Sunday, September 5, 2010

China and the Deficit

We are responsible for the low standard of living in China, but not in the way you might expect.  We buy cheap goods from China while their workers barely see any of the resulting profits.  Our government and the government of China have a tacit understanding that facilitates this state of affairs.  Rather than distributing profits via increased wages, the Chinese government uses this money to finance US government debt, keeping the currency exchange rate low and keeping their goods monetarily cheap.

This would not be possible but for the US government requiring foreign financing to continue functioning on a day to day basis.  While this arrangement benefits US politicians by allowing them to fiscally have their cake and eat it too, it has also led to a steady flow of manufacturing jobs from America to China.  Without this government manipulation, and the compliance of American politicians, China would not have been able to build their industrial base as rapidly as they have; thus why the Chinese government continues to plow billions of dollars into depreciating American debt.

We really only have three possible exits from this cycle.  One is to hope that growing domestic discontent in China will lead to wage increases from their artificially depressed levels.  Two is to hope that American politicians (or American voters) will lose their appetite for irresponsible spending and refuse to play their part in perpetuating the cycle.  The last option is the endgame where the Chinese government realizes their goals; a strong industrial base at home and America a hollowed our shell of the competitor it previously was.  China inherits the best of both worlds with increased domestic demand and a strong trade balance.

In simple terms, the Chinese are saving and investing for a higher standard of living in the future, while America is living it up on the credit card but, unless we change, will ultimately face decline and poverty.

Wednesday, July 28, 2010

Marx vs. Smith

Key to Marxism is the argument that the laborer has always been forced to work for the bourgeoisie. Although true in the days of slavery and serfdom, when those in power used violence to extract labor, it is a stretch to believe this is true today. The “force” supposedly compelling today’s laborer is the threat of unemployment. However, as Adam Smith points out in Wealth of Nations, man in his natural state works only for himself. Therefore, the alternative to employment is not death by starvation as the Marxists claim, but rather that which man naturally possesses: self-employment. Ironically, those in power are willing to raise taxes on the self-employed Americans that make up 70% of the “businesses” in the United States. At least they have generously offered to return some of those tax dollars, for a small fee; in the form of small business loans.

Tuesday, June 29, 2010

Regulators: Insiders or Incompetents


Federal agencies regulating private businesses are inherently prone to abuse.  Ostensibly these agencies will root out corruption in the private sector, defending the little guy from the depredations of large corporations.  But to paraphrase Thomas Jefferson, where are we going to find these angels to watch over us?  The men appointed to these posts either come from the industries they are supposed to regulate, leading to conflicts of interest, or they have no background in the industry and are therefore incompetent.  In either case, while regulatory agencies are a convenient tool for politicians to change the rules of the game, they are unlikely to secure the public good.

The best candidate for a regulatory agent would have an extensive background in the field to be regulated.  To understand practical applications, his knowledge would have to be far more than academic.  Thus not only would he hold an appropriate degree but also have considerable experience practicing his trade.  Once appointed to public post and given the power to help or hinder his former colleagues, we expect him to suddenly sever all ties of affection and be an impartial arbiter.  Although in a perfect world the agent would be a neutral paragon of virtue, the reality is that most men will use their newfound power to reward friends and punish foes.

It might be tempting to choose an agent who had never formed such emotional ties in the field he is to be appointed over.  Armed perhaps with a basic degree in the field (if at all), his knowledge would be superficial at best.  Empowered and unguided, he would be like a child with a chainsaw; lacking mean intention but terribly dangerous nonetheless.  Alternatively, in seeking guidance from another he would place the powers of his office at the disposal of a stranger’s ambition.  The result: the agent’s power is either misguided or misused and fails to secure the public good as originally intended.

All acts of government carry with them the implicit use of force to fine or imprison.  Government’s acts are most proper when used as Rousseau describes in “defending and protecting with the total common force, the person and the property of each.”  However this power is abused when it is directed at furthering personal goals at the expense of the property of others.  Creating Federal agencies to interfere in business virtually ensures that agents will actively help or harm the industry they are to regulate; clearly an abuse of Government power.  We should not create agencies hoping to maximize the good if the office is held by a perfect man but rather to minimize the evil when the office is held by a flawed man.

Saturday, June 12, 2010

Life, Liberty... and Property

No one ought to harm another in his life, health, liberty, or possessions. - John Locke

The right of property is that which every citizen has of enjoying and of disposing at his discretion of his goods and income, of the fruits of his labor and industry. - French Constitution of 1793

That all men are by nature equally free and independent, and have certain inherent rights... namely, the enjoyment of life and liberty, with the means of acquiring and possessing property, and pursuing and obtaining happiness and safety. - Virginia Declaration of Rights, 1776


That the inhabitants of the English Colonies in North America, by the immutable laws of nature... are entitled to life, liberty, and property, and they have never ceded to any sovereign power whatever, a right to dispose of either without their consent. - DECLARATION OF COLONIAL RIGHTS, FIRST CONTINENTAL CONGRESS, 1774

Property does not exist because there are laws, but laws exist because there is property. - Frédéric Bastiat

The right of man to private property is, therefore, the right to enjoy one's property and to dispose of it at one's discretion (a son gre), without regard to other men, independently of society, the right of self-interest. This individual liberty and its application form the basis of civil society. - Karl Marx, 1843

Government originated in the attempt to find a form of association that defends and protects the person and property of each with the common force of all. - Jean Jacques Rousseau

The recognition of individual rights entails the banishment of physical force from human relationships: basically, rights can be violated only by means of force... The only function of the government, in such a society, is the task of protecting man’s rights.

In a capitalist society, all human relationships are voluntary. Men are free to cooperate or not, to deal with one another or not... i.e., by means of discussion, persuasion, and contractual agreement, by voluntary choice to mutual benefit. The right to agree with others is not a problem in any society; it is the right to disagree that is crucial. - Ayn Rand

Monday, May 31, 2010

Thomas Paine on the Constitution

[Excerpts from Common Sense and from Rights of Man]  
 
 In America THE LAW IS KING
 
...how necessary it is at all times to watch against the attempted encroachment of power, and to prevent its running to excess.
 
...it is necessary to consider a Constitution in both its cases: -First, as creating a Government and giving it powers.  Secondly, as regulating and restraining the powers so given.
 
[FIRST]
 
The Constitution of a county is not the act of its Government, but of the people constituting a Government.
 
...individuals themselves, each in his own personal and sovereign right, entered into a compact with each other to produce a Government
 
It may not be improper to observe that in both those instances (the one of Pennsylvania, and the other of the United States) there is no such thing as an idea of a compact between the people on one side and the Government on the other.  The compact was that of the people with each other to produce and constitute a Government.  To suppose that any Government can be a party in a compact with the whole people is to suppose it to have existance before it can have a right to exist.
 
A Constitution is not the act of a Government, but of a people constituting a Government; and a Government without a Constitution is power without a right.  All power exercised over a Nation must have some beginning.  It must either be delegated or assumed.  There are no other sources.  All delegated power is trust, and all assumed power is usurpation.
 
[SECONDLY]
 
...the check is the Constitution, which in effect says, Thus far shalt thou go and no further.
 
...the authority of future assemblies will be to legislate according to the principles and forms prescribed in that Constitution; and if experience should hereafter show that alterations, amendments, or additions are necessary, the Constitution will point out the mode by which such things shall be done, and not leave it up to the discretionary power of the future Government.
 
A Government on the principles on which constitutional Governments arising out of society are established, cannot have the right of altering itself.  It it had, it would be arbitrary.  It might make itself what it pleased; and wherever such a right is set up, it shows there is no Constitution.
 
From the want of a Constitution in England to restrain and regulate the wild impulse of power, many of the laws are irrational and tyrannical, and the administration of them vague and problematical.
 
[Recall that England does not have a written Constitution and instead relies on its body of common law and court rulings to determine the authority of government]
Almost every case now must be determined by some precedent, be that precedent good or bad, or whether it properly applies or not.
 
Whatever the form or Constitution of Government may be, it ought to have no other object than the general happiness.  When instead of this it operates to create or increase wretchedness, in any parts of society, it is on a wrong system and reformation is necessary. 
[Note, the "general happiness" not the "happiness of the majority."  Any Government that purposely places the burdens of society on a part or a minority in order to benefit the majority is wrong and demands redress.]

Monday, May 17, 2010

Thomas Paine on War and Taxes

[Excerpts from Common Sense and from Rights of Man regarding war and taxes] 

Our plan is commerce, and that, well attended to, will secure us the peace and friendship of all Europe; because it is in the interest of all Europe to have America a free port.  Her trade will always be her protection...


[The government appears] to say to itself: "If nobody will be so kind as to become my foe, I shall need no more fleets or armies, and shall be forced to reduce my taxes."

...taxes were not raised to carry on wars, but that wars were raised to carry on taxes.

...if [the King] rashly declares war as a matter of right, and [Parliment] peremptorily withholds the supplies as a matter of right, the remedy becomes as bad, or worse, than the disease.  The one forces the Nation to combat, and the other ties its hands; but the more probable issue is that the contest will end in a collusion between the parties, and be made a screen to both.
[It is interesting to note that our Founding Fathers expressly vested the authority to commit the military in the Legislative to avoid this situation.

Congress shall have Power... To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water;

For the past sixty years, however, the President has had the ability to commit the Armies, while the Legislative simply approves funding.  Supposedly this is a "check" on the President committing us to wars that are not in the best interest of the Nation, however as Mr. Paine points out, this is rarely the case in practice, since once committed it would be a churlish man indeed who denied supplies to Troops already engaged in combat.]

Wednesday, April 28, 2010

Thomas Paine on Congress

[Excerpts from Common Sense and from Rights of Man regarding legislators]  
 ...that the elected might never form to themselves an interest separate from the electors... On this depends the strength of government, and the happiness of the governed.
...a body of men, holding themselves accountable to nobody, ought not to be trusted by any body.
When money is to be obtained, the mass of variety apparently dissolves, and a profusion of parliamentary praises passes between the parts.  Each admires with astonishment, the wisdom, the liberality, and disinterestedness of the other; and all of them breathe a pitying sigh at the burdens of the Nation.
Whether a combination acts to raise the price of any article for sale, or the rate of wages, or whether it acts to throw taxes from itself upon another class of the community, the principle and the effect are the same; and if the one be illegal, it will be difficult to shew that the other ought to exist.
It is from the power of taxation being in the hands of those who can throw so great a part of it from their own shoulders that it has raged without check.
...the portion of liberty enjoyed in England is just enough to enslave a country more productively than by despotism, and that as the real objective of all despotism is revenue, a Government so formed obtains more than it could either by direct despotism, or in a full state of freedom, and is, therefore, on the ground of interest, opposed to both.
[All courts and courtiers] form a common policy... detached and separate from the interest of Nations; and while they appear to quarrel, they agree to plunder.
What at first was plunder, assumed the softer name of revenue.
It is not because a part of the Government is elected, that makes it less despotism, if the persons so elected possess afterwards, as a Parliament, unlimited powers.
A man of moral honor and good political principles cannot submit to the mean drudgery and disgraceful arts by which such elections are carried.  To be a successful candidate he must be destitute of the qualities that constitute a just legislator; and being thus disciplined to corruption by the mode of entering Parliament, it is not to be expected that the representative should be better than the man.

Wednesday, April 21, 2010

Enumerated Powers in a Nutshell

I've taken the liberty of putting the enumerated powers of the Federal government in a short, easily read format...

These are our powers as individuals delegated to our representatives via the Constitution.
 
Not a very long list, is it?

The President can…
  • veto laws
  • issue pardons
  • establish a cabinet of principle advisers
  • act as military commander in chief
  • ratify treaties (with the consent of the Senate)
  • appoint judges, ambassadors, consuls, ministers and other officers (with the consent of the Senate)
  • give the State of the Union speech
  • convene or adjourn both Houses
  • receive Ambassadors and other public Ministers
  • take Care that the Laws be faithfully executed
  • Commission all the Officers of the ....United States.....

Congress can…
  • override a presidential veto
  • collect taxes, borrow money & set monetary policy
  • fix weights and standards
  • regulate international and interstate trade
  • provide for the common defense
  • establish a uniform rule of naturalization,
  • establish uniform laws on the subject of bankruptcies
  • establish post offices and post roads;
  • provide for patents and copyrights
  • constitute tribunals inferior to the Supreme Court;
  • manage the Capital and other Federal buildings

The Federal Courts can rule on…
  • cases under the Federal Constitution, laws, and treaties
  • cases involving ambassadors
  • cases involving navigable waters
  • cases in which the ....United States.... is a party
  • cases between two or more states
  • cases between citizens of different states
  • cases between citizens claiming land in different states
  • cases between citizens or states and foreign citizens or states

Thursday, April 15, 2010

Thomas Paine on Government


[Enjoy these excerpts from the man of whom John Adams said "Without the pen of Paine the sword of Washington would have been wielded in vain."]

Thomas Paine regarding the Nature of Government:

Government even in its best state is but a necessary evil; in its worst state an intolerable one.

When men think of Government, they must necessarily suppose it to possess a knowledge of all the objects and matters upon which its authority is to be exercised.

Laws difficult to be executed cannot be generally good.

Everything which Government can usefully add thereto, has been performed by the common consent of society, without Government.

If we look back to the riots and tumults which at various times have happened in England, we shall find that they did not proceed from the want of a Government, but that Government was itself the generating cause.

Every man wishes to pursue his occupation, and to enjoy the fruits of his labours and the produce of his property in peace and safety, and with the least possible expense. When these things are accomplished, all objectives for which Government ought to be established are answered.

Sunday, April 11, 2010

Democracy, right?

What kind of country do we live in? The long answer is that the United States is a Federal Constitutional Democratic Republic. What does that mean? For starters, we are a democratic nation. The word comes from the Greek meaning “rule by the people.” We the People have the final say in how the country is run. Ultimately, the power of our government is derived from the consent of the governed.

But we do not have a direct say most of the time; we are a republic. We elect representatives to manage the affairs of state. This has a twofold function. First, it allows economic specialization so that only some people should have to deal with the full-time problem of managing public affairs. The rest of us can pursue the real business of going to work every day producing goods, offering services, educating, defending, raising children, growing food, etc. Second, by appointing representatives we attempt to make the state less fickle. Representatives can stand their ground against the opinion of the day, so long as their overall performance is in keeping with the long-term values and attitudes of the People.

The government is also Federal, as so eloquently argued in the Federalist Papers (which every American should read at least once in High School, and then re-read as an adult). Federalism is an idea of a stratified government, where we try to solve issues at the lowest possible level. It allows for a patchwork quilt of laws tailored to fit the varied communities across the country, while at the same time guaranteeing to everyone their God-given Rights (life, liberty, property) and the means to maintain them (the Bill of Rights).

Lastly and importantly, the United States government is Constitutional. It is not “mob rule, where 51 percent of the people may take away the rights of the other 49” as Jefferson described pure Democracy. Instead it's scope is limited to the powers necessary to ensure the Rights of the People and resolve disputes between the States.

Somewhere along the way we lost sight of the original purpose of government. We had established a government to ensure we could all live together without the threat of force depriving us of our life or livelihood. But now there are those who believe we must change government into a tool of force specifically designed to deprive some and benefit others. That is not the United States envisioned by the Founders and it is not the United States I want to leave my children.
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