Too Big To Jail Is Here To Stay

Lanny Breuer, the Assistant Attorney General who claimed that prosecuting banks for crimes poses a risk to the financial sector and so corrupt bankers are “too big to jail” has lost his job:

MARTIN SMITH: You gave a speech before the New York Bar Association. And in that speech, you made a reference to losing sleep at night, worrying about what a lawsuit might result in at a large financial institution.

LANNY BREUER: Right.

MARTIN SMITH: Is that really the job of a prosecutor, to worry about anything other than simply pursuing justice?

LANNY BREUER: Well, I think I am pursuing justice. And I think the entire responsibility of the department is to pursue justice. But in any given case, I think I and prosecutors around the country, being responsible, should speak to regulators, should speak to experts, because if I bring a case against institution A, and as a result of bringing that case, there’s some huge economic effect — if it creates a ripple effect so that suddenly, counterparties and other financial institutions or other companies that had nothing to do with this are affected badly — it’s a factor we need to know and understand.

But the man who put him there, and who is ultimately responsible for the policy — the Attorney General himself — is here to stay.

eric-holder

Simon Johnson notes:

Attorney General Eric Holder expressed similar views in the context of discussing why more severe charges weren’t brought against Zurich-based UBS AG last year for manipulating the London interbank offered rate. And Neil Barofsky, a onetime senior prosecutor and former inspector general of the Troubled Asset Relief Program that administered the bank bailouts, provided a scathing assessment of Justice Department policy.

The Justice Department likes to quote Thomas Jefferson: “The most sacred of the duties of government [is] to do equal and impartial justice to all its citizens,” a line that appears in its latest budget documents.

This sentiment is hardly consistent with saying that some companies have characteristics that put them above the law. Jefferson himself was very worried about the concentrated power of financiers — he would have seen today’s problems much more clearly than do Holder and Breuer.

Fundamentally, Obama’s continued support for Holder illustrates that Obama is still committed to the policy of holding financiers to a lesser standard of justice than other citizens.

The continued failure to implement even the Volcker rule — let alone a Glass-Steagall-style separation between retail and investment banking — illustrates that Obama is committed to letting bailed-out banks continue to operate in the risky manner that led to the crisis. So does the total failure to ensure a level playing field for retail investors in a market now totally dominated by algorithms.

The big banks continue to ride roughshod over the American people with the complicity of the political class. Too Big to Jail is an affront to the Constitution, an affront to the Bill of Rights, an affront to those like Rosa Parks, Martin Luther King, Lysander Spooner, Frederick Douglas and all those who at various times crusaded to make equality before the law a reality in America.

The only sensible way forward is that lawbreakers on Wall Street must be prosecuted in the same way as other lawbreakers. That means that Eric Holder and all others associated with Too Big To Jail must lose their jobs.

But I doubt that will happen any time soon.

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The Importance of Free Immigration

Judge Andrew Napolitano has incensed critics of immigration with his defence of the idea of immigration as a natural right:

Since the freedom of speech, the development of personality, the right to worship or not to worship, the right to use technologically contemporary means for self-defense, the right to be left alone, and the right to own and use property all stem from our humanity, the government simply is without authority to regulate human behavior in these areas, no matter what powers it purports to give to itself and no matter what crises may occur. Among the rights in this category is the freedom of movement, which today is called the right to travel.

The right to travel is an individual personal human right, long recognized under the natural law as immune from governmental interference. Of course, governments have been interfering with this right for millennia. The Romans restricted the travel of Jews; Parliament restricted the travel of serfs; Congress restricted the travel of slaves; and starting in the late 19th century, the federal government has restricted the travel of non-Americans who want to come here and even the travel of those already here. All of these abominable restrictions of the right to travel are based not on any culpability of individuals, but rather on membership in the groups to which persons have belonged from birth.

Americans are not possessed of more natural rights than non-Americans; rather, we enjoy more opportunities to exercise those rights because the government is theoretically restrained by the Constitution, which explicitly recognizes the natural law. That recognition is articulated in the Ninth Amendment, which declares that the enumeration of certain rights in the Constitution shall not be used by the government as an excuse to deny or disparage other unnamed and unnamable rights retained by the people.

So, if I want to invite my cousins from Florence, Italy, to come here and live in my house and work on my farm in New Jersey, or if a multinational corporation wants the best engineers from India to work in its labs in Texas, or if my neighbor wants a friend of a friend from Mexico City to come here to work in his shop, we have the natural right to ask, they have the natural right to come here, and the government has no moral right to interfere with any of these freely made decisions.

I agree with Napolitano. Giving the state the power to restrict freedom of movement is a dangerous precedent, and a dangerous concentration of power. Powerful and well-connected groups and industries can use the largesse of the state to protect their own uncompetitive ventures by restricting immigration.

And why should the state have the power to determine who can and who cannot live where? Surely market forces are a better determinant of the need for workers and migration than a central planner setting migration targets based on their own dislocated criteria?

These are by no means the most significant arguments for the freedom of movement. Ludwig von Mises theorised:

vonMisesimmigration

This is a critical dynamic. If a government enacts laws that are undesirable, workers (if they can) will move to another jurisdiction with more desirable laws. Freedom of movement is the status quo today for capital — under the current global regulatory framework, the free flow of capital means that governments have to compete to attract capital from around the globe. Governments do not have to do the same thing for labour, as the flow of immigration is very restricted compared to the flow of capital. This disparity may well have contributed to the extant reality that around the world — but particularly in the United States — capital’s share of output is increasing, while labour’s share is shrinking. Freer immigration could change all that.

There are various misconceptions of immigration. Perhaps most prominent is the idea that immigrants cost natives jobs. But the evidence suggests that this is not true. Eduardo Porter notes:

For years, economists have been poring through job market statistics looking for evidence that immigrants undercut less-educated Americans in the labor market. The most recent empirical studies conclude that the impact is slight: they confirm earlier findings that immigration on the whole has not led to fewer jobs for American workers. More significantly, they suggest that immigrants have had, at most, a small negative impact on the wages of Americans who compete with them most directly, those with a high school degree or less.

Meanwhile, the research has found that immigrants – including the poor, uneducated ones coming from south of the border — have a big positive impact on the economy over the long run, bolstering the profitability of American firms, reducing the prices of some products and services by providing employers with a new labor source and creating more opportunities for investment and jobs. Giovanni Peri, an economist at the University of California at Davis, estimated that the wave of immigrants that entered the United States from 1990 to 2007 increased national income per worker by about $5,400 a year on average, in 2007 dollars. He also concluded that the wave had a small positive impact on the average wage of American workers, by lifting the overall economy. If immigrants hurt anyone, it was the previous cohort of immigrants, with whom they most directly compete in the labor market.

Recent estimates have concluded that a liberalisation of global immigration policies could lift global GDP significantly. More importantly, empirical studies have confirmed the reality that immigration eases the fiscal balance — helpful for developed countries with ageing populations and a shrinking tax base. A 2011 report by Madeleine Zavodny of the American Enterprise Institute found that immigrants on average pay much more tax than they consume in government services:

fiscalimpact

This means that one frequent objection to immigration — that immigrants overstretch government programs and infrastructure — is irrelevant. Working immigrants pay more than enough in taxes to fund their own costs — often many times over.

The study also found that rather than taking up jobs, each immigrant worker generated jobs for the native population. The supply of work is not fixed. Each additional 100 H1-B workers were found to have generated 183 new jobs for the native population, and each 100 additional H2-B workers generated 464 new jobs for the native population.

But what about the countries that immigrants leave behind? Surely the countries left behind by thousands or millions of workers will fall into recession? Well, perhaps to some extent — although not so much in countries with higher birth rates or slack employment — but that’s the point. Countries that suffer a labour drain may have to reform their legal and political structure to attract workers. This alone would significantly boost competitiveness in the long run. And emigrants frequently send money back to their country of origin, and acquire new skills while working abroad that they can bring back home, in turn enriching their home country.

On the other hand, it might be unwise for countries to immediately switch from a restrictive policy to an open-door immigration policy. While freedom of movement is an essential economic freedom, a radical change in policy could prove destabilising, and cause significant cultural and social dislocation, friction or ghettoisation. Such a large change in policy should be undertaken slowly and cautiously — it would be unwise for governments to rush forward with policies that are unwanted and unpopular with the wider population.

But in the long run, though, the benefits of freedom of movement are clear, and will likely become clearer in the coming decades as more countries and blocs experiment with freer migration policies.

The Beauty of America

Eric X. Li writes the most controversial piece of the year thus far, in which he concludes that democracy is a problem for the West:

Many have characterized the competition between [America and China] as a clash between democracy and authoritarianism. But this is false. America and China view their political systems in fundamentally different ways: whereas America sees democratic government as an end in itself, China sees its current form of government, or any political system for that matter, merely as a means to achieving larger national ends.

In the history of human governance, spanning thousands of years, there have been two major experiments in democracy. The first was Athens, which lasted a century and a half; the second is the modern West. If one defines democracy as one citizen one vote, American democracy is only 92 years old. In practice it is only 47 years old, if one begins counting after the Voting Rights Act of 1965 — far more ephemeral than all but a handful of China’s dynasties.

Why, then, do so many boldly claim they have discovered the ideal political system for all mankind and that its success is forever assured?

The answer lies in the source of the current democratic experiment. It began with the European Enlightenment. Two fundamental ideas were at its core: the individual is rational, and the individual is endowed with inalienable rights. These two beliefs formed the basis of a secular faith in modernity, of which the ultimate political manifestation is democracy.

In its early days, democratic ideas in political governance facilitated the industrial revolution and ushered in a period of unprecedented economic prosperity and military power in the Western world. Yet at the very beginning, some of those who led this drive were aware of the fatal flaw embedded in this experiment and sought to contain it.

The American Federalists made it clear they were establishing a republic, not a democracy, and designed myriad means to constrain the popular will. But as in any religion, faith would prove stronger than rules.

The West’s current competition with China is therefore not a face-off between democracy and authoritarianism, but rather the clash of two fundamentally different political outlooks. The modern West sees democracy and human rights as the pinnacle of human development. It is a belief premised on an absolute faith.

China is on a different path. Its leaders are prepared to allow greater popular participation in political decisions if and when it is conducive to economic development and favorable to the country’s national interests, as they have done in the past 10 years.

However, China’s leaders would not hesitate to curtail those freedoms if the conditions and the needs of the nation changed.

The fundamental difference between Washington’s view and Beijing’s is whether political rights are considered God-given and therefore absolute or whether they should be seen as privileges to be negotiated based on the needs and conditions of the nation.

Li has made a staggering error: he has conflated individual rights with democracy. These are actually two separate ideas. In fact, the two notions can sometimes be opposed: in a pure democracy, 51% of the population could successfully vote to cook and eat the other 49%. That is where the notion of individual liberty and creator-endowed rights come in: while some democracy is tenable, the actions of a democracy that would be damaging to an individual’s liberty are deemed to be unconstitutional. This was the shape of America’s constitution after the revolution.

So Li is correct — America was not at its birth a democracy. America was set up as a constitutional republic. Its constitution was designed to protect individual liberty (even if it has not always been entirely successful at doing so). The Constitution is written very simply and beautifully. Here’s the First Amendment:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Simple, specific, categorical. No ifs, no buts. Other nations have paid lip-service to fundamental human freedoms, but they always wrapped themselves up in fineries. Here’s Europe’s attempt:

Everyone has the right of freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without inference by public authority and regardless of frontiers. This Article shall not prevent States from requiring the licensing of broadcasting, television or cinema enterprises.

The exercise of these freedoms, since it carries with it duties and responsibilities, may be subject to such formalities, conditions, restrictions or penalties as are prescribed by law and are necessary in a democratic society, in the interests of national security, territorial integrity or public safety, for the prevention of disorder or crime, for the protection of health or morals, for the protection of the reputation or rights of others, for preventing the disclosure of information received in confidence, or for maintaining the authority and impartiality of the judiciary.

In Europe, you have a right to free expression at the discretion of the democratically-elected authorities. And that’s not really a right at all. It’s a semi-right; a right with a whole lot of strings. You have the right to life — so long as the other 51% don’t vote to cook and eat you. 

But America’s constitutional republic is a long-gone ideal. America’s Congress pumps out a wealth of legislation not specifically authorised by the Constitution. The first breaches were done with the best of intentions: the Fourteenth Amendment applied the Bill of Rights to the states, albeit shredding the Ninth and Tenth Amendments. The Civil Rights Act gave racial minorities equal accessto public and private facilities, thereby ending the right of property owners to discriminate against whomever they chose. I am broadly supportive of those measures. But later breaches have been much more dangerous.

Corporations are now routinely bailed out, destroying the market mechanism and creating an aristocracy of “systemically important” corporations with access to Uncle Sam’s chequebook. The power to coin money has been delegated from the Treasury to a private cartel known as the Federal Reserve, allowing the private bankers to create massive and dangerous credit bubbles. The PATRIOT Act, and the NDAA of 2011 shredded the Fourth Amendment and ended the ancient right to Habeas Corpus. Presidents since the Second World War have routinely gone to war without an express declaration authorised by Congress. Obamacare has created a healthcare mandate, compelling American citizens to buy a commercial product — health insurance. Even the First Amendment has been turned upside down — corporations (who are not people) can spend limitless money on political campaigns, while political protestors (who are definitely people) are now confined to caged “free speech zones”. And that’s just from the top of my head.

So it is important to remember that criticisms of America today are criticisms of the present politics of America, and not of the ideals of constitutionalism, or of individual liberty.

It is certain that America today is in dire straits: deeply indebted to the rest of the world, heightened unemployment, the world’s largest prison population, a broken and zombified financial system stripped of the market mechanism, a huge swathe of citizens without access to medical treatment, tent cities.

And it is also certain that America’s welfarism has contributed to its debt. But that is more the fault of large corporations, farmers, and the military industrial complex who suck up subsidies and then call it “profit”, than it is the poor who without subsidies probably could not eat. But certainly all the subsidies have come out of America’s newfound democratic status. Give people the ability to vote for more free stuff (and lobbyists the ability to lobby for more free stuff) and more often than not they’ll take that chance. After all, who doesn’t love a free lunch?

But it is totally foolish to blame these problems on “too much liberty”.

In fact, right now it is China that seems more libertarian — at least in purely economic terms. As I wrote last month, China’s economy consists of just 20% of federal government spending, whereas America’s consists of 37%. China is more of a market economy, while America is more statist. So while China’s leaders might have taken a more “flexible” approach to individual liberties, at least when it comes to economic liberty, they are practically way ahead of America. And maybe that’s why China is doing so well economically — the freedom to do business, to create, to produce.

When it comes to social and cultural freedom, America is way ahead of China — and unsurprisingly, America is still the world’s cultural powerhouse.

What if this little thing known as liberty — and these little things known as unalienable rights are far more important than Li recognises? What if they are the driving energy that underpins innovation, that underpins economic prosperity, that underpins a robust economic system?

America was once the richest and most productive nation on the planet (and by certain measures she still is). This was a direct product of a system of cultural and economic freedom. People were free to think differently, to act differently, to create new businesses, new products, new techniques and this ultimately led to the greatest sustained period of wealth creation in history. They didn’t have to ask the permission of a feudal lord or monarch or commissar. They didn’t have to kowtow to an aristocracy. Only now — since America has adopted statism and bureaucracy — has America begun to fall behind.

So Li’s conclusion is right, but only in a twisted and roundabout way:

The West seems incapable of becoming less democratic even when its survival may depend on such a shift. In this sense, America today is similar to the old Soviet Union, which also viewed its political system as the ultimate end.

History does not bode well for the American way. Indeed, faith-based ideological hubris may soon drive democracy over the cliff.

Yes — ideological and faith-based hubris may soon drive America off a cliff. But that ideological and faith-based hubris that we find today in American government and in the American intellectual elite is not for America’s constitution, nor for individual liberty. Instead it is for statism, for big government, for surveillance, for authoritarianism, for central planning, for endless war and imperialism. The zeal that will drive America off a cliff is exactly what Li advocates more of.

Policies Speak Louder Than Words

I can understand why some people are concerned about Ron Paul.

Whoever wrote his newsletters, they certainly included some nasty and excruciating stuff:

If you have ever been robbed by a black teen-aged male, you know how unbelievably fleet-footed they can be. Given the inefficiencies of what D.C. laughingly calls the criminal justice system, I think we can safely assume that 95 percent of the black males in that city are semi-criminal or entirely criminal.

I can see why black people would be concerned about a statement like that, given the history of systemic discrimination against blacks in America. Now, Paul is adamant that most of these newsletters, including all the offending passages were ghostwritten, and that he was not aware of the offending content. He has also adamantly disavowed it.

But what if he wrote them himself, or at very least was aware that his ghostwriters had chosen a new incendiary direction?

That would be a pretty strong reason for anyone opposed to racism to oppose Ron Paul, wouldn’t it?

I don’t think so.

Paul is the only major Presidential candidate who opposes the war on drugs.

Paul believes that drug criminalisation in America had racist origins:

We do know that opium was used by the Chinese and the Chinese were not welcomed in this country. We do know that the blacks at times use heroin, opium and the laws have been used against them. There have been times that it has been recognized that the Latin Americans use marijuana and the laws have been written against them. But lo and behold the drug that inebriates most of the members of Congress has not been touched because they’re up there drinking alcohol.

But this is not merely a historical fact, like slavery or segregation. It is a modern fact, a deep and slippery well of real discrimination against racial minorities:

Mass arrests and incarceration of people of color – largely due to drug law violations – have hobbled families and communities by stigmatizing and removing substantial numbers of men and women. In the late 1990s, nearly one in three African-American men aged 20-29 were under criminal justice supervision, while more than two out of five had been incarcerated – substantially more than had been incarcerated a decade earlier and orders of magnitudes higher than that for the general population. Today, 1 in 15 African-American children and 1 in 42 Latino children have a parent in prison, compared to 1 in 111 white children. In some areas, a large majority of African-American men – 55 percent in Chicago, for example – are labeled felons for life, and, as a result, may be prevented from voting and accessing public housing, student loans and other public assistance.

This doesn’t just affect drug users, but entire communities:

The scale of the effects of parental incarceration on children can be revealed simply by statistics showing the number of children with a parent in prison or jail. Among white children in 1980, only 0.4 of 1 percent had an incarcerated parent; by 2008 this figure had increased to 1.75 percent. Rates of parental incarceration are roughly double among Latino children, with 3.5 percent of children having a parent locked up by 2008. Among African American children, 1.2 million, or about 11 percent, had a parent incarcerated by 2008.

Ron Paul is very clear — he will end the drug war, and release non-violent drug offenders from federal prisons. He will allow states to determine drug policy.

The racist effects of the war on drugs have been perpetuated by every recent President, including Barack Obama. One statistic rings out above all — there are more black men incarcerated via the drug war today (and thus engaging in free labour) than there were slaves in 1850. America might have a black President, but slavery is alive and well.

Those who oppose racism — including blacks who rightly fear discrimination and racial hatred — should be more concerned by the racist policies of the current administration and previous administrations than the supposed writings of a candidate who opposes the racist policies of the current administration.

However, my support for Ron Paul is for another reason altogether. Paul is the only major Presidential candidate who wants to diminish America’s imperial largesse. Simply, America’s current role in the world is not financially or economically sustainable.

Paul has stated:

We are like a man who used to be rich and is in the habit of paying for everybody’s meals and announces at a lavish dinner that he will pay the bill, only to then turn to the fellow sitting nearby and say, “Can I use your credit card? I will pay you back!”

Simply, Ron Paul opposes the neoconservative vision that America should be in more than 900 bases, acting as a global policeman, and engaging in proactive interventionism. America once led the world by example — she was once the greatest creditor in history, with the freest markets, and a constitution that enshrined life, liberty, property rights, due process, free speech, freedom of assembly and habeas corpus into law. While some of her founders might have been slavers, the Constitution they created sowed the seeds for that system’s destruction by guaranteeing 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.”

Those are the values that I believe humanity should aspire to as we move deeper into the 21st Century. America’s contemporary economic and foreign policy has not only led to the American government engaging in unconstitutional activities like torture, warrantless wiretapping, indefinite detention, extrajudicial killing, etc. I believe that America’s contemporary economic and foreign policy is a danger to America’s long-term well-being.

As I explained in detail last month:

Neoconservatism holds that American and Western civilisation has a unique moral role in policing the world. That means military commitment, and frequent war. That, in turn, means spending. Spending has meant huge deb acquisition. There are many historical antecedents of empires convinced of their own special role in history, and determined to impose it on the rest of the world by force. Look at Rome — driven into the ground by the cost of imperialism, and her “bread and circuses” welfare state.

Imperial Britain’s debt load hit its peak at the very point when its empire crumbled into the sand. This is not a co-incidence, and the good news for America is that once Britain ended its global role, growth soon returned, and Britain’s debt-to-GDP ratio fell back to a sustainable level.

Of course, America’s debt position might be more sustainable if she was still the world’s greatest industrial powerhouse. But she has instead exported much of her productivity to her hostile creditor, China.

The deindustrialisation of the West has allowed newly industrialised nations, especially China, to build up huge monetary wealth — trillions of dollars of Western currency.

And neoconservatives continue to believe that America — dependent on foreign goods and resources, hugely indebted to hostile nations, and war fatigued — is somehow in a position to expand her empire, and to attack more countries?

Rome and Britain for all of their terrible imperial excesses also embodied many noble values. Yet their empires faded, and they lost influence as new empires arose. Today, a new empire rises: China. China’s political system embodies no liberal values whatever. Modern China’s founder Mao Zedong mused that it might be worth killing half of humanity to implement global socialism. The modern Chinese legal system, and its constitution are thoroughly authoritarian, and lack the American overtures to liberty, property rights, the pursuit of happiness, freedom of speech, and freedom of assembly.

Through over-extension America slowly bankrupts herself, and makes herself ever more dependent on Chinese goods and components. While America outspends the world militarily, the cost of her military commitment is breaking her back.

This seems counter-intuitive: America’s hunger for global power is making her weak? Hawks like Newt Gingrich and Mitt Romney might respond that the only way to maintain American primacy is through more military spending, the commitment of greater resources, and more determination to contain the expansion of China in the Pacific. But what is really happening is that America is breaking herself through the strain of effort. She ships her resources, her productivity, her young men and women overseas to guard sites in Afghanistan, Pakistan, South Korea, Germany and all of the 900 foreign military bases; in doing that she loses the productivity and wealth these people and things would create at home: infrastructure, education, medicine, technology, innovation. That — as empires always discover — is the cost of ruling the world. And it is a backbreaking one.

America should lead the world by example — through her own economic and technological development, through respect for individual and civil liberties and the Constitution, through diplomacy, through trade, through international friendship, and through being what the founders conceived her as — an independent nation that did not entangle alliances, much less policed the world.

How can America be an independent nation — in energy, in politics, in spirit — while she is chained by the shackles of maintaining and controlling an oil-dependent global empire?

Ron Paul is the only major Presidential candidate who comes close to articulating this vision. An independent and strong America can preserve the values enshrined in the Constitution. An America beaten into the ground by the implications of huge debt acquisition, systemic financial fragility and military over-extension may not even be able to preserve America.

Of course many in the media and the political establishment have already preordained that Paul cannot win. The global imperialism and the war on drugs must go on, or so they seem to believe. Anyone who points out the unsustainability of such an arrangement is marginalised, newsletters or none. Dennis Kucinich and Bernie Sanders — two other such Americans — are roundly ignored.

Alas, the march of history goes on too. Empires rise and fall. So mighty they seem, in their time.

As Percy Bysshe Shelley put it:

I met a traveller from an antique land
Who said: Two vast and trunkless legs of stone
Stand in the desart. Near them, on the sand,
Half sunk, a shattered visage lies, whose frown,
And wrinkled lip, and sneer of cold command,
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them and the heart that fed:
And on the pedestal these words appear:
“My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!”
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away

Newt Gingrich: Psychopath?

If anyone wants a good reason to reject Newt Gingrich as a Presidential candidate, it’s not the serial hypocrisy:

It’s not him claiming Occupy protestors need to get a job right after they take a bath.

It’s not even his outrageous claim that the Palestinians are an “invented people”.

It’s the  fact that he entertains bizarre notions like this:

It’s almost like [The Bush Administration] should every once in a while have allowed a terrorist attack to get through just to remind us.

Civil libertarians understand the threat of terrorism to a free society. The real threat of terrorism to a free society is that governments and societies respond to terrorism by shutting down the institutions of a free society — freedom of assembly, freedom of movement, freedom from monitoring, freedom of speech, freedom of ideology, freedom of economic activity.

Civil libertarians understand that the best way to fight terrorism is to oppose demagogues like Gingrich, who propose the curtailment of liberty as a “solution” to terrorism, and who would consider the idea that societies need occasional successful terrorist attacks in order to remind them of the menace of terrorism.

Civil libertarians know that the best way to prevent terrorism is to stop provoking it through imperialist conquest. Why didn’t 9/11 happen in Sweden, or Switzerland, or Iceland, countries which are often considered “freer” than the United States?

9/11 didn’t happen there because those nations aren’t projecting a foreign policy of imperialism, and aren’t occupying Arab countries to sate their endless thirst for oil and resources. The countries that have been attacked are the countries that are occupying the Arab world, and that support corrupt dictators like Hosni Mubarek, and King Fahd. 

The best way to stop terrorism is for the West to develop a true alternative energy infrastructure so that we can get the hell out of the middle east, and end our oil addiction.

Populism & the Fed

A bizarre piece from Gregory Morris writing for Bloomberg:

Today, as its 100th anniversary approaches, many followers of both the Tea Party and Occupy Wall Street movements are calling to “End the Fed.” The rich irony here isn’t that reactionaries and radicals are in agreement on something; after all, they are both passionately populist. The irony is that it was populist outrage and calls for reform that created the Fed in the first place.

The three decades from the demise of the second central bank to the point where the Lincoln administration began printing greenbacks to finance the Civil War were known as the years in the wilderness for American finance. Banks printed their own notes — and let the buyer beware. Bank runs and panics were a common fact of life.

Even with the terrible economic conditions we’ve seen in the past few years, it’s difficult today to comprehend the precarious state of business and personal finance in those days. Not only was there no central bank to restrain economic swings, there was no deposit insurance and no social safety nets. Banks were chronically undercapitalized and went bust with alarming frequency. There was no recourse for depositors. Farms and shops were foreclosed, families put on the street.

Really? Populist outrage led to the creation of the Fed?

I thought it was a cabal of bankers and financiers meeting in secret.

From Wikipedia:

At the end of November 1910, Senator Nelson W. Aldrich and Assistant Secretary of the U.S. Treasury DepartmentA. Piatt Andrew, and 5 more of the country’s leading financiers, who together represented about one-fourth of the world’s wealth, arrived at the Jekyll Island Club to discuss monetary policy and the banking system, an event led to the creation of the current Federal Reserve. According to the Federal Reserve Bank of Atlanta, the 1910 Jekyll Island meeting resulted in draft legislation for the creation of a U.S. central bank.

Now I know that depositors want their deposits insured. I know that a world of bank runs and panics is not a very reassuring atmosphere for businesses. But let’s be honest — things weren’t that bad. Here’s real GDP-per-capita from the end of the Civil War to the end of World War I:

Does that look like stagnation or weakness to you? No — it looks to me like a consistently rising standard of living powered by significant wealth creation. Sure — bank runs and panics, and bank failures and foreclosures were common. That’s the nature of creative destruction — good ideas can much more easily succeed if bad ideas are free to fail. That meant that society, and the economy, were much more experimental. And that’s the cost of innovation, and endeavour and experimentalism — an atmosphere of volatility.

The real issue is that the Fed’s defenders don’t really like creative destruction, because it is too risky. They cling to the comfort blankets of mild-to-moderate yearly inflation via money printing, significant government intervention to save failed businesses like GM, AIG and Bear Stearns, and an economy and political system swung (if not controlled) by too-big-to-fail megabanks, and their CEOs. Most fiercelythey cling to the risk-free 6% dividend they receive year-in-year out — a risk-free 6% of which most private citizens and investors can only dream.

The reality is that modern economic planning is the art of papering over the cracks. The social safety net, and depositors insurance are there not to create wealth (for they do no such thing) but to keep the febrile masses from rioting. The Fed’s defenders are puzzled that after all those monetary helicopter drops (stimulus, QE, QE2, etc, etc) the masses (Tea Party, Occupy) are still demanding more. The “great moderations”, and free lunches have (as I have explained in detail here and here and here) created a hyper-fragile monolith of delayed crises — America’s huge debt load, youth unemployment, biflation, etc — ready to crash down on society.

Loose monetary policy has created tsunamis of malinvestment, and bubbles (housing, NASDAQ, etc) that ultimately drag the economy back down to earth, resulting in crises that — as Paul Krugman so memorably put it back in 2001 — are reinflated, and reinflated, and reinflated by more and more and more interventionism, and new bubbles to replace the old.

That isn’t sustainable economics, or sustainable growth. Sustainable growth is driven by investment in the things that society wants and needs. It’s driven by people working, saving, and investing in products, services and businesses that they deem to be valuable. That is the nature of a free market, not the government or central bank firing off trillions of dollars to whoever they designate as “systemically important”. Sustainable growth is driven by experimentalism. If an experiment fails, it falls to pieces and a gap in the market is opened for the next experiment. Sustainable growth is not driven by bailouts and moral hazard — ever. That means that investors and financiers will think long and hard before committing capital, instead of throwing it into ponzi schemes and derivatives-black-holes.

There is a sensible middle ground between creative destruction and modernity. If anyone is to be bailed out, it should be the poorest, not billionaire bankers and Wall Street megabanks. Let the government insure the deposits of the masses. Let the government provide a safety net to prevent homelessness and starvation, and sickness — so long as it is funded sustainably from tax revenues, and not borrowing.

But let failed businesses fail. Let bad experiments end. Let bad debtors default on their debts. If the financial system is fundamentally weak then let it crumble — let a new system take its place.

No Capitalism on Wall Street

Herman Cain doesn’t understand the #OccupyWallStreet protests.

From ThinkProgress:

CAIN: I don’t have facts to back this up, but I happen to believe that these demonstrations are planned and orchestrated to distract from the failed policies of the Obama administration. Don’t blame Wall Street, don’t blame the big banks, if you don’t have a job and you’re not rich, blame yourself! It is not someone’s fault if they succeeded, it is someone’s fault if they failed.

Really? Wall Street is succeeding? You could have fooled me. The reality is that Wall Street’s largesse since 2008 has been underwritten by government. That’s why it’s so bizarre that Obama and Bernanke — two “system-saving” bailout architects have acknowledged sympathy for the protestors. Some of the protestors might be angry with the present system, and they may call that system capitalism, but there is no way that that is a fair description. As I wrote last month:

If government doesn’t allow banks that made bad decisions to be punished by the market, then the bailed-out zombie banks can rumble on for years, parasitising the taxpayer in the name of ever-greater bonuses for management, while failing to lend money, create new employment, or help the economy grow.

The global financial system isn’t working because there are fundamental structural problems with the global economy. These include over-leverage, the agency problem, trade deficits, failed economic planning, massive debt acquisition, Western over-reliance on foreign oil and goods, military overspending, systemic corruption, fragility and so forth. Stabilising the global financial system merely perpetuates these problems. The market shows that it needs to fail — preferably in a controlled way so that real people don’t get hurt — so that we can return to experimental capitalism, where good ideas prosper, and bad ideas don’t.

Bernanke’s organisation — the private Federal Reserve — pays a 6% dividend to member banks. That’s a staggering risk-free return on investment. Is it any wonder that banks won’t lend to small businesses or common people when the chosen few can just make easy money through having their funds sit at the Federal Reserve?

So no — Herman Cain is wrong. Protestors shouldn’t be blaming themselves for their “failure”. They should blame a system of government and monetary policy that gives money and favours to its friends. Call it crony capitalism, or corporatism or simply call it corruption.