Posts tagged with Kansas Politics

States Wrongly Cracking Down on Car Title Loans

Several states are putting limits on the car title loan industry. This is where people take out short-term loans with high interest rates using their cars as collateral and no credit check. The lender gives them a few thousand dollars for a piece of paper which says they own the rights to the very car they watch drive off their parking lot with their money. While this is a completely voluntary transaction for both parties, some states seem to think they should step in and intervene in the marketplace. Wisconsin, for example, is making this type of lending completely illegal. Other states place heavy regulations on lenders and caps on amounts.

First of all, the states have no moral right to intervene in this way. Both parties voluntarily agree to the loan and should have every right to do business with each other. Secondly, most banks and credit unions will not deal in this type of lending, but the need for short-term cash will not magically go away. In many cases that is the short-term money these people need to keep their electricity on or to feed their kids. Since no legitimate business will be able to offer these services, loan sharks will. In the name of protecting these borrowers these laws will end up harming them. Are people really better off dealing with a loan shark? For every well-intentioned government intervention there are going to be unintended consequences, which are often worse than the problem the intervention was meant to alleviate.


Has Stimulus Failed? Take Two

The newly elected president was left with an economic mess. The bad policies of the previous administration and unwisely taking the country to war had left the economy in trouble, with high unemployment and declining GNP. The new president decided to implement a drastic change in economic policy not long into his first year in office and was roundly criticized by his opponents. However, by August signs of recovery were already visible. August of 1921, that is. By the next year unemployment had been cut in half, and a year after that it was down to 2.4 percent after being 12 percent in 1921. The Harding administration had cut government spending in half, cut taxes and reduced the national deficit. Meanwhile the Federal Reserve kept interest rates high, thus keeping inflation down.

It's almost been a year and a half since Obama's stimulus package was passed, and have we seen comparable results? Not even close. At what point in time are stimulus supporters going to admit this policy was a mistake? The thing is, there's a playbook out there that worked. Cut down the size of government, reduce the tax burden and quit crowding out private investment with government debt. The Obama administration has gone the exact opposite direction and we aren't seeing the results. The gains in the stock market and housing prices are being offset by the declining value of the dollar. Private investment and savings continue to decline while public debt soars to new and frightening highs.

The excuse for failure so far has been that Obama was handed such a mess that recovery is difficult. Certainly that is true, but at some point in time the policies we are following will have to be examined and declared successful or failures. I would like to know how long it will take. I am suggesting two years, since that is how long it took the Harding administration to arrive at complete recovery from the depression of 1920-21.


The Free Market is Better than Democracy

Imagine if the market was run the same way we run elections. We'd all vote on what type of car we thought was best, and whoever won would be the car we'd all have to buy. So if 51% of the people like Ford and 49% like Toyota, we'd all have to buy Fords. Whereas in the free market, if 51% of the people like Ford and 49% Toyota, 51% of the people can buy a Ford and 49% a Toyota. Democracy is just another way of imposing one group of people's will on another, and thus why it is doomed to failure. The idea that because a majority is required that decisions will somehow be better isn't true. The majority can and does violate the rights of the minority.

This is never more true than when it comes to property owners. Things like zoning laws benefit the majority of property owners at the expense of the few. The few are asked to bear the costs for everyone else, and so these type of laws pass with ease. Democracy has lead us to this sad state of affairs where everyone plunders everyone. Surely there's a better way?


Getting Used to Socialism

Reading the comments regarding the state-wide smoking ban in Kansas I came across one particularly poignant comment, the gist of which was that smokers will complain, maybe a few will boycott, but eventually they'll get over it and get used to it. This is the sometimes sad, but true, nature of human beings. Getting used to things is a key to our species success--we can adapt to all kinds of conditions. We can get used to all kinds of hardships, and the incremental creep of government control is made possible because of this.

We get used to filling out required paperwork, we get used to taxation, we get used to our dollar losing value, we get used to the rising cost of health care, we get used to increased government control of our businesses, property, lives and bodies. Only instead of adapting to natural problems like droughts and diseases, we are coping with infringements upon our liberty by our fellow man.

In Libertarian circles there is a belief that the recent increase in interest for libertarian ideology, free market economics, the rising popularity of Ron Paul and the discussion about the importance of liberty and the threat posed by government signal a changing wind which will move the country back towards increased freedom and away from increased government. I, however, am not so optimistic. I think this is only a temporary uptick but that people will get used to the changes being made to our country and "get over it," so to speak. In the Soviet Union people got used to cold apartments and waiting in line for food. In the UK people have gotten used to waiting for health care. In the US, we too have gotten used to the hardships brought about by the creep towards socialism.

I think history has shown that it is only when the government is weak or the people begin to starve that revolution occurs. Our government certainly isn't getting any weaker, and considering the main problem with US agriculture has always been overproduction, it will take a long time before our economy is so ruined that we begin to run out of food. The cycle of boom and bust economics will continue, our economy will deteriorate further as the government increases control and spends its way into more and more debt. People will get upset when the next big economic crash comes, but not as upset as they were before. Eventually we'll all just get used to high unemployment, lower wages, and a lower standard of living. As government continues to take control of more sectors of our economy, starting out with healthcare, education and transportation it will spread to other sectors. Shortages will become common and people will get angry, but then they'll get used to it.

It'll only be when food starts running short that people will finally stand up for themselves, because you can't get used to starvation.


Repeal the 17th Amendment

The 17th Amendment changes how US Senators are elected. Prior to 1913, Senators were selected by state legislatures, but now they are elected by popular vote. There were several reasons for the change, one being that occasionally different houses in state legislatures could not agree on who to send, and thus senate seats would be vacant, sometimes for several years. Also, the idea was to be closer to democracy by holding direct elections.

However, the purpose of the Senate as originally envisioned was to represent the several states' interests in the Federal Government. The House of Representatives was there to represent the people. The 17th Amendment basically makes the Senate a "Super House." The result has been that the Senate no longer acts to promote federalism since the Senators are not beholden to the state legislatures for their office. Thus the burden of protecting state's rights and state interests has fallen to the Supreme Court instead. Hence instead of increasing democracy, it has decreased since the Supreme Court has taken a larger role in restricting federal power, and that branch of government is not democratically elected at all.

In addition, the founders did not imagine that the Constitution would be simply a paper wall holding back federal power. The Senate was envisioned to be a check on that federal power since Senators would be chosen by the state legislatures to represent state interests. This helped to ensure that when there was a conflict over whether the Federal government or the various state governments should carry out some policy, if the states could do it just as well as the Federal government, they would.

These days the Senate has become very politicized and now we have ideological battles over things like Supreme Court nominations where we should not. Also it has become very difficult for states to challenge federal power. The states can sue the federal government in federal courts, but one can clearly see the problem with that. The only other thing the states can do is threaten nullification or even secession, hardly a peaceful method as this will lead to a direct confrontation between state and federal power.

The founders knew what they were doing in setting up a government of checks and balances, and removing this vital one has resulted in the present imbalance we see between state and federal power.


Support or Reject the Tea Party?

The Tea Party movement is primarily an anti-tax one. The supporters don't mind big government if it's for warfare or welfare like medicare and social security. So they like government, they just don't want to pay for it. Debt is generational theft--this generation lives high on the hog off of government goodies, while the next generation gets stuck with the bill. Of course now that bill is becoming so large that it will soon be no longer possible to pay it off. Eventually people will stop lending the US government money, at which point either the spending spree will be over, or the Fed will try to monetize the debt causing hyperinflation, and the spending spree will be over just a little bit later. Either way, the US as we know it will be over.

The question is, should supporters of Liberty and Small Government support or reject the Tea Party? On the one hand, the Tea Party movement is the closest thing we have to a large-scale anti-government movement going in the US right now, and the statist interests have lined up to denounce it. Certainly they may help propel some Libertarian candidates into office, or support a Ron Paul bid for the Presidency. But on the other, they support most of the government institutions that generate the need for heavy taxation and intrusion into liberties, both economic and personal. Can they, over time by spreading information through public figures like Ron Paul, come to see that they can't have their cake and eat too, that they can't have low taxes and the warfare/welfare state? I think the answer is no.

The reason for this is looking at the demographics of the movement--I believe the average person is over 50. With people at the end of their working careers and about to enjoy the fruits of government programs to assist older people with health care and living expenses for retired people, they really have no economic incentive to reduce the apparatus of Big Government but cutting spending. They are at their peak earning years, and therefore want low taxation but no reduction in benefits, shifting that cost to someone else--namely future generations. The great hope for true believers of Liberty is on college campuses--young people who are about to enter the job market, who will be most affected by the national debt and, with the least experience, most likely to suffer from the high unemployment rates that govenrment intervention causes. I just don't think the Tea Party, with people like Palin as speakers, has much hope of morphing from an anti-tax movement into an anti-big government movement.


Social Security: The World’s Greatest Ponzi Scheme

In the movie Dumb & Dumber the two main characters have a briefcase full of money they are trying to return to the owner. They open the briefcase and discover the money, thereupon deciding that they should spend some of it to compensate themselves for their trouble. When the bad guys finally get them they open the briefcase to discover a bunch of pieces of paper with IOUs written on them. Lloyd tells them that "That's as good as money, sir. Those are I.O.U.'s. Go ahead and add it up, every cent's accounted for. Look, see this? That's a car. Two hundred seventy-five thou. Might wanna hang onto that one."

This is exactly the state of the Social Security fund. It has no real money in it, just a bunch of worthless IOU's from the treasury department. Right now, conservative estimates have it that SS's unfunded liabilities are $17.5 trillion ^1. Social Security is a pay-as-go program thanks to the fact that Congress already took all the money that was supposed to be in the "trust fund." With the rising number of retirees the program will soon be collecting less revenues than benefits paid out. When this inevitably happens, the likely result will be a call to raise taxes to cover the difference. Indeed that's already the case as seen in this article about the "fake crisis" by Dave Lindorff ^2, who thinks we can just get the money by increasing employers' contributions, as if that won't have any effect on unemployment or compensation rates!

Instead what we need to do is realize that Social Security is nothing more than a ponzi scheme and that that is why it will run out of money. The very idea of it is fundamentally unsound and it needs to be scrapped. Raising taxes further to support this scheme will only cause to bring down the economy with it. A better idea would be a phase-out of the program where we pay out benefits to those who are dependant on them but phase out the program for future generations.


Obama Fiddles while Rome Burns

Who will save us from these madmen (and women) in DC? Whatever the merits of this new healthcare bill, it does nothing to address our trillions upon trillions in unfunded liabilities. Social security is running out of money. Medicare is running out of money. Those programs were supposed to be "revenue neutral" as well, but anyone with a rough knowledge of history knows government entitlement programs have a way of running out of money. Cash for clunkers lasted how many days before it ran out of money? Now we have yet another program that will surely exceed its anticipated budget. Add on top of this we are facing possible runaway inflation as the dollar's value continues its march towards zero and we are still in a recession with real unemployment approaching 20%.

Do these people want to bring about the end of this country? The federal reserve is desperately trying to reinflate the housing bubble, but it just isn't working. Instead it's only leading to inflation--the backdoor tax on the middle class, poor and elderly living on fixed incomes. The same people who accurately predicted the 2008 recession but were ignored are now predicting a dollar crisis that will come in the next few years. Not surprisingly, they are being ignored again. We are headed towards the cliff of an even worse disaster and instead of listening to reason our government is increasing speed with this new healthcare bill. Even if the republicans retake Congress, they won't change course, they won't put an end to all the spending--we know this from experience.

It's not too late to fix things, but I fear those in power who think they see a light at the end of the tunnel will stay the course until the oncoming train runs us over.


Economic Myths: The Broken Window Fallacy

Late one night a young miscreant throws a rock through a bakery's front window. The next day the baker arrives to find a crowd standing outside his store, lamanting for the poor baker. The cost of replacing the broken window will be $500. However, one bright fellow decides to find the positive in the situation and points out that the glazier will benefit with $500 in extra income, and he will spend that $500 on perhaps a television etc. down the line, thus creating an economic benefit. The crowd approves of the fellow's intelligence and agrees that the baker's broken window, while a hardship for the baker, is actually a net benefit for society since all the spending and economic activity it will create.

This demostrates one of the two main economic fallacies: seeing only the affects on certain groups of people. What is not seen is what doesn't happen. Before the baker had a window and $500. Now he only has the window. What is not seen is what the baker would have done with the $500 had his window not been broken. Let's say he would have bought a new suit. Thus while the glazier gets the $500 and then spends it, creating economic activity, what is not seen is that the tailor will not get the $500 and he will not create the economic activity caused by how he would turn around and spend the $500. Hence there is no net economic benefit, only the loss of the window.

There are many other economic myths that are just bigger versions of the broken window fallacy. One common example is the idea that war is economically beneficial. What is seen is the factories making tanks, planes, bombs, guns and bullets. What is not seen is the cars, radios, stoves, televisions etc. that are not being produced since the money is being spent on the war materials. Not only is there no net benefit, society actually loses since the end result is used bombs and bullets, and destroyed tanks and planes.


In Defense of Capitalism

There are several common objections one hears to capitalism and economic freedom. So in this blog I hope to address the main ones and any additional ones brought up in the comments:

A. Capitalism exploits the poor.

Under capitalism the rich get richer and the poor get poorer, or so goes the argument. But this is factually incorrect. Let's examine how factor payments are distributed in an economy. They can go to three places: owners of capital, owners of land, or to wage laborers. Now the criticism says that all the additional factor payments will go to the wealthy owners of capital and land at the expense of wage laborers. According to Marx and Engels, the product of the wage laborers will be expropriated from them by their evil capitalist masters who will continue to accumulate more and more wealth. If this were true, then we should see massive increases in land rents and massive increases on returns on capital and relatively stagnant real wages. Looking at England as an example, land rents and returns on capital today are roughly equal to what they were 800 years ago. ^1 Thus returns on land and capital hasn't changeed much. Who were the big winners from industrialization? Unskilled laborers. Returns on capital: flat. Returns on land: flat. Wages for unskilled laborers grew explosively. ^1 So while capitalism made us all better off, it particularly benefitted unskilled laborers. The main benefits of capitalism in terms of the cost of goods wasn't a decrease in the price of silk stalkings for the queen, but in the price of silk stalking substitutes for the working class women. Today a cup of coffee, computers etc. are all much cheaper and affordable to the majority of the population in capitalist-based countries.

B. Capitalism distributes resources unequally

OK, maybe under capitalism unskilled workers are better off, but the highly skilled, uber-rich are becoming fantastically wealthy. The money income going to the rich is much much higher than the money income going to the relatively poor. There are a few problems with this argument though, the first being how we measure inequality. As a society gets richer and richer, the distribution of income becomes less and less reliable as a measure of inequality. This is because the technological quality of the goods and services that are available to the very poor will come to resemble the technological characteristics of the goods and services available to the very wealthy. Take wine for example, which can get very expensive. Is it really that unequal that Bill Gates can afford to have $2000 wine with his dinner, and the average poor family would have to buy a bottle of Charles Shaw Vineyards' awarding winning Two-Buck Chuck from Trader Joe's for $2 a bottle? While the expensive wine may be 1000 times more expensive, the characteristics of the cheap wine available to the poor are a reasonable substitute for the goods available to the wealthy. The resources available to the poor today are much closer in quality to the resources avaiable to the wealthy than, for example the resources available to Louis XIV and a starving peasant.

C. Unchecked Capitalism leads to undesirable things like Child Labor

If there weren't any laws against child labor, then there'd be children working in sweatshops, and we cannot allow such things to happen by letting capitalism run free. Actually it is because of capitalism that we no longer have child labor. Prior to the industrial revolution, it was a fact of life that children worked. If they didn't, they and their families risked starvation. Only until the improvements in productivity brought about by capitalism did the production capacity of parents so increase that children no longer had to work.

D. Capitalism is structurally sexist and racist

Without laws against racism and sexism, employers will discriminate based on sex and race in a completely capitalist free market economy. Actually capitalism punishes racism and sexism. By refusing to hire productive workers or pay them wages equivilant to their marginal utility, what will happen in a capitalist economy? Their competition will simply hire those the discriminatory employer will not and outcompete him, leading to decreasing market share and eventually failure as a firm. One example is that railroad cars were not segregated prior to Jim Crow laws. It simply cost too much to have one half full whites-only car and one half full blacks-only car than to have one full car. Capitalism defeated racism until racists agitated with the government to enforce racism. Some may object that the kind of economic punished capitalism dishes out to racists and sexist is not great enough or too slow working, but one thing is true--it never fails to punish these offenders. If the police is made up of Klan members, or the Judge is a racist, government punishment may be escaped.

E. Capitalism destroys the environment

Capitalism is the process by which we extract material resources from Mother Earth and lay waste to the environment. Actually, private ownership of the means of production gives us the incentive we need through rational economic calculation for meaningful stewardship of environmental resources. For example, in Zimbabwe the government redistributed farmland from private hands to the politically well-connected and to communal farms. Here is a picture showing the scorched Earth that is the communal farms on the left and the still lush farmland that is privately owned on the right:

F. Some things are too important to be left to the free market

While we can let the market take care of things like computers and toilet paper, other things like health care are too important to be left to the market. Short answer is that given what we know is possible in a capitalist economy and a centrally planned or heavily interventionist economy I would say health care is too important not to be left to the market. If you've ever lost a family member or been really really sick then the fact that health care technology has not progressed to where it would be in an unhampered market becomes very relevant to the condition you are in. One strangely popular myth is that the US has a completely unregulated, unfettered health care market and thus all the problems that exist are associated with capitalism. This simply isn't true as the government pays for the majority of health care costs. Health insurance isn't really insurance but due to regulations is instead pre-paid health care with very low marginal costs for treatment. Courts have ruled that health care benefits are not wages and thus they weren't subject to the wage controls implemented during WW2. Add on that such benefits are tax-free compensation and a growing amount of people's wages were being received in the form of health care benefits. Regulations and massive subsidies mean that instead of a free market in health care what we really have is uber-interventionist health care.

G. Capitalism is just...gross

Sure, capitalism delivers the goods, but it's cheap crap from Wal-Mart. Capitalism doesn't help a man live a noble life and isn't aesthically beautiful. Instead of spending your time reading and reflecting on great books, you're shopping for Darth Vader sippy cups. You're spending too much time with the Mario Bros. on your couch than with your family etc. Well, if one disagrees with capitalism on aesthetic grounds it's really a matter of opinion. But capitalism never produced a death camp. Capitalism isn't censoring websites in China. The free market didn't kill a quarter billion people in the 20th century. So if we're talking about which system is elegant and beautiful, I would like to think that the one which produced the death camps, censorship and mass murder would be the one that loses.

^1 From a Farewell to Alms, a Brief Economic History of the World by Greg Clark