Archive for April 2006

A New Record!

Bank of America set a new record today.  It sent me the terms and conditions on their treasury services -- 48(!) full 8-1/2 by 11 inch pages with 10-point font.  Unbelieveable.

The Feeding Frenzy Can Begin

The feeding frenzy that the media has been salivating over for days can begin, now that Exxon-Mobil (XOM) as announced quarterly profits.  They reported net income of $8.4 billion on $88.98 billion in sales, for a net income margin of 9.4%.  Previously I observed that 9.4% for a peak profit in a cyclical industry is pretty average, and that over the last decade oil company profits have been below average for the whole of US industry.

In fact, most investors found these profits to be disappointing.  You know you have a fun CEO job when half the country is pounding on you for profits being too high and the other half are pounding on you for profits being too low.  The fact is that XOM and other large US oil companies don't get the benefit of rising oil prices that they did, say, 40 years ago.  US oil companies no longer own most of their overseas reserves since many of their foreign operations were nationalized by countries in the 1960s  (with the US government refusing to lift a finger to protect these US assets, one of the early instances of the no-blood-for-Exxon argument).  Today, XOM must pay near market rate for much of this crude, either in arms-length purchases or through royalty agreements stacked in the favor of local governments.

So what can you folks who are screaming about high gas prices and obscene oil company profits do?  Well, you could tax all these "windfall" profits away, like Ford and Carter did in the late 1970s.  Of course, you would still be paying $3 for gas, but the profits would go to the US Congress to spend, who I am sure will do an excellent job.  Probably could pay for another bridge in Alaska.  Or, you could somehow ban oil companies from making a profit, and drop gas prices by that 9.4%, or about 28 cents.  This would get you $2.72 gas instead of $3.00 gas.  Feel better?  Of course, in either scenario, oil companies would stop making any investments in refining or oil exploration.  Supplies would quickly begin to fall (I won't go into it now, but take my word for it that refineries and oil wells require constant reinvestment just to keep running at current capacity) and I would bet it would take less than a year for that 28 cents to be right back in gas prices due to shrinking supply.

OK, what else could we do?  Well, we could cap gas prices.  Which is a fabulous idea, as long as no one who drives a car has anything better to do than sit in lines all day.  Or, we could regulate oil like we do telephones and electric utilities.  Highly regulated electric utilities make a net income margin of 7.1%.  If we regulated oil companies down to 7.1%, then this would reduce gas prices from $3.00 to $2.93.  So a huge and inflexible and costly national regulatory structure would save about 7 cents a gallon.  Oh, and since for most of 10 years oil company profits have been less than 7.1%, then, a utility type regulatory environment would likely raise gas prices and profits in most years. And of course you would get all the business flexibility, creativity, and customer service currently demonstrated by your local electric and phone company.

So what government action should a irate gasoline customer demand?  Well, I know this answer goes against years of education that the role of government is to step in and take over when any little aspect of life is not quite what citizens want it to be, but the correct answer is "none".  Its like the line from Wargames:  "A strange game. The only winning move is not to play."

More on why gas prices are still well below their historic peaks here.

I May Offer a Libertarian Summer Internship

Over the last month, blogging has been both light and of lower-quality than I would like because I have been consumed with some growth opportunities in my business.  Frequent readers will know that much of my effort has not been business per se, but completing all the government waste paper needed to start a new business in a new state or industry.  A partial list of some of these tasks are here and here.

I am thinking next summer I may go on campus and find the strongest big government supporter I can find and hire them to do all this government paperwork -- my attempt to create one new libertarian each year.  Not sure how I would find the right person, though approaching local PIRG chapter or Campus Progressives organization might be a good start.

PS- What I would really like to do is hire one Congressman a year into that summer job.

Disturbing Trade News From China

The following is from our Chinese sister publication called Panda Blog:

Our Chinese government continues to pursue a policy of export promotion, patting itself on the back for its trade surplus in manufactured goods with the United States.  The Chinese government does so through a number of avenues, including:

  • Limiting yuan convertibility, and keeping the yuan's value artificially low
  • Imposing strict capital controls that limit dollar reinvestment to low-yield securities like US government T-bills
  • Selling exports below cost and well below domestic prices (what the Americans call "dumping") and subsidizing products for export

It is important to note that each and every one of these government interventions subsidizes US citizens and consumers at the expense of Chinese citizens and consumers.  A low yuan makes Chinese products cheap for Americans but makes imports relatively dear for Chinese.  So-called "dumping" represents an even clearer direct subsidy of American consumers over their Chinese counterparts.  And limiting foreign exchange re-investments to low-yield government bonds has acted as a direct subsidy of American taxpayers and the American government, saddling China with extraordinarily low yields on our nearly $1 trillion in foreign exchange.   Every single step China takes to promote exports is in effect a subsidy of American consumers by Chinese citizens.

This policy of raping the domestic market in pursuit of exports and trade surpluses was one that Japan followed in the seventies and eighties.  It sacrificed its own consumers, protecting local producers in the domestic market while subsidizing exports.  Japanese consumers had to live with some of the highest prices in the world, so that Americans could get some of the lowest prices on those same goods.  Japanese customers endured limited product choices and a horrendously outdated retail sector that were all protected by government regulation, all in the name of creating trade surpluses.  And surpluses they did create.  Japan achieved massive trade surpluses with the US, and built the largest accumulation of foreign exchange (mostly dollars) in the world.  And what did this get them?  Fifteen years of recession, from which the country is only now emerging, while the US economy happily continued to grow and create wealth in astonishing proportions, seemingly unaware that is was supposed to have been "defeated" by Japan.

We at Panda Blog believe it is insane for our Chinese government to continue to chase the chimera of ever-growing foreign exchange and trade surpluses.  These achieved nothing lasting for Japan and they will achieve nothing for China.  In fact, the only thing that amazes us more than China's subsidize-Americans strategy is that the Americans seem to complain about it so much.  They complain about their trade deficits, which are nothing more than a reflection of their incredible wealth.  They complain about the yuan exchange rate, which is set today to give discounts to Americans and price premiums to Chinese.  They complain about China buying their government bonds, which does nothing more than reduce the costs of their Congress's insane deficit spending.  They even complain about dumping, which is nothing more than a direct subsidy by China of lower prices for American consumers.

And, incredibly, the Americans complain that it is they that run a security risk with their current trade deficit with China!  This claim is so crazy, we at Panda Blog have come to the conclusion that it must be the result of a misdirection campaign by CIA-controlled American media.  After all, the fact that China exports more to the US than the US does to China means that by definition, more of China's economic production is dependent on the well-being of the American economy than vice-versa.  And, with nearly a trillion dollars in foreign exchange invested heavily in US government bonds, it is China that has the most riding on the continued stability of the American government, rather than the reverse.  American commentators invent scenarios where the Chinese could hurt the American economy, which we could, but only at the cost of hurting ourselves worse.  Mutual Assured Destruction is alive and well, but today it is not just a feature of nuclear strategy but a fact of the global economy.

Panda Blog goes on to ask that their government end these distorting policies, for the sake of China's future.  I for one kindof hope that they keep subsidizing the stuff I buy over at Wal-mart...

Gas Prices a Crisis??

The media is just longing to make current gas prices into a crisis.  And you can already see them gearing up to bash oil companies for "record" profits (by the way, when reading the profit announcements, pay attention not to just total dollars but to profit margins, then read this).

Glenn Reynolds links this gas price chart this morning at Random Useless Data, showing that in real terms, gas prices are still below their peaks, and not at "all-time highs."

Gasprice_1

I took this one step further, based on the assumption that it isn't the price per gallon that matters for gas, but the price to drive a fixed mileage, say 100 miles.  Since average automobile fuel economy has continued to improve, in real terms we are far below the peak cost of gasoline.  Using this and this MPG data (for passenger cars) and the inflation adjusted gas prices here, I got this chart (1979 dollars)

Gas_price_100_1

By the way, just so you know my personal incentives, there are very few people out there who run a business whose fortunes are more sensitive to gas prices than my recreation business.  This will not be a very good summer for me, but if we leave the market alone to do its work, things will likely be better in 2007.  Intervention by Congress will pretty much assure that things will get worse.

Some Updates, and an Appology

I have been stuck in rural Colorado a few days, my stay extended by a pretty good spring snowstorm up in the high country.  I was visiting our new Colorado marina.  Finally getting to the airport, I found a backlog of unapproved comments, which I have passed through in mass.  Sorry for the delay, but blame spam-bots.  I hate having to approve comments to filter spam as much as you must hate the delay in seing your comments appear.

The other day in this post I, for the first and last time, wrote that my commenters needed to educate themselves.  I knew this was a stupid thing to write, leading with my chin, as it were.  I have posted all kinds of dumb stuff, and a number of things that I have been informed were outright errors (see the update to that same post, for example).  My commenters are great and often more knowlegeable than I am, so it was a dumb tone to adopt.  My only excuse is that I had about 5 emails in a row that confused the trade deficit with the federal budget deficit and the national debt, and I was ready to scream. 

I'm sorry.

I'll Try Again -- Why The Trade Deficit is Not a Debt

After spending gobs of electrons on this post about the US trade deficit explaining why it is not a debt, and is not even necessarily bad, I got a depressing number of comments and emails like this one:

The trade deficit is a debt. We cannot get the dollars back we have
spendt unless we export to get them back. It is called an external debt
for a reason. It is called a current account debto for a reason.

Aaaaargh.  It is depressing that we can get such economic ignorance, particularly in a self-righteous way.  The crappy media coverage of these issues has people convinced that it just has to be this big old debt out there someone is going to have to repay someday. 

OK, I will try again.  But in response to this specific post, it is only called "external debt" or "current account debt" rather than "deficit" by really, really sloppy media people who have no idea what they are talking about (unfortunately, there are a lot of these).  And a deficit is not a debt, though it can sometimes create a debt.

I try to be very respectful of my readers.  I never delete a comment, unless it is spam/bot stuff or in a few cases where commenters have asked me to.  So it is only with the deepest respect that I say the following:  Please do not bother to comment on this post if a) you do not understand the difference between the federal government deficit and the trade deficit and/or b) you do not understand the difference between an account deficit and a debt.  Seriously.  Just take my word for it that you need to educate yourself a bit first, and then feel free to leap into the debate.  (Update:  This was a poor tone to adopt, see here).

First, A Thought Experiment

This is not meant to constitute proof, but for those who are concerned that the trade deficit is potentially disastrous for our economy, I can only ask, When?  Because we have been running a substantial trade deficit as a nation for over a quarter of a century, and by all accounts, over that same time period, we have had just about the strongest economy in the world.  In fact, I would propose that the causation is more likely just the reverse.  Because we have had a strong economy, with extraordinary wealth creation, we have taken some of that wealth and spent it on goods from other nations.  And because we have the safest nation in the world in which to invest, demand for our local investments tends to shift exchange rates in a way that increase the trade deficit.

In the late 80's and early 90's, everyone was in a panic about Japan.  We were running a massive trade imbalance with Japan.  They were going to buy all of our real estate.  Their government was tipping the scales in their own favor.  They were purposefully depressing the yen to encourage exports.  Blah, blah, etc, etc.  And you know what happened?  They subsequently went into a decade and a half long recession they are only just now climbing out of, and we had one of the strongest economies in history. 

How do the Dollars Get Back?

With a couple of exceptions that don't really change our conclusions, dollars do follow a closed loop.  In other words, if we send them to China or India, they generally eventually come back.   The question is how.  To understand this, it is first important to understand that the balance of trade deficit only measures some monetary flows.  In particular, it looks at the balance between manufactured goods traveling between two countries.  If the US has a $20 billion trade deficit with China, it means that they shipped $20 billion more of manufactured goods to us than we shipped back to them.  It includes some but not all services.  It does not include goods or securities or investments purchased by foreigners that remain on US soil.

To understand how the dollars come back from China in a closed loop is to, in a sense, ask the question of what monetary flows are not included in the trade deficit.  If we have a trade deficit with China, there are a number of things it can do with its extra dollars:

  1. It can do nothing with them - just hold them in a big pile
  2. It can lend the money to people buying their products
  3. It can buy certain US services
  4. It can buy US goods, but not take them out of the US
  5. It can buy US public and private securities and real estate

Lets look at each in turn

1.  China can do nothing with them - just hold them in a big pile

Two words:  In-Sane.  By just holding them, they would effectively be sticking them in a mattress and foregoing any interest or investment income.  It's just not going to happen.  And don't say, well they could just put the dollars in a Chinese bank.  Fine, but the only way the Chinese bank is going to pay interest on dollars in the bank is if they turn around and invest the dollars in dollar-denominated investments.  One way or the other, the money, if it does not buy anything else, will get invested, which we will deal with in point 5.

I know there are paranoiacs that worry that the Chinese, despite the financial disincentives, will hold these dollars anyway in a big vault or something out of spite.  Gee, hurt me, hurt me.  Holding our dollars in a big mattress in Peking does nothing to hurt us.  And dumping them all on the market simultaneously may sound scary to conspiracy theorists, but in practice it would hurt them worse than it would hurt us, and the pain would be relatively short-lived  (just ask the Hunt brothers about this strategy).

2.  China can lend the money to people buying their products

I suppose that for those who don't get the federal deficit and the trade deficit mixed up, this is what they assume is happening, that Americans are borrowing from the Chinese to finance manufactured goods purchases.  The only problem is that it is not happening, at least to a greater extent than any normal purchase-financing arrangements.  Take corporations such as Wal-mart, a huge buyer of Chinese stuff.  Is Wal-Mart going into debt to buy Chinese stuff?  No, and certainly not to the Chinese. 

Well, are individual Americans going into debt to buy Chinese.  Maybe, but the key point is that they are not going into debt because what they are buying is Chinese.  They are going into debt because Americans, for whatever reason good or bad, are saving less and choosing to buy more on credit.  This would be happening if what they were buying was Chinese or American made.  In other words, American consumers may have debt, but that debt would exist even if we had no trade deficit with China.  It is a personal choice people are making that has no relation to the source of goods.

3.  China can buy certain US services

Note that many US services are not included in the trade deficit calculations.  If Chinese companies engage McKinsey & Co. consultants in the US to figure out how to sell more stuff to Wal-mart, those payments for services are probably bringing dollars back to the US from China, but aren't included in the trade calculations.  This really is just a subset of point four:

4.  China can buy US goods, but not take them out of the US

Many, many of the dollars the Chinese end up with come back to us in this way.  As did many of the dollars the Japanese had in the eighties.  If a Chinese company uses dollars not to buy US goods and take them back to China, but buy them and consume them in the US, then this does not show up in the trade numbers.  Chinese and Japanese companies bring their US dollars to the US to build factories and infrastructure.  This is sometimes why it is said that the trade deficit is not a measure of differences in cash flows, but of a difference in where goods are consumed. 

If you flip the equation around, the Chinese have a wicked balance of stuff deficit.  They are sending a lot more manufactured goods to the US than they get back.  I could argue that Chinese workers are getting hosed, since they only get to enjoy a fraction of the goods they produce for themselves, since a large portion of the product of their labor is sent overseas for others to enjoy.  Hmmm, doesn't sound so bad that way.

5.  China can buy US public and private securities and real estate

Of course, what happens with a lot of the US dollars the Chinese find themselves with is that these dollars get invested in US investment vehicles, from real estate to government bonds to private equities.  There are several points that need to be made here:

a.  Just Because Chinese invest in US Government Bonds does not make them or the balance of trade responsible for this debt

As I intimated above, a lot of people get the US federal budget deficit confused with the trade deficit.  Making this confusion worse, the Chinese use a lot of the dollars they earn in trade to buy US Government Bonds that help finance the federal budget deficit.  Now, by buying a lot of government bonds, one might argue that the Chinese lower interest rates and make government borrowing easier, thus making the federal budget deficit worse since there is a ready source of debt financing. 

While there may be a link here, it is tenuous at best.  If the government was a private company, then its borrowing level might rationally fluctuate up and down based on interest rates and capital availability.  But the US Government is not this rational.  It runs a budget deficit primarily because legislators and bureaucrats alike have the incentive to spend other people's money to protect their jobs and power base.  This happens equally at 3% interest rates and 9% interest rates.  It happens equally if guys from Peking or Omaha are buying government bonds.  In fact, one could argue that Chinese reinvestment of their trade dollars in US securities actually marginally reduces the government debt by reducing interest costs.

This same argument holds equally true for Chinese investments in private debt.  Chinese dollars may increase borrowing slightly, but only because the influx of their cash reduces borrowing costs.

b.  Chinese Ownership of US Assets is GOOD

In the Japanese scare of the 1980's, everyone was freaked out that the Japanese were buying up American assets and real estate.  During that time, while I almost never play the race card, it was almost impossible not to come to the conclusion that some racism had to be involved in this fear.  America had welcomed, in fact, had prospered, via foreign investment for years.  For a century, the US has been the safest place for foreigners to put their money,something we should be proud of  -- A sign of strength, not weakness.

But suddenly, everything was different because the new buyers were Japanese.  Note the following:

Despite the notoriety of
Japanese investors, the British have the largest U.S. direct investment
holding"”with the Dutch not far behind"”as has been the case since
colonial times. In 1990 the United Kingdom held about 27 percent of
foreign direct investment in the United States, significantly greater
than Japan's 21 percent. The European Economic Community (EC)
collectively holds about 57 percent. Moreover, according to research by
Eric Rosengren, between 1978 and 1987, Japanese investors acquired only
94 U.S. companies, putting them fifth behind the British (640),
Canadians (435), Germans (150), and French (113).

But no one was complaining about the British, Canadians, Germans, or French.  Only the Japanese.  I have to come to the conclusion that there was some racism involved, with the same primal fears at work that caused us to ship US citizens of Japanese decent off to concentration camps in WWII but we did not do the same of citizens of German or Italian decent.  And in this case, it could not have been security concerns.  Since 1945, Japan is one of the most pacifistic nations in the world- we probably face a bigger security threat from Belgium than we do from Japan.

I get the same feeling today with the China panic that I did twenty years ago with Japan.  Its a race and a culture we don't understand well, so we get xenophobic.  People lament that China is a real security threat, and that certainly is true to an extent.  But ask yourself this - Is China more or less of a threat to hurt us if their economy, their financial prosperity, and most of their assets are tied to the US?  Is China more or less stable now that their people are not starving and they are rapidly developing the largest middle class in the world?

Conclusion

If you are still having trouble understanding, the problem may be that you insist on thinking of economics as zero-sum.  This is the fallacy of 18th century mercantilists, who saw the economy as a big fixed tank, and if more flowed overseas than flowed back, the tank level would fall until the country was bankrupt.  There are at least two key fallacies here:

  1. Wealth is not zero-sum.  It is created.  It is expanded.  Some can even be spent frivolously on big ass plasma TV's from China and we are still wealthier than we were decades ago.
  2. Trading has value in both directions.  As mentioned above, looking at only the currency side of trading misses a lot.  By definition, in a free trade, both sides believe the trade increases the value to themselves, or they would not have made the trade.  So trading per se, no matter what the currency flows, can only lead to wealth creation, not its destruction.

Postscript - New Mercantilism

Lamenting the trade deficit is always a precursor to interfering with free trade.  It is important to note that free trade has always led to prosperity, while protectionism has always led to stagnation. 

Several protectionists today are trying to make the argument that OK, that might have been true in the past, but today is different, and today, free trade is uniquely bad.  Economist Paul Craig Roberts made this argument, that, as Don Boudreaux summarizes it:

the American standard of living is threatened by the world's growing
prosperity, improved education, better governance, and greater fluidity
of capital and resources to move in search of higher returns

Boudreaux, a writer at the fabulous Cafe Hayek, does a good fisking of this argument, but I think I can demolish it even faster.  By this logic, California would be better off if the eastern part of the US was suddenly impoverished and made educationally backwards.  This is absurd.   Sure, the industrial east suffered some temporary dislocations as the south modernized and competed for factories.  But this was only temporarily.  As the south got richer, it wasn't a contest between regions for a fixed number of factories, the number of factories and jobs grew, so that all parts of the country had more. 

Is there anyone who thinks that half of the US would be better off
economically if the other half were turned into a third world nation?  Is there any company executive that thinks they could survive if half their market went away?  So why is half the world better off if the other half is impoverished?  If you are saying, gee, the only reason I can come up with is that zero-sum fallacy Coyote keeps talking about, go to the head of the class.

Update:  In comments and emails, my readership educates me that citizens of German and Italian decent were interned in WWII as well.  While I knew that Germans and Italian POW's were interned in large numbers in the US in WWII, I was not aware of internship of US citizens with German or Italian blood, though the programs for these nationals do seem more limited than the west coast movement of Americans of Japanese decent.   My first and second generation German immigrant family members never reported being harassed in any way, either publicly or privately, during the war and most all served either in the US military or war production industries.  I will still stick by my core point that investment in the US by Asian nationals is not treated the same as investment by European or Canadian nationals.

I have also gotten a number of emails and comments on the differences between various trade and current account deficit indicators.  I tried to avoid getting into all that, assuming, I think rightly, that it would just clutter up the argument and would not substantially affect the conclusion.  Just for the record, though, there are many different metrics, that range from narrow measures of manufactured goods flows to much broader measures of capital and services flow.  You can assume that 90% of the time, the media article you are reading about the deficit probably does not correctly describe the metric it is using.

 

Vioxx and Merck Lose Again

Vioxx went to 3 for 6 in jury verdicts today as Merck lost a case in Texas (WSJ $).  Merck got hit with $7 million in damages plus $25 million in punitive damages, presumably since Merck was so clearly at fault as to be considered to have acted recklessly.  With that in mind, consider a couple of facts in the case:  First, the plaintiff..

died of a heart attack after taking Vioxx for less than a month.

I know what you are thinking.  How, after less than a month of use (and maybe as little as a week), could any plaintiff prove their heart attack was from Vioxx?   I mean, out of the thousands of people who took Vioxx, some statistically were due for a heart attack even had they not taken the drug.  Having one event (the heart attack) follow another (Vioxx use) does not prove causation, after all.  I guess the jury decided that this guy was not at risk for a heart attack otherwise.  Of course, they admitted that:

Mr. Garza, a Vietnam veteran who was 71 years old when he died in 2001,
had a history of smoking, had suffered a prior heart attack in 1981 and
had quadruple bypass surgery in 1985.

But I'm sure that had no bearing on his heart attack.  It must have been from the week of Vioxx.  His lawyers mitigated this by arguing:

he had a stress test shortly before his heart attack that showed he was in good health

Do you know how many men die of heart attacks within months of having a clean stress test?  A lot.

The plaintiffs initially asked for a billion dollars, so I guess if only by comparison the verdict was reasonable.  I wrote more about the danger of making uninformed juries the arbiter of what risk trade-offs we as individuals can take with our medications here and here and here.  I questioned multiple punitive damage awards for the same offense in the context of double jeopardy here.

Employment Opportunities

The Phoenix-based Goldwater Institute is looking for a Director of Administration and a Director of Development.  If you have always wanted to convert your desire for small government into a paying job, this might be your chance.  From their web site:

The Goldwater Institute was founded in 1988 by a small group of
entrepreneurial Arizonans with the blessing of Sen. Barry Goldwater.
Like our namesake, the Goldwater Institute board and staff share a
belief in the innate dignity of individual human beings, that America
is a nation that grew great through the initiative and ambition of
regular men and women, and, that while the legitimate functions of
government are conducive to freedom, unrestrained government has proved
to be a chief instrument in history for thwarting individual liberty.
Through research and education, the Goldwater Institute works to
broaden the parameters of policy discussions to allow consideration of
policies consistent with the founding principles of free societies....

With the legislature introducing thousands of new bills every year,
it's nearly impossible for the average person to know when or where his
liberties are threatened, much less do anything about it. The Goldwater
Institute works on behalf of Arizonans to keep watch on government and
to expand school choice, restore economic liberty, protect private
property, and affirm Arizona's independence against unconstitutional
federal encroachments.

The Peak Whale Theory

After reading this article on the earth running out of resources,  I discovered another article from the archives of the Coyote Broadsheet, a predecessor of this blog written by one of my distant relatives, dated April 17, 1870:

As the US Population reaches toward the astronomical total of 40 million persons, we are reaching the limits of the number of people this earth can support.    If one were to extrapolate current population growth rates, this country in a hundred years could have over 250 million people in it!  Now of course, that figure is impossible - the farmland of this country couldn't possibly support even half this number.  But it is interesting to consider the environmental consequences.

Take the issue of transportation.  Currently there are over 11 million horses in this country, the feeding and care of which constitute a significant part of our economy.  A population of 250 million would imply the need for nearly 70 million horses in this country, and this is even before one considers the fact that "horse intensity", or the average number of horses per family, has been increasing steadily over the last several decades.  It is not unreasonable, therefore, to assume that so many people might need 100 million horses to fulfill all their transportation needs.  There is just no way this admittedly bountiful nation could support 100 million horses.  The disposal of their manure alone would create an environmental problem of unprecedented magnitude.

Or, take the case of illuminant.  As the population grows, the demand for illuminant should grow at least as quickly.  However, whale catches and therefore whale oil supply has leveled off of late, such that many are talking about the "peak whale" phenomena, which refers to the theory that whale oil production may have already passed its peak.  250 million people would use up the entire supply of the world's whales four or five times over, leaving none for poorer nations of the world.

Too bad Julian Simon wasn't around to make a bet on whale oil prices.

Great Example of Zero-Sum Thinking

In perhaps the best example I have seen since Paul Ehrlich of zero-sum thinking, junkscience.com links to this article at the BBC:

A study by the New Economics Foundation (Nef) and the
Open University says 16 April is the day when the nation goes into
"ecological debt" this year.

It warns if annual global consumption levels matched the UK's, it would take 3.1 Earths to meet the demand.

How many times does this sort of stuff have to be wrong before it stops getting printed by "science writers" in the media.  Malthus made the same argument over a century ago, and Ehrlich has been making one bad prediction after another along these lines since the late 60's  The report relies on this concept:

The findings are based on the concept of "ecological
footprints", a system of measuring how much land and water a human
population needs to produce the resources it consumes and absorb the
resulting waste.

Of course, no one mentions that this "ecological footprint" number has changed dramatically with technology, not only in the last 200 years but even in the last 30.  For example, total US Farm acreage has fallen for the last fifty years, while agricultural production has grown between two and five times in the same period.   Its a stupid, meaningless analysis that says that if nothing else changed, and suddenly consumption went up, there would be a crisis.  It relies on the lack of imagination of both the authors (and to an extent, the audience), arguing that since they can't think of any way to grow production any further, it must not be possible.  I can just picture these guys as prehistoric man sitting in a cave making the same pronouncements of disaster for the species, all while their peers are busy outside playing with bone tools under the big black monolith.

More on the zero-sum fallacy here.

 

I'll Take That Tinfoil Hat Now

I think it was George Carlin (?) who used to ask "Do you know what the worst thing is that can happen when you smoke marijuana?" His answer was "Get sent to prison".  The implication, which I have always agreed with for most drug use, was that it is insane as a society to try to save someone from doing something bad to himself by ... doing something worse to him.

I think of this whenever I get in a discussion about security responses to 9/11.  The worst thing that can happen to this country as a whole  (as differentiated of course from the individual victims of 9/11) is to turn the country into a police state to combat potential future terrorist actions.  I personally would greatly prefer to live with a 1 in 100,000 chance of being the victim of terrorism than find myself living in an America that has abandoned its constitution.  I wrote more on this topic here.

To this end, though I tend to be slow to believe these type of stories, this one (via Reason) about domestic NSA wiretapping is pretty frightening:

AT&T provided National Security Agency eavesdroppers with full
access to its customers' phone calls, and shunted its customers'
internet traffic to data-mining equipment installed in a secret room in
its San Francisco switching center, according to a former AT&T
worker cooperating in the Electronic Frontier Foundation's lawsuit
against the company....

The source is just one low-level guy, so this story is still pretty soft.  I hope the investigation is allowed to play out.

Limiting Free Speech Unifies Congress

Anyone who actually believed that McCain-Feingold was about cleaning up politics rather than just protecting incumbent political jobs can now disabuse themselves of that notion.  It has become clear that election finance laws are pure Machiavellian politics, passed by those who think it will work to their benefit (ie help them in the next election) and opposed by those who think they will be hurt by it.  Principle almost never plays a part any more.

On April 5, House Republicans voted to limit the speech of 527 groups, who up until now were exempt from McCain-Feingold speech restrictions.  Republicans generally supported the restrictions, despite years of saying that money does not tarnish politics, because, well because Democrats were better last election than Republicans at raising money via 527's.  Democrats, who historically as a party have supported campaign finance and speech restrictions and eagerly voted for McCain-Feingold, oppose the legislation for no principled reason except that 527's are working for them.  Democrats will therefore likely prevent this bill from passing the Senate.

George Will has a nice column lambasting the Republican Congress:

If in November Republicans lose control of the House of
Representatives, April 5 should be remembered as the day they
demonstrated that they earned defeat. Traducing the Constitution and
disgracing conservatism, they used their power for their only remaining
purpose -- to cling to power. Their vote to restrict freedom of speech
came just as the GOP's conservative base is coming to the conclusion
that House Republicans are not worth working for in October or
venturing out to vote for in November.

The "problem" Republicans
addressed is that in 2004 Democrats were more successful than
Republicans in using so-called 527 organizations -- advocacy groups
named after the tax code provision governing them. In 2002 Congress
passed the McCain-Feingold legislation banning large "soft money"
contributions for parties -- money for issue-advocacy and
organizational activities, not for candidates. In 2004, to the surprise
of no sensible person and most McCain-Feingold supporters, much of the
money -- especially huge contributions from rich liberals -- was
diverted to 527s. So on April 5, House Republicans, easily jettisoning
what little remains of their ballast of belief in freedom and limited
government, voted to severely limit the amounts that can be given to
527s.

He captures a priceless quote that gets at the heart of why Congressional incumbents love these campaign finance laws:

Candice Miller (R-Mich.) said that restricting 527s would combat
"nauseating ugliness, negativity and hyperpartisanship." Oh, so that is
what the First Amendment means: Congress shall make no law abridging
freedom of speech unless speech annoys politicians.

Props, by the way, to my Representative John Shadegg for his no vote, as well as to my favorite Congressman Jeff Flake, who voted no as well.

Punish the Victims

In Florida, where there seems to be a substantial problem with people stealing property in the form of shopping carts from local merchants, the government has a solution: Fine the victims.

In theory, stealing a shopping cart is punishable by up to 60 days in
jail and a $500 fine. But police rarely catch anyone in the act.

So local governments across the state are tackling the battle in
other ways, typically requiring stores to keep carts in the parking lot
or pay a fine.

Hallandale Beach recently updated its laws requiring stores to
create plans for keeping carts on their property. Stores bigger than
35,000 square feet, about the size of many grocery stores, can be
required to install theft-prevention devices....Installation costs $20,000 to $30,000, Miller said....

But retailers are fighting back. The way they see it, the rules are
blaming the victim -- punishing stores for other people's stealing.

Thanks to Bob Houk for the link. 

Maybe It's Just Too Complicated

The US Congress is considering a federal licensing requirement for all paid tax preparers.  Apparently, even most paid preparers can't get the returns correct:

The senators heard from investigators at the Government Accountability
Office, who found mistakes in virtually every tax return filled out by
commercial chain preparers. The investigators said they looked at a
tiny number of tax returns, and that their conclusions could not be
generalized to the rest of the tax preparation industry.

You know why?  Because I would bet you that the same amount of scrutiny could find errors in every single return submitted.  There is just no way to get it all right.  How about, you know, actually spending some time in Congress making the return easy enough that individuals don't feel the need to seek out paid preparers.  Of course, the real reason for this initiative is that higher-dollar CPA firms and large accounting firms would like Congress to sit on its low-price competition  (note that only chain-type firms were investigated).  As Milton Freedman pointed out long ago about licensing:

The justification offered is always the same: to protect the consumer. However, the reason
is demonstrated by observing who lobbies at the state legislature for
the imposition or strengthening of licensure. The lobbyists are
invariably representatives of the occupation in question rather than of
the customers. True enough, plumbers presumably know better than anyone
else what their customers need to be protected against. However, it is
hard to regard altruistic concern for their customers as the primary
motive behind their determined efforts to get legal power to decide who
may be a plumber.

Of course, the last paragraph of the article demonstrates there is already a solution in place for poor tax preparer service:

Had the IRS found these problems on real returns, many preparers would
have been subject to penalties for negligence and willful or reckless
disregard of tax rules

So why is licensing needed at all?

My Worst Vendor -- Guess Who?

Every small business probably has stories about vendors who are particularly difficult to work with.  Let me describe my most difficult and irritating vendor, someone who sells me products that we resell in our stores:

  • Most vendors try to set your retail price for you, but are seldom successful.  Only in countries like Germany that make retail discounting illegal are such attempts universally successful.  However, this one vendor is always successful at setting my retail price.
  • Most vendors allow me a retail gross margin of at least 30-50% of sales to help me to make money on the sale of their product.  They like me to make money, since that gives me the incentive to sell more of their product.  However, this one particular vendor only allows me a 5% gross margin.  Ironically, this products is on of the most difficult and time-consuming for our stores to sell, requiring ten minutes of sales time to gather all the necessary customer information and complete the transaction.  Every single one we sell is a dead loss to us.
  • Every small business has some vendors it struggles with on credit terms.  I usually have to fill out a detailed credit application, and as the owner have to personally guarantee the company's payment on the account.  Sometimes vendors will require a few orders be consummated COD so we can develop a history before they will go to a 30-day invoicing approach.  However, this particular vendor goes even further.  I had to set up a dedicated bank account into which I deposit funds for this vendors products every week.  In addition, I had to obtain a $4000 bond to cover any non-payment in the account, and I have to hold the bond as long as I want to do business with this vendor -- in other words, there is no credit given for a long track record of performance on the account.
  • This particular vendor has an "in" with the State of Colorado, which protects it by allowing no other competitive product to be sold in the state.

Give up?  Well, most of you have probably guessed that this vendor is... the government!  Or specifically, the Colorado Department of Wildlife and the specific product discussed is fishing licenses.  That is why this particular vendor can get away with practices that no company that actually has to compete in the market place would ever attempt, and, in a couple of cases, gets aways with practices that would be illegal for a private company.

When I bought this company, we used to sell fishing licenses at many of our locations.  I have pared this down to only the bare minimum number of locations, like marinas, where customers absolutely expect me to be able to sell them a license.

Don't Fix Immigration, Fix the Welfare State

Brian Doherty of Reason observes:

The solution to the legal crisis immigration represents won't come through
immigration law itself, which again and again has proven itself useless at
fully stemming the irresistible tides of human desire for a better life. No
matter how much money is spent or how the law is jiggered, it is not immigration
policy that has created unnecessary tears and strains in America's social
order. Rather, the welfare state is at the root of any legitimate claim that
immigration (legal or illegal) is an assault on the American nation. (There
are plenty of illegitimate complaints, based merely on distaste for
the often-imaginary hell of running into Spanish-speaking people in
day-to-day life or seeing some flag not of your nation, but such complaints
are not worthy of consideration.)...

The free market, as it usually does, has created a system of mutually
satisfactory interdependence, all of us serving each other and helping each
other get what we want. The welfare state, in all its manifestations from
medical care to schooling to pure giveaways, creates a negative sum game in
which resources are forcibly redistributed making some a problem, or a
perceived potential problem, to others, and allowing demagogues to obsess
over precious "public" resources scarfed up by the invading Other.

As long as that system is around to breed resentment and anger"”as well
as counter-resentment and counter-anger such as that seen in the streets of
L.A. of late"”immigration will continue as a political crisis, no matter
how many repeat cycles of jiggering with immigration law, or protesting it,
we go through.

California's
Proposition 187,
attempting to limit the provision of government services to illegal
immigrants, was indeed, whatever the motives of its supporters, in spirit on
the right track to a world where any immigrant ought to be, and can be,
welcome; one where they are pure contributors at the same time to their own
well-being and to everyone else's as well. It's the only permanent and just
solution to the immigration conundrum. But it involves a significant
reduction in federal power, money, and authority, rather than an expansion
of it. Strangely, it's a no-go in today's Washington.

I wrote a similar essay on how the New Deal changed our views on immigration.

More on Massachusetts Health Insurance

I loved this email received at Maggie's Farm:

What are you guys smoking over there? Here I am in Massachusetts,
without health insurance, and with a family of four, and all that has
happened is on top of having to pay full freight for my family's doctor
bills, I get fined $1000.00 for the privelege.

I don't want
your stinking welfare greenstamp department of motor vehicle government
cheese copay paperwork foodstamp prepaid doctor tax charity ward let a
million flowers bloom supervision of my family's medical situation,
thank you very much.

Catastrophic medical insurance is
currently illegal in Massachusetts. All they had to do is allow me to
purchase what I could get if I lived 50 miles west, which is REAL LIVE
INSURANCE, that is, they would pay if something unexpected,
substantial, and expensive happened. And it would cost me a couple
hundred bucks a month. But no, I have to pay full freight for every
lamebrain thing that every knucklehead who has a job with benefits
wants tax free, like gym memberships and aromatherapy and acupuncture
and reiki massage and "mental health," ie, I'm a miserable failure as a
human being and I want to talk to another miserable failure that went
to community college for psychology about it, at great expense. Oh,
yes, let's not forget all middle age men that need free blue pills
because what a mean spirited thing it would be [if] middle age men didn't
wander the earth with extra free hardons.

And so "insurance"
becomes paying in advance for others to get what they don't need or
deserve, to the point where "Insurance" costs 1200 a month and if
something catastrophic did happen, would bankrupt me anyway, because
instead of paying $50 for an office visit for an imaginary ailment, but
having a real catastrophe paid for, the powers that be would prefer
paying $5 dollars copay for an office visit to their yogurt enema
wellness healer, but have to chip in 20% for cancer therapy, which
would bankrupt anybody that has to worry about the cost of health
insurance in the first place.

ROFL. I too am a big believer in catastrophic health insurance.  My home insurance does not cover broken light bulbs and leaky plumbing.  My car insurance does not cover air filters.  Why does my health insurance have to cover routine stuff?  I pay for my own health care and this is exactly how my family handles both dental and medical:  We pay regular visits but have catastrophic coverage for major health breakdowns. 

Jeez, I wish I had written that email and could take credit for it.  The blog does not reveal the emailer's identity, but whoever you are you're welcome to guest blog here any time.

Update: About a year ago, my family of four was quoted about $650 a month for the type of full (not catastrophic) medical insurance that the state of Mass. is requiring.  This is about $8000 a year.  This strikes me as by far the most expensive item that any US government has required its citizens to purchase, and given the average GDP of most nations, may be the most expensive item any government in history has required all of its citizens to purchase.  Up to this point, many municipalities have shied away from requiring purchase of $40 smoke detectors.  The only thing that is even within an order of magnitude of this is perhaps car insurance, but even car insurance is not required of every citizen, just the ones with cars (don't laugh, if car insurance laws followed the same logic as this health insurance bill, not having a car would not be a legal excuse for not having auto insurance.)

Update 2:  I am sure I will get the response, "but the supporters promise that the bill will halve the cost of private health insurance.  Right.  Here is a clue:  Except for the reform plan in California pushed by Gov. Arnold, every single state attempt to "reform" workers comp. has resulted in my premiums going up.  I am sure we are all holding our breath for the price drop in passenger rail service and first class mail. 

This plan removes the last people from the market who are price sensitive shoppers of individual medical services (i.e. those who pay expenses out of pocket rather than having them covered by medical insurance).  If you drive down the marginal cost to all consumers to the level of the copay from the much higher true-cost of the procedure, then you are going to get a lot more use of all medical procedures.  Higher use = higher cost.  Higher cost = higher premiums, even when spread over more people.

I am constantly stunned that this concept has to be explained to people.  Let's consider a test that costs $1000 to administer that can detect a very rare type of cancer that only occurs in 1 in 100,000 people.  Well, if they charged you anywhere near the $1000 cost, few people would choose to pay for a test to identify something so low-risk.  But if you could take the test for a $20 copay?  Sure doc, let's do it!  So the insurance pool has to fork over $1000 for a procedure that you might only value at $20.   Also see this post for more along the same lines.  And here too.

Damages and Double Jeopardy

I saw the other day that Merck lost another Vioxx trial, with the jury awarding $4.5 million to a man who had a heart attack after taking Vioxx.  I won't get into my problems with this type of litigation today, but I did in many other posts like this one (and this and this).

My question today revolves around the fact that this trial is now going into the punitive damages phase, where the jury will decide if Merck owes more money as a punishment not narrowly for this man's heart attack (for which they are paying $4.5 million) but more generally for Merck's actions in bringing the drug to market at all.

Here's the problem:  A jury in Texas already hit Merck with $259 million in punitive damages*.  This number was based on a lot of testimony about Merck's sales and profits from Vioxx, so it was presumably aimed at punishing Merck for "errors" in their whole Vioxx program.  So if that is the case, how can Merck end up facing a jury again coming up with a separate punitive damage award for the same "crime"?  Sure, it makes sense that Merck can owe actual damages to individual claimants in trial after trial.  But how can they owe punitive damages for the whole Vioxx program over and over again?  Aren't they being punished over and over for the same misdeed, violating their Constitutional protection against double jeopardy?

I'm not sure what the solution is.  One approach, of course, would be to say that punitive damages can only be awarded once, which would effectively mean they would go to the first plaintiff to win his case.  I am not sure this makes a lot of sense from a public policy point of view, but it would be highly entertaining to watch tort lawyers knocking themselves over and maneuvering to be the first verdict, knowing that if they are first,they would get 30% of hundreds of millions of dollars but if they are second they get 30% of much much less, since punitive damages are always far larger than actual damages.

*Under Texas law, this amount will likely be reduced, but it doesn't change the fact of double jeopardy

What 6th Ammendment?

I have written several times on prosecutorial abuse, most recently in this post on the Justice Department's current practice of forcing companies to waive attorney-client privilege and punishing companies that help their employees seek legal council.

The WSJ($) editorializes about a recent division by Judge Lewis Kaplan in the KPMG trial.

Those steps were extraordinary in their attempt to
pressure corporate executives: They include waiving attorney-client
privilege to give investigators access to internal documents and
cutting off accused employees from legal and other forms of support. In
short, the Thompson memo said that companies under investigation are
expected to surrender any right against self-incrimination and cut
their accused employees adrift.

In one sense, the memo's guidelines are just that --
internal guidelines for prosecutors. But as a practical matter, only a
rare CEO will risk the death sentence that a corporate indictment
represents. So "cooperation" as defined by Justice is hardly optional.
It was on this point that Judge Kaplan took Assistant U.S. Attorney
Justin Weddle to task last week. When Judge Kaplan questioned the
fairness of pressuring companies to throw their employees overboard,
Mr. Weddle replied that companies are "free to say, 'We're not going to
cooperate.'"

"That's lame," the judge retorted. He then asked Mr.
Weddle "what legitimate purpose" was served by insisting that companies
cut their former employees off from legal support. Companies under
investigation, Judge Kaplan noted, ought to be free to decide whether
to support their employees or former employees without Justice's "thumb
on the scale."

Mr. Weddle replied that paying the legal fees of
former employees charged with crimes amounted to protecting
"wrongdoers." This prompted the judge to remind the young prosecutor
that the accused are still innocent until proven guilty. He also
reminded Mr. Weddle that the Constitution's Sixth Amendment guarantees
the right to counsel. And for good measure, if the government is
confident in its case, it shouldn't be afraid to allow "wrongdoers"
access to an adequate defense.

Its good to see these practices starting to get some judicial scrutiny.  There is unfortunately no real political constituency in this country to get worked up about this kind of stuff.  Left-leaning groups tend to be the first to challenge police and prosecutorial abuses of power, but have little interest in doing so when the target (ie corporations) is someone they have no ideological sympathy for.  And right-leaning groups tend to be strong law-and-order types that feel the need to go out of their way to be tough on recent corporate transgressors to avoid the accusation that they are in bed politically with white collar criminals.

 

Massachusetts Insurance Fiasco

Insurance legislation passed in Massachusetts:

The bill requires that, as of July 1, 2007, all residents of the Commonwealth must obtain flood insurance coverage, even if they don't live in a flood plain.... The purpose of this "Individual Mandate" is to strengthen and stabilize the functioning of flood insurance risk pools by making sure they include people outside of flood plains with no flood risk as well as people who know they live in a flood plain.

What?  We have to get insurance, even if we think there is no risk and the insurance is just wasted money?  Yes indeed, that is correct.  Well, almost correct.  I changed a few words.  The actual wording of the bill, sent to me by reader L Cole, mandates unwanted health insurance rather than unwanted flood insurance:

The bill requires that, as of July 1, 2007, all residents of the
Commonwealth must obtain health insurance coverage.... The purpose of
this "Individual Mandate" is to strengthen and stabilize the
functioning of health insurance risk pools by making sure they include
healthy people (who, if not offered employer-sponsored and -paid
insurance, are more likely to take the risk of not having insurance) as
well as people who know they need regular health care services.

More from Bloomberg.

For years I have criticized the argument which says that the problem with the health care system is that there are too many uninsured people.  My argument was always that there were many people who choose to self-insure, and that the real "problem," if there is one, is how many people there are who need care but can't get it (a much much smaller number that is never discussed). Just look at the attached bill - the justification is that there are people uninsured, not that there are people unserved.  Now we can see the end result:  Instead of fixing the actual problem, which is people who need care not getting it, they fix the problem as it was discussed:  they literally forced people to get health insurance, even if they don't want or need it.  Now some elected weenie can say "in Massachusetts, we have licked the problem of people without health insurance."  Reminds me of this Rush song.

Like many parallel bills proposed in other states, this one requires businesses to provide health insurance or to pay into a state fund if they don't.  But the bill also has this scary provision:

The Free Rider surcharge will be imposed on employers who do not provide health insurance and whose employees use free care. Imposition of the surcharge will be triggered when an employee receives free care more than three times, or a company has five or more instances of employees receiving free care in a year.

First, as an employer, why am I a free rider?  It is not me that received any free services or care.  My employees medical problem is not my fault (or else it would be workers comp).  If I hire someone that takes advantage of government loans to send their kids to college, am I a free rider?  If my employees choose subsidized mass transportation over driving their own cars, am I a free rider? 

Second, I sure hope all you poorer folks with health problems understand that it is now going to be really hard to find a job in Massachusetts.  No employer in their right mind is going to hire someone who may trigger this liability.  This provision would be a disaster for our company, since we tend to hire older retired people (with lots of health problems) for seasonal work (for which it is impossible to structure a health insurance plan).  Fortunately, I guess, Massachusetts is one of the states our company red-lined years ago as a place we will never do business, so this does not change our strategy much.

I have no idea what this will cost taxpayers and businesses in Mass.,
but I am positive it is substantially more than the bill's sponsors have
let on.  And there is a lot of hand-waving going on by supporters who insist that this bill will drive premium costs way down that strikes me as bullshit as well.

Update:  This article in Business Week provides some insight into the 500,000 uninsured in Mass.  Supporters of the bill claim that 100,000 of these are poor people who qualify for Medicare but haven't bothered to sign up.  200,000 are higher income folks who could afford insurance but choose not to buy it.  The other 200,000 are people they claim can't afford it, but surely even if they could, some portion would choose not to buy it.  So by the admission of the bill's supporters, at least 60% and probably more of the uninsured are that way because they choose to be.   Lets come up with a costly socialization of the medical industry in order to force on people something they don't necessarily want or need.

Immigration and the "Legality" Issue

I know some may be bored with my immigration posts, so if you are, that's cool, you can ignore the rest.  I have done something of late I normally don't do:  I have tuned into conservative talk radio for bits and pieces of time over the last several days to get the gist of their arguments to limit immigration.  The main arguments I have heard are:

  1. Illegal immigrants are breaking the law
  2. We should not reward law-breaking with amnesty.  We need to round these folks up that are breaking the law and teach them a lesson.  Or put them in concentration camps if that were logistically feasible
  3. We don't like first generation Mexican immigrants carrying the Mexican flag in parades. (though we love it when 4th generation Irish carry Irish flags in parades)

A recent commenter on my post defending open immigration, which is superseded by this pro-immigration post I like better, had this related insight:

1.  YOUARE ILLEGAL
2. YOU ARE ILLEGAL
3. YOU ARE ILLEGAL
4. YOU ARE ILLEGAL
5. YOU ARE ILLEGAL
6-10000000 YOU ARE ILLEGAL

DO I NEED TO WRITE THIS IN SPANISH SO THAT THE ILLEGALS CAN
UNDERSTAND. IF YOU CAN READ THIS THEN YOU DID PASS THE BASIC ENGLISH
TEST THAT IS RREQUIRED OF ALL LEAGAL MIGRANTS !!!

OH, BTW,  I HAVE THE RIGHT TO SAY THIS, BECAUSE I AM LEGAL!!

It sure is comforting that us "leagal migrants" have to pass a basic English test, or we might come off as idiots when we post comments online.  But you get the gist.  My first thought is that this is certainly a circular argument.  To answer my premise that "immigration should be legal for everyone" with the statement that "it is illegal" certainly seems to miss the point (it kind of reminds me of the king of swamp castle giving instructions to his guards in Monty Python and the Holy Grail) The marginally more sophisticated statement that "it is illegal and making it legal would only reward lawbreakers" would seem to preclude any future relaxation of any government regulation.

Many people writing on this topic today lapse into pragmatic arguments ala "well, how would we pick the lettuce without them?"  Frequent readers of this site will notice I seldom if ever resort to this type argument (except perhaps when I argued that immigration might be a solution to the demographic bomb in medicare and social security).  My argument is simpler but I hear it discussed much less frequently:  By what right are these folks "illegal"?

What does it mean to be living in this country?  Well, immigrants have to live somewhere, which presupposes they rent or buy living space from me or one of my neighbors.  Does the government have the right to tell me who I can and can't transact with?  Most conservatives would (rightly) say "no,"  except what they really seem to mean is "no, as long as that person you are leasing a room to was born within some arbitrary lines on the map.  The same argument goes for immigrants contracting their labor (ie getting a job).  Normally, most conservatives would (rightly again) say that the government can't tell you who you can and can't hire.   And by the way, note exactly what is being criminalized here - the illegal activity these folks are guilty of is making a life for their family and looking for work.  Do you really want to go down the path of making these activities illegal?  Or check out the comment again above.  She/he implies that immigrants without the proper government papers don't even have speech rights, rights that even convicted felons have in this country. 

By the way, I understand that voting and welfare type handouts complicate this and can't be given day 1 to everyone who crosses the border -- I dealt in particular with the issue of New Deal social services killing immigration here.

Our rights to association and commerce and free movement and speech flow from our humanity, not from the government.  As I wrote before:

Like the founders of this country, I believe that our individual
rights exist by the very fact of our existance as thinking human
beings, and that these rights are not the gift of kings or
congressmen.  Rights do not flow to us from government, but in fact
governments are formed by men as an artificial construct to help us
protect those rights, and well-constructed governments, like ours, are
carefully limited in their powers to avoid stifling the rights we have
inherently as human beings.

Do you see where this is going?  The individual rights we hold dear
are our rights as human beings, NOT as citizens.  They flow from our
very existence, not from our government. As human beings, we have the
right to assemble with whomever we want and to speak our minds.  We
have the right to live free of force or physical coercion from other
men.  We have the right to make mutually beneficial arrangements with
other men, arrangements that might involve exchanging goods, purchasing
shelter, or paying another man an agreed upon rate for his work.  We
have these rights and more in nature, and have therefore chosen to form
governments not to be the source of these rights (for they already
existed in advance of governments) but to provide protection of these
rights against other men who might try to violate these rights through
force or fraud.

These
rights of speech and assembly and commerce and property shouldn't,
therefore, be contingent on "citizenship".  I should be able, equally,
to contract for service from David in New Jersey or Lars in Sweden.
David or Lars, who are equally human beings,  have the equal right to
buy my property, if we can agree to terms.  If he wants to get away
from cold winters in Sweden, Lars can contract with a private airline
to fly here, contract with another person to rent an apartment or buy
housing, contract with a third person to provide his services in
exchange for wages.  But Lars can't do all these things today, and is
excluded from these transactions just because he was born over some
geographic line?  To say that Lars or any other "foreign" resident has
less of a right to engage in these decisions, behaviors, and
transactions than a person born in the US is to imply that the US
government is somehow the source of the right to pursue these
activities, WHICH IT IS NOT.

Disclosure:  A number of my great-grandparents were immigrants from Germany.  When they came over, most were poor, uneducated, unskilled and could not speak English.  Several never learned to speak English.  Many came over and initially took agricultural jobs and other low-skilled work.  Because the new country was intimidating to them, they tended to gather together in heavily German neighborhoods and small towns.  Now, of course, this description makes them totally different from most immigrants today that we want to shut the door on because...um, because, uh... Help me out, because why?

PS - And please don't give me the "government's job is defend the borders" argument.  Government's job is to defend its people, which only occasionally in cases of direct attack involves defending the borders.  I am sick of the rhetorical trick of taking people like the "minutemen" and describing them as patriots defending the border, when this nomenclature just serves to hide the fact that these folks are bravely stopping unarmed human beings from seeking employment or reuniting with their families.  And I will absolutely guarantee that the borders will be easier to patrol against real criminals and terrorists sneaking in when the background noise of millions of peaceful and non-threatening people are removed from the picture and routed through legal border crossings.

Congratulations to Gene Wright!

Congratulations to Gene Wright, who won the first annual Coyote Blog NCAA bracket contest.  Gene only had one of the final four picked (UCLA) but did so well in the opening rounds he had the contest locked up even before last weekend.  Second place was Michael Gunter and third was Bob Houk.  Interestingly, no one out of 34 contestants had Florida in the finals or winning it all.  By the way, yours truly limped in at 24th, though my son helped uphold the family honor at 10th.  If you were not in the pool, you can still click here and enter email "coyote -at- coyoteblog -dot- com" and password "coyote" to see all the results.

By the way, I highly recommend the www.pickhoops.com site for your brackets.  It costs $9 to set up, but it has no ads, the registration is MUCH less intrusive for your players than free sites like Yahoo, they have great analysis options, and they are much faster at posting results.

Supreme Court Asleep

The Supreme Court refused to review the Padilla case:

The Supreme Court on Monday refused to hear the appeal of Jose
Padilla, a U.S. citizen held in a military jail for more than three
years as an "enemy combatant." The Court, however, declined to dismiss
the case as moot, as the Bush Administration had urged. Only three
Justices voted to hear the case, according to the order and
accompanying opinions. The case was Padilla v. Hanft (05-533).

The decision was a victory for the Bush Administration in one
significant sense: by not finding the case to be moot, the Court leaves
intact a sweeping Fourth Circuit Court decision upholding the
president's wartime power to seize an American inside the U.S. and
detain him or her as a terrorist enemy, without charges and -- for an
extended period -- without a lawyer. The Court, of course, took no
position on whether that was the right result, since it denied review.
The Second Circuit Court, at an earlier stage of Padilla's own case,
had ruled just the opposite of the Fourth Circuit, denying the
president's power to seize him in the U.S. and hold him. That ruling,
though, no longer stands as a precedent, since the Supreme Court
earlier shifted Padilla's case from the Second to the Fourth Circuit.

I don't even pretend to understand all the procedural stuff, but I find it amazing that the effective suspension of habeas corpus, particularly when the "war" and "enemy" that is used as its justification is so amorphous and open-ended, isn't something the Supreme Court would like to sink its teeth into.

Apparently, the Justices were reluctant to address the case since it has now been made "hypothetical" by the transfer of status of Padilla from enemy combatant held incommunicado indefinitely to a more mainstream justice track.  However, this transfer occurred, as the appeals court pointed out angrily, in a transparent effort by the Bush administration to avoid judicial review of indefinite detentions.  Which raises the possibility that the administration could hold hundreds of people in such detention, systematically changing the status of any individual whose case comes for review, thereby avoiding review of the program in total.  As Ruth Bader Ginsburg wrote, "Nothing prevents the Executive from returning to the road it earlier constructed and defended."

One wonders by this logic if the segregationist south could have indefinitely postponed Supreme Court review via Brown vs. Board of Education just by letting individuals like Linda Brown individually into white schools whenever their cases got to the Supreme Court.

And still I ask, as I did here, where the hell is Congress?  I am sorry the Supreme Court failed to review this but the Constitution created this group called the legislative branch that is supposed to have the power to change the law.  If law is unclear here, they could make it clear.

More Trouble Than I Thought at GM

Today's announcement that GM will sell 51% of their GMAC financing arm really brought home to me how bad things are at GM.  I haven't really followed the situation, but I had assumed that GM was facing the same type demographic bomb as the airlines, fat and underfunded pensions and retiree health care benefits promised when times were good and US auto makers didn't face much troubling competition.

Here is what I found interesting:  GMAC is reported to make about $2.5 - 3 billion a year in profits.  This might tend to imply a value of at least $25 to $30 billion, which is confirmed by the fact that GM just sold half for $14 billion.  But GM as a whole has a market cap of just under twelve billion.  This means that their entire manufacturing business is valued in the market at roughtly -$16 Billion.  Yes, negative sixteen billion.  Another way to look at this is that if instead of selling GMAC yesterday, GM had instead sold all of their automotive manufacturing, brands, designs, etc. to someone for $1, and became a pure financing business, GM shareholders would be richer by $16 billion, the equivilent of raising the current stock price from about $21 to about $49.