Monthly Archives: August 2015

Anchors Away!

Donald Trump has finally brought up a legitimate point in the ongoing debate over illegal immigration (as opposed to his usual economically illiterate xenophobic racially-tinged fear mongering). The courts have long used the 14th Amendment as a justification for birthright citizenship, that is, the notion that one instantaneously acquires US citizenship merely by being birthed within US territory. This interpretation has created the phenomenon known as “anchor babies”, that is, the children of immigrant women (legal or otherwise) who enter the US merely to give birth. By virtue of the citizenship status of the newly birthed, the entire extended family may to varying degrees be granted residency status. Unconditional birthright citizenship (‘Jus soli’, right of the soil) is a peculiarity of the New World. It is almost exclusively found in the Americas. Everywhere else it is unknown or exists only with many conditions. The rest of the world follows a system of ‘jus sanguinis’ (right of the blood) which means that citizenship flows from the citizenship status of the parents. On its face this does seem to be the more practical approach. Would you want your child saddled with the citizenship of some foreign land you just happened to be travelling through at the time of her birth? Indeed that has happened to a number of “accidental Americans” who have never lived in the US but are labeled as tax cheats by the IRS because of an accident of birth location.  Birthright citizenship seems to be primarily a legal artifact found among those former New World countries that sought to rapidly increase populations. In the US the amendment merely codified what was already common law practice at the time while also unambiguously establishing citizenship for former slaves.

Contrary to popular opinion, birthright citizenship in the US is not entirely unconditional. The condition it hinges on is normally ignored as its meaning in modern parlance is somewhat opaque to those without a legal or history background. The amendment states, “All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and The States wherein they reside.” The key clause here is “and subject to the jurisdiction thereof.” So citizenship requires not only that you be born within US territory but that you also be subject to the jurisdiction of the US government at that time. You could only be subject to such jurisdiction if your parents (your legal guardians) were subject to such jurisdiction. At first glance it would seem that applies to anyone in the US, citizen or not. After all, anyone who kills someone or rob them, is “subject” to US laws against it, right? Well yes that is true, but the key word our modern ears need is the one that was obvious and thus unspoken for those in the 19th century. The latent word is “complete” as in “the complete jurisdiction thereof”. “Complete jurisdiction” is redundantly the same thing as “jurisdiction” because both stand in contrast to “partial jurisdiction”. Partial jurisdiction means one is subject to laws against murder, theft, etc., but likewise are not subject to laws related to the obligations of citizens. A foreigner (or more legally precise, an alien) is a citizen of another state and thus by virtue of that foreign allegiance cannot be subject to the complete jurisdiction of the US. (e.g. an alien is not required to serve on a jury, may not vote, may not be drafted, etc).

So, in short this means the proper interpretation of the “citizenship” clause of the 14th amendment is that if both parents are already citizens of another state (owe allegiance to another state, thus not subject to the complete jurisdiction of the US) then one does not acquire US citizenship at birth. If the parents are stateless (or one is orphaned) then one could acquire US citizenship. The proof that this is the proper interpretation is found both in practice and via first hand accounts on the drafting of this amendment. In practice, American Indians, who were not subject to the complete jurisdiction of the US but who were nevertheless born in US territory, were not made citizens after this amendment was passed. Indeed it was not until 1924 that the Indian Citizenship Act made them US citizens. If the 14th amendment were interpreted the way it is today then no such law should have been necessary. Clearly there has been a change in interpretation. But don’t take my word for it, let’s hear what the author of the citizenship clause, Senator Jacob M. Howard (MI) had to say on it in 1866: “This amendment which I have offered is simply declaratory of what I regard as the law of the land already, that every person born within the limits of the United States, and subject to their jurisdiction, is by virtue of natural law and national law a citizen of the United States. This will not, of course, include persons born in the United States who are foreigners, aliens, who belong to the families of ambassadors or foreign ministers accredited to the Government of the United States, but will include every other class of persons.”

Murphy vs. Block: May Libertarians Accept Government Money?

Tom Woods recently had a debate between Bob Murphy and Walter Block on whether or not libertarians should accept government money (through employment, services rendered, or welfare). You can listen here.

My take on this question takes a bit from both of their arguments as I think they both make good points, however I think Murphy edged Block out just a bit in this debate. Walter’s reductio absurdum don’t really work (roads, currency, etc) because with those things we have no choice It’s like arguing the slave gives his imprimatur of approval to the slaveowner because the slave accepts food, clothing, and shelter from the slaveowner. He doesn’t, he has no choice in the matter (technically there is a choice in the sense that yes one can choose to die, but that’s not a practical nor principled choice).

I think what it comes down to is choice. If one has no choice in the matter then it is acceptable to use such government monopolized service. However, when there is a choice then one can debate principle vs outcome and neither is really “wrong”. Walter makes a good point in that if one can undermine the core mission of the state by working for it/with it then that can be a net gain for liberty (Ron Paul being the most notable example). But Bob also makes a good point in that if everyone withheld their services from the state, it would cease to exist. Of course getting 100% of people to simultaneously withdraw their consent is never going to happen so in the real world we have to make decisions about whether our actions on balance harm or help more people. Now yes, that utilitarian principle is one you can drive a bus through and use it to justify anything practically. But I’m saying we are only concerned with applying that principle in the very narrow question of “should a libertarian participate in state actions voluntarily?”. One can choose to be entirely pacifist when it comes to the state and simply accept all its abuses and never try to get anything back, there is nothing wrong with that. But there is also nothing wrong with defending oneself from the transgressions of the state – proportionate reciprocal responses to aggression being permissible are a cornerstone of libertarian philosophy.

Simply taking money from the state for the sake of doing so such that it has less serves no purpose whether they give it to you for performing a service or you steal it directly. The state is a thief and will simply thieve some more to get back whatever it wants. Thus your taking indirectly harms others via the state as your proxy. So I disagree with Walter on this one. There is no amount you can take that will weaken it, they will always just take more. However, to the extent the state has taken from you, then you are fully in your rights to take an equal amount back (or to be very principled about it, an amount that equals the difference between what the state took and what you believe you would otherwise have paid a free market entity performing the same functions as the state.) So if one can get tax credits, government aid, grants, etc that offset the excess amount robbed from one in taxes, that is ok. If one exceeds what they had stolen from them, then that would be wrong and one must stop.

So in a practical example, Bob should feel fine about accepting payment to give a lecture at a state school if his remuneration never exceeds what he paid in taxes (or should have paid for services received). But Bob should not set up a lecture business that accepts billions of dollars from the state to give lectures. That zero boundary between net tax payer vs tax receiver demarcates one’s transition from capitalist to crony-capitalist.

So in summary, here is the decision tree:

  1. Do I have a choice? If “no”, then it is permissible to use such service, since after all, you have no choice.
  2. If you have a choice then is the amount you are getting less than the excess amount robbed from you in taxes for a given time frame? If yes, then go right ahead, nothing wrong with taking from the thief that took from you
  3. If the amount exceeds the amount robbed from you in taxes then here is where it gets speculative and subjective: on balance are you advancing the cause of liberty by receiving more than you lose in taxes? If yes then this is ok, but… this is a very difficult thing to determine, be cautious. If no, then you should not engage in such activity if you want to remain principled and not open yourself up to the charge of being a hypocrite.

You can lead a horse to a carousel, but you can’t make him eat a free lunch

A persistent myth in this country is that even though the government may do things we do not approve of, We the People ultimately have control of the reigns. We elect representatives, senators, and a President and it is they that decide how this country is run. So the theory is that if we don’t like what they do we can “vote the bums” out. That Congress’ approval rating is perennially in the low teens and yet incumbents are re-elected at a rate exceeding 80% speaks volumes about how successful that strategy has been. However, the dirty little secret is that most government functions originate not from elected officials but rather faceless bureaucrats who write, approve, and enforce what is known as “administrative law.” This process proceeds quietly in the dark underbelly of Washington, completely immune from “outsider” (that is, “the peoples”) influence. Like the static animals and chariots of a carousel, the unchanging bureaucracy provides support to our elected officials, who come and go like so many children believing they are driving when in fact they are merely passengers.

Case in point: The Department of Labor. Last month President Obama announced that the Department of Labor would be implementing a doubling of the white-collar salary threshold for overtime exception to $50,440. Although there is a request for comments period from the public, ultimately none of that really matters. The DOL committee voting on the change is in no way bound by those comments. President Obama knows that getting a minimum wage increase through Congress is likely to fail. However he can unilaterally ramrod a change to the overtime rules with little oversight if he employs the autonomous rule making authority of the DOL. Such changes do not require a new law or public debate. Only a handful of bureaucrats need to simply decide “ok, let’s just change this” and that’s it.

The shockingly sad part about all of this is not so much that a handful of people get to substitute their personal opinion of acceptable work conditions for the opinions of 120 million employees and employers but rather that they actually think this change will, in the words of Obama “help promote higher take-home pay… and shore up the middle class.” You can lead a horse to water, but you can’t make him drink. These people seem to labor under the fairy tale that employers are just sitting on a big pile of cash that they selfishly refuse to share with their employees. So to rectify this we need the government to step in and force them to share. Employee wages are a business transaction just like any other. Each transaction is negotiated between both parties to a level that is acceptable, otherwise were it not acceptable there would be no exchange. If these transaction costs are externally forced upward then employers will respond just as anyone else would, cut back in other areas to compensate.

There is no free lunch. Newly overtime-eligible employees will find their base hourly rate decreased so that at the end of the year they still have made the same dollar figure. Employers will also cut back on discretionary bonuses and benefits or simply cut back on hours so that there is no overtime. This will force such employees to become more efficient with their time and those that can’t will find themselves demoted or unemployed. Another way employers may respond is to reduce the number of managerial positions, which ultimately makes it harder for people to climb the corporate ladder into solidly middle class wage territory.

Another aspect often overlooked by the ivory tower elite is that many employees do not want to be classified as overtime eligible. A job requiring clocking in and out is viewed by employees as a job that is “not important.” Somebody with a college degree making $45k a year feels demeaned if they are told they must now clock in and out like some pimply-faced fry cook. Being on salary is a point of pride for these employees who feel they have worked quite hard to earn that status. That the government is now condescendingly informing them that this is for their own protection reflects the magnitude by which those in government are out of touch with the real world. As with all government interventions, conditions are made worse, not better. Employees either lose benefits and bonuses, get demoted, or end up making the exact same as before but not without first being made to feel less important due to their new status as “just” hourly.

Job! 2016

With the 2016 Presidential election season in full swing it seems nearly every candidate (from far right Trump to far left Sanders) is falling all over themselves to do “something” about illegal immigration. Problem is, the top three economic reasons cited in favor of “closing the border” are utterly fallacious despite their unquestioning acceptance by the media and voters alike.

 

Fallacy#1: Immigrants force wages down making Americans poorer.

Reality: Wages have two parts: a money part (the number) and a real part (the buying power). The money wage is arbitrary and irrelevant because all that matters is the real wage – how much that arbitrary amount will buy. Lower money wages (like lower prices) reflect a concomitant increase in production and should be welcomed. Yes, the money wage is lower, but there is more “stuff” available to buy at lower prices than before, thus real wages increase. Where would you rather live, in a town with a population of ten or one thousand? How much more must everyone work to produce everything needed in the town of ten vs the town of one thousand? Many hands make light work – on this principal alone we should be welcoming more, not fewer, immigrants into this country.

 

Fallacy#2: Immigrants steal jobs.

Reality: This fallacy is rooted in the mistaken notion that “jobs” are a form of fixed resource welfare. It views jobs like soup at a soup kitchen; there’s only so much to go around (see Fallacy#3 below). This view sees jobs as a completely one-sided affair when in fact it is of course a mutual exchange; you can’t be “stealing” if you are giving something in return. So jobs “given” to immigrants are not welfare – they produce something in exchange. Ah, but you say a job “given” to an immigrant was thus “stolen” from an American. This rests upon the assumption that there is some ideal level of workers and we must not exceed that. Well if that is true than how can we have this totally unregulated system of childbearing in this country? There is no control over how many children are born and who ultimately enter the work force only to “steal” jobs from other Americans. Should we restrict births in order to ensure just the right amount of jobs in this country? Shall we soon face the specter of the “illegally birthed”?

It is not possible to “steal” a job because one cannot own their job. The term “stealing” is a red herring that misdirects us into thinking a crime of sorts has been committed when in fact the real issue is one of competition. Competition lowers prices or increases quality. Normally we welcome that…when we are the buyer of a good. But when we are the seller, well then the story changes doesn’t it? Immigration control is simply another flavor of protectionism intended to limit competition. It is no different than tariffs or other import restrictions. The seen benefits accrue to the sectors of the economy so protected (whether that be agriculture, steel, or labor) while the unseen harms inflicted upon the consumer paying higher amounts are ignored.

 

Fallacy#3: There are only so many jobs so more immigrants means fewer for everyone else.

Reality: Jobs are unlimited. They are unlimited because humanity will never quench its desire to alter the world. We create our own jobs when we perform work for our own benefit. Others can create jobs for us if they are allowed to save that which they do not consume (profit) and use it to entice others to perform work on their behalf. Since the creation of jobs by others is a direct function of the amount of money they have saved and the amount of money saved is a direct function of profit, then it follows that decreased profit (through higher taxes or costs) will necessarily reduce the quantity of jobs at a given money wage. If one could pay any wage that both parties agreed upon there would be no limit on the quantity of jobs available. Jobs could be doubled overnight if everyone paid one-half the prevailing wage.

Now you may be aghast in horror at the thought of making one-half what you do now. And therein lies the problem. We have becomes so fixated on the money wage we ignore the reality staring us in the face, which is that with twice the number of people employed, output would increase far beyond two-fold (owing to the synergy of combined resources). Honestly, would you really care if you made one-half the money wage you do today if it bought five-times as many goods than your current wage does?

 

The blind spot that infects every conversation about immigration vis-à-vis jobs is this central fact: we are all buyers and sellers in the economy. You cannot simultaneously protect yourself as a seller without harming yourself as a buyer. Decreasing money wages, when driven by the competition originating from increased production, are reflective of a necessary growth in real wages.

Paddling Upstream

“We kept losing our men, they kept escaping from the factory life from a pesthole–till we had nothing left except the men of need, but none of the men of ability.” Atlas Shrugged, Chapter 10

 

This quote from Ayn Rand’s “Atlas Shrugged” highlights the ultimate outcome of a “to each according to his need, from each according to his ability” pay scale at the fictional Twentieth Century Motor Works. That this novel has been so eerily prescient on so many topics is a testament not so much to Ms. Rand’s prose but rather to her ability to recognize cyclical patterns that emerge in society due to those that succumb to ideas driven by emotion rather than reason. One of the most common fallacies is to conflate the value of one’s humanity (which is equal for all) with the value placed on what one produces. It is an easy error to make; after all it certainly seems “fair” that if two people work equally long and equally “hard” they deserve equal remuneration. Even though this fallacy (the labor theory of value) is easily overturned by considering the case of a mud-pie baker in comparison to an apple pie baker, it continues to infect the minds of all too many. When our leaders are infected with this nostrum, their position of power permits them to spread the damage far and wide. Governmental implementations of this idea include the minimum wage coupled with welfare. Such policies with one hand make it illegal for those with low experience or skills to work while with the other hand pays those same people to not work, crushing their spirit and the motivation to improve themselves.

Private implementation of this idea is more rare, but it does happen. The most recent and well-publicized example is that of Gravity Payments located in Seattle. The company’s CEO, Dan Price, apparently took a page from Atlas Shrugged and announced they would implement a new $70,000 minimum salary pay scale (that’s a $33.65 minimum wage).

Those on the left predictably rejoiced at this news – here was someone finally doing privately what they have been insisting for so long government must force everyone to do. Irrespective of who implements such a plan (public or private) it is doomed to failure on psychological grounds. The first signs of that failure harkens back to the Atlas Shrugged quote above – “we kept losing our men.” Early on two of Gravity Payment’s key employees quit citing the inequity of a pay scale they saw as rewarding the least productive at the expense of the more productive. Like a talent sieve there is nothing to retain or attract the more productive employee when it is need, and not effort, that is rewarded. Likewise, like an anti-talent magnet only those with the lowest drive and skillset will be attracted, for where else could they have any hope of earning such a high wage?

The irony here is that Mr. Price started his company in order to provide the lowest cost alternative in the payment processing industry. He saw others charging too much and he knew he could do the same for less (that is, be more efficient and hence more productive). Now he claims he will not raise prices in order to support this new wage scale (he’s already lost some customers over this fear). But, it seems, if he is going to be consistent it would be perfectly acceptable to raise prices and lay a guilt trip on his customers if they were reluctant to pay the higher rates. After all, his company “needs” the money to pay his employees who “need” their high wages.

Wages, like everything else, are a function of supply and demand. Demand is a function of the subjective valuations humans place on things. Supply is a function of the uneven distribution of varying talents. We can no more expect uniformity in wages than we can expect solidarity in opinion or an equal distribution of talents. One can paddle up stream only for so long; eventually nature will overpower our feeble attempts to counter to it.