Look in my wallet now, and there is no organ donation card. How many millions of other Americans like me would gladly sell the future right to their organs if only it were legal for them to do so? Legalize organ sales and an organ futures market will ensure that virtually no one will ever again die while waiting for a heart or kidney.

*********************

How many people are suffering and dying due to the ban on organ sales?

Over 95,000 U.S. patients are currently waiting for an organ transplant; nearly 4,000 new patients are added to the waiting list each month.
In 2006, 3,916 kidney patients, 1,570 liver patients, 356 heart patients and 245 lung patients died while awaiting organs. Total deaths: 6,087.

Source: National Kidney Foundation

2007-06-14T17:28:00.000-04:00

Goodbye, Toucan Sam

Goodbye, Toucan Sam, Tony the Tiger and Captain Crunch. Goodbye to all the cartoon characters that cereal companies have used over the decades to sell cereal to children. “The policy changes come 16 months after Kellogg and Viacom, the parent company of Nickelodeon, were threatened with a lawsuit over their advertising to children by two advocacy groups, the Center for Science in the Public Interest and the Campaign for a Commercial-Free Childhood, and two Massachusetts parents,” stated the International Herald Tribune. Now that Kellogg has knuckled under, the groups have dropped their lawsuit threats.

Under the coerced non-agreement, Kellogg may still use cartoon characters if the cereals can be reformulated to meet certain nutritional standards, such as zero trans-fats, less than 200 calories per serving, less than 12 grams of sugar per serving, etc. In other words, the cereal has to be bland.

I grew up eating Sugar Frosted Flakes, which were promoted by Tony the Tiger, Frosted Fruit Loops, promoted by Toucan Sam, and Captain Crunch cereal. As far as I am aware, I suffered no ill effects, mental or physical, whatsoever from eating these cereals. Perhaps part of it had to do with my mother, who encouraged me to play outdoors, and who kept firm limits on snacking between meals. I benefited from a responsible mother (thank you, Mom). But the idea of responsibility, parental and individual, is gone. Instead, we are all treated as a collective of children, nursed over by the Nanny State, who applies one-size-fits-all bans on all of us, in order to protect the few who cannot take care of themselves.

I am sick of it. Thankfully, I had Tony the Tiger in my life and tasty, sweet Kellogg’s Frosted Flakes. What about today’s children? What about all of us? The world is made blander by Kellogg being forced to knuckle under to the Mafia-like tactics of busybodies who use the courts to cudgel us all into living in their soul-less, tasteless world.

I say to the Center for Science in the Public Interest, the Campaign for a Commercial-Free Childhood, and the busybody parents who joined the lawsuits: take this spoonful of fruit loops and shove it. Hands off my cereal. Hands off my life.

2007-05-31T20:29:00.000-04:00

The Right to Assisted Suicide

By Thomas A. Bowden. ARI Media. Reprinted by permission.

Here's a quiz: During the eight years Dr. Jack Kevorkian languished in a Michigan prison, how many state legislatures reformed their laws against physician-assisted suicide? Answer: none. Oregon remains the only state to have provided clear procedures by which doctors can end their dying patients' pain and suffering while protecting themselves from criminal prosecution.

For ten years now, Oregon doctors have been permitted to prescribe a lethal dose of drugs to a mentally competent, terminally ill patient who makes written and oral requests, consults two physicians, and endures a mandatory waiting period. The patient's free choice is paramount throughout this process. Neither relatives nor doctors can apply on the patient's behalf, and the patient himself administers the lethal dose.

Elsewhere in America, however, the political influence of religious conservatism has thwarted passage of similar legislation, leaving terminal patients to select from a macabre menu of frightening, painful, and often violent end-of-life techniques universally regarded as too inhumane for use on sick dogs or mass murderers.

Consider Percy Bridgman, the Nobel Prize-winning physicist who, at 79, was entering the final stages of terminal cancer. Wracked with pain and bereft of hope, he got a gun and somehow found courage to pull the trigger, knowing he was condemning others to the agony of discovering his bloody remains. His final note said simply: "It is not decent for society to make a man do this to himself. Probably this is the last day I will be able to do it myself."

What lawmakers must grasp is that there is no rational, secular basis upon which the government can properly prevent any individual from choosing to end his own life. When religious conservatives use secular laws to enforce their idea of God's will, they threaten the central principle on which America was founded.

The Declaration of Independence proclaimed, for the first time in the history of nations, that each person exists as an end in himself. This basic truth--which finds political expression in the right to life, liberty, and the pursuit of happiness--means, in practical terms, that you need no one's permission to live, and that no one may forcibly obstruct your efforts to achieve your own personal happiness.

But what if happiness becomes impossible to attain? What if a dread disease, or some other calamity, drains all joy from life, leaving only misery and suffering? The right to life includes and implies the right to commit suicide. To hold otherwise--to declare that society must give you permission to kill yourself--is to contradict the right to life at its root. If you have a duty to go on living, despite your better judgment, then your life does not belong to you, and you exist by permission, not by right.

For these reasons, each individual has the right to decide the hour of his death and to implement that solemn decision as best he can. The choice is his because the life is his. And if a doctor is willing (not forced) to assist in the suicide, based on an objective assessment of his patient's mental and physical state, the law should not stand in his way.

Religious conservatives' opposition to the Oregon approach stems from the belief that human life is a gift from the Lord, who puts us here on earth to carry out His will. Thus, the very idea of suicide is anathema, because one who "plays God" by causing his own death, or assisting in the death of another, insults his Maker and invites eternal damnation, not to mention divine retribution against the decadent society that permits such sinful behavior.

If a religious conservative contracts a terminal disease, he has a legal right to regard his own God's will as paramount, and to instruct his doctor to stand by and let him suffer, just as long as his body and mind can endure the agony, until the last bitter paroxysm carries him to the grave. But conservatives have no right to force such mindless, medieval misery upon doctors and patients who refuse to regard their precious lives as playthings of a cruel God.

Secular and rational state legislators should regard the occasion of Dr. Kevorkian's release from jail as a stinging reminder that 49 of the 50 states have failed to take meaningful steps toward recognizing and protecting an individual's unconditional right to commit suicide.

***

Thomas A. Bowden practices law in Baltimore, Maryland, and is a senior writer for the Ayn Rand Institute (http://www.aynrand.org/) in Irvine, Calif. The Institute promotes the philosophy of Ayn Rand, author of Atlas Shrugged and The Fountainhead.

**********

Galileo Blogs comments:

This is such a superb editorial, that I am re-posting it here. It captures why the Christian claim to love man is so reprehensible and so false. Anyone who has confronted a loved one dying in pain, or even a suffering pet, for Man's sake, knows first-hand the absolute right of someone to end his own life. That right is an absolute corollary of man's right to his own life.

I can euthanize my suffering pet humanely and with dignity, yet a human being cannot do the same with his own life, and his loved ones must watch him needlessly suffer. Although this is not a proper reason alone to be an atheist, at an emotional level I cannot think of a better argument for atheism than the Christian opposition to suicide.

2007-05-24T00:04:00.000-04:00

In Defense of Price Gouging

Yesterday the House of Representatives passed a bill outlawing gasoline “price gouging.” Violators would face penalties of fines as high as $150 million or prison terms of up to two years. Price gouging is defined as “taking unfair advantage” or charging “unconscionably excessive” prices for fuels. What is unfair advantage? How does one measure when a price is unconscionably excessive? There is no answer.

This is bad law. First, because it is non-objective. Because no objective definition of price gouging is provided in the law, a gas station owner or oil company can never know when it is breaking the law. There is no way to comply with a law when the crime cannot even be defined. More ominously, a non-objective law becomes a tool to terrorize in the hands of unscrupulous government officials. The businessman is told that he must obey the bureaucrat or face punishment, a punishment he cannot defend against because there are no objective standards. This is a tool of tyranny. Incidentally, this is also the nature of antitrust. Like this anti-gouging measure, antitrust law is completely non-objective.

The other reason why this law should not be passed is because it is anti-capitalist. It attacks the heart of the market economy, which is the price mechanism. Prices work to harmonize the interests of buyers and sellers when they are allowed to freely rise and fall. This type of law, to the extent it is enforced, will function as a price maximum. Price maximums, enforced by the state, have one predictable consequence, shortages. This is true in all eras and for all commodities. The pricing principle is an iron law of economics, as solidly and universally valid as the law of gravity. Violate it by imposing price controls and artificial shortages will develop. The principle that price controls cause shortages is an iron corollary of the iron law of prices.

Price controls cause shortages because of two reasons. First, suppliers provide less gasoline (or any other controlled commodity) because they cannot make money selling at the lower price. They cut production until they no longer lose money. Second, at the lower price, customers want more of the product. Combine these two effects – reduced supply and enhanced demand – and you have a shortage. Supply and demand are no longer in equilibrium.

America has already walked down the path of price controls, for energy and many other products and services. In energy, the long lines at gasoline stations in the 1970s were solely due to the price controls imposed on the oil industry. Only when price controls were lifted in the late 1970s/early 1980s did the lines vanish. Notice that there were no gasoline lines during either Iraqi invasion, despite serious reductions in Middle Eastern oil production during both wars. Gasoline prices rose, but there were no lines. Supply and demand were brought into equilibrium, both by increasing supply and tamping down demand until they met. In the 1980s, the first decade after oil prices were liberated, U.S. oil production rose, defying the doomsday predictions of the 1970s pessimists who thought the world would run out of oil by the end of the century. In nearly every year since the removal of price controls, proven global oil reserves have increased. When prices and profits were determined by the market, it paid to explore and drill for new oil.

The sad consequence of all attempts to squeeze the profit out of the oil companies, whether through price controls, windfall profits taxes or other means is less production of oil. Oil companies that cannot charge market prices or earn market profits will invest less in the entire oil infrastructure, from gas stations, to oil refineries, to drilling platforms.

We pay high prices for oil for several reasons, all of them a consequence of our government failing to enforce rights, or actively violating them. One is the banning of oil drilling on certain lands, such as the Alaskan tundra, or the oceans off of Florida and California. Another is a shortage of refineries caused by the effective banning of construction of new refineries through NIMBY (Not In My Back Yard) local politics, and environmental rules that make the construction of new industrial facilities prohibitively expensive. Another reason for high oil prices are all the prior episodes when price controls and windfall profit taxes were imposed. The memory of these events and knowledge that they might be re-imposed further discourages oil executives from building new infrastructure.

Looked at from a broad, historical perspective, high oil prices are the consequence of decades of appeasement in the Middle East. The U.S. government allowed the Iranians to confiscate American oil fields in Iran in the 1950s, and then the rest of the Arab governments followed suit in succeeding decades. Today, the U.S. government stands mute when Venezuela and Russia expropriate Western oil properties. On the other hand, the U.S. government did take action to bungle the War on Terrorism by incompetently conquering Iraq while leaving true enemies such as Iran and Saudi Arabia untouched. These actions and others, such as stoking the Palestine-Israel conflict, push oil prices higher by engendering worries that Middle Eastern turmoil will disrupt supply.

With the anti-gouging bill, the House of Representatives is grandstanding at our expense. In an effort to curry votes from ignorant voters, the House lays the groundwork for new gasoline shortages. Moreover, it diverts attention from the party responsible for high oil prices, themselves.

2007-05-20T09:52:00.000-04:00

The One Minute Case for Unrestrained Profit

PROFIT IS THE ENGINE OF PRODUCTION

Restraining profit by taxing it or limiting it has the effect of limiting production. Restraining profit means an economy will produce fewer goods, of less variety, and at higher price. Innovation suffers. As a result, to the extent profits are restrained, all consumers suffer. Profit drives production in several ways:

PROFIT IS THE INCENTIVE FOR PRODUCTION

The profit motive is the supreme motivator of productive business activity. The creativity of scientists, the entrepreneurship of businessmen, and the resourcefulness of financiers are all motivated, in whole or part, by the pursuit of profits.

PROFIT PROVIDES THE MEANS OF PRODUCTION

Profits and savings are the ultimate source of the investment capital (money) that finances construction of factories, research laboratories, distribution centers, ships, warehouses, and all of the equipment that is used to invent, produce and distribute the goods that we consume. To restrict profits is to deny a source of capital necessary for production.

PROFIT DIRECTS CAPITAL TO THE PRODUCTION OF GOODS MOST URGENTLY WANTED

The highest profits are earned by the businessmen who can supply the goods most wanted by customers. iPods, portable generators after a hurricane, personal computers, fashionable clothes, and all of the goods consumers want most, are made by those who make the greatest profits. The profitability of an enterprise is the ultimate measuring stick of how well it has satisfied its customers. A money losing business is either making products consumers do not want or charging too much for them.

PROFITS RESULT IN EVERYONE'S GAIN

Profits do not come from the net loss of anyone. On the contrary, profit results from the creation of goods that people voluntarily buy in the marketplace. A businessman who makes a huge profit makes things that are good enough that many people want them and willingly buy them from him.

PROFIT IS PROPERTY

Profits are the property of the shareholders and other investor/owners of the business. Restricting or taxing profits is not just impractical, but is theft.

HONEST PROFITS ARE AN ESSENTIAL FEATURE OF CAPITALISM

A profit honestly earned in a capitalist society is beneficial and good for all. Profits must be distinguished from the money a businessman might get because of special governmental favors, such as tariffs, regulations or subsidies. These interventions are contrary to capitalism and allow some businessmen to gain at other people’s expense. Their gain is not profits, but a form of theft.

Further reading

Capitalism: The Unknown Ideal by Ayn Rand
Atlas Shrugged by Ayn Rand
“Profit and Loss” by Ludwig von Mises

**********

I published this on an interesting new web-site called The One Minute Case. It has a clever premise. State a case on various topics succinctly, and provide suggestions for further reading. I liken it to a Wikipedia for busy capitalists. I wish it success, with many new entries and readers.

2007-04-24T18:25:00.000-04:00

California to Energy Producers: Not in Our State

Posted by ARI Media at 7:59 PM, 4/23/07. Reprinted with permission.

Irvine, CA—After an intense four-year struggle, Australian energy company BHP Billiton's attempt to build a Liquefied Natural Gas facility off the coast of California has been effectively killed by the state's Lands Commission, which voted 2-1 that its "Environmental Impact Report" was unsatisfactory.

"When we in California experience our next energy crisis—or the next time we complain about our exorbitant gas and electric bills—we should remember the fate of BHP Billiton," said Alex Epstein, a junior fellow at the Ayn Rand Institute. "That company wanted to build a plant that could satisfy up to 15 percent of Californians' energy needs—a plant that did everything possible to maximize safety and minimize pollution. And what did it get in return? Nearly half a decade of obstruction from California's endless constellation of environmental bureaucracies—and seething opposition from environmental groups that oppose every single practical form of energy production, from coal to oil to gas to nuclear power. The message California sends to any would-be producers of plentiful energy is obvious: Not in Our State.

"California and many other states are riddled with laws based on environmentalist hostility toward industrial energy. These laws must be replaced with a respect for property rights and an appreciation for the incomparable value that is industrial energy. Fossil fuels and nuclear power are the lifeblood of our civilization; without them, the average American's food, clothing, shelter, and medical care would be impossible. And, contrary to claims that we must abandon fossil fuels to protect against alleged weather disasters caused by global warming, fossil fuels are vitally necessary to build the buildings and power the technologies that protect us from dangerous weather.

"The anti-industrial mentality of environmentalists must be rejected, in word and in law, by everyone who truly cares about human life."

**********

Galileo Blogs comments:

"NIMBY" which stands for "Not In My Back Yard" has entered the lexicon. In very few places do Americans want the industrial machines that power their houses and fuel their cars, that light up the Internet, that keep them warm in the winter, and cool in the summer. Americans want the consequences of capitalism, but not the means. Americans want all of the abundant, comforting, life enhancing things that capitalism makes, but none of the seemingly dirty, noisy, unsightly machines that do the making. I, for one, find an industrial plant beautiful. I salute its role in supplying me with the things that make my life modern and civilized.

Nevertheless, whether you find an industrial plant beautiful or not, you should have no political authority to tell an industrialist whether he should build it. It is his right; it is his property. Of course, by building the plant, the industrialist benefits our lives, whether we like it or not, whether we approved of it or not.

The California Land Commission and all such similar agencies should be abolished immediately. Our survival, our standard of living depends on it.

2007-04-23T18:28:00.000-04:00

Ode to the City of the Chicago Spire

This is my ode to the city of the Chicago Spire. Chicago is the probable future home of the Chicago Spire, which will be the tallest building in the United States. It awaits a final approval vote from a Chicago zoning board.

Chicago deserves to get its new 2,000 foot high tower. The city already has some of the greatest skyscrapers in the world. It is the home of architect Louis Sullivan, the father of the skyscraper. Chicago's towers are tall, straight and proud.

I say this as a New Yorker. I love New York's buildings, but they are often hammered by bizarre zoning rules that force flattened pancake shapes on their structures. Many New Yorkers today dislike tall buildings; as a result they clamor for zoning laws that squeeze new buildings ever shorter. It is no wonder that our tallest building and my favorite, the Empire State Building, is over 75 years old. The taller World Trade Center, now gone, wasn't even built by a private developer, but by a state agency that had exempted itself from all of the zoning laws that private builders are forced to obey.

I exult that the new Chicago tower will be residential. Chicago builds gloriously tall residential structures, as a matter of course. It is easy and inexpensive to find rental or condo apartments that are 30, 40 or even 50 stories high, complete with pool on the roof! In New York, new residential towers that tall are almost non-existent. The oppressive height restrictions that afflict our city are especially stringent against tall residential buildings.

New York also suffers terribly from another affliction that Chicago does not have: rent control. Rent control has stunted the natural height of the city, and laid waste to square miles of land once teeming with private apartment buildings in the Bronx, Brooklyn, and upper Manhattan. Rent control makes apartments more scarce, so that the available apartments are far more expensive than they are, for example, in Chicago, which has no rent control!

Let Chicago build the tallest building in the United States. Let Chicago again inspire New York as it did in the days of Louis Sullivan. Let it inspire New York to stand up and build the world's tallest buildings as the world's greatest city should!

That's my ode to Chicago, sung by a New Yorker.

[Hat tip to Gus Van Horn's blog, where I posted a version of this as a comment to his post.]

2007-04-19T08:54:00.000-04:00

Becoming Involuntary Parents

Imagine a world with no abortion. Every time a couple has sex, they run the risk of involuntarily becoming parents. Their condom breaks, the woman forgot to take her birth control pill or, simply in the heat of passion, they have sex without using birth control -- all of these situations becomes fraught with risk. The risk is that the woman becomes pregnant and the couple, who may not want a child, is forced to become parents.

That is the world we are moving closer to with yesterday's Supreme Court decision upholding a federal law banning certain second trimester abortions. There is not even an exception for the health of the mother. Justice Kennedy, author of the majority 5-4 decision, contemptuously said that if a doctor is concerned about the health of his patient, he can simply violate the law and perform the illegal abortion anyway, and then challenge the law in court. He is acknowledging that his heinous decision can put the life of the mother in danger, and he suggests that a doctor simply risk jail in order to uphold the Hippocratic Oath and protect his patient.

This is the attitude of the man who defended the magnanimity of Congress in its wise decision to pass its anti-abortion law: "The government may use its voice and its regulatory authority to show its profound respect for the life within the woman." (source for quotes: New York Times)

Just whose life does he want to protect? Certainly not the woman's (and man's).

The anti-abortionists are clear about the meaning of this Supreme Court decision. As Dr. LeRoy H. Carhart, the Nebraska doctor who was the defendant in the case, stated, "those who support this law are trying to outlaw all abortions, one step at a time."

Justice Kennedy's comments and Dr. Carhart's astute observation make it clear. The ban on so-called "partial birth" abortions is really an effort to get abortion banned. The possibility that the religionists will be successful in achieving that goal is now much greater.

A world without joy is what the Christians want. Banning abortion is a step in that direction. The Republicans made this happen.

2007-04-17T21:48:00.000-04:00

Hedge Fund Q&A

Hedge funds are regularly disparaged in the media. Mostly, this is simple envy of the wealthy. Mostly, it is based on misunderstandings about hedge funds. So, here are my answers to basic questions:

What is a hedge fund? A hedge fund is a private investment partnership. A group of people agree to hire an investment manager to invest their funds on a pooled basis. The agreement is private and it is voluntary.

How do hedge funds invest? Hedge funds invest in the manner specified in the contract agreed upon by the partners. There are as many ways of investing as there are private contracts between people.

How risky are hedge funds? All investments have the risk of loss. The degree of risk is determined by the particular investing strategy of the hedge fund manager, which is agreed upon by the partners. The agreement can specify what type of securities can be invested in, such as stocks, bonds, options and/or commodities. The agreement can specify whether the manager can invest in foreign securities, and to what degree. The agreement can specify whether the manager can use leverage (borrowed funds), and to what degree. It is entirely up to the partners and the manager to agree among themselves the limits on the investing strategy of the manager. The level of risk is agreed upon by the partners.

How are hedge fund managers paid? Managers are paid according to the agreement between the manager and the partners. Typically, a manager is paid an annual maintenance fee of 1% or 2%, and a percentage of the fund’s profits, which can range from 10% to as high as 50%. The fee is contractually set and can be anything that the partners and manager find to be mutually beneficial. One typical provision of a hedge fund contract is a “high water mark” provision. This provision means that a manager cannot be paid a percentage of the fund’s current profits until losses from prior periods are made up.

Are hedge funds regulated? Unfortunately, hedge funds are extensively regulated. Federal law states that only accredited investors are permitted to become hedge fund partners. That limit is currently being raised so that only investors with $2.5 million in liquid funds can invest in hedge funds. Someone with less money is legally forbidden from investing in hedge funds.

Hedge funds can accept no more than either 100 or 500 investors, depending on the applicable regulation.

Hedge funds are not permitted to advertise. They cannot publicly advertise their performance or explain their strategies. They cannot even have websites accessible to the public that explain their funds.

Other rules. Special rules prevent hedge funds from easily investing in both commodities and stocks in the same fund. Special tax rules make it impractical for foreigners to invest in domestic U.S. hedge funds, so hedge fund managers are forced to set up offshore funds for foreigners. Hedge fund managers are required to disclose their positions in securities periodically when those positions are sufficiently large. Hedge fund managers must set up as many as three legal entities in jurisdictions such as New York because of special taxes that target limited liability partnerships. Hedge fund managers cannot accept more than a certain amount of money from pensions and other retirement plans regulated by the federal government.

These are just a few of the rules hedge funds operate under. Hedge funds are private agreements between willing investors and the manager they hire to invest their funds. Nevertheless, they are highly regulated, and the regulations grow every day. Large legal and accounting costs must be borne by any hedge fund to comply with these changing and growing rules.

Are hedge funds less regulated than other business enterprises? How many business enterprises are legally forbidden to advertise? Even tobacco companies still have some legal advertising avenues open to them. Hedge funds cannot even legally advertise with a public website. How many businesses must legally turn away customers who aren’t wealthy enough? How many businesses must stop accepting customers when the number of customers reaches a legal limit? Hedge funds are more regulated than most other businesses.

Despite these rules, investors keep putting money into hedge funds. Globally, investment in hedge funds grew 30% last year to $2.1 trillion dollars under management, $1.4 trillion managed in the United States. This is a faster rate of growth than mutual funds and most other investment classes. Over 9,000 hedge funds operate in the United States today.

Why do investors keep putting their money into hedge funds? One reason is because the other investment alternative, mutual funds, faces different regulations that make them less attractive as investment vehicles for many investors. The differences affect the incentives that mutual fund managers face, and their freedom to invest. In both areas, mutual funds suffer disadvantages relative to hedge funds.

Incentives: Hedge fund investors can pay their manager in whatever manner they mutually agree upon. The method typically used, where the manager gets a percentage of the fund’s profits, provides an enormous incentive for the hedge fund manager to work hard and generate profits. Both he and the fund’s investors share in the fund’s profits proportionately.

Mutual funds are not allowed to pay their managers in the same manner. Under the Investment Company Act of 1940, which regulates mutual funds, mutual fund managers cannot be paid a straight percentage of the fund’s profits. That is why mutual fund managers are typically paid a salary plus a variable bonus that is more loosely connected to the fund’s profitability. A weakened connection to profitability means a weakened incentive to work hard to find profits. Mutual funds are also not allowed to have a “high water mark” provision where they agree to forgo their fee until a prior loss is made up. This also reduces their incentive to achieve profits.

Freedom to invest: Hedge fund managers have few legal limits on what they can invest in. Their limits are those agreed upon by the partners and the manager. A particularly important advantage is that hedge fund managers have the legal ability to take short positions in securities. A short position in a security is one where the investor makes money when the security price goes down, instead of up. Short positions are very advantageous when the stock market is declining, as it did for much of 2000, 2001 and 2002. Because of their ability to invest in short positions, hedge funds as a whole outperformed most other investment categories, such as mutual funds, during those years. If risk of loss is a concern, hedge funds as a whole were less risky than mutual funds during those years. Such a reduction in risk was possible because hedge funds could take short positions.

Mutual funds face regulations that make it very difficult to invest in short positions. Although those rules have been loosened recently, as a practical matter most mutual funds find they can only invest in long positions. Long positions go up in a rising market and decline in value in a falling market. Hedge funds can blunt the loss of value in a falling market through short positions; mutual funds are largely legally precluded from taking the same steps to protect the value of their portfolios.

Advantages of mutual funds. Mutual funds have some advantages that hedge funds do not have. The biggest are that they can legally advertise and they can accept money from anyone. There are also no limits on the number of investors they can have. So, their role in the financial world is assured. While only rich people (those with more than $2.5 million in liquid assets) are allowed to invest in “secretive” hedge funds (which are secretive largely because they are forbidden by law from discussing their performance), the so-called little guy can invest in mutual funds which he can study and learn about from advertisements, websites, etc.

There are other investment vehicles that are alternatives to hedge funds, such as exchange traded funds and closed-end funds. Each of them is a product of the peculiar regulations that govern it. Each has advantages and disadvantages, many of which are solely a consequence of differences in regulation.

Conclusion. In a world where everyone had the freedom to invest his money as he saw fit, without facing Depression-era rules designed to “help” the so-called little guy (but really just close off certain investment opportunities from him), there would be no legal distinction among investment pools. The distinction between hedge funds and mutual funds is a creature of regulation. To escape from the rules limiting mutual funds, hedge funds agreed to operate under a different set of rules that limit who they can accept as investors. By accepting one set of rules, they are freed from others, including those that limit investing in short securities, and how managers are paid.

Quite often, the history of financial innovation is a history of creatively finding ways around government edicts. The rise of the hedge fund industry is an example of that phenomenon. I look forward to the day when all those rules are repealed, when everyone’s inherent property right to contract with whom they please on whatever terms they choose is acknowledged in the law. When that happens, the creativity of investment managers, lawyers and accountants will be spent solely on developing the best investment vehicles for their willing clients, instead of having to destroy a portion of their time complying with the growing, changing and arbitrary rules emanating from Washington.

The larger issue is that all individuals can manage their own lives and should have complete freedom to do so. This includes the freedom to manage all aspects of their financial affairs. The only role for government is as protector of property rights. Governments exist to enforce the terms of contracts and punish those who commit fraud. The current hostility against hedge funds is of similar ilk as the hostility toward the “robber baron” industrialists of the late 1800s and early 1900s, and the junk bond and other financial innovators of the 1980s and 1990s. It is envy of the successful for being the successful, and resentment of the rich. The current hedge fund rules do nothing other than close off that investment vehicle from the masses, keeping them with their faces pressed to the glass looking in on a world that they enviously want and can’t have. Therefore, they will use the power of government to throttle and destroy that world.

2007-04-16T09:35:00.000-04:00

Antitrust Smackdown

In today's New York Times:

Internet and media rivals to Google Inc. (GOOG.O), fearing an unprecedented consolidation of power in the online advertising market, are expected to urge regulators to closely scrutinize the Web search leader's $3.1 billion deal to buy DoubleClick Inc.
Google on Friday beat out Microsoft Corp. (MSFT.O) and Yahoo Inc. (YHOO.O) to buy Web ad supplier DoubleClick, securing a leadership position as the Internet's top advertising business.
Microsoft, the world's largest software maker, said the deal would allow Google to corner the online advertising market and provide them access to a huge amount of information on consumer behavior on the Internet.
``This proposed acquisition raises serious competition and privacy concerns,'' said Brad Smith, Microsoft senior vice president and general counsel in an e-mail statement.
``We think this merger deserves close scrutiny from regulatory authorities to ensure a competitive online advertising market.''

Microsoft does not see the irony in pursuing antitrust to throttle its competitors, when it is one of the greatest victims in the history of antitrust, and remains a victim to this day.

Microsoft has pandered to the level of its less successful competitors in attacking Google. Like Sun Microsystems, Oracle, Novell, Netscape and sundry others who hamstrung Microsoft at every turn with harassing antitrust lawsuits over the past 15 years, Microsoft now does the same to Google.

Microsoft failed fair and square in trying to buy DoubleClick. Microsoft wanted it and it was outbid. Now Microsoft wants to use the antitrust hammer to forcefully gain what it wants, which it failed to do in the market.

Long ago, Microsoft undercut its own moral rightness in its antitrust battles. The company did this by never challenging the premise of antitrust. Bill Gates went on record repeatedly saying he thought antitrust laws were fine, just that they shouldn't be used this time against Microsoft.

Now Microsoft uses the same weapon against a competitor. Its action must put a spring in the step of Ms. Neelie Kroes as she continues to square off against Microsoft in the European antitrust courts. The director of the European Community's Directorate General for Competition (Orwellian sounding, huh?) knows that Microsoft barely stands before her, having already gnawed off most of the moral leg it stood on.

My advice to Microsoft's accountant is: beef up your reserve against an adverse judgment in the European antitrust case against you.

2007-04-06T10:02:00.000-04:00

Regulatory Braggadocio

Today's morning news report breathlessly announced that the U.S. Department of Transportation is mandating the installation of a life-saving new technology in cars. The new technology allows computers to individually control the brakes on each car tire in order to prevent roll-overs and out-of-control skids.

I could feel myself momentarily feeling gratitude toward the wise regulatory mother who protected us with this life-saving rule. Then I thought about it for a moment. Wait a second; the television report went on to parenthetically mention that this technology has already been deployed in half of all new cars. The new regulation will mandate its installation in all new cars in five years. By that time, car manufacturers would have already voluntarily chosen to put it in all new cars anyway.

What is going on here is regulatory braggadocio. The regulator claims credit for a product she did not invent, one which private automobile manufacturers were going to implement anyway. The regulator stole the spotlight from the engineers and automobile executives who, acting out of self-interest, were making their product better by making it safer.

All regulations work this way. The technology behind a safety innovation is always created in the market by profit-seeking businessmen. They implement it, sooner or later, depending on the market demand for such a safety innovation. All technologies are costly and the market will determine whether and when it pays to implement a particular technology. It is estimated that this particular braking technology would add $110 to the price of a car. Would it be worth it if it cost $5,000 per car? Only a car maker and its customers can determine that, which is why costly safety improvements are typically installed in luxury vehicles first before they are mass-produced for cheaper cars.

The regulator co-opts this natural market process that makes products safer over time. In some cases, such as this one, the regulator merely steals the limelight from a safety enhancement that was being instituted anyway. In other cases, he forces on an unwilling manufacturer and customer a safety mechanism that is too expensive. Either way, the public gets a clear message. The regulator is beneficent and is the only reason products are safe. You can't trust profit-making corporations to make safe products. Because of regulation, those greedy businessmen are forced to make safer products.

As I thought through this, that fleeting feeling of thankfulness to the beneficent regulator was replaced by another feeling: contempt. And in my mind I thanked those who do get the credit: the engineers and software designers and executives who developed this life-saving technology at the world's automobile companies.

2007-04-05T09:01:00.000-04:00

The Antitrust Hammer

This week Europe announced yet another antitrust action against an American company. Regulators are investigating Apple's iTunes for violation of European antitrust laws. They are claiming that because Apple offers music downloading on a country-by-country basis, they are violating rules against territorial restrictions on sales. Apple, for its part, says that it originally wanted to sell its songs Europe-wide, but found that copyrights were handled nationally and continental distribution was not feasible. Apple is being squeezed between one set of laws (copyrights) and another (antitrust). Although it is a problem of conflicting laws, the regulators do not seek to eliminate the legal contradiction. Instead, they punish the American company caught in the middle.

Apple has done nothing wrong here. As an exercise of their commercial freedom, they can sell to whomever they want on whatever terms they seek. To restrict that in any way is to violate the property rights of Apple's owners.

Why are the Europeans so concerned about such a bizarre, picayune issue? The answer is that they seek to bring down Apple because it is a successful American corporation. Observe the European regulators' continuing crusade against Microsoft, America's leading computer software company. To this day, even after Microsoft painfully settled American antitrust actions and lawsuits, the Europeans continue to punish Microsoft with ever-changing and constantly-growing demands. Lilliputian style, Microsoft is tied down under threat of more fines (after paying a record $613 million fine several years ago), and is forced to change its software, turn over programming code to competitors, adhere to government-set marketing rules and product specifications, etc.

Not so long ago, the Europeans were quiescent in antitrust enforcement. In fact, in countries such as Germany private cartels were legal (as they should be). Governments often encouraged cartelization (which they should not do; it is a private matter). However, about 15 years ago, the Europeans got antitrust fervor. They appointed a Europe-wide antitrust enforcer and set to work. A partial list of companies attacked by the European antitrust enforcers since then reads like a who's who roster of American business success stories:

Apple
America Online
Boeing
General Electric
Honeywell
McDonnell-Douglas
MCI
Microsoft
TimeWarner
Sprint
WorldCom

Many of these companies who wanted to merge primarily to achieve efficiencies in the United States could not do so because the European regulators would not allow the companies to combine their European subsidiaries. Two examples were the intended General Electric/Honeywell and WorldCom/Sprint mergers. Both of these mergers of American companies were thwarted by the European antitrust regulators. In other cases, mergers between American companies were permitted only after costly concessions were extracted that favored local, European competitors. Two examples were the TimeWarner/AmericaOnline and Boeing/McDonnell-Douglas mergers.

Interestingly, Europe's antitrust fervor began around the same time as the American government's antitrust assault on Microsoft began in the early 1990s. Now, after nearly two decades of America barely uttering a word in protest, the Europeans believe it is open season on American corporations. With regard to Apple, France actually tried to pass a law a year ago that would have forced Apple to allow iPods to accept music downloads from services other than iTunes. Eventually, France backed down after Apple threatened to pull its popular iTunes service out of France.

The Europeans are not just being anti-American. They target plenty of European companies with antitrust enforcement. Their reach across the Atlantic into the boardrooms of American companies has more to do with punishing the successful to protect the mediocre and politically-connected local companies in Europe. Many of the world's most successful companies are American. Therefore, the Europeans hammer them with antitrust.

2007-04-02T09:31:00.000-04:00

Protection Racket

The Wall Street Journal today reports that U.S. shrimpers are using so-called "anti-dumping" laws to extort cash payments from foreign shrimpers. Under the anti-dumping law, U.S. producers request and get tariffs imposed on importers they compete with. They only have to complain that the prices the importers sell their products at are unfairly low. Unfair to whom? Certainly not to the customers of shrimp, steel, paper and sundry other products against which anti-dumping tariffs have been imposed. No, they just have to show that it is unfair to them, the producers. So, American producers who compete for a living with all other producers, foreign and domestic, get to claim that their competitors' prices are too low.

It is a politicized, non-objective process and rewards selected American businesses to the tune of billions of dollars every year. All American consumers of these products pay more money for imported and domestic goods that are "protected" this way. Much of the extra profit that the domestic producers make gets passed around to thousands of lobbyists, lawyers, trade associations, regulators and politicians, all of whom make this racket work.

The most recent anti-dumping tariff, imposed in 2003 by the Bush Administration, raised shrimp tariffs by $100 million. Today, that process has become much more efficient and direct. The foreign producers now make cash payments directly to an association of U.S. shrimpers who, in turn, pass much of that money around to the domestic players that support the racket. The money is paid under threat that the U.S. shrimpers will call their political buddies to slap another punitive tariff on them. It was an offer the foreign shrimpers could not refuse.

When the Mob extorts money from businesses, it has to pay off judges, policemen and sometimes senators and congressmen. Today's legalized mobsters do the same thing, paying off many of the same people. All of us pay. We pay higher prices for goods and we suffer from an impaired division of labor. Less efficient and less successful producers of goods are rewarded at the expense of the more able.

2007-04-01T21:32:00.000-04:00

Press the Red Button

This was too good not to share.

2007-03-27T10:24:00.000-04:00

The Face of the Fight for Freedom

This woman in her red coat, her 6'3" brother and her Ninja husband are the faces of the fight for freedom in China and the rest of the world. She fights for her right to her home, and stands nearly alone to confront the wrecking ball and China's statist bureaucracy.

I cheer her, and the fact that her voice can be heard. China has a long way to go. China has come a long way.

2007-03-10T19:16:00.000-05:00

Comments on the Electric Utility “Deregulation” Mess

Recently, I received the following (edited) question regarding the choice of electricity supplier in the state of New Jersey. The question is applicable for anyone who has a “choice” in any of the states that “deregulated” their electric utilities in the 1990s. These include California, Connecticut, Illinois, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island and Texas. The details of the deregulation plans vary by state, but all of them, to varying degrees, offer or did offer customers a choice of electricity supplier. Most of these states also mandated that utilities in their state had to divest all or a portion of their power plants. My answer is applicable to all of these states and, in important respects, to the entire country. PSEG is Public Service Enterprise Group, which provides electricity to parts of New Jersey.

***

Hi GB,

I hope this email finds you well. I've lately become consumed with what I pay PSEG so I requested alternative electric energy supplier options (they pretty much have a monopoly on distribution).

Of the list of 19, just 2 offer residential service to my zip code. My question to you is: does the residential customer really have any choices? It seems all of the options are for businesses. (With the amount of research I've done on this topic today, this may turn out to be an article in the newsletter I publish! But I need to check my facts with you first.)

To their credit, PSEG does offer many comprehensive programs, tips, and arrangements to "help pay", lower, and generally help make paying them less of a burden, however, I can't help feeling like I'm just not getting the choices I'm supposed to get in a dereg'd marketplace.

Any thoughts you can share with me on this will help alleviate my frustrations... thanks!

A Reader

***************************************************

My answer:

Dear Reader,

As for the question in your email, residential customers don’t really get much of a choice much of the time. I suspect that any deal you are offered probably doesn’t present much savings over PSEG.

As for why, it is quite complicated to answer. The simplest answer is that the electric industry was never really deregulated, so deregulation can’t be blamed for what you are observing with regard to residential choice of electricity supplier.

Consider that “deregulation” in the case of utilities involved something good (allowing entities other than utilities to build more power plants) and quite a lot that was not good and “re-regulatory” in nature. The good thing, allowing others to build power plants, should lower prices over time because newer and more efficient plants will get built. However, that is true only if both utilities and non-utilities are truly free to build plants. Being truly free would mean that they can: (1) charge whatever they want for power produced from those plants, (2) locate them in the best locations, wherever they can buy land, and (3) build the plants using whatever they think is the best technology.

None of those things are true today. I’ll briefly address each of them:

(1) Price Maximums = Expensive Power. Price maximums are set by federal and regional regulators in the wholesale power market. Capped prices mean capped profits and a reduced desire for companies to build power plants. If fewer new power plants get built, prices will remain high because electricity continues to be made with old, inefficient plants.

(2) You Can’t Build It Here. Local zoning rules, land use restrictions, environmental rules, and the “NIMBY” reaction of local politicians to a power plant in their local area make it extremely difficult to locate new plants in the areas where they are most urgently needed, such as near urban areas where the customers are. “NIMBY” stands for “Not In My Back Yard.”

(3) Using the Best Technology Is Forbidden. The cheapest technology for a new “base-load” power plant, i.e., one that is designed to run 24/7, 365 days a year, is nuclear. Base load plants are the work-horse plants on the grid. They supply most of the electricity that you use. Unfortunately, nuclear energy in America has been made prohibitively expensive through unnecessary safety rules imposed after Three Mile Island. No one has died from exposure to nuclear radiation in that accident or any other accident anywhere in the modern, Western industrialized world (which the Communist government responsible for Chernobyl was not; no Western engineer would have built a nuclear power plant without a containment vessel, which the Soviets did). Despite nuclear energy's exemplary safety record, arbitrary safety regulations have made nuclear energy almost prohibitively expensive.

So, faced with the rules & regulations embodied in points 1-3, the electric industry remains very highly regulated in a manner that results in high electricity prices.

The other part of the answer is the re-regulation that was part of “deregulation”. Sound confusing? What makes it confusing is that when the “deregulators” thought they were deregulating, they were actually re-regulating the industry by imposing an artificial industrial structure on the utilities. The “deregulators” developed the mistaken belief that they knew better than the utilities what business structure they should have. So, they broke apart the utilities, much in the same way AT&T was broken up by deregulators in 1984 (that action was also a mixed bag of “re-regulation” and partial deregulation, but that is another discussion). They forced the utilities to sell their power plants, and then they forced the utilities to allow others to use their distribution wires to deliver electricity to customers. That is why someone other than PSEG can “sell” you power even though they do not own the wire that delivers it to your house. Instead, PSEG owns the wire and you pay PSEG to have that other company’s power delivered over PSEG’s wire to your house. It is similar to how competing long distance companies would use Verizon’s local phone lines to provide you with long distance service.

The result of the artificial manipulation of the utilities’ corporate structures and business practices is that they operate in a manner less friendly to customers. Until the pseudo-deregulation of the 1990s, utilities were vertically integrated. They owned their power plants. That enabled them to offer power at predictable prices. However, by artificially separating utilities from their power plants, they were forced to buy power partially or completely in the wholesale power markets. In itself, that might have worked out okay, but regulators also forced the utilities to buy power under relatively short-term contracts. As a result, short-term price fluctuations get transmitted to customers.

To summarize the point about re-regulation, the artificially broken-up structure of utilities makes them less economically efficient, with the result that power prices are both higher and more volatile to customers.

Sound complicated? It is. Is it deregulation? No. Is it an unholy mess? Indeed, it is.

I will give a hint of what a proper government policy toward utilities should be: hands-off or laissez faire. In particular, utilities should get no legal monopoly protection, which they still have. Anyone should be free to start up a business selling electricity to customers. If this were permitted, we would likely see a lot of technological and business structural innovation, such that utilities would look a lot different than they do today. For example, real estate developers may build “mini-utilities” with small power plants to provide power to residential sub-divisions. Large commercial buildings may find it is economical to self-generate using gas-fired generators in their basement. It is even conceivable that individual homes may be powered by micro-generators the size of air conditioners. Large utilities are likely to still exist, but they will compete with each other, with the customer benefiting from lower rates. Or, large utilities may function largely as back-up sources of power to whom electricity customers would pay a fee for that service.

All of this innovation (and other types that remain to be conceived by a future entrepreneur) could happen if utilities were truly deregulated and politicians stayed away from the business of providing electricity. None of it will happen under the current structure, which mixes a few, tentative measures of market freedom with a whole lot of contradictory government control. Utilities today are arguably the most regulated private industry in the country, with a welter of overlapping local, state and federal authorities all having a hand in how they are run. With that many cooks in the kitchen, is it any wonder that the pies they make taste so awful and cost so much?

Bottom line for you personally: without knowing the details of the offers from other electricity suppliers, I suspect you are better off, in terms of hassle and probably even money, by staying with PSEG!

Bottom line for the country: we all pay too much for power and will continue to do so until true deregulation occurs. But, before that can happen, people need to draw true conclusions about the ersatz-deregulation that has been attempted already.

Sincerely yours,
GB

P.S. – There are other aspects to this complicated problem. One of them (to be discussed) is the price and profit controls on electric transmission lines that prevent enough new transmission lines from being built. The result is that the electric grid is ossified and subject to blackouts, and power is too expensive.

2007-02-27T12:55:00.000-05:00

Private vs. Public

7 World Trade Center, destroyed on 9/11/01. Today it is a shining tower that is 80% leased. Top rents are $80 per square foot, well above the $50 per square foot its critics said it would never get.

Nos. 1-6 World Trade Center, destroyed on 9/11/01. Today it is… a pit.

What is the difference? The former is owned and operated by a private developer, Silverstein Properties. The latter is owned by the Port Authority of New York and New Jersey. Although leased to Silverstein Properties, all major decisions regarding its rebuilding have to be approved by its government owners.

What is the lesson? Draw your own conclusions.

Source: New York Post, "Moody's Takes More", 2/27/07

2007-02-13T20:08:00.000-05:00

Funding the Enemy

The United States has already paid $1.026 billion in ransom to the North Koreans in order to stop them from building the nuclear bomb. That was the price tag from 1995-2003 of President Clinton's "Agreed Framework" plan. Under that plan, negotiated in 1994, we paid the North Koreans food, fuel oil and in two light-water nuclear reactors to stop building the nuclear bomb. We helped them build nuclear reactors in exchange for stopping the building of the nuclear bomb. That is kind of like helping someone make dynamite in hopes that they don't build bullets.

You can read all about it here in a report prepared by the Congressional Research Service, a bureau of the U.S. Congress.

What did we get in return for the $1.026 billion? The answer occurred on October 9, 2006, when North Korea conducted a test explosion of what may have been a nuclear bomb.

Now, President Bush has agreed to give an additional $400 million of fuel oil and electricity... in exchange for what? The North Koreans have agreed to shut down current bomb-making efforts. What about the prior nuclear bombs they may have already made and the weapons-grade uranium they have stockpiled? We will leave that to a future negotiation to determine how much additional ransom we should give the North Koreans to turn that over to us.

What is to stop the North Koreans from lying and continuing their production of more nuclear bombs, just like they did in 1994 when President Bill Clinton and Secretary of State Madeleine Albright negotiated the first ransom payment? Nothing.

President Bush once called North Korea part of the Axis of Evil. Today he is paying money to a key member of that Axis. They will use it to build more nuclear bombs. We, the citizens of the United States, are paying for construction of the bombs that may one day be exploded over our cities.

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For a pictorial representation of how the North Koreans have played us, look here.

2007-02-09T15:05:00.000-05:00

Mikhail Khodorkovsky: Victim of the New Soviet Union

On Monday of this week, the Russian Prosecutor General levied new criminal charges against Mikhail Khodorkovsky. The new charges mean it is likely that Khodorkovsky will remain imprisoned at a Siberian labor camp past 2008, when he is currently up for parole. Khodorkovsky has been incarcerated since July 2003 after being charged and then convicted of tax evasion, stealing and sundry similar charges.

What is really going on here?

Russian President Vladimir Putin, a former KGB officer, has been ruthlessly stamping out all forms of opposition. He is re-nationalizing companies and closing down independent television stations and newspapers. He now appoints provincial governors who used to be elected. While he has been in office, more than 40 journalists have been assassinated. Under his watch, none of these crimes has been prosecuted. He is confiscating foreign business interests in Russia, using the pretext of violations of meaningless environmental laws. Such a tactic was used to partially confiscate the $20 billion Sakhalin oil project, after Royal Dutch-Shell had invested billions in the project.

When he was an active KGB officer serving in the Leningrad (now St. Petersburg) district, one can only imagine what crimes Putin committed or witnessed. The recent polonium murder of Alexander Litvinenko in London is an example of the type of KGB-sponsored actions that were frequent in the old Soviet Union and have now been resurrected in the new Russia.

Putin is going out of his way to make sure that a man like Mikhail Khodorkovsky spends more time in the gulag. Why is he such a threat?

Men like Khodorkovsky are a threat to dictators everywhere because they are independent. Khodorkovsky was a double threat to the dictator, a man independent in his thinking and independently wealthy. Khodorkovsky was not just the wealthiest man in Russia at the time of his arrest in 2003, but he was the architect of Yukos, the second largest oil company in Russia. Under his leadership, Yukos became the first large Russian company to report accounting figures using internationally accepted “GAAP” (Generally Accepted Accounting Principles) standards. By doing so, Khodorkovsky raised the standard for other corporations to follow in Russia, a standard that would facilitate modern capital markets and greater foreign investment in Russia. Khodorkovsky brought in Western managers to modernize Yukos’ business practices, including U.S. citizen Steven Theede, who was brought in as Chief Financial Officer of the company, and became its Chief Executive Officer after Khodorkovsky’s arrest.

All of the business steps Khodorkovsky took resulted in Yukos’ oil production growing at a nearly 20% annual rate during the last three years before his arrest and the Russian government's confiscation of Yukos. The proof of his Western managerial style was in these results.

Based on the public information available, Khodorkovsky’s actions are those of a highly competent, intelligent and successful business executive. His rise was a remarkable sign that Russia had changed, that the old Soviet Union was giving way to a new Russia that was more free and more Western than it had ever been before.

One of the charges against Khodorkovsky is that he unfairly acquired the assets that formed the base of Yukos during the corrupt privatizations of the 1990s. This may be true, but it is irrelevant. In a Communist society, no one “owns” the industrial plants, equipment and resources. The state was not the owner; it was the confiscator of property that had been formerly owned by private individuals prior to the Revolution. Such property would lie fallow until men like Khodorkovsky stepped forward to make it valuable. This process is similar to the appropriation of land by the Homesteaders in the United States in the 1800s. Vacant land was occupied by settlers who farmed it, and it became theirs. That was the same status of the property that had been abandoned by the Communists when the Soviet Union collapsed in the early 1990s.

That men such as Khodorkovsky stepped forward to appropriate such property, and make it far more valuable than it had ever been under the Communists, we should all be thankful. By doing so, he created wealth that he enjoyed and all those who did business with him enjoyed. That wealth was created, after having been dissipated by the Communists before. By doing so, he also helped bring the rule of law through modern business practices and accounting standards to Russia.

Stated in simplest terms, the proof of Khodorkovsky’s moral right to the property that formed the base of Yukos is the fact that he made it productive. He was a Homesteader.

Moral leaders in the West have said little about Khodorkovsky’s imprisonment (under horrible conditions, he was recently slashed by a fellow inmate). In the United States, leaders such as President Bush, who himself excoriated American businessmen and imposed punishing new rules on them such as Sarbanes-Oxley, have been incapable of taking a moral stand in support of Khodorkovsky. Instead, Bush, speaking of Putin, utters such grotesque inanities as, “I looked the man [Putin] in the eye. I found him to be very straightforward and trustworthy. // I was able to get a sense of his soul; a man deeply committed to his country and the best interests of his country.” With statements like that backing him up, it is no wonder that Putin feels morally empowered to stamp out the independent minds in Russia.

I wish Mikhail Khodorkovsky well. May justice prevail.

2007-02-04T22:45:00.000-05:00

Mass Hysteria

A recent HBO documentary chronicles a road trip through the Bible Belt. Friends of God: A Roadtrip with Alexandra Pelosi shows the narrator as she visits a truck stop where nightly prayer sessions are held; as she interviews a man who erects gigantic white crosses all over the South; as she chronicles brain-washing sessions for children where overweight hucksters explain the truth of Creationism, and how man could not be evolved from monkeys; as she visits a family of ten children where the pregnant mother describes how she used to want to be a doctor, but now glories in her holy duty of procreating for Christ. The narrator attends church meetings where well-known national ministers such as Jerry Falwell tell his congregation to vote for candidates who uphold Christian values such as anti-abortion. She shows us Christian comedians and Christian rock stars, and Christians who proudly declare themselves "soldiers for Christ" at "Battle Cry" rallies.

She shows us mass hysteria.

How much of a threat is it? Is it growing, or declining? What would these people do if they gained complete political power? What would happen to atheists, agnostics, gays, and members of every religious sect other than fundamentalist Christianity?

The ideas are so ridiculous, the worship is so... cheesy, that I find it hard to take seriously. Hopefully, a majority of Americans will always feel as I do. Hopefully, a majority of Americans will respect science. Hopefully, a majority of Americans will uphold the separation of church and state. Hopefully, a majority of Americans will stand for religious freedom, the right of people of different faiths -- and no faith at all -- to live together peaceably. Hopefully, a majority of Americans do not want government legislating personal morality.

These Christian true-believers are laughably small in stature. They take the Bible literally. They believe the earth is 6,000 years old. They believe God created man in His image and that evolution is false. They are hypocrites and guiltily engage in the sexual practices they say are evil.

As they battle for Christ, they tell us they would outlaw abortion. They would ban certain sex practices and homosexual acts. They would use government money to fund their causes in violation of the First Amendment. All of this they have admitted.

And if they really got all of the political power they crave, what would their true colors be?

2007-01-30T15:52:00.000-05:00

Nuclear Power: Hated by Environmentalists

The environmentalists' hatred for man and his technology is revealed by the reluctance of most environmentalists to embrace nuclear energy as a solution to the alleged global warming problem. Nuclear plants emit no carbon dioxide. Yet, environmentalists will rant and rave against nuclear power for all of its alleged harms, despite the fact that in the West not a single person has died from an emission of radiation into the environment by a nuclear power plant.

If the Nuclear Regulatory Commission were shut down, and all federal and state regulations were eliminated on nuclear power plants (and all other forms of electricity generation), I suspect that we would generate the majority of our electricity from nuclear power plants. Nuclear power has an inherent economy of scale because a very tiny amount of material can produce a huge amount of energy. Nuclear energy is very concentrated. This means that the cost of handling uranium and disposing of waste is very small in comparison to the amount of energy produced.

Contrast this with coal, where many 100-car-long trainloads of coal are needed to produce the amount of electricity that could be produced in a couple softballs' worth of uranium. Even with nuclear waste being radioactive, it is far easier and more environmentally "friendly" to dispose of nuclear waste than it is to dispose of coal waste, some of which inevitably gets disposed of in our lungs.

Only a wealthy, technologically advanced society can cheaply deploy a technology as advanced and beneficial as nuclear energy. Nuclear energy is clean and would be very cheap if it were not regulated. Yet all of the regulations on power generation -- including the pollution rules on fossil power -- just make our economy that much poorer, and less able to afford something as magnificent as nuclear power. So, ironically, by attempting to regulate in order to prevent pollution, such regulations have the opposite effect of making us poorer and therefore more likely to use polluting technologies, such as fossil fuels.

This point may not seem obvious, but observe that the worst polluting societies are the emerging Third World countries that are far poorer than ours. China, the former Soviet Union, developing parts of Africa and Asia, all have far more polluted air than we have in the West. Poverty and pollution go hand-in-hand.

As a final tidbit on nuclear power, I remember reading about an Alaskan village that wanted to install a tiny underground nuclear reactor for electricity. They believed it would be far cheaper to generate electricity through nuclear fission than it was to burn fuel oil that had to be arduously transported at great expense to their small village. I spoke to a nuclear engineer who told me that it was feasible to make such small nuclear reactors, but you would have to wait for "hell to freeze over" before the regulators would permit it. Given how much those Alaskan villagers have to pay for electricity, and how low they probably set their thermostats to save money, I imagine that they are already living in their frozen little hell.

2007-01-29T09:33:00.000-05:00

Señor, Where's My Tortilla?

At the risk of sounding drunk on the ethanol story, here is another unintended consequence of that boondoggle. The excellent Latin American editorial columnist Mary Anastasia O'Grady describes in today’s Wall Street Journal a scenario south of the border whereby Mexicans may soon discover they have run out of tortillas.

This unlikely of scenarios requires a "perfect storm" of government intervention on both sides of the border. It hasn’t happened yet, but warning signs of the coming storm are visible. The first of these, the U.S. ethanol subsidy, is already underway. As a result, global corn prices are rapidly rising. Corn futures are at record levels.

Tortillas, made from corn, are a ubiquitous and tasty staple of Mexican cuisine. Spanish conquest, wars, revolutions, and socialist economic policies could not dislodge the tortilla from its central place in Mexican cooking. However, a perfect storm combination of artificially high corn prices caused by the U.S. ethanol subsidy, Mexican quotas on imported corn, and impending price controls has the potential to do so.

How could this happen? Mexico has long imposed a quota limiting imports of corn. The ostensive purpose of this policy is to ensure a sufficiently high price of corn domestically so that the many thousands of Mexican subsistence farmers could keep operating. Farming small plots of land high in the mountains in a style that has barely changed since the days of the Aztec Empire cannot compete with the economies of scale of modern, industrial farming.

However, Mexican corn farmers are free to export their corn if the global price is high enough. Guess where the big new demand for corn is pushing global corn prices to record levels? The new demand for corn is coming from the U.S. ethanol plants that are converting corn into ethanol.

Now, there can still be enough tortillas on the street corner, albeit at much higher prices, if the price mechanism is not interfered with. Tortilla prices will simply rise to reflect the higher prices of corn.

But in Mexico, tortilla prices are a political issue. So, the government there is considering imposing price controls on tortillas. If that happens, in accordance with the economic law of supply and demand, a shortage of tortillas will develop. Too many people will want tortillas because the price is held artificially low, and not enough tortilla makers will want to make tortillas because they cannot make a profit when corn prices are so high. So, don’t be surprised if next time you are in Mexico, you overhear one hungry Mexican asking another: ¿Señor, dondé está mi tortilla?

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Note: Edited last paragraph for clarification and style on 1/30/06.