Monthly Archives: December 2015

Removing all doubt

Poor Bernie, he went and opened his mouth and thusly removed all doubt that he has no grasp of economics. Such ignorance from an internet troll might be expected and can be amusing in the same way that a child’s explanation of something can be so. But when such breathtakingly inane statements emanate from a candidate for President of the United States, well, what can one do but weep for the future. To what perplexing attempt at pontification do I refer? None other than this Dec 26 Tweet from @SenSanders: “You have families out there paying 6, 8, 10 percent on student debt but you can refinance your homes at 3 percent. What sense is that?”

Now most people would probably look at this statement and not find it particularly outrageous. We as a society have been conditioned to accept the notion that interest rates are arbitrarily set from time to time by some talking head in government. The assignment of these rates is apparently disconnected from any external factors. They are like lotto numbers plucked from the ball machine. We assume other lenders (banks, credit cards, etc) set their rates in a similar pattern.

In reality non-government rates are primarily market driven. That is, the relative difference in rates is market driven while the net value rests on the arbitrarily set Fed rates. Interest rates are not arbitrary digits, they are prices. They are the price people are wiling to pay to not wait. Interest rates are a reflection of supply, demand, and risk. The demand for loaned funds is indicative of high time preference, that is, preferring something now rather than later. The supply of loaned funds is indicative of a low time preference, that is, the willingness to forego consumption in the present and defer it into the future – for a price. To understand high time preference, ask yourself, do you prefer to buy that 72” OLED 4k TV today, or in a year after saving the funds yourself? Most of us prefer to have it today so that we can enjoy it immediately. The cost of that sooner than otherwise realized enjoyment is reflected in the interest rate we are willing to pay. If there are a lot of people willing to supply loaned funds, then the interest rate will be lower (supply goes up, price i.e. interest rate, goes down). If there are few people willing to supply loaned funds then the interest rate will be higher (supply goes down, price, i.e. interest rate goes up). It’s really not that complicated.

The only wrinkle with interest rates relative to regular money prices exchanged for tangible goods is that unlike exchanging cash for a hamburger (where both parties have something after the exchange), with the process of loaning/borrowing, only one party has the thing they desire in the beginning. The other party has a promise to deliver the other half of the bargain at some future date. The future is uncertain and there is always risk that someone may not do what they say, either deliberately or for reasons beyond anyone’s control. That uncertainty is also reflected in the interest rate. If there is a high chance the lender won’t get paid back then the interest rate will be quite high. But, if something can be offered to mitigate that risk, something tangible, like say a house or a car, then the lender can feel more assured that at least they will get some portion of the loaned funds back in the worst case. So that brings the rate back down.

Bernie, this is why loans backed by tangible collateral (like a home mortgage or equity line) have a lower interest rate than a student loan which has no collateral. A student loan is no different than credit card debt – it is unsecured. Now, look at the interest rate on your credit card (likely over 20%) and compare to the 6, 8, or 10% figure being cited – doesn’t look so bad now does it? These rates are so much lower than they otherwise would be because of government intervention in the student loan market.

Now some might say the banks should be willing to invest in such human capital, that a college degree will translate into a high paying job that allows them to pay it off. That can be true. That is why years ago before government involvement lenders did give out student loans, but only to the most academically worthy of students, those that clearly would succeed. But even so, possible future income is not collateral, the bank can’t take possession of the student himself and enslave him or her to get their money; they can take a house or car, they can’t take a person.

If Bernie wants to help students he should promote the idea of removing government involvement from higher education. Every sector the government subsidizes (healthcare, housing, education) has seen explosive price inflation. That is no coincidence. The patient can’t heal until you kill the disease.

In a mirror dimly

For all that is wrong with the Trump candidacy (xenophobic neo-fascist tendencies) the silver lining is that it is forcing us to face the ugly truth about democracy: mob rule is a frightful thing to behold. Trump is one of “us” and his popularity is a reflection of what the “mob” wants. Everyone loves democracy when it is their ideas that are popular but when the mob turns stupid it doesn’t seem like such a good idea anymore. Trump may be the first true “people’s candidate” for president that has an actual chance of winning. His financial independence all but guarantees he is not beholden to any individual, special interest, or political party elite. To the extent any candidate receives some measure of public or private funding, their words and deeds are held to account by the one doling out the money. Trump is accountable to no one but himself and the voters.

Since the advent of political parties we have been led to believe elections are about a democratic process, that we are making a choice and a difference – but – that is a lie, or rather, an illusion. A very apt line from the Matrix movies provides some context, “Choice is an illusion created between those with power and those without.” Those who already have power: the party bosses, the monolithic media outlets, the oligarchical dynasties (Roosevelt’s, Kennedy’s, Bush’s, Clinton’s) – they all understand and work the system to their advantage. That is, they present the illusion of choice so as to keep the masses pacified into believing they are in control of their destinies. But like choosing a white paint chip from an ocean of slightly variable gradations of white, the final choice is still just that: white. But Trump, Trump is lime green. He is a starkly different choice. He, unlike any of us, has the money to buy a seat at the table where they are doling out cards in the high stakes game of poker that is a run for the presidency. Perhaps Trump has touched a populist nerve because deep down we all know there is no choice. His candidacy is not so much support for Trump the man but rather support for NOTA (none of the above).

Trump may be spouting idiotic things, but Trump is no idiot. He is a masterful salesman and knows how to work a room. He, like any good conman or salesman, understands his audience/mark. Give them what they want and they’ll return the favor. Trump reflects America, but dimly. (1 Corinthians 13:12) Is his persona the true man, or merely a reflection of his environment? If elected we shall know fully. Most candidates appeal to the voter’s intellect, Trump appeals to their emotions (and not the good ones, i.e. fear, anxiety). This visceral appeal is a dim reflection of the American psyche. It is also a dangerous one. Emotion acts mindlessly without consideration of the consequences. History repeatedly tells a dark tale about leaders that preyed on the emotions of their subjects.

But Trump is not a solution to the moneyed concentration of power, he is merely a symptom, an immune response if you will – that cough you just can’t get rid of. Although the leftist progressives bleat incessantly on the need for government to hold the evil capitalists at bay lest they gain control of society, they miss the central irony here that their greatest fear (control of society by moneyed interests) has already come to pass not in spite of, but because of, government. Government is not a divine institution that has been corrupted by man. It is a human institution that exudes the very human nature from whence it is derived.

Think of it like this: government is simply another business. The key difference, though, is that what it sells is the ability to legally exert aggression against those that do not do its bidding. Its competitive advantage is that it is a self-declared monopoly within its arbitrarily defined geographical region. So what person, group, or other business would NOT want to tap into exerting some influence over how such a business operates? Is it really such a mystery as to why so many work so hard for so long to access that power and divert it to their advantage?

Some say the answer is to remove money from politics, but given that politics is just another economic transaction, that option is about as doable as converting to a barter economy. No, the solution is not less government, but more. That is, it is time to break up the monopoly and decentralize power to the point where our choices are not constrained but manifold. Power is kept in check when the individual is not compelled as a matter of law to acquiesce to the demands of others but may choose with whom they shall associate by voting with their wallet or, if necessary, with their feet.

No-Rights List

“There are several steps that Congress should take right away. To begin with, Congress should act to make sure no one on a no-fly list is able to buy a gun. What could possibly be the argument for allowing a terrorist suspect to buy a semiautomatic weapon? This is a matter of national security.”– President Barack Obama

 

If I may Mr. President, Mr. Constitutional Scholar, I’ll take that one. The answer is “Due Process” as in the Fifth amendment to the U.S. Constitution which states, in part, “[N]or shall any person . . . be deprived of life, liberty, or property, without due process of law…”. In other words, the use of this list to deprive the individual of his or her rights is a blatant 100% violation of the constitution, no ifs, ands, or buts – but hey, go right on believing that a piece of paper can protect us from the machinations of the state. This list has put the lie to that fantasy. Those in power can do whatever they wish as long as they have mastered the art of fear manipulation.

There is nothing wrong with compiling such a list (e.g. passive monitoring until suspicion is either allayed or heightened), but it is its preemptive deployment that is problematic. Depriving one of their rights is the equivalent to an arrest insofar as arrestees too lose a number of rights. Therefore, a “listee” and an “arrestee” are legally equivalent and so both must be afforded the same opportunity to respond to their accusers. In other words, if there is to be such a list, its content must be subject to due process, that is, a trial. Even though this should be obvious it bears repeating: due process is not some artificial speed-bump on the road to getting the “bad guys” – it ensures that the innocent, you and me, are not erroneously treated as criminals. To believe such a process is not necessary is to believe in the infallibility of man (a most hubristic and dubious proposition). Government is merely a collection of imperfect, fallible human beings. Due process protects us from those failings.

As it stands today, if you are on this list (often people merely with names similar to those of suspected terrorist sympathizers, including small children, active military personnel and even Senator Ted Kennedy!) there is no procedure whatsoever to challenge the inclusion in order to have your name removed. The rationale for inclusion is not divulged due to reasons of “national security”, attempts to demonstrate ones innocence are not allowed due to reasons of “national security”. Do you see a dark pattern here? The government may target anyone for any reason at any time citing the circular tautology of “national security” as justification.

With Obama’s attempt to re-purposes this list into the “one list to rule them all” of unlimited state power a most sinister precedent is being set. One right, two rights, three rights – oh my, soon we are no longer free! There is nothing to stop them from adding a whole litany of rights that one could plausibly argue help terrorists achieve their goals: obtain credit, hold a job, own a business, rent a home, buy or rent a car, open a bank account and so on. Now imagine you have been erroneously placed on this list (like thousands of others) and the nightmare your life instantly transforms into as all your rights are instantly stripped away because of either a clerical error or someone’s hunch. But of course you don’t know it is a clerical error or someone’s hunch, because no one will even tell you why you are on the list..

Once the precedent of rights denial for the “listed” is in place, then the really dangerous component can be activated: arbitrary inclusion. Superficially only “terrorists” are to be included, but here’s the rub: what is the definition of “terrorist”? Most assume it means ISIS types, but as far as the state is concerned it encompasses anyone that it deems a potential challenge to its authority. In other words, whoever is in power will deem whomever is out of power as a threat. This is not hyperbole, it has already happened. Various federal and state agencies have issued reports where they expressed the opinion that anyone expressing “right wing” views such as support for the constitution, opposing the federal reserve or taxation, or showing support for Ron Paul could be potential terrorists. Masterful! Political challengers getting you down? Why simply classify them as “terrorists” and wipe away all their rights – that will shut them up pretty quick!

If private airlines want to compile their own list and bar entry aboard their planes, that is perfectly within their rights to do so. It is their property and they may do with it as they see fit. You are free to fly another airline. In a private system the number of false positives would be nearly non-existent (e.g. no kids would be on the list) since the airlines have an incentive to sell tickets and not bar perfectly safe passengers from handing them money. Various other free-market based systems that can’t legally exist in the current public system would ensure even those few false positives were rectified. The compilers of a public list bear no consequences to any mistakes they make, the compilers of a private list do and thus act accordingly. The lack of accountability in a public system necessitates due process, i.e. a method by which accountability can occur. Interaction with private entities is voluntary whereas interaction with public entities is not. This more than anything necessitates a different set of rules for public entities to ensure that absolute power is not abused.

Low Hanging Fruit

With the recent shooting in San Bernardino national attention has again returned to that eternal yin-yang conflict between the gun banners and the gun lovers. Or should I say those who promote “sensible gun laws” and those that do not believe their rights should be curtailed because of the actions of others. Truth be told the former believes “sensible” = “total ban”– because, obviously, making things illegal always eliminates the problem (cough, drug war, cough, prohibition). Banning all guns because of the senseless acts of a few crazed lunatics makes about as much sense as castrating all men because some have raped. The ban-wishers realize that a total ban is not feasible, so they couch their rhetoric in innocuous sounding terms like “sensible” and “common sense” when referring to proposed legislation. The only problem with these proposed laws (if you can actually manage to get any of them to divulge exactly what they might entail) is that not a single one of them would have stopped any of the mass shooting rampages in recent memory. Not. A. Single. One. Calls for background checks to include the presence of psychological issues don’t help if one has never done anything crazy before. Barring felons from obtaining a weapon don’t help if one has never been convicted of a crime. Waiting periods don’t help if one has owned a weapon for years and then commits an atrocity or simply “borrows” it from a family member. In short it is a human problem, not a gun problem. Humans can do anything at any time and as much as we might all wish it to be true (oh, please let there be a Santa Claus!) it is metaphysically impossible to predict the behavior of any one person so as to shut them down pre-crime style.

Now some may object at this point and point to a number of “peer” countries with draconian gun laws who have lower homicide rates than the US. What this simpleminded analysis leaves out is manifold. First of all the use of the arbitrary distinction “peer” is simply a ploy to omit countries with lower gun ownership than the US but with much higher gun deaths. One prominent example is Mexico.  “Oh but that is left out because of the violence stemming from the drug war,” they will say. Oh really? That is interesting, because the US is currently involved in a massive drug war as well, so I suppose to be fair we should subtract those numbers out in the same way they deem it valid to leave Mexico out of the comparison. When you make that adjustment the estimates are that the US homicide rate drops precipitously from 4 per 100,000 down to as low as 1 per 100,000  – the same as all these other “peer” nations with their draconian laws. The other part of the analysis left out is a lot of these “peer” nations are extremely small, culturally homogeneous groups (e.g. Japan or Norway). If one were slice up the US the same way and break it down by state or city rather than as whole you find even without drug war adjustments the regional numbers are on par or lower than those very same “peer” nations. In other words 1% of US cities are responsible for the overwhelming majority of gun violence.

If those that want to “do something” about gun violence are serious then they would be well advised to examine what factors are driving the violence in these cities. They are the low hanging fruit as it were since most gun deaths occur within their borders. Since most (Chicago, Detroit, etc) already have strict gun control laws, that is obviously not going to be a solution. To solve the problem one must understand the source of the problem. That source is overwhelmingly the drug war. It is not simply mere shoots out between gangs that factor in here but all the other social and economic factors that drive one toward violence when a prohibition is placed on some arbitrary article of commerce. Like a cancer the prohibition infects the community and destroys it from within. But it all starts with the prohibition. Remove the drain stopper that is prohibition and all the other violence inducing factors will drain away as well. Will this solve all instances of gun violence? No, but wouldn’t solving 75% or more be a glorious first step?

The constitution says we have a right to keep and bear arms. Changing that fact would be incredibly difficult if not impossible. The constitution does not say drugs are illegal. Its implementation was unconstitutional, thus its termination would likewise be constitutional. We can end the drug war tomorrow with the stroke of a pen. Why not take that easier path and achieve the greatest good? Or is it more about ideology than about actually saving human lives? Prohibition never solved anything.

Entangling Alliances

The recent downing of a Russian military jet by Turkey should serve as a reminder of the sage advice of Thomas Jefferson during his inaugural address, “Peace, commerce, and honest friendship with all nations-entangling alliances with none.” It is that last bit – “entangling alliances with none” that is most apropos. Turkey is a member of NATO, as is the US and virtually all other Western European countries. For anyone mindful of the deadly domino effect that plunged Europe into World War I (the assassination of a single man), this recent series of events should be a wake up call to de-escalate this situation as quickly as possible.

Fortunately, so far it seems Russia has shown an incredible level of restraint; one can only imagine the outpouring of jingoistic bellicosity had a US jet be downed by a close Russian ally. This may be simply that Russia is formulating a strategically crippling blow to Turkey or that it plans to milk this event diplomatically for all it is worth considering that Russian presently occupies the catbird seat of moral authority. The Russian jet was shot down and its pilots assassinated mid-air after entering Turkish airspace for a mere 17 seconds. Although Turkey insists the plane was warned for approximately 10 minutes to veer away lest it enter Turkish airspace, the standard course of action is to fire warning shots or to “escort” the plane back to the border. Yes, if Russia violated the airspace Turkey had a right to respond – proportionately. Mere flight is not in and of itself provocative enough to warrant instantaneous death, particularly when geographically it is the equivalent of flying over Key West and claiming a gross violation of the airspace of the US mainland. What Turkey did is akin to shooting the neighbor’s dog because it urinated on the edge of your lawn.

The magnitude of the overreaction by Turkey suggests something more is going on here. As it turns out this trivial border violation was but a pretext for Turkey to do what it has long wanted to do: directly provide military support for the Turkmen rebels in northern Syria who are fighting against Assad. The “airspace” violation merely provided cover to tactically engage with Russia without fully committing itself to an all out war with Russia over Syria. In other words, this was a sucker punch against a stronger opponent. Sometimes that tactic makes your opponent angry, but sometimes it stuns them into retreat. The outcome remains to be seen here.

So why attack that particular plane? It was on a well-known route that would end in it bombing regions of Syria where Turkmen reside. Russia has been bombing not only ISIS forces but also all those that oppose Assad, and this includes the Turkmen rebels fighting with the Free Syrian Army in the north. Sure enough, after the plane was shot down those Turkmen rebels shot and killed both airmen and destroyed a Russian rescue helicopter – with U.S.-made and supplied TOW rockets no less. The Turkmen (as one could have guessed) are ethnically Turkish but who happen to live on the wrong side of the arbitrarily drawn borders following the western led partitioning of the former Ottoman empire after World War I. Those arbitrary borders resulted in the Turkmen being inside what is today known as Syria. Turkey has long had an interest in aiding their ethnic siblings. Assad is no saint and has long suppressed the Turkmen minority (through attempts to Arabicize them, land seizures, and the banning of Turkish language). So to be sure there is plenty of blame to go around; there are no “good guys” in this Syrian conflict – not even the US, who in an attempt to undermine Assad (in furtherance of aiding our ally Turkey) gave arms to “Syrian rebels” who eventually morphed into ISIS and now threaten the stability of the entire region.

So in other words, our “entangling alliance” with Turkey, a moderate Islamic ally no doubt, resulted in the US directly playing a role in the creation of the most radical Islamic regime this world has even seen: ISIS. If the US is not careful, our entangling alliance with NATO and the requirement we come to the aid of NATO members who come under attack (i.e. Russian attacking Turkey in retaliation) may very well plunge us into World War III with a nuclear capable rival. Be afraid, be very afraid.