Merry Christmas (belated) and a Happy New Year!!!
No post for Loose Ends this week due to the holidays. I was traveling.
Wednesday, December 31, 2008
Monday, December 22, 2008
The Credit Crisis: A Look at LIBOR
For several weeks, I have been promising to take a closer look at the financial crisis, the symptoms and causes, and the effect of the EESA/TARP on the crisis. As I began to do my research and create an outline, I realized that this is too much for one article. So, over the coming days and weeks, I will be writing a series of articles which take a look at the crisis and the impact of the EESA/TARP. This is the first article and it's focus is LIBOR. (It is still long...)
Until a few months ago, I don't think I had ever even heard of LIBOR. But, to understand the financial crisis, you need to understand LIBOR. So, what is it? It is an acronym for "London Interbank Offered Rate" and it is set by the British Bankers Association (BBA). It is an important interest rate for a few reasons. First, LIBOR is the benchmark rate for unsecured (no collateral) lending between banks. Second, many other interest rates and financial agreements use LIBOR as a reference rate. For example, some adjustable rate mortgages reset rates based on LIBOR.
As we've discussed here before, fractional-reserve banking requires banks to hold only a small amount of cash in their reserves. The rest of the cash can be lent. The constant movement of money requires banks to monitor their reserve requirements - remember, (most) banks (usually) want to keep their reserves at the smallest possible level so that they can maximize the amount of money they lend. This places banks in a situation at the end of each day where they either need additional money or have excess that they can lend.
Here's a simple example. ABC Bank has $10M of deposits from their customers. Assuming a 10% reserve requirement, they need to have $1M on reserve. On a given day, let's say that their customers withdraw $100k. Now, they will only have $900k in reserves against $9.9M in deposits which would have a requirement of $990k in reserves. So, ABC Bank needs $90k in cash to cover their reserve requirement.
At the same time XYZ Bank also has $10M of deposits and $1M on reserve. But, let's say on this same day, they actually have an increase in deposits of $100k. That leaves them with $10.1M in deposits, a reserve requirement of $1.01M, and $1.1M on hand. So, they have an extra $90k. This $90k can then be lent from XYZ bank to ABC bank. These are typically very short term loans (sometimes just overnight) which all banks to stay liquid (keep lending money) while maintaining reserve requirements.
LIBOR is the basically the prevailing interest rate for the these interbank loans which are originated on a given day. LIBOR is set each day in London. Banks submit details of the interest rates being used in the interbank lending market to the BBA who then calculates the average interest rate. LIBOR is calculated for ten different currencies and various loan maturities ranging from overnight to one year. We are interested in the rates for loans in US Dollars with overnight, one month and three month maturities.
You've probably heard a lot of discussion that the credit crisis is due, in part, to banks not lending to each other. If banks don't lend to each other, then they have to be more careful managing their reserve requirements. This implies that they take less risk, hold larger reserves, and, thus, don't lend as much to consumers or businesses either. The following graph shows the history of LIBOR (US Dollars, 1 Month) since its inception in 1986.
Source for LIBOR data in this article: BBA, Data here (it was a pain to compile!)
The first thing to recognize from the recent crisis is that there was a large jump in the rate which has been followed by a steep decline in the rate. I also graphed and analyzed the difference in the rate from one day to the next since 1986 (not shown). The interesting thing is that rates are usually remarkably stable. The average daily change in the rate is only 0.12 basis points (a basis point is 1/100th of a percentage point). Even more interesting is that the largest changes in the rate from one day to the next have almost been exclusively at the end of November or the end of December in any given year. I'm not exactly sure why this is, but I would guess that it has something to do with the need for lending increasing at the close of the calendar year for reporting or tax purposes. Outside of those jumps, there have only been 26 days in the last 22 years when there was a one day shift of more than 25 basis points.
As you can see from the above chart, LIBOR is relatively stable. Most of the volatility occurs in November and December (as mentioned above). However, September and October of this year saw seven days with 25+ basis point shifts. We haven't had a period of that much volatility since the summer of 1998 as the Asia was reeling from the effects of its own financial crisis and Long Term Capital Management was in the process of imploding. You should also notice that after the post-September 11 volatility in 2001, there was not a single day where LIBOR moved more than 25 basis points from the previous day until September 2007 when the subprime mortgage mess was unfolding.
It is the recent volatility of LIBOR and not the actual rates which indicate the presence of a problem. It is also important to understand that rates are relative. An interest rate of 5% would seem astronomical today, but this is approximately the historical average for 1 month LIBOR. One way to gauge this is to compare on rate to another rate. This is done by simply subtracting one rate from another and expressing that difference (called a spread) in basis points. So, if you compare 3 month LIBOR and 1 month LIBOR you would expect to see little difference in the rates. The graph below shows the history.
There have been a few periods of volatility in this spread. Notice that the spread recently is at high levels (roughly +50 basis points). There was a shock towards the end of 1999 and some very high spreads (averaging almost +100 basis points) in mid- to late-October of 1987 when the stock market crashed. The other times with very high levels generally correspond to times when 1 month LIBOR was volatile from one day to the next as described above (mostly in November and December). Generally, the spread is positive - 80% of the time it is non-negative. It tends to be negative in December. It was negative for most of 2004.
So, what factors drive this spread? First of all, let's think about the purpose of interest rates. If you are going to lend someone money, there are two key factors that are involved: the value of money and the risk of the loan. What do I mean by the value of money? Money represents an opportunity to spend it on something. If money is lent, it obviously cannot be used by the lender. There is an opportunity cost to this which is equal to the value which could be created by other investments with the money. Risk is a bit more obvious. If the lender deems the loan to be risky, they will ask for a higher interest rate to hedge against default.
Generally speaking, it should make sense for interest rates on a 3 month loan to be slightly higher than rates on a 1 month loan. There is more time for an event to occur which increases the risk of a default by the borrower or an increased need for cash by the lender. Also, for most of the last 100 years, the U.S. has experienced inflation. As money loses value (due to inflation), more money is required to be paid back to be cover the original value. The longer the period of the loan and the higher the expectations, the larger the spread will be. If you graph the interest rates against different loan maturities, you get what is called the yield curve.
When the yield curve "flips", it means that interest rates are actually higher for shorter-term loans. This can occur when things are not "normal". If you expect money to gain value (due to deflation), you would accept lower rates on longer-term loans. If you expect rates to decrease, due to either macroeconomic factors or central bank policy, you would also consider lower rates on longer-term loans.
As mentioned earlier, there has been a positive spread (3 month higher than 1 month) 80% of the time. The three periods of time where the spread has been very high were after the market crash in 1987, late 1999, and the recent crisis. All three of these periods correspond to high-risk environments (I'm assuming that the high spread in 1999 was due to Y2K fear). In 2004, the spread was negative for much of the year as interest rates were falling all year, and banks were willing to bet on that.
One more graph... In 2001, an overnight rate for LIBOR was introduced. This graph will look at the spread between 3 month and 1 month as well as the spread between 1 month and overnight.
Notice here that the spread between 1 month and overnight (1m-o/n) is more volatile than the 3m-1m spread that we already looked at. There were shocks after 9/11 and then off-and-on for the last year or so. In the weeks leading up to the week of September 15, 1m-o/n hovered around 30 basis points. Then Lehman Brothers announced they were going bankrupt and Merrill Lynch was in trouble. Overnight LIBOR jumped 96 basis points and 1m-o/n went negative. It got worse the next day when overnight hit 6.4375% (a 333 basis point increase); 1 month remained somewhat stable moving the 1m-o/n spread to -369 basis points. This was the day that AIG failed. By the end of the week, Paulson and Bush announced they had a plan, overnight LIBOR had settled to 3.25% with a -6 basis point spread on 1m-o/n.
The next week, 1 month and 3 month LIBOR grew while overnight fell placing 1m-o/n spreads north of +100 basis points by the end of the week. On September 29, the original EESA plan failed to pass in the House. The next day, overnight again shot up, this time to 6.875%. It settled back down and positive spreads returned until October 8 after Iceland's economy collapsed, stock markets around the world had large losses, and AIG received more funding - all this despite rate cuts by central banks around the world. Overnight again spiked for two days until the beginning of a sharp decline which has continued (with a few bumps) until rates stayed under 0.2% for the entire week of December 8 (data from the BBA is only available through December 12 at this point). This has left 1m-o/n spreads between 100 and 150 basis points for nearly two months.
It is safe to say that the interbank lending market has been a bit crazy lately which is at least a symptom of the market turmoil. There are some reports out there which have questioned the relevance and accuracy of LIBOR in the last year or so. It is argued that the increased role which central banks have played in lending has diminished the need for interbank lending. This leads to a less efficient market and less accurate LIBOR quotes. The BBA has disputed this. Further, a recent article by the Wall Street Journal discusses how the BBA has clarified that loans which are secured by the government cannot be used in defining LIBOR which is intended to represent unsecured lending rates. The BBA has another announcement here discussing the steps they are taking to add more transparency and trust in the process.
Ok. I know that is a lot of information. I hope it is helpful in understanding this important component of the financial system. The next article in this series will take a look at the FED and the famous FED funds rate.
Until a few months ago, I don't think I had ever even heard of LIBOR. But, to understand the financial crisis, you need to understand LIBOR. So, what is it? It is an acronym for "London Interbank Offered Rate" and it is set by the British Bankers Association (BBA). It is an important interest rate for a few reasons. First, LIBOR is the benchmark rate for unsecured (no collateral) lending between banks. Second, many other interest rates and financial agreements use LIBOR as a reference rate. For example, some adjustable rate mortgages reset rates based on LIBOR.
As we've discussed here before, fractional-reserve banking requires banks to hold only a small amount of cash in their reserves. The rest of the cash can be lent. The constant movement of money requires banks to monitor their reserve requirements - remember, (most) banks (usually) want to keep their reserves at the smallest possible level so that they can maximize the amount of money they lend. This places banks in a situation at the end of each day where they either need additional money or have excess that they can lend.
Here's a simple example. ABC Bank has $10M of deposits from their customers. Assuming a 10% reserve requirement, they need to have $1M on reserve. On a given day, let's say that their customers withdraw $100k. Now, they will only have $900k in reserves against $9.9M in deposits which would have a requirement of $990k in reserves. So, ABC Bank needs $90k in cash to cover their reserve requirement.
At the same time XYZ Bank also has $10M of deposits and $1M on reserve. But, let's say on this same day, they actually have an increase in deposits of $100k. That leaves them with $10.1M in deposits, a reserve requirement of $1.01M, and $1.1M on hand. So, they have an extra $90k. This $90k can then be lent from XYZ bank to ABC bank. These are typically very short term loans (sometimes just overnight) which all banks to stay liquid (keep lending money) while maintaining reserve requirements.
LIBOR is the basically the prevailing interest rate for the these interbank loans which are originated on a given day. LIBOR is set each day in London. Banks submit details of the interest rates being used in the interbank lending market to the BBA who then calculates the average interest rate. LIBOR is calculated for ten different currencies and various loan maturities ranging from overnight to one year. We are interested in the rates for loans in US Dollars with overnight, one month and three month maturities.
You've probably heard a lot of discussion that the credit crisis is due, in part, to banks not lending to each other. If banks don't lend to each other, then they have to be more careful managing their reserve requirements. This implies that they take less risk, hold larger reserves, and, thus, don't lend as much to consumers or businesses either. The following graph shows the history of LIBOR (US Dollars, 1 Month) since its inception in 1986.
Source for LIBOR data in this article: BBA, Data here (it was a pain to compile!)The first thing to recognize from the recent crisis is that there was a large jump in the rate which has been followed by a steep decline in the rate. I also graphed and analyzed the difference in the rate from one day to the next since 1986 (not shown). The interesting thing is that rates are usually remarkably stable. The average daily change in the rate is only 0.12 basis points (a basis point is 1/100th of a percentage point). Even more interesting is that the largest changes in the rate from one day to the next have almost been exclusively at the end of November or the end of December in any given year. I'm not exactly sure why this is, but I would guess that it has something to do with the need for lending increasing at the close of the calendar year for reporting or tax purposes. Outside of those jumps, there have only been 26 days in the last 22 years when there was a one day shift of more than 25 basis points.
As you can see from the above chart, LIBOR is relatively stable. Most of the volatility occurs in November and December (as mentioned above). However, September and October of this year saw seven days with 25+ basis point shifts. We haven't had a period of that much volatility since the summer of 1998 as the Asia was reeling from the effects of its own financial crisis and Long Term Capital Management was in the process of imploding. You should also notice that after the post-September 11 volatility in 2001, there was not a single day where LIBOR moved more than 25 basis points from the previous day until September 2007 when the subprime mortgage mess was unfolding.It is the recent volatility of LIBOR and not the actual rates which indicate the presence of a problem. It is also important to understand that rates are relative. An interest rate of 5% would seem astronomical today, but this is approximately the historical average for 1 month LIBOR. One way to gauge this is to compare on rate to another rate. This is done by simply subtracting one rate from another and expressing that difference (called a spread) in basis points. So, if you compare 3 month LIBOR and 1 month LIBOR you would expect to see little difference in the rates. The graph below shows the history.
There have been a few periods of volatility in this spread. Notice that the spread recently is at high levels (roughly +50 basis points). There was a shock towards the end of 1999 and some very high spreads (averaging almost +100 basis points) in mid- to late-October of 1987 when the stock market crashed. The other times with very high levels generally correspond to times when 1 month LIBOR was volatile from one day to the next as described above (mostly in November and December). Generally, the spread is positive - 80% of the time it is non-negative. It tends to be negative in December. It was negative for most of 2004.So, what factors drive this spread? First of all, let's think about the purpose of interest rates. If you are going to lend someone money, there are two key factors that are involved: the value of money and the risk of the loan. What do I mean by the value of money? Money represents an opportunity to spend it on something. If money is lent, it obviously cannot be used by the lender. There is an opportunity cost to this which is equal to the value which could be created by other investments with the money. Risk is a bit more obvious. If the lender deems the loan to be risky, they will ask for a higher interest rate to hedge against default.
Generally speaking, it should make sense for interest rates on a 3 month loan to be slightly higher than rates on a 1 month loan. There is more time for an event to occur which increases the risk of a default by the borrower or an increased need for cash by the lender. Also, for most of the last 100 years, the U.S. has experienced inflation. As money loses value (due to inflation), more money is required to be paid back to be cover the original value. The longer the period of the loan and the higher the expectations, the larger the spread will be. If you graph the interest rates against different loan maturities, you get what is called the yield curve.
When the yield curve "flips", it means that interest rates are actually higher for shorter-term loans. This can occur when things are not "normal". If you expect money to gain value (due to deflation), you would accept lower rates on longer-term loans. If you expect rates to decrease, due to either macroeconomic factors or central bank policy, you would also consider lower rates on longer-term loans.
As mentioned earlier, there has been a positive spread (3 month higher than 1 month) 80% of the time. The three periods of time where the spread has been very high were after the market crash in 1987, late 1999, and the recent crisis. All three of these periods correspond to high-risk environments (I'm assuming that the high spread in 1999 was due to Y2K fear). In 2004, the spread was negative for much of the year as interest rates were falling all year, and banks were willing to bet on that.
One more graph... In 2001, an overnight rate for LIBOR was introduced. This graph will look at the spread between 3 month and 1 month as well as the spread between 1 month and overnight.
Notice here that the spread between 1 month and overnight (1m-o/n) is more volatile than the 3m-1m spread that we already looked at. There were shocks after 9/11 and then off-and-on for the last year or so. In the weeks leading up to the week of September 15, 1m-o/n hovered around 30 basis points. Then Lehman Brothers announced they were going bankrupt and Merrill Lynch was in trouble. Overnight LIBOR jumped 96 basis points and 1m-o/n went negative. It got worse the next day when overnight hit 6.4375% (a 333 basis point increase); 1 month remained somewhat stable moving the 1m-o/n spread to -369 basis points. This was the day that AIG failed. By the end of the week, Paulson and Bush announced they had a plan, overnight LIBOR had settled to 3.25% with a -6 basis point spread on 1m-o/n.The next week, 1 month and 3 month LIBOR grew while overnight fell placing 1m-o/n spreads north of +100 basis points by the end of the week. On September 29, the original EESA plan failed to pass in the House. The next day, overnight again shot up, this time to 6.875%. It settled back down and positive spreads returned until October 8 after Iceland's economy collapsed, stock markets around the world had large losses, and AIG received more funding - all this despite rate cuts by central banks around the world. Overnight again spiked for two days until the beginning of a sharp decline which has continued (with a few bumps) until rates stayed under 0.2% for the entire week of December 8 (data from the BBA is only available through December 12 at this point). This has left 1m-o/n spreads between 100 and 150 basis points for nearly two months.
It is safe to say that the interbank lending market has been a bit crazy lately which is at least a symptom of the market turmoil. There are some reports out there which have questioned the relevance and accuracy of LIBOR in the last year or so. It is argued that the increased role which central banks have played in lending has diminished the need for interbank lending. This leads to a less efficient market and less accurate LIBOR quotes. The BBA has disputed this. Further, a recent article by the Wall Street Journal discusses how the BBA has clarified that loans which are secured by the government cannot be used in defining LIBOR which is intended to represent unsecured lending rates. The BBA has another announcement here discussing the steps they are taking to add more transparency and trust in the process.
Ok. I know that is a lot of information. I hope it is helpful in understanding this important component of the financial system. The next article in this series will take a look at the FED and the famous FED funds rate.
Sunday, December 21, 2008
Loose Ends... Vol. XXII
Holy Blagojevich!
I've intended to write about the Rod Blagojevich situation for a while now. A few weeks ago, over the Thanksgiving holiday, my brother, an Illinois resident, was in town. We actually had a conversation regarding the corruption and arrogance of Blagojevich as we read his Wikipedia entry and discussed the news which swirled around him. This was before the current scandal. Funny.
Anyhow, Blago had his first press conference since the charges were leveled against him. Wow! This man is something else. I think that he must have some information that he can either use as leverage in negotiations or that will take down someone big with him. Maybe not... he might just be a bit crazy. Either way, this will be interesting to watch. In terms of Chicago politics, I'd be shocked if there isn't at least some embarrassing dirt on Obama. We'll see...
*****
President Bush again showed his arrogance by performing an end-around on Congress and giving GM and Chrysler emergency loans. Technically, this was not illegal since they used the EESA/TARP funding - although, I'm not convinced that was constitutional in the first place.
I continue to find the terms of this loan interesting in that the funds can be called back if proper restructuring does not take place or long-term viability is not evident. But, it is my understanding that these loans are necessary to fund basic operations and debt repayment. Once they get these loans, the money will be spent. There won't be anything to get back.
The most interesting thing about this story is that Paulson will now ask Congress to release the last $350B installment of the EESA/TARP funds. On December 10, Neel Kashkari testified before the House Financial Services Committee and was asked explicitly if the funds would be requested. He, of course, danced around the question. Congress is adjourned for the holidays. Once Paulson requests the funds, Congress has 15 days to pass legislation to block the funding. Otherwise, the money is released.
After Kashkari's testimony on the 10th, Paulson appeared on CNBC for an interview. He stated that the Treasury Department had no plans to ask for the remaining $350B. This is after GOP Senators blocked the auto bailout legislation. This is after Bush stated that the White House would act. Paulson had to know that TARP funding would be used at that point. He would have known that giving GM and Chrysler $17.4B would pretty much exhaust the first $350B. Three days after the CNBC interview, he indicates that he will ask for the $350B.
Now, Congress is adjourned. Tomorrow is the 22nd, fifteen days from then will be January 6. The 111th Congress officially starts on January 3, but will not meet until January 6. It might be a bit difficult for them to pass legislation to block the funds.
*****
The mayor of Beech Grove, IN, an independent city surrounded by Indianapolis, released a statement to city employees this week. They are in the midst of a budget crisis. Discussion can be found here.
I've intended to write about the Rod Blagojevich situation for a while now. A few weeks ago, over the Thanksgiving holiday, my brother, an Illinois resident, was in town. We actually had a conversation regarding the corruption and arrogance of Blagojevich as we read his Wikipedia entry and discussed the news which swirled around him. This was before the current scandal. Funny.
Anyhow, Blago had his first press conference since the charges were leveled against him. Wow! This man is something else. I think that he must have some information that he can either use as leverage in negotiations or that will take down someone big with him. Maybe not... he might just be a bit crazy. Either way, this will be interesting to watch. In terms of Chicago politics, I'd be shocked if there isn't at least some embarrassing dirt on Obama. We'll see...
*****
President Bush again showed his arrogance by performing an end-around on Congress and giving GM and Chrysler emergency loans. Technically, this was not illegal since they used the EESA/TARP funding - although, I'm not convinced that was constitutional in the first place.
I continue to find the terms of this loan interesting in that the funds can be called back if proper restructuring does not take place or long-term viability is not evident. But, it is my understanding that these loans are necessary to fund basic operations and debt repayment. Once they get these loans, the money will be spent. There won't be anything to get back.
The most interesting thing about this story is that Paulson will now ask Congress to release the last $350B installment of the EESA/TARP funds. On December 10, Neel Kashkari testified before the House Financial Services Committee and was asked explicitly if the funds would be requested. He, of course, danced around the question. Congress is adjourned for the holidays. Once Paulson requests the funds, Congress has 15 days to pass legislation to block the funding. Otherwise, the money is released.
After Kashkari's testimony on the 10th, Paulson appeared on CNBC for an interview. He stated that the Treasury Department had no plans to ask for the remaining $350B. This is after GOP Senators blocked the auto bailout legislation. This is after Bush stated that the White House would act. Paulson had to know that TARP funding would be used at that point. He would have known that giving GM and Chrysler $17.4B would pretty much exhaust the first $350B. Three days after the CNBC interview, he indicates that he will ask for the $350B.
Now, Congress is adjourned. Tomorrow is the 22nd, fifteen days from then will be January 6. The 111th Congress officially starts on January 3, but will not meet until January 6. It might be a bit difficult for them to pass legislation to block the funds.
*****
The mayor of Beech Grove, IN, an independent city surrounded by Indianapolis, released a statement to city employees this week. They are in the midst of a budget crisis. Discussion can be found here.
Friday, December 19, 2008
Free Market?
There is no such thing as a true "free market" and who would want it anyway. A lawless, unregulated, and volatile "free market" would be disastrous from a social standpoint.
Laws and regulations that protect possessions and their value create incentive to work for those possessions (and the "Invisible Hand" brings the whole economy up). When the ability to hold on to your possessions or to value them (through a stable-ish currency) ceases to exist, you have no incentive other than to fight for shelter and food (Maslow stuff).
Maintaining a stable-ish "value" of possessions (assuming the legal ability to protect possessions) is done by managing their demand, right? Increasing demand (by interest rates or quantitative measures) has proved to be fairly useful over the course of time, no? Also, decreasing demand through the same tactics has been useful too, though the political implications of doing so have left the practice used all too infrequently.
Let's throw away the "free market" discussion in lieu of something more practical. Societies need to ensure safety and relative stability of the value of possessions. To do this, economies need some "tinkering" to ensure possessions maintain their value to avoid "adjustments" that are too painful for modern societies to bear.
Bush and his team are doing the right things. Flooding the markets with cash (among other tactics) to increase demand at a time the taxpayer can get paid to do so (borrowing at negative real interest rates) is a no brainer tactic to protect price stability. Let's not overthink this!
I'll take orderly over free any day!
Laws and regulations that protect possessions and their value create incentive to work for those possessions (and the "Invisible Hand" brings the whole economy up). When the ability to hold on to your possessions or to value them (through a stable-ish currency) ceases to exist, you have no incentive other than to fight for shelter and food (Maslow stuff).
Maintaining a stable-ish "value" of possessions (assuming the legal ability to protect possessions) is done by managing their demand, right? Increasing demand (by interest rates or quantitative measures) has proved to be fairly useful over the course of time, no? Also, decreasing demand through the same tactics has been useful too, though the political implications of doing so have left the practice used all too infrequently.
Let's throw away the "free market" discussion in lieu of something more practical. Societies need to ensure safety and relative stability of the value of possessions. To do this, economies need some "tinkering" to ensure possessions maintain their value to avoid "adjustments" that are too painful for modern societies to bear.
Bush and his team are doing the right things. Flooding the markets with cash (among other tactics) to increase demand at a time the taxpayer can get paid to do so (borrowing at negative real interest rates) is a no brainer tactic to protect price stability. Let's not overthink this!
I'll take orderly over free any day!
Wednesday, December 17, 2008
Bush "Saves" The "Free Market"
This is the best transcript I could find so far - go about 1/3 or 1/2 way down to get Bush's comments.
I'm almost at a loss for words. First off, anyone who describes our existing system as a free market system is fooling themselves. I know, I know... "this is the most free market system in the world." Well, perhaps. I really don't know how we could objectively go about measuring that.
But,
a system where a central bank can manipulate interest rates by means of fiat currency is not free market;
a system where legislators can manipulate investment decisions by providing tax subsidies is not a free market;
a system where legislators can modify tax policies on income, consumption and imports which are de facto subsidies to other activities is not a free market;
a system where private property is only protected when it is convenient as the judiciary has ruled that the government has almost complete authority in eminent domain is not a free market;
a system where the executive branch is asleep at the wheel by not enforcing regulations - despite the inherent validity of the regulations - is not a free market.
This is not a free market system. I'm not calling it socialism. I'm not exactly calling it fascism or corporatism. But, central planning is a key component of our system.
The free market is not failing. Our hybrid system which uses central planning to intervene in the free market based on the whims of Washington is failing.
I feel a sense of obligation to my successor to make sure there is not a, you know, a huge economic crisis. Look, we're in a crisis now. I mean, we're in a huge recession, but I don't want to make it even worse and on the other hand, I'm mindful of not putting good money after bad so we're working through some options.
I've abandoned free market principles to save the free market system. I think when people review what has taken place in the last six months and put it all in one package, they'll realize how significantly we have moved.
I'm almost at a loss for words. First off, anyone who describes our existing system as a free market system is fooling themselves. I know, I know... "this is the most free market system in the world." Well, perhaps. I really don't know how we could objectively go about measuring that.
But,
a system where a central bank can manipulate interest rates by means of fiat currency is not free market;
a system where legislators can manipulate investment decisions by providing tax subsidies is not a free market;
a system where legislators can modify tax policies on income, consumption and imports which are de facto subsidies to other activities is not a free market;
a system where private property is only protected when it is convenient as the judiciary has ruled that the government has almost complete authority in eminent domain is not a free market;
a system where the executive branch is asleep at the wheel by not enforcing regulations - despite the inherent validity of the regulations - is not a free market.
This is not a free market system. I'm not calling it socialism. I'm not exactly calling it fascism or corporatism. But, central planning is a key component of our system.
The free market is not failing. Our hybrid system which uses central planning to intervene in the free market based on the whims of Washington is failing.
Tuesday, December 16, 2008
FED Drops Rates Again
The FED announced today that it would lower its target for the federal funds rate to a range of 0-0.25%. This unprecedented move allegedly was the catalyst for a 359 point gain for the Dow Jones. It was also the catalyst for a 2.7% drop in the U.S. Dollar Index. However, the effective funds rate has been in this range for a while now. More on this in the coming weeks...
This is, of course, short-term noise - so what will the longer-term impacts be? I still don't know. I've been worried about hyperinflation for some time, but have read some things lately which make a decent argument for deflation. If I had to bet today, I'd bet on deflation for luxury goods and investment assets such as homes, cars and stocks. On the other hand, I'd be on inflation for commodities and basic staples.
At some point, I'll dig deeper and provide my final analysis.
This is, of course, short-term noise - so what will the longer-term impacts be? I still don't know. I've been worried about hyperinflation for some time, but have read some things lately which make a decent argument for deflation. If I had to bet today, I'd bet on deflation for luxury goods and investment assets such as homes, cars and stocks. On the other hand, I'd be on inflation for commodities and basic staples.
At some point, I'll dig deeper and provide my final analysis.
Ponzi Schemes and Social Security
In light of the recent Bernard Madoff investment scandal, I wanted to investigate the definition and structure of a Ponzi scheme. Ponzi schemes and pyramid schemes are similar in that new investments of money are used to pay other investors. However, Ponzi schemes are generally positioned as investments in a central fund where pyramid schemes pay investors who recruit new investors.
Here's a simple example. Let's say there is a fund which touts the high yield return of 5% per month by some sophisticated and complex investment techniques. This initially attracts 10 investors with $100 each. At the end of one month, the fund shows growth for each account to $105. Realizing that this type of return yields almost 80% annually, it attracts more investors. So, 10 more investors each invest $100. Let's say this continues for one year without any sign of problems.
At the end of the first year, the fund would have collected $12,000 (12 months * 10 investors per month * $100 per investor). Each investor would have an account balance which reflects the 5% monthly yield. The total sum of all investors' account balances would show as $16,712.98. But, since this is a fraudulent scheme, none of the extra $4,712.98 actually exists. However, as long as the investors don't "cash out", the scheme continues. Meanwhile, typically, the fund manager has probably "cashed in" some of the original $12,000 for personal purposes. This game can be played as long as new investment capital exceeds the demands for cashing out (or until the fund manager gets caught).
So, this brings me to Social Security. I have a new article this morning on United Liberty discussing this topic. I contend that Social Security is nothing more than a structured Ponzi scheme. Workers "invest" into Social Security (via forced taxation). The money from those investments are used to pay off previous investors (current retirees and beneficiaries). Today, the amount of money coming in exceeds the money going out. This excess cash is then used by the government to fund other spending, so there is no money in the investment fund. Technically, the Social Security program takes this excess cash an purchases government bonds. Today, the value of bonds held equates to over $2 trillion. This will all get interesting in the next 10-20 years when the amount of new investment is not enough to cover the money required to be paid out.
This scheme will collapse.
Here's a simple example. Let's say there is a fund which touts the high yield return of 5% per month by some sophisticated and complex investment techniques. This initially attracts 10 investors with $100 each. At the end of one month, the fund shows growth for each account to $105. Realizing that this type of return yields almost 80% annually, it attracts more investors. So, 10 more investors each invest $100. Let's say this continues for one year without any sign of problems.
At the end of the first year, the fund would have collected $12,000 (12 months * 10 investors per month * $100 per investor). Each investor would have an account balance which reflects the 5% monthly yield. The total sum of all investors' account balances would show as $16,712.98. But, since this is a fraudulent scheme, none of the extra $4,712.98 actually exists. However, as long as the investors don't "cash out", the scheme continues. Meanwhile, typically, the fund manager has probably "cashed in" some of the original $12,000 for personal purposes. This game can be played as long as new investment capital exceeds the demands for cashing out (or until the fund manager gets caught).
So, this brings me to Social Security. I have a new article this morning on United Liberty discussing this topic. I contend that Social Security is nothing more than a structured Ponzi scheme. Workers "invest" into Social Security (via forced taxation). The money from those investments are used to pay off previous investors (current retirees and beneficiaries). Today, the amount of money coming in exceeds the money going out. This excess cash is then used by the government to fund other spending, so there is no money in the investment fund. Technically, the Social Security program takes this excess cash an purchases government bonds. Today, the value of bonds held equates to over $2 trillion. This will all get interesting in the next 10-20 years when the amount of new investment is not enough to cover the money required to be paid out.
This scheme will collapse.
Sunday, December 14, 2008
Loose Ends... Vol. XXI
After Thaddeus disappointing me this week, I have to say I'm a little disappointed in myself for being less than active here over the last few weeks. The Thanksgiving holiday, illness, and other excuses come to mind... but, it's time to get back to business here and help readers in their resistance to government- and media-induced soma consumption.
*****
Tonight, Nicole and I attended our first Libertarian Party event here in Indianapolis. We saw LP VP candidate, Wayne Allyn Root, speak at a dinner at the Rathskeller, a great German restaurant and bar downtown. Mr. Root gave a pretty good speech discussing libertarianism, the Libertarian Party, Barack Obama, and bailouts. It was no secret that he has already begun his campaign to become the LP candidate for President in 2012. I like Root; I'm not sure how well he'll fare, but he brings charisma to a party that desperately needs it. At times, I fear he has too much charisma and comes across as a used car salesman.
Aside from the speech, the evening went pretty well. I am still struggling with the destination (if any) of my political affiliation. At another time down the road, I will address this topic in more detail. In the meantime, I plan on assisting the local LP and keeping my options open.
*****
As I type right now, I am watching the replay of the hearing before the House Financial Services Committee earlier this week (December 10). This week's hearing starred Gene Dodaro, acting Comptroller General, and Neel Kashkari, Interim Assistant Secretary of the Treasury for Financial Stability (fit that on a business card!). Kashkari received most of the questions as he has been responsible for administering the $700B bailout under the EESA/TARP legislation. This is a popular topic.
It amazes me, at least on some level, that the members of the committee are so surprised with the program to-date. Question upon question indicate a level of shock and disappointment with the use of funds under the program. But, at the end of the day, under the legislation, there was little or no direction given nor strict oversight required in the use of funds. There are complaints that the banks are hoarding money, or using the funds "inappropriately" - what?! The legislation gave almost complete and unilateral power to the Treasury Department. Now that they have acted upon such authority, Congress is grandstanding that they are not doing what they are "supposed" to be doing. Perhaps they should have spent a little more time crafting the legislation rather than giving in to Paulson's threats of martial law. Or, perhaps they should have voted against the legislation! I guess I'm not really that amazed...
On a side note, I have to give some props to Kashkari for his ability to answer questions like a first-rate politician... "Thank you, Congressman, for that question", "I appreciate your feedback, we take it very seriously"... he bobs and weaves with the best of them.
*****
That leads me to the auto bailout. Congress, the White House, and the incoming administration need to wake up and recognize that they cannot solve this problem with legislation. They cannot solve this problem with bad loans. I truly feel bad for those who have made their livelihood in the auto industry - or, even worse, bet their futures and retirements based on the vitality of the auto industry. But, these companies need to fail. The supply chain may need to fail. Voids will be filled. Life will go on. Time heals wounds. There is not an easy answer to this issue.
I found this article at mises.org which discusses the demise of the piano industry in the United States. It is not terribly analytical nor deeply rooted in economics, but it tells a good story that I feel is very relevant as we consider the auto industry.
*****
Finally, I'd like to (again) highlight some upcoming work that I will be posting on this blog. I'm getting closer in some of the analysis and think that I'll be able to begin providing some of it this week. My first series of articles will be a review of the financial markets, specifically the credit crisis and the effect of the EESA/TARP legislation.
*****
Tonight, Nicole and I attended our first Libertarian Party event here in Indianapolis. We saw LP VP candidate, Wayne Allyn Root, speak at a dinner at the Rathskeller, a great German restaurant and bar downtown. Mr. Root gave a pretty good speech discussing libertarianism, the Libertarian Party, Barack Obama, and bailouts. It was no secret that he has already begun his campaign to become the LP candidate for President in 2012. I like Root; I'm not sure how well he'll fare, but he brings charisma to a party that desperately needs it. At times, I fear he has too much charisma and comes across as a used car salesman.
Aside from the speech, the evening went pretty well. I am still struggling with the destination (if any) of my political affiliation. At another time down the road, I will address this topic in more detail. In the meantime, I plan on assisting the local LP and keeping my options open.
*****
As I type right now, I am watching the replay of the hearing before the House Financial Services Committee earlier this week (December 10). This week's hearing starred Gene Dodaro, acting Comptroller General, and Neel Kashkari, Interim Assistant Secretary of the Treasury for Financial Stability (fit that on a business card!). Kashkari received most of the questions as he has been responsible for administering the $700B bailout under the EESA/TARP legislation. This is a popular topic.
It amazes me, at least on some level, that the members of the committee are so surprised with the program to-date. Question upon question indicate a level of shock and disappointment with the use of funds under the program. But, at the end of the day, under the legislation, there was little or no direction given nor strict oversight required in the use of funds. There are complaints that the banks are hoarding money, or using the funds "inappropriately" - what?! The legislation gave almost complete and unilateral power to the Treasury Department. Now that they have acted upon such authority, Congress is grandstanding that they are not doing what they are "supposed" to be doing. Perhaps they should have spent a little more time crafting the legislation rather than giving in to Paulson's threats of martial law. Or, perhaps they should have voted against the legislation! I guess I'm not really that amazed...
On a side note, I have to give some props to Kashkari for his ability to answer questions like a first-rate politician... "Thank you, Congressman, for that question", "I appreciate your feedback, we take it very seriously"... he bobs and weaves with the best of them.
*****
That leads me to the auto bailout. Congress, the White House, and the incoming administration need to wake up and recognize that they cannot solve this problem with legislation. They cannot solve this problem with bad loans. I truly feel bad for those who have made their livelihood in the auto industry - or, even worse, bet their futures and retirements based on the vitality of the auto industry. But, these companies need to fail. The supply chain may need to fail. Voids will be filled. Life will go on. Time heals wounds. There is not an easy answer to this issue.
I found this article at mises.org which discusses the demise of the piano industry in the United States. It is not terribly analytical nor deeply rooted in economics, but it tells a good story that I feel is very relevant as we consider the auto industry.
*****
Finally, I'd like to (again) highlight some upcoming work that I will be posting on this blog. I'm getting closer in some of the analysis and think that I'll be able to begin providing some of it this week. My first series of articles will be a review of the financial markets, specifically the credit crisis and the effect of the EESA/TARP legislation.
Wednesday, December 10, 2008
Thaddeus Disappoints
On September 29, 2008, these words were spoken on the floor of the House:
These were the words of Thaddeus McCotter (R-MI) on the floor of the House opposing the now infamous $700B TARP/EESA bailout. That measure failed that day to the pleasant surprise of most Americans.
Tonight, McCotter led the GOP charge (it was a weak charge) in support of the emergency loans for the automotive industry. The Democrats really didn't need his help, the bill probably would have passed without any GOP support (it would have been really close).
Now, I listened to McCotter's comments at the committee hearings last week and his speech on the floor tonight. I have to say that I'm disappointed. I felt that his impassioned speech against the Wall Street bailout was the most eloquent and succinct argument given on the floor. In his support of the auto bailout, he has done a 180 on his position. At the end of the day, the argument against the auto bailout should have been the same.
He is from Michigan. He is supporting his constituents. This is nothing but a massive dose of pork. He joins the rank and file of Congress in terms of my respect.
I rise today not to change anyone's mind, but to express to my constituents my reasons for opposing this bill.There will always be time and pretext enough for people to compromise their principles and put forward poor public policy that may in the short run be popular, but in the wrong run will be detrimental to the long-term interests of the American people. We learn this through history.
In the 1832 bank panics, Andrew Jackson had the question of whether he would remove the Bank of the United States' charter. The people in the bank did not like that. They threatened the prosperity of the American people. In the middle of the panic, Andrew Jackson looked at these bankers and he said, "There are no necessary evils in government. The Treasury to you, gentlemen, is closed."
This was an act of courage on the part of President Jackson, because he understood what was at stake was not merely an ephemeral prosperity or a panic caused by the very people with their handout. Andrew Jackson understood this was about majoritarian rule; it was about the faith in the people's representative institutions and those who inhabit the seats in which they are entrusted.
Today we are in a global financial bank panic. It is the first of our global economy. We are seeing a leveraged bailout of the United States Treasury. In the end, these interests that want your money are threatening your prosperity, and the choice you face is this: You will lose potentially your prosperity for a short period of time at the expense of your long-term liberty. Once the Federal Government has got you to take that risk and pass it on to you as a "moral hazard", they will be in the marketplace. And as the free market is diminished, your freedom itself is diminished, and as your Congress does not stand up to these and put forward a better plan that truly protects the taxpayers, that truly has the long-term interests of the United States at heart, you will be in jeopardy of losing both your prosperity and your liberty.
The choice is stark, and it was put forward in the book by Dostoevsky. In The Brothers Karamazov, the grand inquisitor came to Jesus and he said, "If you wish to subject the people, give them miracle, mystery and authority; but above all, give them bread."
It has always been the temptation in a crisis especially to sacrifice liberty for short-term promises of prosperity, and it was no mistake that during the 1917 Bolshevik Revolution the slogan was "peace, land and bread."
Today you are being asked to choose between bread and freedom. I suggest that the people on Main Street have said that they prefer their freedom, and I am with them.
These were the words of Thaddeus McCotter (R-MI) on the floor of the House opposing the now infamous $700B TARP/EESA bailout. That measure failed that day to the pleasant surprise of most Americans.
Tonight, McCotter led the GOP charge (it was a weak charge) in support of the emergency loans for the automotive industry. The Democrats really didn't need his help, the bill probably would have passed without any GOP support (it would have been really close).
Now, I listened to McCotter's comments at the committee hearings last week and his speech on the floor tonight. I have to say that I'm disappointed. I felt that his impassioned speech against the Wall Street bailout was the most eloquent and succinct argument given on the floor. In his support of the auto bailout, he has done a 180 on his position. At the end of the day, the argument against the auto bailout should have been the same.
He is from Michigan. He is supporting his constituents. This is nothing but a massive dose of pork. He joins the rank and file of Congress in terms of my respect.
Sunday, December 7, 2008
Loose Ends... Vol. XX
Well, I didn't go out of town this week, but I have a better excuse for abandoning the blog for a full week: I was sick. I caught a "cruddy virus" (as described by my doctor) which had me in bed more this week than since I had mononucleosis.
There is a decent amount of news out there, and I have been slowly working on some of my promised research (and more). But, I have meetings in the morning and need to catch up on my rest. So, not much content tonight either.
Please visit the "Cowboy Ranch" the new blog from my friend, follower of this blog, and brand new father, "RTC". He and I are not exactly on the same page on a lot of issues, but he serves as a great sounding board for me and has greatly helped me to better understand the financial system.
There is a decent amount of news out there, and I have been slowly working on some of my promised research (and more). But, I have meetings in the morning and need to catch up on my rest. So, not much content tonight either.
Please visit the "Cowboy Ranch" the new blog from my friend, follower of this blog, and brand new father, "RTC". He and I are not exactly on the same page on a lot of issues, but he serves as a great sounding board for me and has greatly helped me to better understand the financial system.
Sunday, November 30, 2008
Loose Ends... Vol. XIX
Happy Thanksgiving to everyone!
This holiday has long been celebrated in various forms since colonial times. This week, I was blessed enough to have a wonderful series of celebrations with family and friends and hope that each of you have had the same.
So, I want to take this edition of "Loose Ends" to give thanks. We are often (always?) quite critical on this site. After all, there is much to be critical about. But, life is not all bad. I usually try to avoid comments like "this is the greatest nation on earth" because, frankly, I don't know any better. But, I do believe this is a great nation, and I aim to keep it that way. I hope that the articles we present here and your comments will help evolve and develop views and ideas which will protect our futures.
Content will likely be a little slow this week as it has been over the last few days as I'll be out of town.
This holiday has long been celebrated in various forms since colonial times. This week, I was blessed enough to have a wonderful series of celebrations with family and friends and hope that each of you have had the same.
So, I want to take this edition of "Loose Ends" to give thanks. We are often (always?) quite critical on this site. After all, there is much to be critical about. But, life is not all bad. I usually try to avoid comments like "this is the greatest nation on earth" because, frankly, I don't know any better. But, I do believe this is a great nation, and I aim to keep it that way. I hope that the articles we present here and your comments will help evolve and develop views and ideas which will protect our futures.
Content will likely be a little slow this week as it has been over the last few days as I'll be out of town.
House Elections
A couple days ago, I posted this new article on United Liberty.
This ties into the research I am doing on House voting records. My analysis is not far enough along for any articles to come of it; however, one thing is abundantly clear. For the most part, our representatives vote along party lines. This probably does not come as much of a surprise. In 2007, Democrats generally voted together 90% of the time; Republicans voted together about 85% of the time. What might be surprising is that Republicans and Democrats voted together almost 45% of the time.
What does this all mean? Well, further analysis is required to answer that question. I'm inclined to think that this does mean that, overall, there is not a lot of differentiation on positions when it comes down to it.
This ties into the research I am doing on House voting records. My analysis is not far enough along for any articles to come of it; however, one thing is abundantly clear. For the most part, our representatives vote along party lines. This probably does not come as much of a surprise. In 2007, Democrats generally voted together 90% of the time; Republicans voted together about 85% of the time. What might be surprising is that Republicans and Democrats voted together almost 45% of the time.
What does this all mean? Well, further analysis is required to answer that question. I'm inclined to think that this does mean that, overall, there is not a lot of differentiation on positions when it comes down to it.
Thursday, November 27, 2008
John Maynard Keynes
Recently posted this article over at United Liberty.
Keynesian economics is receiving much praise as the solution out of our current economic crisis. While I'm never an advocate of government spending for the sake of it - private money works better - massive spending by a debtor nation with public debt now almost equal to GDP just seems backwards.
We got into this problem by artificially setting interest rates below market rates which drove malinvestment coupled with over-leverage by consumers, industry and the government. More of the same will not solve the problem. It might, and probably will, delay the inevitable, but the day of reckoning will come.
Keynesian economics is receiving much praise as the solution out of our current economic crisis. While I'm never an advocate of government spending for the sake of it - private money works better - massive spending by a debtor nation with public debt now almost equal to GDP just seems backwards.
We got into this problem by artificially setting interest rates below market rates which drove malinvestment coupled with over-leverage by consumers, industry and the government. More of the same will not solve the problem. It might, and probably will, delay the inevitable, but the day of reckoning will come.
Monday, November 24, 2008
Superfluous Government Agency of the Week #1
A few weeks ago, I read an article about the so-called "Plum Book" (official title: United States Policy and Supporting Positions) which was recently released. This book is released every four years and contains a list of all political positions in the outgoing administration, along with who held the position and the salary. Most, if not all, of the jobs listed in the book (Secretary of Defense, for example) will never be available to the "average citizen" and will certainly go to applicants with the appropriate connections. In fact, 1/3 of the 8,000 jobs listed in this year's version apparently are strictly appointed positions--thus the designation of "Plum Book" I suppose. Upon discovering this tidbit, I began to wonder how much money was spent to produce and print this book, which was published by the Government Printing Office. This led me once again to usaspending.gov, where I happened upon the master listing of "government agencies" that the website maintains spending and award data for. As I browsed through the list, I came across quite a few whose names alone made me raise my eyebrows. This, in turn, has given me inspiration for a new series of posts which will each week spotlight one of these agencies and the money our government spends through them.
This week's lucky contestant--the Office of National Drug Control Policy. This agency is considered a "component" of the Executive Office of the President and was established by the Anti-Drug Abuse Act of 1988. There are several other acts that involve the activities carried out by this office, as well as several Executive Orders (check out the "Authorizing Legislation" page). In reviewing the ONDCP's "About" pages, mission statement, etc. it seems that its main task is producing the "National Drug Control Strategy," which "directs the Nation's anti-drug efforts and establishes a program, a budget, and guidelines for cooperation among Federal, State, and local entities." Perusal of the ONDCP's website reveals their main initiatives to be anti-drug programs, in particular youth anti-drug programs (something akin to the "Just Say No" campaigns in the 70's and 80's) and the High Intensity Drug Trafficking Areas (HIDTA) program which provides additional federal resources (read--$$$$) to state and local government and law enforcement in areas suffering from "serious drug trafficking problems." If I'm reading the website correctly, there are currently 28 areas in the U.S. designated as HIDTAs including such well-defined, precisely targeted areas as "New England," "Appalachia," and "Oregon." If you review all of the 28 HIDTAs, it seems that most of the entire country is included in one of these zones. Yikes...
The ONDCP seems especially proud of their advertisement efforts in their various Anti-Drug campaigns and recently relaunched the website for the "National Youth Anti-Drug Media Campaign." This new website includes an "Ad Gallery" where you can view print, tv and radio ads produced by the campaign back through 2004. This includes such things as the "Become a Burrito Taster!" ad (highlighting one of the few jobs available for "potheads") or the marijuana/alcohol/hydrocodone "slot machine" don't mix drugs ad. These appear to all be part of the "Above the Influence" campaign, which you may be familiar with from their many television advertisements, mostly poking fun at "stoners" using rather stale stereotypes.
For FY 2009, the ONDCP's budget request was a total of $421.5 million--$100 million of which is for the National Youth Anti-Drug Media Campaign alone. Yep, our government is spending $100 million of our taxpayer money to produce and disseminate ridiculous advertisements that I'm guessing do little to dissuade anyone from smoking pot. They've also requested $200 million for the HIDTA program, so we can give away money to highly dangerous drug-trafficking areas such as "Oregon." Uh huh...
What makes this even worse is that the total requested across all government agencies for "Drug Control" activities was $14 BILLION dollars for FY 2009. This includes huge amounts for DoD ($1.6 billion), DHHS ($3.7 billion), DHS ($3.6 billion) and the DEA ($2.1 billion), among others (including $59 million for the IRS--not sure how the IRS fits into "Drug Control"). Specific agencies listed include the National Institute on Drug Abuse and the Substance Abuse and Mental Health Services Administration (both part of the DHHS). In total, drug control money is requested by 12 different high-level federal government departments under the guise of 26 different agencies/entities. It absolutely defies common sense that there is not a tremendous duplication of efforts here, not matter how much these agencies attempt to differentiate themselves from each other.
It's really sad to take a look at the overall list of government agencies and see some of these that most people probably have no idea even exist or, if they do, know that they are actually government agencies that receive taxpayer funds. Seems to be a pretty good start of an argument for reducing the size of the government...
This week's lucky contestant--the Office of National Drug Control Policy. This agency is considered a "component" of the Executive Office of the President and was established by the Anti-Drug Abuse Act of 1988. There are several other acts that involve the activities carried out by this office, as well as several Executive Orders (check out the "Authorizing Legislation" page). In reviewing the ONDCP's "About" pages, mission statement, etc. it seems that its main task is producing the "National Drug Control Strategy," which "directs the Nation's anti-drug efforts and establishes a program, a budget, and guidelines for cooperation among Federal, State, and local entities." Perusal of the ONDCP's website reveals their main initiatives to be anti-drug programs, in particular youth anti-drug programs (something akin to the "Just Say No" campaigns in the 70's and 80's) and the High Intensity Drug Trafficking Areas (HIDTA) program which provides additional federal resources (read--$$$$) to state and local government and law enforcement in areas suffering from "serious drug trafficking problems." If I'm reading the website correctly, there are currently 28 areas in the U.S. designated as HIDTAs including such well-defined, precisely targeted areas as "New England," "Appalachia," and "Oregon." If you review all of the 28 HIDTAs, it seems that most of the entire country is included in one of these zones. Yikes...
The ONDCP seems especially proud of their advertisement efforts in their various Anti-Drug campaigns and recently relaunched the website for the "National Youth Anti-Drug Media Campaign." This new website includes an "Ad Gallery" where you can view print, tv and radio ads produced by the campaign back through 2004. This includes such things as the "Become a Burrito Taster!" ad (highlighting one of the few jobs available for "potheads") or the marijuana/alcohol/hydrocodone "slot machine" don't mix drugs ad. These appear to all be part of the "Above the Influence" campaign, which you may be familiar with from their many television advertisements, mostly poking fun at "stoners" using rather stale stereotypes.
For FY 2009, the ONDCP's budget request was a total of $421.5 million--$100 million of which is for the National Youth Anti-Drug Media Campaign alone. Yep, our government is spending $100 million of our taxpayer money to produce and disseminate ridiculous advertisements that I'm guessing do little to dissuade anyone from smoking pot. They've also requested $200 million for the HIDTA program, so we can give away money to highly dangerous drug-trafficking areas such as "Oregon." Uh huh...
What makes this even worse is that the total requested across all government agencies for "Drug Control" activities was $14 BILLION dollars for FY 2009. This includes huge amounts for DoD ($1.6 billion), DHHS ($3.7 billion), DHS ($3.6 billion) and the DEA ($2.1 billion), among others (including $59 million for the IRS--not sure how the IRS fits into "Drug Control"). Specific agencies listed include the National Institute on Drug Abuse and the Substance Abuse and Mental Health Services Administration (both part of the DHHS). In total, drug control money is requested by 12 different high-level federal government departments under the guise of 26 different agencies/entities. It absolutely defies common sense that there is not a tremendous duplication of efforts here, not matter how much these agencies attempt to differentiate themselves from each other.
It's really sad to take a look at the overall list of government agencies and see some of these that most people probably have no idea even exist or, if they do, know that they are actually government agencies that receive taxpayer funds. Seems to be a pretty good start of an argument for reducing the size of the government...
Sunday, November 23, 2008
Loose Ends... Vol. XVIII
Tonight's "Loose Ends" will review the development of the Obama cabinet and discuss some upcoming analysis which I plan to feature here over the coming days and weeks.
*****
The Obama administration is beginning to take shape. After the early pick of Rahm Emanuel (D-IL) as Chief of Staff, he has been piecing together the rest of his White House Staff. See press releases here, here, here, here, and here. They've been busy.
The transition team has also been assembling the cabinet. Some of these appointments are official, some are speculation.
The highest profile pick is Hillary Clinton (D-NY) as Secretary of State. I don't have a lot to say about this one except that Hillary is certainly a bit more hawkish than what most anti-war Obama supporters would like to have. While, I'm not an Obama supporter, I'd agree. I'm not terribly surprised as Obama is more hawkish himself than he was painted in the primaries.
I like the pick of Bill Richardson, Governor of New Mexico, as Secretary of Commerce. Richardson formerly served as Secretary of Energy in the Clinton administration. Bill's endorsement of Obama in the primaries was reported to cause a major rift amongst the Clinton camp. We'll see if there are any downstream ramifications. I would have liked to see Richardson get the State Department, but the Commerce Department should get a decent amount of power due to the economic crisis.
Governor of Arizona, Janet Napolitano, neighbor to Richardson, is headed for the Department of Homeland Security. As the Governor of a border state, I think it sends a message that this department will focus more on immigration reform than the Bush administration. She has an extensive law enforcement background as a former U.S. attorney and state attorney general.
Another early supporter of Obama, is former South Dakota Senator and Majority Leader, Tom Daschle. His loyalty is being rewarded with an appointment as Secretary of Health and Human Services. This department will also have a bit more power in this administration as health care will be a top priority.
New York FED president, Timothy Geithner, will be the Secretary of the Treasury. Again, this will be a very high profile position given the current financial and economic crisis. Geithner's appointment is being credited with a late afternoon rally in the financial markets. I don't doubt that this could be a major factor in the surge, but I'm skeptical that it will hold the markets. Geithner is a member for the powerful Trilateral Commission. I'm not a big conspiracy theorist; I call them as I see them. These guys are powerful.
Finally, it looks like Eric Holder, former Deputy Attorney General in the Clinton administration, is headed for a post as Attorney General. This pick is somewhat at the centerpiece of the criticism Obama is receiving as former the sequel to the Clinton administration. While this criticism is fair, who are the powerful, qualified Democrats that didn't serve in the Clinton administration?
*****
The last piece I want to touch on is a teaser of some future work that I plan on featuring here. As I mentioned earlier this week, I will be looking at the success measures of the EESA/TARP plan as implemented by Paulson. Additionally, I will be performing a broader macroeconomic analysis of the economy - this will feature my predictions for the market lows, the impact on the bond markets (especially U.S. Treasuries), the future of the U.S. Dollar, and what this all means for taxes, actions by the FED, etc. Not sure when I'll get to that one, but it should be fun.
Finally, I've begun my in-depth analysis on the congressional voting record. I am currently gathering data and beginning analysis on all votes in the House in 2007. I'll be putting together some voting statistics and ultimately classifying each member of Congress into different voting groups. I plan on extending this to 2008, the Senate, and into the future. I'm excited about this one too.
*****
The Obama administration is beginning to take shape. After the early pick of Rahm Emanuel (D-IL) as Chief of Staff, he has been piecing together the rest of his White House Staff. See press releases here, here, here, here, and here. They've been busy.
The transition team has also been assembling the cabinet. Some of these appointments are official, some are speculation.
The highest profile pick is Hillary Clinton (D-NY) as Secretary of State. I don't have a lot to say about this one except that Hillary is certainly a bit more hawkish than what most anti-war Obama supporters would like to have. While, I'm not an Obama supporter, I'd agree. I'm not terribly surprised as Obama is more hawkish himself than he was painted in the primaries.
I like the pick of Bill Richardson, Governor of New Mexico, as Secretary of Commerce. Richardson formerly served as Secretary of Energy in the Clinton administration. Bill's endorsement of Obama in the primaries was reported to cause a major rift amongst the Clinton camp. We'll see if there are any downstream ramifications. I would have liked to see Richardson get the State Department, but the Commerce Department should get a decent amount of power due to the economic crisis.
Governor of Arizona, Janet Napolitano, neighbor to Richardson, is headed for the Department of Homeland Security. As the Governor of a border state, I think it sends a message that this department will focus more on immigration reform than the Bush administration. She has an extensive law enforcement background as a former U.S. attorney and state attorney general.
Another early supporter of Obama, is former South Dakota Senator and Majority Leader, Tom Daschle. His loyalty is being rewarded with an appointment as Secretary of Health and Human Services. This department will also have a bit more power in this administration as health care will be a top priority.
New York FED president, Timothy Geithner, will be the Secretary of the Treasury. Again, this will be a very high profile position given the current financial and economic crisis. Geithner's appointment is being credited with a late afternoon rally in the financial markets. I don't doubt that this could be a major factor in the surge, but I'm skeptical that it will hold the markets. Geithner is a member for the powerful Trilateral Commission. I'm not a big conspiracy theorist; I call them as I see them. These guys are powerful.
Finally, it looks like Eric Holder, former Deputy Attorney General in the Clinton administration, is headed for a post as Attorney General. This pick is somewhat at the centerpiece of the criticism Obama is receiving as former the sequel to the Clinton administration. While this criticism is fair, who are the powerful, qualified Democrats that didn't serve in the Clinton administration?
*****
The last piece I want to touch on is a teaser of some future work that I plan on featuring here. As I mentioned earlier this week, I will be looking at the success measures of the EESA/TARP plan as implemented by Paulson. Additionally, I will be performing a broader macroeconomic analysis of the economy - this will feature my predictions for the market lows, the impact on the bond markets (especially U.S. Treasuries), the future of the U.S. Dollar, and what this all means for taxes, actions by the FED, etc. Not sure when I'll get to that one, but it should be fun.
Finally, I've begun my in-depth analysis on the congressional voting record. I am currently gathering data and beginning analysis on all votes in the House in 2007. I'll be putting together some voting statistics and ultimately classifying each member of Congress into different voting groups. I plan on extending this to 2008, the Senate, and into the future. I'm excited about this one too.
Friday, November 21, 2008
Regrets of a Representative
Uncle Hank and my cousin Benny (I'm not related to them, but those sound like cool nicknames) had the pleasure of testifying before the House Financial Services Committee this week to discuss the the EESA/TARP program. Paulson's testimony discussed how the now famous $700B bailout, I mean rescue plan, did indeed unfreeze the credit markets and save the financial system. He also indicated that they have chosen not to purchase distressed/toxic mortgage assets.
The focus of this article is not to analyze Paulson's claim - I intend to address that in a future post. Nor am I focused on contrasting Paulson's original testimony with his latest. (Although, I can't resist this quote: "[the] root cause is the housing correction which has resulted in illiquid mortgage-related assets ... We must address this underlying problem.")
That leads me to my story. I was watching the hearings earlier this week and was struck by the interrogation from Rep. Nydia Velazquez (D-NY). Tonight, I was doing a bit of research on her and have come to find my timing may be impeccable. The political rumor mill has Velazquez as the front runner to take Hillary Clinton's (D-NY) Senate seat should she become Secretary of State (which is looking like a done deal).
Velazquez's questioning of the panel can be viewed in its entirety here.
After watching this, I can't help but think that Velazquez regrets her vote. She states that she "agonized" over the vote and her frustration is evident. I think it is safe to say that she feels that she was lied to by Paulson and Bernanke when they demanded their $700B. Faced with struggling homeowners in her district and representing small business interests across America as the Chairwoman of the House Committee on Small Business, she voted yes. She hoped it would help.
But, what did she expect? She should have known better. Her passionate speech will probably help get her that Senate seat. I hope she will wake up and realize many of her colleagues have little interest in her interests. (Or at least the ones she proclaims.)
The focus of this article is not to analyze Paulson's claim - I intend to address that in a future post. Nor am I focused on contrasting Paulson's original testimony with his latest. (Although, I can't resist this quote: "[the] root cause is the housing correction which has resulted in illiquid mortgage-related assets ... We must address this underlying problem.")
That leads me to my story. I was watching the hearings earlier this week and was struck by the interrogation from Rep. Nydia Velazquez (D-NY). Tonight, I was doing a bit of research on her and have come to find my timing may be impeccable. The political rumor mill has Velazquez as the front runner to take Hillary Clinton's (D-NY) Senate seat should she become Secretary of State (which is looking like a done deal).
Velazquez's questioning of the panel can be viewed in its entirety here.
After watching this, I can't help but think that Velazquez regrets her vote. She states that she "agonized" over the vote and her frustration is evident. I think it is safe to say that she feels that she was lied to by Paulson and Bernanke when they demanded their $700B. Faced with struggling homeowners in her district and representing small business interests across America as the Chairwoman of the House Committee on Small Business, she voted yes. She hoped it would help.
But, what did she expect? She should have known better. Her passionate speech will probably help get her that Senate seat. I hope she will wake up and realize many of her colleagues have little interest in her interests. (Or at least the ones she proclaims.)
Chicken or the Egg?
Latest post on United Liberty is here.
What came first the chicken or the egg? ... where does government power come from?
Think about that.
What came first the chicken or the egg? ... where does government power come from?
Think about that.
Sunday, November 16, 2008
Loose Ends... Vol. XVII
A couple of quick loose ends tonight.
*****
This bailout garbage has to stop. It is now becoming more evident by the day that the initial $700B "rescue" package has either a) not worked and/or b) not been implemented as promised. Folks, remember how we were told that the world would end as we know it if we did not pass the bill? Remember how we had to buy the "troubled assets" (hence the name TARP) in order to save the system? We didn't buy the troubled assets. The only tarp that Paulson has used is the one in which he's covered up his actions and true intentions, along with his accomplice, Ben Bernanke.
*****
The new Indianapolis airport terminal opened this week. I've been wanting to do a story on the renaming of the "Airport Expressway" as "Sam Jones Expressway" for some time now. I have not had a chance. So, the short version is this... did we really need to spend taxpayer money to rename the highway? Seriously. Who's paying for this? Who is Sam Jones anyway?
*****
Tonight on 60 Minutes, I heard Barack Obama call for a playoff system to decide the national champion in NCAA Division I football. For those of you who are not football fans, the national championship, called the BCS (Bowl Championship Series), is decided by a poll of experts. They vote on the champion (with the help of a computer ranking system).
You know what? I like it. And while we are at it, I think Obama should call for similar reform in the presidential election. I've already discussed on this site how I think that American Idol provides a better system to choose the winner. The President-Elect seems to agree with me that a simple vote like we have on November 4th or like the pollsters have to choose the BCS champ may be insufficient. I call for the introduction of a tournament-style, American Idol-style election. In the weeks and months leading up to November 4th, we should start with a field of candidates for President. Each week there is a debate and the winners advance based on a popular vote. The field should narrow down to two candidates who face off on Election Day.
I like that idea.
Good night!
*****
This bailout garbage has to stop. It is now becoming more evident by the day that the initial $700B "rescue" package has either a) not worked and/or b) not been implemented as promised. Folks, remember how we were told that the world would end as we know it if we did not pass the bill? Remember how we had to buy the "troubled assets" (hence the name TARP) in order to save the system? We didn't buy the troubled assets. The only tarp that Paulson has used is the one in which he's covered up his actions and true intentions, along with his accomplice, Ben Bernanke.
*****
The new Indianapolis airport terminal opened this week. I've been wanting to do a story on the renaming of the "Airport Expressway" as "Sam Jones Expressway" for some time now. I have not had a chance. So, the short version is this... did we really need to spend taxpayer money to rename the highway? Seriously. Who's paying for this? Who is Sam Jones anyway?
*****
Tonight on 60 Minutes, I heard Barack Obama call for a playoff system to decide the national champion in NCAA Division I football. For those of you who are not football fans, the national championship, called the BCS (Bowl Championship Series), is decided by a poll of experts. They vote on the champion (with the help of a computer ranking system).
You know what? I like it. And while we are at it, I think Obama should call for similar reform in the presidential election. I've already discussed on this site how I think that American Idol provides a better system to choose the winner. The President-Elect seems to agree with me that a simple vote like we have on November 4th or like the pollsters have to choose the BCS champ may be insufficient. I call for the introduction of a tournament-style, American Idol-style election. In the weeks and months leading up to November 4th, we should start with a field of candidates for President. Each week there is a debate and the winners advance based on a popular vote. The field should narrow down to two candidates who face off on Election Day.
I like that idea.
Good night!
To Spend or Not To Spend
There's been a lot of talk lately about the role of government in terms of investments, bailouts, spending programs, etc. I know this isn't anything new, but just this morning I've heard this come up a few times. On Meet the Press, there was a debate between Carl Levin (D-MI) and Richard Shelby (R-AL) about a possible bailout (investment) in the U.S. auto industry. On This Week, Arnold Schwarzenegger was arguing for investments in America's, or at least California's, infrastructure of bridges, roads, tunnels, and energy, and health care, and education, and... well, a lot of stuff. Finally, this morning on a local radio show, Inside Indiana Business, they were discussing the "necessary" investment in the community in Speedway, Indiana, home of the Indianapolis 500. Here they are redesigning roads, discussing a new hotel, and other investments to bring "new life" to the community which is more or less dormant for most of the year.
So, I want to take off the chains of my current ideology and analyze this a bit more objectively. As I begin typing this, I'm not sure what conclusions I will draw to be honest. There has been tons of research on this by economists and public policy experts over many decades (if not centuries). I'm not drawing upon that body of work as I write this. Let's dive in...
First, I want to explore the reasoning which supports any level of public financing. Tossing aside the Constitution, I want to think about this void of any existing government policy. There is a school of thought out there, advanced by the anarcho-capitalists, which calls for no government spending at all. The argument rests in that the collective free market will always prevail in determining the most efficient allocations of goods and services. In this extreme case, law enforcement, courts, the military and all functions of society are performed by individuals and privately funded organizations which compete to provide the best value for their services. On the other extreme, broadly, we have communism. Communism has many forms, but for the sake of argument, a collectivist state with a planned economy serves as the polar opposite to anarcho-capitalism. The argument for communism is that the needs of the collective population are considered in making the decisions in the planned economy. In the extreme sense, there would be no private property or individual liberty as all decision in the allocation of goods and services would be made by the state on the behalf of, and for the benefit of, the collective population.
Clearly, each of these systems provide an impractical reality, although each system has its merit as a utopian ideology. The anarcho-capitalist ideology advances a utopia in which the individual is empowered above all. The communist ideology advances a utopia in which the collective is empowered above all. Human nature will prevail in either system, and each system deals with this differently. I'm going to stop here in discussing these systems; volumes could be written. The key point is that the optimal point is (arguably) somewhere in between these two systems.
My initial argument against anarcho-capitalism rests that some investments may well be more suited for a collectivist approach. (I am going to set aside the argument for investments and spending in such services as the police, courts and military, and focus on other debates in the use of public funds.) I think there are a few characteristics of a particular investment (from here on, I will refer only to investment as any spending should be considered as an investment of some sort - it is more obvious to me that government spending should only be for the purpose of investment and not for consumption) which may lend itself to being more suitable and practical for the government.
First, the returns on the investment must be difficult to measure in that there are returns which are expressed in the collective good rather than profits for the investors. This generally would seem to favor large investments, but could also be argued in the case of charity. Second, the investment is one in which the provision of the goods and services may be more conducive to a monopoly (or perhaps cartel) rather than a competitive, free-market system.
The first type of investment I can think of that meets some of these requirements is that of massive infrastructure investments such as roads, bridges and energy infrastructure like power lines. For example, once a road is built, it generally does not make sense for there to be a competing road. In a sense ownership of roads could (or should?) be monopolistic. However, competition amongst modes of transportation does make sense and building roads could be viewed as a de facto subsidy of the automobile industry. That said, there is public demand for roads. While it makes sense for private business to bid for the contracts to build the roads, someone still needs to make the investment in advance to fund the project.
It is important next to analyze who benefits from the roads in our example. Most all citizens use some roads. They use them to get to work and school, drive to the store or to a local restaurant. Both businesses and their consumers benefit. Also, roads allow friends and families to visit with each other more easily. I'm tempted to argue that businesses should then be willing to front the cash for such investments, but no one business would build any significant number of roads. I could then argue that this creates an opportunity for a venture capitalist to serve as a middle man - soliciting capital from businesses to fund the purchase of the roads. This may well be impractical, but would serve as the basis of the ideals advanced by anarcho-capitalists. So, the question becomes, it is more efficient and practical for the government to fund this investment on behalf of the taxpayers, or should private business fill the gap.
Governments can fund investments much more easily than private business. This is especially true for central governments with the benefit of a central bank. Governments can fund with existing funds - courtesy of the taxpayers - or with borrowed money. Most governments enjoy very low interest rates on their loans. But, ultimately, these loans still must be paid back - by the taxpayers. (There is a third option. Central banks can print money. This undoubtedly leads to inflation which serves as another form of taxation.) In each case, the taxpayers are responsible for the bills. I'm not saying this is bad. I'm just saying that this is reality.
The other benefit which governments have over private business is that it is much easier to make an investment decision. Governments only need to follow their appropriations process to gain approval for the expenditure. This is generally far more efficient than a venture capitalist attempting to acquire capital from many sources. Each source would like their piece of the profits which would be very difficult to negotiate in the case of something such as a road.
Let's turn to another example: investment in the community for economic development. This is often the argument used for public financing of a pro sports stadium or, as in the case this morning, community redevelopment to create new business and excitement. In these examples, the argument lies in the fact that the government is called in since their is not enough willingness from private investment. The government comes through on the deal if they (those who control the appropriations) feel it is best for the community. My initial reaction to this argument is that it is without merit. If private business is unwilling to make the investment, then it's probably a bad investment.
Taking a closer look at our two sub-examples, I'm not eager to change my mind.
In the case of a pro sports stadium, people stand to make money. However, the builder of the stadium does not necessarily benefit from the increased revenues experienced by the local businesses which receive the halo effect. Restaurants, hotels, and local merchants all stand to gain from the development of a new stadium. Is it not unreasonable to assume that a potential stadium financier might look to these local businesses to receive additional venture capital? If they do not have existing funds, these could be procured in the way of bonds which repay as the new revenues arrive.
The second example of community investment for economic development puts a slightly different twist on the first. Here, it is not just local businesses which stand to gain. Additionally, local homeowners and residents stand to gain in two ways. First, property values may increase as the demand for property increases due to the new economic activity. Second, it could be argued that crime may decrease as the economic fortunes of the community increase. Here again, we could argue that local businesses and residents could be asked by local entrepreneurs to help with the investment cost. But, on closer examination, this may well be difficult due to the number of people involved and, more importantly, the inability for an investor to receive the returns on their investment felt by reduced crime or other intangibles.
Where does this leave us?
I think it is reasonable to assume that I am for some level of government spending. There you go. I am not an anarchist! :)
However, I think that the costs of the investments need to be repaid by those who benefit from the investments. In the case of roads, some level of corporate investment in the form of taxation should be felt. Also, those who use the roads, should pay more for the roads. In the case of pro sports stadiums, it is difficult for me to agree with public financing. The same goes for community investment for economic development. I suppose in these cases, I would be ok with the investment if the taxes which fund the investment are either a) agreed to by an overwhelming majority of voters (perhaps 75%?), or b) voluntary. I like the second option better. In either case, if the investment if funded by government bonds, then the repayment should be funded by taxes which are more targeted to those who benefit from the investment.
I know this has been a long one. I hope you're still with me. Bottom line, this helps me better articulate my thoughts on the role of government - particularly in the aspect of discretionary spending. Investments should be targeted to those which have the following properties: slow, but beneficial return on investment, intangible benefits, and monopolistic goods or services. I want to be clear that I am generally against monopolies or cartels in any form, but, in some cases it makes sense. Also, investments should be paid for by those who benefit. This should come via creative and targeted taxation on both individuals and businesses.
The prerequisite for intangible benefits leaves a scary door wide open. It means that the benefits are subjective and arbitrary. It means that you place the power in the government to decide and measure the benefits. Since this is the case, I argue for two things. First, wherever practical and possible, there should be a voter referendum on the investment. There should be overwhelming support from the group which may be taxed. Second, it is far better for these decisions to rest in the hands of a government which represents the smallest possible constituency. This way, the voter referendum has the best chance of success - both in terms of the investment as well as future re-election of the officials. Small government. Local government.
By the way, that means that I am against the bailout of the "Big 3" automobile manufacturers.
So, I want to take off the chains of my current ideology and analyze this a bit more objectively. As I begin typing this, I'm not sure what conclusions I will draw to be honest. There has been tons of research on this by economists and public policy experts over many decades (if not centuries). I'm not drawing upon that body of work as I write this. Let's dive in...
First, I want to explore the reasoning which supports any level of public financing. Tossing aside the Constitution, I want to think about this void of any existing government policy. There is a school of thought out there, advanced by the anarcho-capitalists, which calls for no government spending at all. The argument rests in that the collective free market will always prevail in determining the most efficient allocations of goods and services. In this extreme case, law enforcement, courts, the military and all functions of society are performed by individuals and privately funded organizations which compete to provide the best value for their services. On the other extreme, broadly, we have communism. Communism has many forms, but for the sake of argument, a collectivist state with a planned economy serves as the polar opposite to anarcho-capitalism. The argument for communism is that the needs of the collective population are considered in making the decisions in the planned economy. In the extreme sense, there would be no private property or individual liberty as all decision in the allocation of goods and services would be made by the state on the behalf of, and for the benefit of, the collective population.
Clearly, each of these systems provide an impractical reality, although each system has its merit as a utopian ideology. The anarcho-capitalist ideology advances a utopia in which the individual is empowered above all. The communist ideology advances a utopia in which the collective is empowered above all. Human nature will prevail in either system, and each system deals with this differently. I'm going to stop here in discussing these systems; volumes could be written. The key point is that the optimal point is (arguably) somewhere in between these two systems.
My initial argument against anarcho-capitalism rests that some investments may well be more suited for a collectivist approach. (I am going to set aside the argument for investments and spending in such services as the police, courts and military, and focus on other debates in the use of public funds.) I think there are a few characteristics of a particular investment (from here on, I will refer only to investment as any spending should be considered as an investment of some sort - it is more obvious to me that government spending should only be for the purpose of investment and not for consumption) which may lend itself to being more suitable and practical for the government.
First, the returns on the investment must be difficult to measure in that there are returns which are expressed in the collective good rather than profits for the investors. This generally would seem to favor large investments, but could also be argued in the case of charity. Second, the investment is one in which the provision of the goods and services may be more conducive to a monopoly (or perhaps cartel) rather than a competitive, free-market system.
The first type of investment I can think of that meets some of these requirements is that of massive infrastructure investments such as roads, bridges and energy infrastructure like power lines. For example, once a road is built, it generally does not make sense for there to be a competing road. In a sense ownership of roads could (or should?) be monopolistic. However, competition amongst modes of transportation does make sense and building roads could be viewed as a de facto subsidy of the automobile industry. That said, there is public demand for roads. While it makes sense for private business to bid for the contracts to build the roads, someone still needs to make the investment in advance to fund the project.
It is important next to analyze who benefits from the roads in our example. Most all citizens use some roads. They use them to get to work and school, drive to the store or to a local restaurant. Both businesses and their consumers benefit. Also, roads allow friends and families to visit with each other more easily. I'm tempted to argue that businesses should then be willing to front the cash for such investments, but no one business would build any significant number of roads. I could then argue that this creates an opportunity for a venture capitalist to serve as a middle man - soliciting capital from businesses to fund the purchase of the roads. This may well be impractical, but would serve as the basis of the ideals advanced by anarcho-capitalists. So, the question becomes, it is more efficient and practical for the government to fund this investment on behalf of the taxpayers, or should private business fill the gap.
Governments can fund investments much more easily than private business. This is especially true for central governments with the benefit of a central bank. Governments can fund with existing funds - courtesy of the taxpayers - or with borrowed money. Most governments enjoy very low interest rates on their loans. But, ultimately, these loans still must be paid back - by the taxpayers. (There is a third option. Central banks can print money. This undoubtedly leads to inflation which serves as another form of taxation.) In each case, the taxpayers are responsible for the bills. I'm not saying this is bad. I'm just saying that this is reality.
The other benefit which governments have over private business is that it is much easier to make an investment decision. Governments only need to follow their appropriations process to gain approval for the expenditure. This is generally far more efficient than a venture capitalist attempting to acquire capital from many sources. Each source would like their piece of the profits which would be very difficult to negotiate in the case of something such as a road.
Let's turn to another example: investment in the community for economic development. This is often the argument used for public financing of a pro sports stadium or, as in the case this morning, community redevelopment to create new business and excitement. In these examples, the argument lies in the fact that the government is called in since their is not enough willingness from private investment. The government comes through on the deal if they (those who control the appropriations) feel it is best for the community. My initial reaction to this argument is that it is without merit. If private business is unwilling to make the investment, then it's probably a bad investment.
Taking a closer look at our two sub-examples, I'm not eager to change my mind.
In the case of a pro sports stadium, people stand to make money. However, the builder of the stadium does not necessarily benefit from the increased revenues experienced by the local businesses which receive the halo effect. Restaurants, hotels, and local merchants all stand to gain from the development of a new stadium. Is it not unreasonable to assume that a potential stadium financier might look to these local businesses to receive additional venture capital? If they do not have existing funds, these could be procured in the way of bonds which repay as the new revenues arrive.
The second example of community investment for economic development puts a slightly different twist on the first. Here, it is not just local businesses which stand to gain. Additionally, local homeowners and residents stand to gain in two ways. First, property values may increase as the demand for property increases due to the new economic activity. Second, it could be argued that crime may decrease as the economic fortunes of the community increase. Here again, we could argue that local businesses and residents could be asked by local entrepreneurs to help with the investment cost. But, on closer examination, this may well be difficult due to the number of people involved and, more importantly, the inability for an investor to receive the returns on their investment felt by reduced crime or other intangibles.
Where does this leave us?
I think it is reasonable to assume that I am for some level of government spending. There you go. I am not an anarchist! :)
However, I think that the costs of the investments need to be repaid by those who benefit from the investments. In the case of roads, some level of corporate investment in the form of taxation should be felt. Also, those who use the roads, should pay more for the roads. In the case of pro sports stadiums, it is difficult for me to agree with public financing. The same goes for community investment for economic development. I suppose in these cases, I would be ok with the investment if the taxes which fund the investment are either a) agreed to by an overwhelming majority of voters (perhaps 75%?), or b) voluntary. I like the second option better. In either case, if the investment if funded by government bonds, then the repayment should be funded by taxes which are more targeted to those who benefit from the investment.
I know this has been a long one. I hope you're still with me. Bottom line, this helps me better articulate my thoughts on the role of government - particularly in the aspect of discretionary spending. Investments should be targeted to those which have the following properties: slow, but beneficial return on investment, intangible benefits, and monopolistic goods or services. I want to be clear that I am generally against monopolies or cartels in any form, but, in some cases it makes sense. Also, investments should be paid for by those who benefit. This should come via creative and targeted taxation on both individuals and businesses.
The prerequisite for intangible benefits leaves a scary door wide open. It means that the benefits are subjective and arbitrary. It means that you place the power in the government to decide and measure the benefits. Since this is the case, I argue for two things. First, wherever practical and possible, there should be a voter referendum on the investment. There should be overwhelming support from the group which may be taxed. Second, it is far better for these decisions to rest in the hands of a government which represents the smallest possible constituency. This way, the voter referendum has the best chance of success - both in terms of the investment as well as future re-election of the officials. Small government. Local government.
By the way, that means that I am against the bailout of the "Big 3" automobile manufacturers.
Saturday, November 15, 2008
General Update
Just a couple quick site-related updates.
First, I know I've been posting more at United Liberty than I have here lately. That is not my long-term intent - I want to get equal action on both. If any of you readers out there are interested in contributing on this site, let me know. We can discuss some ideas.
I'm going to use this site to focus more on local issues, philosophical rants and ideas, and more analytical-oriented work. In fact, I'm beginning my work on Congressional profiles. Stay tuned!
That said, I do have another post out at United Liberty available here. The article looks at some of the national exit poll results which I have found to be very interesting.
First, I know I've been posting more at United Liberty than I have here lately. That is not my long-term intent - I want to get equal action on both. If any of you readers out there are interested in contributing on this site, let me know. We can discuss some ideas.
I'm going to use this site to focus more on local issues, philosophical rants and ideas, and more analytical-oriented work. In fact, I'm beginning my work on Congressional profiles. Stay tuned!
That said, I do have another post out at United Liberty available here. The article looks at some of the national exit poll results which I have found to be very interesting.
Thursday, November 13, 2008
Lieberman
Old Joe is looking for a home. Despite having almost no leverage, he is adamant that he maintains his chairmanship of the Senate Committee on Homeland Security and Governmental Affairs.
I recently wrote this article over at United Liberty regarding this subject.
The latest update is that (read here at Politico) several influential Democratic Senators are coming to his defense. So, it looks like Joe will retain his chair and caucus with the Dems.
I recently wrote this article over at United Liberty regarding this subject.
The latest update is that (read here at Politico) several influential Democratic Senators are coming to his defense. So, it looks like Joe will retain his chair and caucus with the Dems.
Wednesday, November 12, 2008
Hey...what's so funny??!!
I'm constantly amazed by the reaction I receive when, in casual conversation, I mention that my political convictions tend towards a libertarian philosophy--not even an officially declared "Libertarian," as I've not yet made that committment (although it's likely coming soon). What reaction, you might ask? Well, you may be shocked (or more likely not, actually) to learn that the typical reaction to this statement is usually an explosion of laughter from the other party, something akin to the reaction one might receive when they've just told a really good George W. Bush joke. Believe it or not, this happens to me several times a week in various situations (at work, with friends, at the doctor's office, etc.). This burst of laughter is usually followed by some comment about libertarians just being general screwballs (of differing degrees) and often something about how they "want to legalize marijuana." I am not making this up.
There is definitely some poor marketing going on, in my humble opinion, if this is by and large the idea the general public has about libertarianism and "Libertarians." Just as there are many flavors of Republicans and Democrats, I've found that there are also many flavors of Libertarians (and not all are hardcore "legalize drugs" proponents, although I have to admit that I'm a great fan of Steve Kubby). Sure there are some "wackos" out there with their conspiracy theories, etc. (perhaps we could equate them with octopus flavored ice cream...yes, it does exist) but this does not define the entire LP or libertarians in general, just as "Evangelicals" do not define all Christians or "Neocons" do not define all Republicans or conservatives.
If we ever hope to convince the "mainstream" that we're more than pot-smoking hippies, we have to find some way to change the image conjured up by the mere mention of the word "Libertarian." I think a good place to start is simple marketing...think about your audience. It doesn't take a genius to realize that most people would be nearly instantly turned off by the campaign websites of many of the Libertarian party candidates from this past election. There needs to be a great deal of work on trying to make the libertarian message much less acrimonious and bitter...this simply turns people off. I understand that there is a lot of anger and frustration directed towards the "establishment" but a message that consists largely of whining and complaining is simply not persuasive.
How we do this, I'm not exactly sure but better web marketing and website development is probably a good start. A webpage that looks like it was created by a 12-year old in FrontPage (which I think is called something else now, but I'm not sure what) in both grammatical complexity (have we stopped teaching about using complete sentences and avoiding run-ons??!!) and aesthetic design is just not acceptable. And for heaven's sake...if you use an exclamation mark at the end of every sentence or thought it sort of negates the whole purpose of using it in the first place. I apologize for my grammatical rant (I'd just like to point out that I think it's absolutely vital to be able to clearly delineate one's ideas in writing--particularly for a political candidate) but I've always found it to be wise to follow the advice of acclaimed novelist Elmore Leonard here (yes, I did learn something in English class) when, in his 10 Rules of Writing, he said "Keep your exclamation points under control. You are allowed no more than two or three per 100,000 words of prose." Of course, I've broken that rule here...but I'm not trying to write a masterpiece.
There is definitely some poor marketing going on, in my humble opinion, if this is by and large the idea the general public has about libertarianism and "Libertarians." Just as there are many flavors of Republicans and Democrats, I've found that there are also many flavors of Libertarians (and not all are hardcore "legalize drugs" proponents, although I have to admit that I'm a great fan of Steve Kubby). Sure there are some "wackos" out there with their conspiracy theories, etc. (perhaps we could equate them with octopus flavored ice cream...yes, it does exist) but this does not define the entire LP or libertarians in general, just as "Evangelicals" do not define all Christians or "Neocons" do not define all Republicans or conservatives.
If we ever hope to convince the "mainstream" that we're more than pot-smoking hippies, we have to find some way to change the image conjured up by the mere mention of the word "Libertarian." I think a good place to start is simple marketing...think about your audience. It doesn't take a genius to realize that most people would be nearly instantly turned off by the campaign websites of many of the Libertarian party candidates from this past election. There needs to be a great deal of work on trying to make the libertarian message much less acrimonious and bitter...this simply turns people off. I understand that there is a lot of anger and frustration directed towards the "establishment" but a message that consists largely of whining and complaining is simply not persuasive.
How we do this, I'm not exactly sure but better web marketing and website development is probably a good start. A webpage that looks like it was created by a 12-year old in FrontPage (which I think is called something else now, but I'm not sure what) in both grammatical complexity (have we stopped teaching about using complete sentences and avoiding run-ons??!!) and aesthetic design is just not acceptable. And for heaven's sake...if you use an exclamation mark at the end of every sentence or thought it sort of negates the whole purpose of using it in the first place. I apologize for my grammatical rant (I'd just like to point out that I think it's absolutely vital to be able to clearly delineate one's ideas in writing--particularly for a political candidate) but I've always found it to be wise to follow the advice of acclaimed novelist Elmore Leonard here (yes, I did learn something in English class) when, in his 10 Rules of Writing, he said "Keep your exclamation points under control. You are allowed no more than two or three per 100,000 words of prose." Of course, I've broken that rule here...but I'm not trying to write a masterpiece.
Monday, November 10, 2008
Best Third Party Performances
I just wanted to take a quick moment to highlight the best performances last week in the Presidential election for third party candidates.
5. Ralph Nader - Alaska (1.2%)
4. Chuck Baldwin - Utah (1.3%)
3. Ralph Nader - North Dakota (1.3%)
2. Ralph Nader - Maine (1.5%)
1. Ron Paul - Montana (2.2%)
Surprise you? Yep. Ron Paul (R-TX), who was not running, had the best single state showing of any third party candidate. He didn't even want to be on the ballot in Montana.
5. Ralph Nader - Alaska (1.2%)
4. Chuck Baldwin - Utah (1.3%)
3. Ralph Nader - North Dakota (1.3%)
2. Ralph Nader - Maine (1.5%)
1. Ron Paul - Montana (2.2%)
Surprise you? Yep. Ron Paul (R-TX), who was not running, had the best single state showing of any third party candidate. He didn't even want to be on the ballot in Montana.
Sunday, November 9, 2008
Loose Ends... Vol. XVI
The election is behind us. There will still be plenty more to discuss, analyze and talk about here at Stop Taking Soma!
This election, at least 1,604,638 brave Americans didn't take their soma. They voted for someone other than Barack Obama or John McCain. Ralph Nader had the best showing garnering 679,149 votes. Bob Barr tallied 499,912. Chuck Baldwin edged Cynthia McKinney by receiving 180,780 votes to her 146,539. I applaud these candidates and those who voted for them. They stood against the system and the rhetoric of wasting votes.
Turnout for this election did not meet expectations. Total votes cast stands at 124,470,677 with 99.6% of precinct reporting. By my math, this equates to about 58% of the eligible electorate. Next time someone talks about a third party candidate costing someone an election, remind them that over 40% of people didn't vote at all. That is a much larger factor than the small percentage cast against the established duopoly.
*****
I joined Free Hoosiers this week. This is a new social networking site set up by the Libertarian Party of Indiana. While I still have not officially joined the party, I feel that I soon will. For those of you who are also residents of Indiana and have libertarian leanings, I encourage you to join as well.
*****
China has just announced a four trillion yuan ($586B) economic stimulus package. WOW! Now that is socialism in action. They have decided to out-Keynes everyone else. I don't have enough details on this yet, nor am I knowledgeable enough, but I'll keep my eye on this one. This money will mostly be pumped into China's domestic economy to spur growth. Will this begin to limit their appetite to buy U.S. treasuries? If so, this could have serious implications on our own economy.
This election, at least 1,604,638 brave Americans didn't take their soma. They voted for someone other than Barack Obama or John McCain. Ralph Nader had the best showing garnering 679,149 votes. Bob Barr tallied 499,912. Chuck Baldwin edged Cynthia McKinney by receiving 180,780 votes to her 146,539. I applaud these candidates and those who voted for them. They stood against the system and the rhetoric of wasting votes.
Turnout for this election did not meet expectations. Total votes cast stands at 124,470,677 with 99.6% of precinct reporting. By my math, this equates to about 58% of the eligible electorate. Next time someone talks about a third party candidate costing someone an election, remind them that over 40% of people didn't vote at all. That is a much larger factor than the small percentage cast against the established duopoly.
*****
I joined Free Hoosiers this week. This is a new social networking site set up by the Libertarian Party of Indiana. While I still have not officially joined the party, I feel that I soon will. For those of you who are also residents of Indiana and have libertarian leanings, I encourage you to join as well.
*****
China has just announced a four trillion yuan ($586B) economic stimulus package. WOW! Now that is socialism in action. They have decided to out-Keynes everyone else. I don't have enough details on this yet, nor am I knowledgeable enough, but I'll keep my eye on this one. This money will mostly be pumped into China's domestic economy to spur growth. Will this begin to limit their appetite to buy U.S. treasuries? If so, this could have serious implications on our own economy.
Friday, November 7, 2008
Tribute to The Who
Please visit United Liberty for my latest post there.
It is a review of how the lyrics to "Won't Get Fooled Again" are quite applicable today. Enjoy!
It is a review of how the lyrics to "Won't Get Fooled Again" are quite applicable today. Enjoy!
Thursday, November 6, 2008
Rahm-bo Tiptoes into the White House
Rahm Emanuel (D-IL) has accepted the first big role in the Obama administration. He will serve as White House Chief of Staff.
Emanuel served in the Clinton White House, received a cushy spot on the board at Freddie Mac, made a ton of money as the managing director of an investment bank, was elected to Congress, and has a quick rise to become the fourth highest ranking Democrat. In the 2008 election cycle, he raised big money from Wall Street yet faced no serious opposition.
Here are few articles so that you can learn a little bit more about him.
He's a bulldog. He'll be the bad cop. But is this change we can believe in?
Will Rahm Emanuel advise/allow Barack Obama to expose the fraudulent behavior of Freddie Mac or Wall Street investment banks? Will he help drive a spirit of bi-partisanship? To me, Rahm Emanuel embodies Washington politics. This is not any sort of change I can believe in.
To be clear... I'm not saying this is a bad choice for Obama. Emanuel will certainly help him push his agenda. It just doesn't come across to me as the symbolic gesture upon which Obama galvanized over 60 million Americans.
Emanuel served in the Clinton White House, received a cushy spot on the board at Freddie Mac, made a ton of money as the managing director of an investment bank, was elected to Congress, and has a quick rise to become the fourth highest ranking Democrat. In the 2008 election cycle, he raised big money from Wall Street yet faced no serious opposition.
Here are few articles so that you can learn a little bit more about him.
He's a bulldog. He'll be the bad cop. But is this change we can believe in?
Will Rahm Emanuel advise/allow Barack Obama to expose the fraudulent behavior of Freddie Mac or Wall Street investment banks? Will he help drive a spirit of bi-partisanship? To me, Rahm Emanuel embodies Washington politics. This is not any sort of change I can believe in.
To be clear... I'm not saying this is a bad choice for Obama. Emanuel will certainly help him push his agenda. It just doesn't come across to me as the symbolic gesture upon which Obama galvanized over 60 million Americans.
Wednesday, November 5, 2008
Indiana - Blue State Review
I wouldn't exactly call Indiana a blue state yet. The below chart summarizes the election results for the Republicans and Democrats in 2004 and 2008. It compares the returns for President, Governor, and the summarized vote for all House races.
As you can see, there are some stark differences between 2004 and 2008. The most interesting statistic in this chart is that the Democrats received more votes in the Congressional races than Obama did for President. Think about that for a moment. That means that statewide, there was a power shift. Could this be the Obama effect? Well, in 2004, Bush carried more votes (and a higher percentage) than his down ticket colleagues. This is clearly not a straight-ticket phenomenon either as the GOP won the gubernatorial race in a landslide. And it's probably more than just an Obama effect.
Obama's victory in Indiana (and the congressional races as well) cannot be chalked up solely to the ground game either. In all three races, one party lost ground versus the 2004 race. This implies that there was most certainly a switch in either the makeup of the voters or the choices of the voters themselves. Realistically, both of these facts are true. Two things are for certain, Indiana voters are not afraid to split their ticket and they are not as close-minded as they are generally perceived to be. I'm not sure why the GOP has dominated the presidential landscape so much here for so long. We've had Democrats serving both in the Governor's mansion and in the U.S. Senate.
2004 data sourced here and 2008 data sourced here.
As you can see, there are some stark differences between 2004 and 2008. The most interesting statistic in this chart is that the Democrats received more votes in the Congressional races than Obama did for President. Think about that for a moment. That means that statewide, there was a power shift. Could this be the Obama effect? Well, in 2004, Bush carried more votes (and a higher percentage) than his down ticket colleagues. This is clearly not a straight-ticket phenomenon either as the GOP won the gubernatorial race in a landslide. And it's probably more than just an Obama effect.
Obama's victory in Indiana (and the congressional races as well) cannot be chalked up solely to the ground game either. In all three races, one party lost ground versus the 2004 race. This implies that there was most certainly a switch in either the makeup of the voters or the choices of the voters themselves. Realistically, both of these facts are true. Two things are for certain, Indiana voters are not afraid to split their ticket and they are not as close-minded as they are generally perceived to be. I'm not sure why the GOP has dominated the presidential landscape so much here for so long. We've had Democrats serving both in the Governor's mansion and in the U.S. Senate.
2004 data sourced here and 2008 data sourced here.
United Liberty
I'd like to thank the folks over at United Liberty as they have invited (allowed) Nicole and I to become contributors. Please add the site to your bookmarks!
My first post there is available here.
We will continue to maintain this site. So, don't go away! We'll also link up any articles that we post there.
Thanks for your support - and keep the comments coming. It's fun, educating, and good to see engagement.
My first post there is available here.
We will continue to maintain this site. So, don't go away! We'll also link up any articles that we post there.
Thanks for your support - and keep the comments coming. It's fun, educating, and good to see engagement.
Tuesday, November 4, 2008
Election Time! Results
Well, congratulations to Barack Obama. He ran a great campaign and has clearly inspired millions.
I'm still not sure I know what they are all hoping for... it must be something good. So, I hope they are not disappointed. Well, maybe I do - it depends on what they are hoping for. But, anyhow, I'm glad he beat McCain.
In Indiana, Daniels won easily. Horning looks like he'll only get 2%. Bummer. The GOP fared much better in the House races than I expected. Lots of split ballots as the presidential race is very close here as I type.
I'll work on my prediction skills for 2010.
I'm still not sure I know what they are all hoping for... it must be something good. So, I hope they are not disappointed. Well, maybe I do - it depends on what they are hoping for. But, anyhow, I'm glad he beat McCain.
In Indiana, Daniels won easily. Horning looks like he'll only get 2%. Bummer. The GOP fared much better in the House races than I expected. Lots of split ballots as the presidential race is very close here as I type.
I'll work on my prediction skills for 2010.
Election Time! IN Gubernatorial Race
Indiana - Governor
Incumbent: Mitch Daniels (R)
Challengers: Jill Long Thompson (D), Andy Horning (L)
Honestly, I've run out of time to do a thorough review of this race. I have watched two and a half debates between these candidates and done a bit of research. Thompson offers nothing of substance. Daniels has been a pretty good governor and backed up his game at the debate. But, Horning shines as one of the best examples of a libertarianism out there today. My only advice to him would be to explain how he intends to reverse government power instead of his ad nauseum plea to voters to read the Indiana Constitution.
Endorsement: Horning
Prediction: Daniels
Incumbent: Mitch Daniels (R)
Challengers: Jill Long Thompson (D), Andy Horning (L)
Honestly, I've run out of time to do a thorough review of this race. I have watched two and a half debates between these candidates and done a bit of research. Thompson offers nothing of substance. Daniels has been a pretty good governor and backed up his game at the debate. But, Horning shines as one of the best examples of a libertarianism out there today. My only advice to him would be to explain how he intends to reverse government power instead of his ad nauseum plea to voters to read the Indiana Constitution.
Endorsement: Horning
Prediction: Daniels
Monday, November 3, 2008
Election Time! IN 9th District
U.S. Congress - Indiana's 9th District
Incumbent: Baron Hill (D)
Challengers: Mike Sodrel (R), Eric Schansberg (L)
The ninth district encompasses southern Indiana including the suburbs of Louisville, Bloomington (the home of Indiana University), and Columbus. This will be the fourth straight match-up between Hill and Sodrel. Hill has a two-to-one edge. Schansberg received a respectable 4% in 2006.
Baron Hill is another Indiana Blue Dog. His bill sponsorship is characterized (by GovTrack) as quite moderate like we've seen from other Indiana Blue Dogs. After reading his positions on the issues, I'd characterize him as slightly less moderate - a little more to the left than the other Blue Dogs we've profiled.
Mike Sodrel served one term in Congress (2005-2007). He has been a small businessman predominantly in the trucking industry. With this background, he places a lot of focus on lower taxes, advocating the fair tax, and is unafraid to bring home the bacon to his district. I'd consider him to be a fairly practical Republican. His campaign site does not discuss his foreign policy views.
Eric Schansberg holds a Ph.D. in Economics and teaches at Indiana University Southeast. He has a respectable website (not that that makes him qualified) and brings his Libertarian views and economics background to his campaign. He has also studied and written on public policy. Schansberg is against ongoing action in Iraq, corporate tax subsidies, and most forms of government intervention.
Endorsement: Schansberg
Prediction: Hill
Incumbent: Baron Hill (D)
Challengers: Mike Sodrel (R), Eric Schansberg (L)
The ninth district encompasses southern Indiana including the suburbs of Louisville, Bloomington (the home of Indiana University), and Columbus. This will be the fourth straight match-up between Hill and Sodrel. Hill has a two-to-one edge. Schansberg received a respectable 4% in 2006.
Baron Hill is another Indiana Blue Dog. His bill sponsorship is characterized (by GovTrack) as quite moderate like we've seen from other Indiana Blue Dogs. After reading his positions on the issues, I'd characterize him as slightly less moderate - a little more to the left than the other Blue Dogs we've profiled.
Mike Sodrel served one term in Congress (2005-2007). He has been a small businessman predominantly in the trucking industry. With this background, he places a lot of focus on lower taxes, advocating the fair tax, and is unafraid to bring home the bacon to his district. I'd consider him to be a fairly practical Republican. His campaign site does not discuss his foreign policy views.
Eric Schansberg holds a Ph.D. in Economics and teaches at Indiana University Southeast. He has a respectable website (not that that makes him qualified) and brings his Libertarian views and economics background to his campaign. He has also studied and written on public policy. Schansberg is against ongoing action in Iraq, corporate tax subsidies, and most forms of government intervention.
Endorsement: Schansberg
Prediction: Hill
Election Time! IN 8th District
U.S. Congress - Indiana's 8th District
Incumbent: Brad Ellsworth (D)
Challenger: Greg Goode (R)
The 8th district covers western Indiana including Evansville, Terre Haute and Greencastle. Several universities can be found here: Evansville University, Indiana State, Rose Hulman Institue of Technology, DePauw, and Vincennes University. Other than Evansville and Terre Haute, most of the district is rural.
Brad Ellsworth entered Congress in 2006 defeating six-term incumbent John Hostettler. This has been a hotly contested district where Hostettler faced tough opposition almost every election until losing in a landslide. Ellsworth is one of the most conservative Democrats, a Blue Dog, in Congress. We've already profiled a couple other Blue Dogs, and Ellsworth is probably the most conservative of any of them.
Greg Goode has spent most of the last several years serving as an advocate for Indiana State University on government affairs. After reading his stance on the issues, I'd describe him as a bit of a Pat Buchanan style Republican. Although, he does appear to be opposed to a Palestinian state. His is an ardent supporter of the extension of I-69 from Indianapolis to Evansville in hopes it will be a benefit for the local economy. Despite being opposed to the "encroaching policies" of the U.N., he supports legislation which will "ensure that the companies in foreign countries will have to abide by the same labor, environmental, and occupational safety laws as American companies."
This is a toss-up for me. I've come to find the Blue Dogs to be quite reasonable, and while Goode supports a lot of conservative principles which I agree with, he also has a social agenda hints of authoritarianism.
Endorsement: Ellsworth
Prediction: Ellsworth
Incumbent: Brad Ellsworth (D)
Challenger: Greg Goode (R)
The 8th district covers western Indiana including Evansville, Terre Haute and Greencastle. Several universities can be found here: Evansville University, Indiana State, Rose Hulman Institue of Technology, DePauw, and Vincennes University. Other than Evansville and Terre Haute, most of the district is rural.
Brad Ellsworth entered Congress in 2006 defeating six-term incumbent John Hostettler. This has been a hotly contested district where Hostettler faced tough opposition almost every election until losing in a landslide. Ellsworth is one of the most conservative Democrats, a Blue Dog, in Congress. We've already profiled a couple other Blue Dogs, and Ellsworth is probably the most conservative of any of them.
Greg Goode has spent most of the last several years serving as an advocate for Indiana State University on government affairs. After reading his stance on the issues, I'd describe him as a bit of a Pat Buchanan style Republican. Although, he does appear to be opposed to a Palestinian state. His is an ardent supporter of the extension of I-69 from Indianapolis to Evansville in hopes it will be a benefit for the local economy. Despite being opposed to the "encroaching policies" of the U.N., he supports legislation which will "ensure that the companies in foreign countries will have to abide by the same labor, environmental, and occupational safety laws as American companies."
This is a toss-up for me. I've come to find the Blue Dogs to be quite reasonable, and while Goode supports a lot of conservative principles which I agree with, he also has a social agenda hints of authoritarianism.
Endorsement: Ellsworth
Prediction: Ellsworth
Election Time! IN 7th District
U.S. Congress - Indiana's 7th District
Incumbent: André Carson (D)
Challenger: Gabrielle Campo (R)
The seventh district of Indiana covers the large majority of Indianapolis - excluding only bits and pieces assigned to the fifth and sixth districts. This area has been a stronghold of the Democrats having an incumbent for 42 of the last 44 years.
André Carson won a special election earlier this year after his grandmother, the incumbent Julia Carson, passed away. He went on to win the Democratic primary shortly thereafter and faces limited opposition in this race as the Republicans declined to contest the seat with any fervor. Carson has only been in Congress a short time and is the youngest Democrat in Congress at the age of 34. His philosophy on the issues is for the government to spend money on problems. You've probably figured out by now that I am not a fan of that. Interestingly, he takes a pretty tough stand on illegal immigration. Carson voted against the bailout the first time, but caved into the political pressure and voted for it after passage in the Senate.
Gabrielle Campo failed to receive the Republican nomination in the special election last spring. After Jon Elrod lost to Carson, the GOP decided not to fight hard this fall and concentrate elsewhere. So, it is the 27 year old Campo who gets a shot at Carson. She is a social worker, and a Republican who leans a bit more to the left than most. She states her primary focus will be upon energy, jobs and education advocating renewable energy coupled with consumer choice and promoting choice in education.
(There is an official write-in candidate for the GOP named Delbert Suits. I'm not going to cover write-ins.)
Endorsement: Campo
Prediction: Carson
Incumbent: André Carson (D)
Challenger: Gabrielle Campo (R)
The seventh district of Indiana covers the large majority of Indianapolis - excluding only bits and pieces assigned to the fifth and sixth districts. This area has been a stronghold of the Democrats having an incumbent for 42 of the last 44 years.
André Carson won a special election earlier this year after his grandmother, the incumbent Julia Carson, passed away. He went on to win the Democratic primary shortly thereafter and faces limited opposition in this race as the Republicans declined to contest the seat with any fervor. Carson has only been in Congress a short time and is the youngest Democrat in Congress at the age of 34. His philosophy on the issues is for the government to spend money on problems. You've probably figured out by now that I am not a fan of that. Interestingly, he takes a pretty tough stand on illegal immigration. Carson voted against the bailout the first time, but caved into the political pressure and voted for it after passage in the Senate.
Gabrielle Campo failed to receive the Republican nomination in the special election last spring. After Jon Elrod lost to Carson, the GOP decided not to fight hard this fall and concentrate elsewhere. So, it is the 27 year old Campo who gets a shot at Carson. She is a social worker, and a Republican who leans a bit more to the left than most. She states her primary focus will be upon energy, jobs and education advocating renewable energy coupled with consumer choice and promoting choice in education.
(There is an official write-in candidate for the GOP named Delbert Suits. I'm not going to cover write-ins.)
Endorsement: Campo
Prediction: Carson
Loose Ends... Vol. XV
It's late again tonight. I'm watching a heated "episode" of Prime Minister's Questions on C-SPAN. The Brits were extra rowdy on Wednesday.
I need to get to sleep. It's been a long weekend with family activities, and I have at least four more races to profile tomorrow!
So, I'm only going to remind you all of one concept. The government does nothing to generate revenue other than taxing its citizens and businesses. Every time you hear a politician, "media-tainment" professional, or friend say that the government should do this or pay for that... replace the word government with your own name. And remember that you have no choice in the matter if your elected (or, in the case of Ben Bernanke or Hank Paulson, unelected) officials decide to take your money.
I'm not heartless. In fact, I believe strongly in the power and existence of altruism. We can make our own decisions.
Talk to you tomorrow...
I need to get to sleep. It's been a long weekend with family activities, and I have at least four more races to profile tomorrow!
So, I'm only going to remind you all of one concept. The government does nothing to generate revenue other than taxing its citizens and businesses. Every time you hear a politician, "media-tainment" professional, or friend say that the government should do this or pay for that... replace the word government with your own name. And remember that you have no choice in the matter if your elected (or, in the case of Ben Bernanke or Hank Paulson, unelected) officials decide to take your money.
I'm not heartless. In fact, I believe strongly in the power and existence of altruism. We can make our own decisions.
Talk to you tomorrow...
Sunday, November 2, 2008
Election Time! IN 6th District
U.S. Congress - Indiana's 6th District
Incumbent: Mike Pence (R)
Challengers: Barry Welsh (D), George Holland (L)
The sixth district covers eastern Indiana including the cities of Richmond, Anderson and Muncie, the home of Ball St. University.
Mike Pence has served in Congress since 2000. He has risen to be a visible lead of the Republican Party - previously serving as chairman of the Republican Study Committee. As you'd expect, he shares many of the same values and positions which we've explored with other members of the GOP such as Buyer and Burton. While Pence was a vocal and visible opponent of the recent bailouts, he has also pushed for the abolition of online gambling and is an unwavering supporter of the war in Iraq.
Barry Welsh was defeated by Pence in 2006 and has received the Democrats' nomination to run again. Welsh is a former pastor, schoolteacher and radio personality (incidentally, Pence is also a former radio guy). He holds a pretty standard, "liberal" view on most of the issues. He calls for troops to come home from Iraq, but is careful to reinforce that he supports the troops. His key issues seem to be his stance for improved public education and views against privatization. His clever reminder is that we are a "RePUBLIC" not a "RePRIVATE". Cheesy.
George Holland is another example of why the Libertarian Party is not taken seriously by so many people. Holland has some valid and intellectual points, but will be written off as a crackpot, or at least a conspiracy theorist by the vast majority of Americans. He cannot be considered a legitimate candidate. While Holland and the LP are surely aware that their chances of winning are slim to none (under ideal conditions), they need to be reminded of that great Herm Edwards quote: "You play to win the game."
This kind of stinks again. For similar reasons...
Endorsement: Pence
Prediction: Pence (in a close one)
Incumbent: Mike Pence (R)
Challengers: Barry Welsh (D), George Holland (L)
The sixth district covers eastern Indiana including the cities of Richmond, Anderson and Muncie, the home of Ball St. University.
Mike Pence has served in Congress since 2000. He has risen to be a visible lead of the Republican Party - previously serving as chairman of the Republican Study Committee. As you'd expect, he shares many of the same values and positions which we've explored with other members of the GOP such as Buyer and Burton. While Pence was a vocal and visible opponent of the recent bailouts, he has also pushed for the abolition of online gambling and is an unwavering supporter of the war in Iraq.
Barry Welsh was defeated by Pence in 2006 and has received the Democrats' nomination to run again. Welsh is a former pastor, schoolteacher and radio personality (incidentally, Pence is also a former radio guy). He holds a pretty standard, "liberal" view on most of the issues. He calls for troops to come home from Iraq, but is careful to reinforce that he supports the troops. His key issues seem to be his stance for improved public education and views against privatization. His clever reminder is that we are a "RePUBLIC" not a "RePRIVATE". Cheesy.
George Holland is another example of why the Libertarian Party is not taken seriously by so many people. Holland has some valid and intellectual points, but will be written off as a crackpot, or at least a conspiracy theorist by the vast majority of Americans. He cannot be considered a legitimate candidate. While Holland and the LP are surely aware that their chances of winning are slim to none (under ideal conditions), they need to be reminded of that great Herm Edwards quote: "You play to win the game."
This kind of stinks again. For similar reasons...
Endorsement: Pence
Prediction: Pence (in a close one)
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