Category Archives: Politics – General

How to win this particular war

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War on TerrorIn the context of the ten-year anniversary of the 9/11 attacks, Spencer Ackerman reminds us of the point that James Fallows and others have been making for over five years – the most effective way to defeat terrorism is to refuse to be terrorized:

In case you haven’t noticed, hysteria is what the terrorists want. In fact, it’s the only win a decapitated, weakened al-Qaida can get these days. The only hope that these eschatological conspiracy theorists possess for success lies in compelling the U.S. to spend its way into oblivion and pursue ill-conceived wars. That’s how Osama bin Laden transforms from a cave-dwelling psycho into a world-historical figure — not because of what he was, but because of how we reacted to him.

And that points to the only way out of a trap that’s lasted a decade. It has nothing to do with national security and everything to do with politics. The U.S. has to embrace the reality that terrorism is not anything remotely like the existential threat we make it out to be. We can honor those 2,996 without being permanently haunted by them.[.  .  .]

The risk, in other words, is a political risk. The culture of fear: It’s a bipartisan race to the bottom. And it’s why the National Security State constructed by the George W. Bush administration has found a diligent steward in President Obama. Asked recently if the post-9/11 security apparatus might diminish soon now that al-Qaida looks weak, Janet Napolitano, the secretary of homeland security, replied, “No.” [.  .  .]

Only when citizens make it acceptable for politicians to recognize that the threat of terrorism isn’t so significant can the country finally get what it really needs, 10 years later: closure.

Read the entire piece. That citizens still have to endure such outrages as security theater reinforces the truth of what Ackerman writes.

“A cunning tax on everyone else”

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government_bailout1-260x223If you don’t read anything else this Labor Day weekend, check out this Nassim Taleb/Mark Spitznagel op-ed on the impact of dubious government bailout of Wall Street and big banks over the past several years:

For the American economy – and for many other developed economies – the elephant in the room is the amount of money paid to bankers over the last five years. In the United States, the sum stands at an astounding $2.2 trillion. Extrapolating over the coming decade, the numbers would approach $5 trillion, .  .  . That $5 trillion dollars is not money invested in building roads, schools and other long-term projects, but is directly transferred from the American economy to the personal accounts of bank executives and employees.

Such transfers represent as cunning a tax on everyone else as one can imagine. It feels quite iniquitous that bankers, having helped cause today’s financial and economic troubles, are the only class that is not suffering from them – and in many cases are actually benefiting.

As I’ve been saying for years, it’s not rocket science.

The flawed theory of bailout

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bailout3-300x290A couple of items from over the weekend are well worth reading for those who are interested in financial health of the U.S.

First, the Wall Street Journal’s Holman Jenkins, Jr. notes that Bank of America’s declining value reflects that the federal government’s bailout of Wall Street during the financial crisis of 2008 has been of dubious merit:

Let’s revisit the theory of the bailout. The government holds a safety net under the financial system, preventing a worse panic, with consumers and business cutting back spending more radically, with more people losing jobs, with more houses going into foreclosure.

It made sense on paper and underlies claims today that the government has been a net profiter from its bailout activities.

But it becomes apparent that the 2008 crisis isn’t over. And our bailout strategy?

In one presumed lesson of the Great Depression, a splurge of deficit-financed spending is supposed to support the economy while consumers and businesses get over their shellshock. But as George Soros noted to Der Spiegel, the U.S. government in the 1930s wasn’t saddled with huge debt. Unless today’s deficit spending is visibly directed at projects with a positive return, he says, it just frightens the public that the government itself is going bankrupt.

Meanwhile, this Bradley Keoun and Phil Kuntz/Bloomberg article reports that the Federal Reserve loaned an astonishing $1.2 trillion to Wall Street during the 2008 crisis. Interestingly, that amount is roughly equal to the amount that U.S. homeowners currently own on 6.5 million delinquent and foreclosed mortgages.

The foregoing does not surprise regular readers of this blog. Efficient operation of markets depend in large part on the allocation of losses based on who took the risk of loss. Remove the consequences of that risk and the result is that the politically well-connected profit, not necessarily those who carefully assessed and hedged risk.

Remember, it’s not rocket science.

So, why shouldn’t the rich pay more taxes?

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warren_buffet_0Warren Buffett’s NY Times op-ed of last week generated a substantial dose of self-righteous indignation.

I mean, really. If someone as wealthy as Warren Buffett thinks that the mega-rich people should pay more taxes, then why shouldn’t they?

Although the issue seems so simple, as with many things in life, it’s not.

Apart from the fact that Buffett is not averse to taking positions that protect himself at the expense of others, the taxes that the mega-rich pay are already highly disproportionate. 

And as Jeff Miron notes, assessing even an additional 10% surcharge on taxpayers earning over $1 million would not generate enough to make a meaningful difference in reducing the budget deficit. Miron zeroes in on Buffett’s error in reasoning in the following passage:

Buffett errs, most fundamentally, by focusing on outcomes rather than policies. The right question is which policies promote differences in incomes that reflect hard work, energy, innovation and creativity, rather than reward the unethical, the politically connected and the tax-savvy.

In economics, as in sports, we should adopt good rules and insist that everyone play by them. Then we should stand back and applaud the winners.

Indeed, check out what David Logan discovered when he crunched the numbers:

So taking half of the yearly income from every person making between one and ten million dollars would only decrease the nation’s debt by 1%. Even taking every last penny from every individual making more than $10 million per year would only reduce the nation’s deficit by 12 percent and the debt by 2 percent. There’s simply not enough wealth in the community of the rich to erase this country’s problems by waving some magic tax wand.

Finally, to put everything in perspective, think about what would need to be done to erase the federal deficit this year: After everyone making more than $200,000/year has paid taxes, the IRS would need to take every single penny of disposable income they have left. Such an act would raise approximately $1.53 trillion. It may be economically ruinous, but at least this proposal would actually solve the problem.

And as Charles Koch and Harvey Golub note, it’s not as if government has distinguished itself in the way in which it has used tax revenues.

Meanwhile, Peter Gordon insightfully points out why indulging in class warfare against the wealthy is dangerous.

Timothy Snyder’s Bloodlands (Basic, 2010) reminds us of the horrors of what occurs when the dynamics of racial and class warfare collide.

Are those who fan such flames confident that similar outrages could not happen here and now?

Or do they even care? 

So, what’s the plan?

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It’s mostly about trust

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standard-poorsIn early 2005, back when Eliot Spitzer was taking his first pot-shots at American International Group, Inc., I wrote this blog post explaining how even mighty AIG could suffer a fate similar to that of Enron Corporation.

Inasmuch as AIG had a net worth of about $80 billion at the time coming off a previous year of $11 billion in net income on almost $100 billion in revenues, no one (including me) thought there was much of a chance that what I was suggesting could happen to AIG would actually happen to the firm.

Less than four years later, AIG would have suffered the same fate as Enron but for a massive federal government bailout.

The lesson here is that if creditors trust the federal government, then the government’s credit standing will remain high regardless of what the New York analysts say. In reality, the market rates the government’s credit continuously each moment of every day. Just look at fluctuations in interest rates on government debt.

So remember, regardless of what the Washington pols suggest, this is not rocket science.

Quite simply, it’s mostly about trust.

The one-dimensional man

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The late Duke University philosophy professor Rick Roderick talks about, among other things, the underpinnings of the drug culture of the United States.

The cult of overcriminalization

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scales-of-justice-150x150Last week, this Gary Fields/John Emshwiller article addressed an issue that this blog has hammered on for years – the absurd overcriminalization of life in the United States:

The U.S. Constitution mentions three federal crimes by citizens: treason, piracy and counterfeiting. By the turn of the 20th century, the number of criminal statutes numbered in the dozens. Today, there are an estimated 4,500 crimes in federal statutes, according to a 2008 study by retired Louisiana State University law professor John Baker.

There are also thousands of regulations that carry criminal penalties. Some laws are so complex, scholars debate whether they represent one offense, or scores of offenses.

Counting them is impossible. The Justice Department spent two years trying in the 1980s, but produced only an estimate: 3,000 federal criminal offenses.

The American Bar Association tried in the late 1990s, but concluded only that the number was likely much higher than 3,000. The ABA’s report said "the amount of individual citizen behavior now potentially subject to federal criminal control has increased in astonishing proportions in the last few decades."

A Justice spokeswoman said there was no quantifiable number. Criminal statutes are sprinkled throughout some 27,000 pages of the federal code. [.  .  .]

Great point, but it would have been more meaningful had the WSJ admitted its complicity in promoting the overcriminalization culture in the first place.

Oh well. This Heritage Foundry post does a good job of placing the overcriminalization issue in perspective.

My question is this: Is it reasonable to think that it is possible for Congress to curtail overcriminalization when Congress to date has been incapable of striking down something as clearly unreasonable as the abuses of security theater?