Animal Spirits Pt. 4: Conclusion

Having finished this book, I can say I do like what I've read. Certainly I don't agree with every conclusion they've reached, nor do I agree with every analysis. But their approach is certainly more valid than the approach made by even the standard economics stories I'm familiar with. In a way, by acknowledging the fact that individual and cultural variations make most dry quantitative approaches to economic study less than helpful, their approach has more in common with the approach promoted by Ludwig Von Mises than that of those labeled Kensian and Monetarist.

That's not to say they are the same. Where Mises described a discipline that stuck to exploring the structure of logic that can be built upon certain basic, knowable facts (including the fact that human motivations are infinite and complex), Akerlof and Shiller explore the impact of specific psychological and cultural information on economic analysis. Indeed, were one to engage in a multidisciplinary approach that deliberately combined Misesian praxeology with psychology and cultural studies, it would likely look something like this (assuming the reader can accept that "Misesian" and "Rothbardian" are not necessarily the same, and that two people can attempt the same approach and, thanks to the role "understanding" plays in the comprehension of complex phenomena, can come to different conclusions). I can only hope their ideas have some effect on the overall profession.

So this book is a starting point, though I suspect there is a hurdle the authors are not anticipating. They speak of the role of "animal spirits" (and yes, they are using the term in the fashion I had hoped when I wrote Part 1) in shaping the overall economic and driving economic events. They say government regulation is an appropriate remedy to the excesses that can be caused by these "animal spirits". The question then becomes: how do we get appropriate policy out of the government? For it is not only the overall economy in which "animal spirits" plays a role; it is also in politics, and administration, that human motivation plays an important role.

In other words, would would be the result of applying "animal spirits" theory to public choice theory? For the government isn't a machine that inputs information and outputs policy: it, too, is made up of human beings with diverse motives. It, too, suffers from the effects of a confidence cycle, corruption, notions of fairness that may or may not be good for the overall output, changing stories, and other things identified as "animal spirits." Any policy recommendation resulting from an analysis must take this into account as surely as the original analysis must.

Animal Spirits Pt. 3: Natural Wage Theory, Money Illusion, and Wages

I just finished reading Chapter 9 of Animal Spirits. Now I see the point of criticizing Natural Rate Theory. I mentioned in an earlier installment that I suspect that, over the long time, wages will tend to track inflation, but lag behind. Akerlof and Shiller appear to be saying that this is precisely the point. Steady inflation holds wages at a lower level, one which allows a lower level of unemployment. Employers can grant employees raises for the financial purpose of keeping it in line with the purchasing power of money, while still giving the employee the feeling that they are being rewarded for their efforts. In the absence of inflation, the employer can't afford to give so many raises, the employee feels he's not being treated fairly, and worker productivity falters. So, in their analysis, because of money illusion and fairness, a certain level of inflation is required to keep productivity up.

Outside factors they failed to take into account (which I will get into below), I can find no fault with their analysis. Particularly in a world in which people have, over multiple generations, come to regard raises as a regular obligation, perceived unfairness (that very phrase is redundant, given all fairness is subjective) could well result in productivity losses in the absence of inflation-motivated raises.

Of course, this likely leads to the recommendation that a level of inflation should be maintained at all times. Further, it makes something like a commodity money seem untenable. However, there is something else to put into the analysis: the credit cycle. Wages are downwardly rigid, therefore deflation can damage employment levels, as falls in wages fail to keep pace with falls in other prices. But what if "fractional reserve" banking were abolished, and therefore the bank created inflation that ultimately leads to deflation never occurred in the first place? The downward rigidity of wages could become irrelevant, in this scenario. But then, it could also lead to an extended (possibly multigenerational, meaning it would be politically unsustainable in reality) period of adjustment, until people finally realized psychological satisfaction is not going to come from making the numbers bigger.

It's a big hurdle to get over. From a strictly logical standpoint, wages generally rising over time, but lagging behind prices is not as good for workers as wages falling slowly but lagging behind prices. But falling prices, though it is good for a person whose wages have not yet fallen, is an impersonal phenomenon. Rising wages, though, feel like a personal reward, even if the employer is only keeping the wage in line with rising prices, and even lagging behind. The gradual price drops of a stable money supply may be better for workers materially, but rising wages, even insufficient to cover rising prices, are more emotionally satisfying.

Were it not for the dangers inherent in a fiat token-based (whether paper or digital) currency (which we are seeing today, as the results of bad monetary policy hit the economy like a hurricane), a fiat currency would definitely be better... IF the money supply expanded evenly. Unfortunately for fiat money supporters, it does not. Industries grow beyond what they should because of investment bubbles, and then people lose their savings, workers lose time building knowledge and experience in bad industries (not to mention their jobs for no good reason), people lose confidence (which the authors just spent a chapter talking about). I'm presently convinced the negatives of fiat money and an inflationary policy outweigh the negatives.

That, and I have moral difficulties with the idea of a monetary elite making things better by deliberately deceiving laborers.

Worst Case Scenario

It occurs to me the world could actually end (or rather, begin to unravel) in 2012. This has little to do with Mayan calendars and what not, and more to do with the potential consequences of the unraveling of the final bubble, the bond market. In the late nineties bubble money fled from the stock market on the wake of the tech boom, into the real estate market. Real estate collapsed, and bubble money has fled into gold and bonds. What will happen when the bond market collapses? Will the gold market collapse?

2012, the bond market collapses. Many, many businesses find themselves unable to roll over their debts, and aside from those businesses politically connected enough to receive the next round of bail-outs, many businesses fail, and unemployment doubles, at least. The government rolls its own debt into a much higher interest rate, and debt-servicing beings to swallow a majority of government revenues. Those who continue to work pay out ever more taxes to finance the debt as services are reduced.

The tug-of-war over public funds intensifies to something more like a real war, as those with wealth held in treasuries pour enormous amounts of money into the political system to ensure that the idea of repudiating even a portion of the debt never sees the light of day. This further corrupts the two-party system, as increasing numbers of Americans come to realize they simply are not represented, and find any efforts to change this thwarted by the rigidity of the two parties, in the thrall of all this political money.

Riots break out at various places and time over the government's increasing inability to pay out social security, medicare, and other welfare "entitlements", the political system mostly denied to them. The democratic system begins to break down. Radical cutting of military spending results in a combination of large numbers of unemployed, militarily trained young men and resentful elements of the former military-industrial complex. Brigandry and the necessary government response (which brings many military suppliers back into the money stream) result.

This occurring all over the world, the largest country without debt problems, China, begins the process of establishing hegemony over most of Asia, and carving out sizeable spheres of influence in Africa. Most of the mainland countries fall into China's orbit without complaint. Russia and China maintain a low level of conflict over spheres of influence in the central asian countries between them. Violence erputs in Taiwan between pro-Washington and pro-Beijing forces, and China moves in to forcibly re-establish order. Either this, or a war between China and Japan, trigger war between the United States and China. The war is brief, and the US leaves just as quickly as it entered, as the American economy finally collapses completely under the strain, governments collapse with it, law and order collapses, all vestiges of civil society collapse, plunging most of the Western world into a new dark age. This assumes nuclear weapons are not a factor.

Even without them, the total break-down of the division of labor in the Western world results in a severe drop in the efficiency of the use of natural resources... resulting in unmitigated environmental disaster as people desperately try to survive in the absence of a functioning market, concerning themselves more with day-to-day survival than long-term viability.

All of this begins with the collapse of the bond market bubble. Stocks can collapse, and we're okay. Real estate can collapse, and still we're fine. But when the bond market collapses, it will affect the ability of the government, itself, to meet its own obligations.

Animal Spirits Pt. 2: Money Illusion

I am unfamiliar with the term "money illusion", but from what I'm gathering from this chapter as I read it, this refers to the failure by many people to account for changes in the purchasing power of money in their financial planning. In short, the term "money illusion" is kind of like the inverse of another term I am familiar with, "Neutrality of money". Most economists operation under the assumption that money is a neutral medium of exchange. Akerlof and Shiller, in advocating a return to the idea of "money illusion", appear to be saying something similar to what is said in Misesian circles: that money is not neutral.

As evidence of this money illusion, the authors point out that the vast majority of labor contracts fail to include wage increases to account for cost-of-living increases. In other words, in the vast majority of cases, workers bargain in monetary terms, not in "real" terms. But, there is another explanation other than "money illusion". It could be that both sides are simply less concerned with future prices than they were with current prices. The workers want to get as much as they can right now, gambling that future negotiations will enable them to keep up with the costs of living. The employers want to avoid built-in cost increases, and gamble that future negotiations will enable them to avoid excessive wage increases. Since nobody can truly predict the future, neither side can effectively negotiate in terms of future wages.

Then again, that whole argument could be the same thing as "money illusion". I'm still not sure what it means, exactly.

Still, if it is true that, as Akerlof and Shiller assert, conventional economists (I suspect they are referring to monetarists here) actually make the assumption that people see through the veil of inflation naturally... I weep for the profession. I suspect, however, that there is more to it than this.

In the sort term, of course many people are going to fail to account for inflation. People differ in their degree of financial savvy. Furthermore, people who maintain minimal savings have little to lose from inflation (aside from wage erosion, but those are not entirely under their control in the first place), and thus have little incentive or opportunity to think in terms of inflation. So if monetarists, when they say people behave "rationally" and "see past" inflation (in the authors' words), actually mean people are smart and know about inflation... obviously they fail. Hard.

However, though wages for unskilled labor will always tend to lag behind inflation, they will also tend to track inflation, quite in spite of the worker's lack of knowledge about inflation. For workers are not aiming at a specific level of "real wages". They are simply trying to get as much value out of their jobs as possible (including money, but also including such intangibles as job satisfaction, job security, risk aversion both physical and psychological, etc.). Likewise, their employers are not trying to maintain some specific "real value" in their wage rates, but are rather, day to day, simply trying to get as much value out of as little money as they can. Inflation is entirely irrelevant in this calculation, so long as both parties are dependent on that third, unassailable economic force: the consumer, who is simply trying to get as much value for as little money as possible, also. (Most labor contracts I am familiar with that include COLAs are those of government workers, such as teachers, who are not dependent on the consumer, but rather the taxpayer and the voter; entirely different incentives apply.)

So as workers move from job to job, they will tend to go with the highest bidder, regardless of who that is. Someone who fails to get a raise he thinks he deserves may attempt to move to a different company. A company that finds its wages too high and finds themselves unable to lower those wages will tend to look for excuses to fire overpaid workers outright, replacing them with new workers with whom they can negotiate lower wages. Whether either party will be successful is ultimately not up to either the employers and the workers, regardless of whether or not they "understand" inflation, but to market conditions as dictated by the consumers.

However, "money illusion" will still tend to skew the economy. Downward wage rigidity is part of this. Consumer resistance to price rises is another. The "wealth effect", in which people tend to spend more when the monetary value of their assets rises despite the unchanged form of those assets, is another. All these forms of resistance will ultimately crumble in the long term, as market realities force reassessments; however, these "money illusion" phenomena do tend to transform what should be gradual changes over time into sudden and traumatic lurches, which skew perceptions and beliefs even more.

At this point in the book, the authors have failed to point out the source of money illusion. Some changes in prices simply reflect changes in consumer disposition: a price for one thing drops because consumers value it less today than they did yesterday, or because costs in producing this good have dropped; a price for another thing rises, because consumers value it more today than they did yesterday, or because production costs have risen. However, when ALL prices rise, it can only be because consumers value the money, itself, less today than they did yesterday, OR because the supply of money itself has risen. And there is only one entity with the power to increase the money supply to the degree it has over the twentieth century: the State. This "illusion" is not a natural phenomenon: it is man made. I hope to see Akerlof and Shiller point out this fact later in the book.

Animal Spirits

A friend of mine and I occasionally discuss questions of politics and economics. He recently read George A. Akerlof's and Robert J. Shiller's Animal Spirits. At his recommendation, I am also reading it. Of course, I can't help but read it from the Misesian perspective I've been absorbing as I read through Von Mises's Human Action. I'll be using this space to comment as I read through.

I just finished the introduction. So far, I have only two problems with the text. The first is the implication that the Classical model of economics (which Akerlof and Shiller are calling "traditional economics") was somehow the last word in economics before the entire profession was awakened by first the Great Depression and, today, this recent series of closely followed crashes. This is not true, as in both cases there were those who successfully predicted the events (and were at the time universally derided for it). Ludwig von Mises, for example, successfully predicted the Great Depression as the inevitable result of Federal Reserve policy during the "Roaring Twenties." More recently, Peter Schiff, a follower of the same set of ideas, called this recent recession several years before it materialized.

There are similarities between the Misesian approach to economics, and the approach proposed by Akerlof and Shiller in this book, which brings me to the second problem I have: the terminology the authors chose to employ. For while "Animal Spirits" may have good book-selling shock value, the term is highly misleading in that it has both a surface meaning (the new-agey ideas about totems and ghosts and stuff the average reader would get from it) and the more archaic meaning the authors are using, which simply refers to the fact that human beings make their own decisions according to the world as they see it, rather than the world as it actually is (or rather, I dearly hope this is what they are getting at).

This is similar to Von Mises' approach, which he termed methodological dualism. Von Mises, in Human Action, briefly alludes to the philosophical debate about whether or not human beings have "souls" or "spirits", whether or not people have free will or are slaves to a chain of cause and effect going back billions of years that determines what we do. He then dismisses these questions as being outside the scope of economics and without satisfactory answer as of the writing (and even as of today, so far as I can tell). According to Mises, to be correct, the economist must theorize as if people have the ability to decide upon action independently of this chain of cause and effect the strict materialist believes determines our actions, since economics has no way of following this chain beyond the confines of the human mind (the way I always put it is that, from the perspective of economics, the mind is a black box), and psychology, as yet, cannot follow it reliably. Thus the term methodological dualism. The term "dualism" refers to the idea that there are two sources of "cause" in the universe: the physical chain of cause and effect that can be analyzed and predicted by the physical sciences, and the actions of human beings which cannot. The term "methodological" refers to the fact that the economist is laying no claim to the the truth of the idea of human free will... merely that this assumption is a requirement for economic analysis under the current scientific conditions.

In other words, these ideas are hardly new... they simply have never been taken seriously in the context of mainstream economics (whether neoclassical or Keynsian). I'm looking forward to getting to the meat of this book and seeing where the authors go with this.

Chinese Monetary Manipulation

Or "the pot calls the kettle black".

Unless you've just not been following the news at all lately, you might have noticed that there is some controversy between the governments of the United States and China over Chinese policy with regard to the value of their Renminbi against the US Dollar. It is said that, by devaluing their currency, the Chinese government is impairing the ability of US manufacturers to compete with Chinese manufacturers, making their own export goods cheaper than US manufactured goods. To those who attempt to directly compete with Chinese manufacturers, this is a bad thing.

Rarely mentioned, due to certain parties' never-ending quest to confuse the intended results with actual policy, is the question of HOW the Chinese government goes about devaluing their currency against the US Dollar. The answer is simple: they buy US Dollars with newly issued Renminbi. This added demand for US Dollars raises the price of the Dollar in terms of the Renminbi. It also increases the price of the Dollar in terms of other things, as well.

This increase in the price of the Dollar influences Federal Reserve policy with regard to inflation. The tendency for prices to increase due to Fed policy is counterbalanced (to a degree) by the tendency for prices to fall due to Chinese central bank policy. In other words, the Fed happily supplies more dollars to meet Chinese central bank demand. Chinese monetary expansion is piggybacked on, and therefore dependent on, US monetary expansion.

This would not be a problem if China had nothing more to do with these dollars than to spend it on goods from the United States. Once they'd gained cash holdings of a certain size, it would no longer make sense for the Chinese bank to keep acquiring more. They'd have to start spending it on something, and this would begin the process of sending US Dollars back to the US, a new demand on US exports.

However, they do not do this. Instead, they buy Treasury bonds. This would result in the private holders of treasury bonds having additional cash to buy US goods, were it not for the fact that Congress gladly meets Chinese demand for treasury bonds by issuing more than they could otherwise get away with. In other words, Chinese monetary policy is also dependent upon Congressional fiscal policy.

In other words, in the absence of an irresponsible US monetary and fiscal policy, the Chinese could not continue their policy of devaluing the Renminbi relative to the Dollar indefinitely. It is US policy, not Chinese policy, that is to blame for the situation.

Letter to Rand Paul

During the primary season, I had a decision with regard to which libertarian Senate candidate to put my limited financial support towards, Rand Paul or Peter Schiff. I decided on Schiff. Schiff is a successful investor, a well educated Austrian economist with a track record of successfully predicting market movements. All I knew about Paul was that he his his father's son... though I had no idea how close or far this particular apple fell from the tree.

I hope I am wrong about this, but some of his recent comments suggest the apple is not so close as one might have hoped. His stumbling and backpedaling on the question of the Civil Rights Act show he lacks his father's political acumen. And his seemingly reflexively pro-Business (with a deliberately capital "B") stance on the BP oil spill show him to be unreflective, at the very least. This isn't to say I wouldn't vote for him were I a Kentuckian... just that he recent performance is underwhelming.

The following is a letter I sent via the contact form on his website.

I just wanted to say I was disappointed by your handling of questions regarding the appropriate reaction to the BP oil spill. The comments you've been reported as making on this subject suggest, I think, that you are less the complete Libertarian your father has managed to portray himself as.

The case of the BP oil spill is, IMO, a case where the two feuding branches of the Liberal family tree (Libertarianism and modern "liberalism") should be able to agree on the appropriate outcome, and quibble only over the means. Indeed, the libertarian response to BP's spill should be even more radical than the Progressive response.

Yes, "accidents happen", but responsible people cop to it and do whatever they must to make it right. And if government has any purpose, it is to (via tort law) force those who impose costs on others, for whatever reason, to compensate injured parties for that damage. It's the same, IMO, whether some drunk accidentally rams his car into the side of my house, some kid sprays paint over the side of my house, some burgler removes objects from inside my house, some power company dusts the siding with soot on a continual basis, or some oil company drenches my house in oil.

And the damage from this spill is going to be enormous, quite possible enough to bankrupt BP altogether if they were made to pay for it all... and that's just the property recognized by The State. When one considers the effects on the "commons" of the gulf region in general, and the people who live and work there, the number is staggering (and beyond my ability to calculate). One may not be hearing about BP not paying... but they don't have to say anything about it. Congress has already capped their liability.

I honestly don't really care why it happened, though some do, and I wasn't even remotely surprised, having worked in a number of corporate environments lead by overreaching, short-term thinkers, to hear that BP has a record of a cavilar attitude toward safety and preventative maintenance. And it's not surprising that any company in that industry would have this kind of problem, given Congress' consistent record of subsidizing unsafe practices by capping liability in such cases. It's starting to become a cliche, but we really do need to stop socializing risk.

And even if BP did everything "right", perhaps the decision to drill as deep as they did with the particular technology they used was too great a risk. I don't have a problem with people taking risks, but I do have a problem with people taking risks, collecting the proceeds when they win, but making their neighbors pay for it when they lose.

Your response should have been something along the lines of "I don't think we should disallow drilling at any depth or in any place outright... but I do think we should remove (not merely raise it as Bill Nelson proposed) the liability cap established under the 1992 law. The oil companies themselves are in a better position than anyone else to judge whether the practice can be done safely, and holding them accountable for the entire consequences of taking this risk (something not done today) would give them a clear incentive to do so only if it could be done safely." In other words, yes, the oil spill is a tragedy and BP needs to dig as deeply as it can, up to and including bankruptcy, to restore the property of those harmed by this tragedy, The solution is not more bureaucracy, as a progressive would have it, but rather plain old justice, holding people accountable for their mistakes.

Your father seemed to understand this while he was writing The Revolution: A Mainfesto. You don't seem to, or at least you weren't able to think of it while under the harsh spotlight you really should have seen coming.

Island Tales

Imagine an island. Imagine there are a hundred people living on it. Imagine ten of these people are free men, and the other ninety are slaves. Does this sound like a free society?

Now imagine a different island. On this island, all 100 are free men, but ten of them own all the land on the island. The other ninety have to somehow satisfy one of the ten to earn the privilege of existing on this island, let alone making their living off it... or learn to swim. Does this sound like a free society? How much different does it sound from the first example?

Let us imagine another. On this island, the Ten own 50% of the land on the island. Another twenty own another 30%. 20% of the land is unclaimed... for a reason. The other seventy must either eke out a living on the 20% margin, or satisfy one of the Twenty and Ten in order to make use of the good locations. Does this sound like a free society?

What do you suppose would happen to the lifestyles of the bottom seventy were twenty more people to shipwreck on the island? How about the lifestyles of the top ten?

Imagine the second island, but the Ten have been overthrown. The people of this island now fearfully cut down anyone who is more productive than normal for fear he may become a new Tenner. Does this sound like a free society?

Now imagine another island. On this island, 100% of the land is regarded as being owned by all in collective. People can claim and put to use unclaimed land at will. When multiple people wish to make use of the same land, a fifty-year lease is sold to one of the parties at auction, with the proceeds distributed to the other 99. Otherwise, people only get out what they put in... what they produce or receive from others willingly (either in trade or as a gift). Does this sound like a free society?

British Petroleum

Just some thoughts I had as I listened to the various radio stories on the big British Petroleum oil spill in the Gulf of Mexico.

There are a number of questions being asked in the media about this spill. Was it preventable? If so, whose fault was it? Does BP generally have a corporate culture that doesn't do preventative maintenance, a "fix it as it breaks" culture as one investigator in an earlier spill in Alaska put it? Is it the fault of bean counters at the top discouraging "unnecessary" maintenance? Is it the fault of lazy people closer to the problem? Is it BP's fault, or that of the subcontractor that operates the rig... or that of the manufacturer that made some crucial part? Or is it nobody's fault, they did everything they could, and it was really just an accident? Is deep water drilling just too risky? Should it even be allowed?

In my opinion, while the answers to all these questions are interesting, they are also irrelevant to anyone who is not in the business of offshore oil drilling. For no matter what the human contributions to the situation are, the solution is the same, in my opinion: make BP pay for ALL the damages caused by the incident, and for ALL cleanup efforts they are not directly engaged in, and if that bankrupts them, so be it.

If the spill is genuinely their fault, this is a no-brainer. Clearly, an organization responsible for a deep water oil rig takes on an enormous trust, and if they violated that trust by not doing everything they could to prevent such a spill, I think losing the business is getting off light, considering the magnitude of the disaster. A bankruptcy sale would result in the transfer of many such operations out of the hands of an organization that, in the event they're just not doing proper maintenance, clearly cannot be trusted at that level, and into the hands of other organizations that deserve a chance to prove themselves in exchange for some help reimbursing those affected by the incident.

Of course, if they can actually afford to pay out and continue doing business, and choose to continue offshore drilling in spite of the payout, clearly the value of the oil is greater than the risks involved.

If it's the fault of a contractor, BP is still the responsible party. If any part of the blame needs to be shifted off to the contractor, BP can do that themselves by suing the contractor, and getting some of the money from them that needs to be paid out to the various wronged parties. BP should not be able to wriggle out of its responsibilities by offering up the contractor as a scapegoat, able to go bankrupt with minimal damage to BP. For even if BP did EVERYTHING "right" from the perspective of the industry...

That only proves that there was one initial decision that turned out to be a very, very bad decision: the decision to drill at that location in the first place. I honestly don't care what the government has to say about it. Just because it's legal, it doesn't make it right, and people, even ginormous multinational corporations, should take responsibility for the consequences of their actions, even the unforeseen ones, even the unforeseeable ones... and if others are caught in those consequences and the responsible party attempts to dodge that responsibility--well, if that isn't a reason for having courts and governments, I don't know what is. We'd be genuinely better off without one, otherwise.

In the end, the bankruptcy of BP would send precisely the message to drillers and potential drillers that needs to be sent. For it is the companies involved in drilling and pumping who have the most direct interest in consulting scientists, engineers, and technicians, along with their accountants and lawyers, to figure out what the actual risks of drilling are relative to potential profits. Are the profits great enough to fund an insurance policy designed to handle just such a possibility while still being genuinely profitable? Was BP just a bad company, or are the risks simply too great, as revealed by this incident? The spill itself changes the information that goes into such considerations. And when justice is done, and done consistently, the consequences to the bottom line and the consequences to society become nearly synonymous... and the firms who will do the business become the most trustworthy assessors of risk.

Either way, the consequences to BP will be evaluated by BP, and by other companies according to the actual knowable facts. If companies don't believe they can get away with taking enormous risks (and this goes for drilling, the financial industry... everything, really), if they can't expect their pet politicians to shield them from the consequences, they WON'T take those risks. Mark my words: the Gulf oil spill and the recent financial crises are directly related to a common root cause.

Because the alternative is to let the politicians make the decision on this. They might consult scientists, engineers and technicians, but regardless of the answers they get from them, they will also be consulting pollsters and campaign strategists. The answer they will come up with will ultimately balance not risks to society (measured in financial risk to the firm in an environment where the courts can be expected to require reinbursement of wronged parties) against benefits to society (measured by how much more than production and risk management consumers are willing and able to pay for their product... demand), but rather which hurts their chances at the polls least: allowing drilling and therefore risking the ire of the environmental movement and the people affected, directly or indirectly; or banning it and losing the rather large financial contributions to their political campaigns oil companies provide.

Most likely (almost definitely, barring a deafening roar from the electorate), they'll try a third option: engage in some ineffective rhetoric, create a new bureaucracy or some new rules that fool people into thinking they are doing something about the problem but don't actually address the problem, and go home laughing.

Honestly, if that's all the government is good for, I'd rather live in a world where there's nobody to stop a more direct form of reprisal by the wronged parties.

The Constitution?

I was thinking tonight about Ron Paul's candidacy for the Republican Nomination this last presidential election cycle. One thing that has stuck in my mind is the support afforded him by certain prominent racists, and the controversy that generated in the pro-freedom community. It's a strange phenomenon, one most people don't even question: that movement, and those individuals most single-mindedly devoted to that movement, are frequently associated with racism, slavery, and such. William Buckley, though otherwise committed to liberty and not personally a racist, opposed attempts to use federal power to compel the recognition of the rights of black people. Ron Paul, though not himself a racist by any means (he refers to racism as "a particularly ugly form of collectivism"), was publicly supported by certain prominent racists. The old Democratic Party, which stood stalwart against Federalist, Whig, and ultimately Republican attempts to expand federal power, was also the party of slavery and racism. What's the deal?

I think it can be traced back to the Constitution. The Constitution has a number of unfortunate features which has facilitated this seemingly schizophrenic divide in the liberty community. The main problem, the one I will address here, is the role it has come to play in the fight to preserve liberty in this country: Strict Constructionism, or "constitutionalism", is the legal philosophy most commonly supported by non-Anarchist libertarians and non-Neo conservatives. The idea is that the constitution granted the federal government only specific powers; anything beyond that is unlawful. This is a comforting philosophy for those of us who prefer a more limited government: theoretically, we have the law on our side.

The problem is that while the Constitution did not grant the authority to do things like create welfare programs, a central bank, roads and rails and other things, it also placed no limitation on the States, even in the matters addressed in the Bill of Rights. It wasn't until after the Civil War when it was declared that, because of the Fourteenth Amendment, the Bill of Rights could be applied to the States. It also gave the Federal Government no authority to compel the States to recognize the rights of all its citizens; Slavery, Jim Crow, and such were well protected under the Constitution.

In the drive the prevent the Federal Government from expanding its power, the proponents of Liberty have repeatedly found themselves on the wrong side of what I think can be called America's "Negro Question." When it became a question of the States continuing slavery or the Federal Government outlawing it, many liberals allied with the slavers to keep the Feds from overstepping their Constitutional authority. When it became a question of protecting State-granted White privilege, or allowing the Feds to compel states to recognize the rights of Blacks, many liberals, such as William Buckley (I refer not to the quasi-socialist progressives who assumed the name under the previous generation, but the genuine liberals who found both the Democratic and Republican parties an uneasy home), opposed this use of Federal power on the same grounds they opposed every use of Federal power.

This alliance has been consistent enough that, even today, the most unrepentant of racists still consider the libertarian movement, with men like Ron Paul, to be the best hope they have of being able to turn the page of history back to their own era. I do not believe this association is correct: while a commitment to freedom of association would allow employers to go back to (openly) declining people employment on account of their race, stores and restaurants to (openly) decline to allow certain kinds of people to enter their establishments, and so on... I sincerely doubt such establishments would today serve much more than a fringe pariah community. And racists would find no allies among libertarians at either the federal level OR the state house... aside from the fact that if they somehow managed to get a state government to attempt to differentiate the legal statuses of whites and others, they could count on libertarians to block attempts to oppose this from the Federal level... because of the Constitution.

I think we should set the record straight: The Constitution should no longer be allowed, in the pro-freedom community, to serve as an excuse for condoning assaults on the liberties of people different from ourselves. An assault on liberty is repugnant, whether it comes from the federal, state, local, or individual level. True law, in my opinion, is not words on a piece of paper written by the agents of The State, but rather the principles these words properly, but do not always, reflect. If "the law" says we must permit some of our fellow men to oppress some others of our fellow men, then, I believe, "the law" is not in accord with The Law, and is therefore wrong. This isn't to say we should abandon the Rule of Law completely, but rather that if we consistently find that some legal principle is is conflict with our moral principles, then it should be considered that this legal principle could be wrong.

The Civil War is a perfect example of this. Though I do not believe bloodshed was necessary on the scale it occurred, the fact remains that it was the South, at ever turn, who started the conflict. For the conflict began well before the fighting began... indeed, before the South attempted to secede from the Union. There were repeated, rather successful attempts to use Constitutional principle not only to preserve slavery in those states where it was practiced, but also to impose a "right" of slaveholding upon the peoples of both states and territories who had (or perhaps would at some future date) declared, via their state and territorial legislatures, slavery to be illegal.

The principle was this: The Constitution declared that people could not be deprived of their property except for certain public uses and without just compensation (eminent domain), and that states had to recognize the decisions of other states. Certain people were property, and property being protected, these people could not be freed except by their owner's consent anywhere on US soil, even if the area happened to be under the jurisdiction of a "free state". Indeed, the Dredd Scott decision brought the very notion of "free states" under question. And many so-called liberal Democrats solemnly nodded their heads and declared this reasoning to be sound.

Many of the most anarchist of libertarians like to point out the essentially illegal nature of Lincolns war to prevent the secession of the states that made up the Confederacy. But what of the South's initial encroachments on American liberty via the machinery of the State? Is it any more right, just because men in black robes declare it to be so? Since when does the Anarchist care about the pronouncements of the State, except in exposing hypocrisy? And why should we expend rhetoric in defense of such pronouncements, on behalf of men whose aim was the preservation of potentially the most illiberal of institutions? If we are to choose a side in a conflict with no clear moral victors... why choose the side of racists and slavers?

Land Justice: Yet Another Model

Lately, I've been thinking about the models I've promoted in the past: a periodic disbursement of rents to the public on a per capita basis, whether by the government via taxes on rents (land values, electromagnetic spectrum, etc.) and a partial or complete citizen's dividend, or via a regular stock dividend from a separate corporation that acquires rental opportunities on behalf of the public over time. It occurs to me that one advantage to the way things are now is that, for the most part, people have to work. It is theoretically possible that, under public distribution of rents, you might end up with more people who choose not to work than are unemployed under the current model, and while that looks neat if you'd rather not work, it may have a significantly negative impact on overall productivity. If you consider society standing by itself, this isn't necessarily a bad thing... but one society never stands alone. More productive societies sometimes overcome less productive societies, wiping out such models.

I find myself returning to the model presented in Leviticus 25: 8-17, wherein the distribution of the land is reset every fifty years. It occurs to me that, even in the absence of "ancestral lands", there is a way to implement a similar model in our own society. In this case, I'm not considering how one would get from here to there... though the slow accumulation of land by a foundation established for this purpose could perhaps implement this as well as my earlier model. Simply put, rather than collecting and disbursing land rents yearly, it would be done every fifty years.

The advantage of this is that it while still freeing people from the mistakes of earlier generations, it would do less to protect people from the consequences of their own actions... which is a desirable outcome, in my opinion. This corporation, jointly owned by every inhabitant of a country, would lease the land (and other rent collecting opportunities) to individuals on a fourty-nine year contract. In the fiftieth year, the lease would expire, and everyone would have to renew their leases, from the owner of a small city plot to the owners of large tracts of agricultural land to the owners of rights of way for privately owned infrastructure. The proceeds would then be disbursed to the shareholders (the People) on a per family or per capita basis.

I believe that fifty years is a short enough period for every generation to get access to these proceeds at least once (and in many cases twice) during their lifetimes. It's also long enough that I suspect that, if someone is in danger of losing their lease to a higher bidder, replacement of capital improvements on a different site could be built into a business plan (everything needs to be tore down and rebuilt every now and then, after all). In the case where this isn't feasible, if the activity is productive, I suspect the current occupant would value that location higher than any other... and thus not be outbid.

These funds, once received, would do much to alleviate the disadvantages of those whose opportunities are restricted by the mistakes of the previous generation. Such funds could be used to educate oneself or one's children, take advantage of investment opportunities (including starting businesses of their own), move to more advantageous locations, and, yes, it could be blown in a few years on a licentious binge. The advantage of doing this semicentenially is that those who chose to spend the money foolishly would rather quickly end up having to work for a living again... returning to the ranks of the productive. Doing it annually runs the risk of creating a class of men who are chronically unemployed by choice.

Beyond Money?

Lately I've been playing a good amount of Star Trek Online; this has me thinking about Star Trek stuff. I've also started reading The Bible fairly regularly again (okay, just for two nights now, but still). I've also had a good amount of time alone with my thoughts on crawlspace jobs, wood treatment with Timbor, hanging insulation, etc. I'm also listening to J-Pop right now; actually, that has nothing do do with this. At any rate, I ended up thinking about precisely what various individuals in the Star Trek universe (particularly Jean Luc Picard, but I think there may have been others, as well) meant when they said that the humans of the Federation had advanced “beyond money.”

One scripture that has been foremost in my thoughts as I've worked on this job is something from one of the letters—Paul's, I think (this is one reason I've gone back to reading... I kind of want to rediscover where I first read many of rhe pasages that float about in my head, and whether I recall them correctly)—in which the writer exhorts his readers to do anything they do as if they were doing it for God himself. I try to worry only about my own performance, and not about whether I might be being taken advantage of, whether I'm being paid enough for the effort I'm putting out, whether I am working reasonably or above and beyond, whether or not my current employer can be expected to recognize my efforts, etc. I've also been thinking about some of the spiritual effects—in this lifetime—of keeping up a regular tithe and such (whether officially, to a Church or some such organization, or just personally, setting aside a percentage of one's gross earnings for donation to various worthy causes).

One conclusion I've come to is that, despite the potential financial costs of both “working for God” (in the sense of potentially reducing leisure and “giving too much” for too little) and some form of tithe (direct financial cost, of course), one thing it does do is keep one working harder than one otherwise would. “Working for God” has its obvious effect, but a regular tithe is of particular interest to me. I know savings make me lazy; if I've got a sizable amount saved up and accessible, I have a tendency to be very lazy about looking for another job. A tithe, on the other hand, particularly if it cuts deeply enough into my cash flow to force me to economize and keeps me on my toes in terms of labor, it provides me with a cash flow that's normally not accessed by me, but can still be tapped in the event of a financial emergency. If it's acceptable for not-yet-King David to eat the bread normally reserved for priests when he and his men are on the march and hungry, and its acceptable to rescue an animal on the Sabbath (Jesus said both were okay), then it is acceptable to tap one's tithe one pay period if absolutely necessary.

The effect of all this is that in the process of working harder than one would naturally, one develops endurance, skill, confidence, and other intangible personal qualities faster, and to a greater degree, than one ordinarily would. When one has these things, one doesn't need to worry so much about money; one's personal qualities ensure that opportunities will be found and utilized easier, with jobs more easily landed, and so on Indeed, I ran across Jesus' direct statement in a similar direction last night (Matthew 6:25-34). Which leads me back to Star Trek: I believe it was Jake Sisko who informed the Ferrengi Nog that the humans of that era were more interested in personal improvement than in money—in accumulating intangible personal qualities rather than physical goods.

For certainly, the world of Star Trek is not a post-scarcity economy. One of the missions of the first Enterprise was the discovery and securing of sources of various minerals, particularly dilithium crystals. I believe it was Ben Sisko who spoke of spending all his transporter credits visiting his father's restaurant (or something like that) when he was in the Academy. The idea of using credits for rationing things like holodeck privileges was not a foreign concept to the Voyager crew when they found themselves far beyond their supply lines. But a central (particularly a centrally managed) currency seems to be largely absent from the Federation's economy. So how do they coordinate production and set priorities of we're prepared to reject the “communist paradise” paradigm? Perhaps they use some kind of high tech barter system instead of a single central currency? ;)

But I digress. The point I am trying to make is that personal improvement is more important than the accumulation of things. Things can be taken; things can be lost. I just heard a story on NPR about some woman who lost her life savings to Bernie Madoff's scheme and suffered a renewing of old fears of becoming a bag lady as a result. But personal qualities, barring a major head injury (and even then, relationships serve better than wealth to keep one secure), cannot be lost or taken. “Do not store up treasures for yourselves on earth, where moth and woodworm destroy them and thieves can break in and steal. But store up treasures for yourselves in heaven, where neither moth nor woodworm destroys them and thieves cannot break in and steal. For wherever your treasure is, there your heart there will your heart be too” (Matthew 6:19-21, New Jerusalem Bible).

Labor/Capital Mix and Pest Control

One thing I've noticed in my chosen profession is that there is a tension between the interest in doing a thorough, professional job, and an interest in keeping costs down. I'm in the Pest Control industry.

I go to these educational meetings and learn all these things our technicians are supposed to be doing for their customers: taking time to talk with the customer, dusting voids, inspecting for harborages, moisture conditions, and other conducive conditions. We're supposed to use our chemical solutions (hereafter referred to as "products") sparingly, only in those places where it is deemed necessary. Doing this takes time.

But then you've got these bean counters who are less interested in getting the job done right and more interested in how many accounts they get to bill relative to how much labor they're having to pay for. These people either don't know much about how pest control is supposed to be done, or they just don't care. Finally, these bean counters wield considerable power in this, as every every industry. Yes, even the Pest Control Industry could serve as inspiration for Dilbert comics. So the technician who takes his time to get the job done right gets a talking to, and is actively compared to those technicians who are able to do fifteen to twenty jobs a day. That's no more than a half hour per job, including drive time. That's barely enough time to quickly spray the perimeter. So that's all that ever gets done, unless the customer actively demands more.

It got me thinking, as I woke up this morning, about decisions businesspeople make with regard to labor/capital mix. The accountants in the industry, given the choice between more labor less capital (taking the time while reducing product use), and more capital less labor (general broadcast treatments that use more product but take less time), the outcome of the wrangling over time and professionalism is a preference for more capital. This may be because it is more efficient. But I also note that the government taxes labor (income and payroll taxes) at a higher rate than they do capital (capital gains, sales, etc.). This will definitely have some effect on the decisions people make with regard to the use of man hours vs. the use of materials.

So the solution to me seems simple: tax labor and capital at the same rate... preferably zero. This removes the government's stimulus to prefer capital use over labor, making a great number of industries less consumptive (without penalizing the many, many cases where more capital actually means more productivity). And I'm not saying no taxes at all: this is just another strike in favor of the Single Tax, which I have discussed at great length in other entries. Tax labor and people tend to use less labor, resulting in unemployment. Tax capital and people tend to use less capital, resulting in lower labor productivity and reducing opportunities in capital goods producing industries. Tax land, and people tend to use less land... and since land is the one thing people can't just make more of, that's the only way to make more land available for more uses, thus actually improving productivity.

Conflict Within, Harmony Between

I've been reading Samuel P. Huntington's The Clash of Civilizations and the Remaking of the World Order. Huntington noted something he considered peculiar about American society in regard to "goodness" or "badness" in international relations: an assumption that friendly international relations are always desirable, and that hostile relations are always undesirable. He contrasted this with the American commitment to competition within American society, that Americans "endorse competition in American society between opinions, groups, parties, branches of government, businesses." (Huntington pg. 221) He wonders why Americans believe conflict within our society is good, but conflict between societies is bad, and speculates that nobody has seriously studied the question.

Off the top of my head it occurs to me that when conflict occurs within established forums or mediums for conflict, the conflict tends to shake out the best ideas and solutions to problems, while resulting in minimal collateral damage. Conflict between competing businesses encourages both businesses to do their best work, while the framework of law prevents destructive forms of conflict. Conflict between ideas occurs as debate and stimulates a vigorous exploration of the ideas under question, while laws and norms prevent the conflict from becoming physically destructive. Conflict between branches of government prevents any one of them from becoming overly powerful, restricting government action to only those things the involved parties can agree are necessary, desirable, or lawful. Even warfare within a cultural group has rules of engagement, ensuring that there is still something left when the victor wins the war.

Between cultural groups, however, laws and norms are not yet developed. As a result, conflict is much more likely to degenerate into total warfare. Tactics which are acceptable to one group are offensive to another group, provoking an equally offensive response. Neither side understands the other's rules of engagement. In debate one man's rebuttal is another man's personal insult. In business one man's clever strategem is another man's unfair practice. And in warfare one man's fair engagement is another man's unforgivable atrocity or abomination.

Conflict that occurs within a cultural paradigm is more likely to be a striving in good works. Conflict that occurs between cultural paradigms is more likely to be nothing but destruction and death. As such, what Huntington describe's as the American preference for conflict within nations, and harmony between nations, makes sense to me.

Read The Bills Act

The following is just a little something I sent to my representative and senators via Downsize DC's Read The Bills Act Campaign. This is basically Downsize DC's "signature" campaign, the primary issue they'd like to get addressed.

Congress needs to start reading the laws it passes. Please introduce DownsizeDC.org's "Read the Bills Act." I know you have the power to introduce this legislation on your own, without waiting for anyone else. I urge you to do so. This is a much-needed, common sense reform. I can see no justification for not introducing it. I'm telling my friends about it, and I look forward to hearing that you've introduced it. You can find the text of the legislation here: http://www.downsizedc.org/rtba_legislation.shtml

An analogy: How limiting the flow can actually induce better results.

I have a friend who works in the intelligence community. We are all aware of the controversy over attempts by the previous administration to cast an unconstitutionally wide information gathering net. One might think this is done to make the intelligence community's job easier. But what I hear from the professionals, both those publishing articles on the subject as well as my friend, is that a bloat of untargeted information actually makes their job harder, absorbing resources to analyze all this extra, often irrelevant data that could be used analyzing more important data. Constitutional procedure that limits their ability to collect information, forcing them to prioritize and improving the quality of the information acquired.

In a similar fashion, the "Read The Bills Act" could end up forcing leadership and committees to prioritize in the introduction of legislation. It would definitely encourage brevity of language, making it more difficult to hide abuses of the process by special interest groups. By slowing the process by which bills come to the floor and get voted, it could actually make your job considerably easier. I can think of no reason why the RTBA could be a bad idea.

If We Audit the Fed, What Next?

I just wrote a letter to my Congressional representatives (Representative Ruppersberger and Senators Mikulski and Cardin) I thought I'd share with you. I had just read an article by Scott Lanman over at Bloomburg.com (Lewrockwell.com linked it) about the progress of Ron Paul's "Audit the Fed" act. Reported were concerns of the bill's opponents about the impact such a bill would have on the political independence of the Federal Reserve, and that on the public's confidence in the Dollar. I thought this a good time to write a letter via Downsize DC's "End the Inflation Tax" campaign. The following is what I wrote:

In the last Congress Rep. Ron Paul introduced three bills that would conquer inflation. Please do all you can to wrap the "Honest Money Act," the "Free Competition in Currency Act," and the "Tax-Free Gold Act," into one bill, and get it introduced.

I just read an article on Bloomburg.com by Scott Lanman, "Fed Audit Shield Takes Blow After Ron Paul Proposal Advances", which reminded me of the need to indicate that should Ron Paul's "Audit the Fed" actually pass (yes, I would like to see that), neither that, nor reaction to the revelations about the Fed's role in promoting inflation on behalf of wealthy interests, should be construed as a desire for political control over the money supply. I do agree, that if there is a central bank, that central bank should be politically independent. However, I also believe that a central bank is both undesirable and unnecessary: central banking controls inflation not to eliminate it, but rather to limit it to a controlled fleecing of the public. It is a tax, but it is a highly regressive tax.

That's not to say that ending the Fed outright, as some in the community I associate myself with would have it, is the end goal here. A money issuing agency is a necessary component of a modern economy; having every store have their own assayer for gold and silver would probably be sufficiently inefficient as to drive down productivity. No, the Fed should stay... but they should also have competition. Competition could come in the form of foreign currencies held as a hedge against inflation and occasionally circulated in some places (such as border and seaboard areas), or privately issued company scrip, or privately produced circulable gold and silver coin, or anything else a group of people could find themselves using as a medium of exchange. Some of these things are already done to a limited degree, but most of these things, particularly circulation of gold and silver coin of ANY design (this is not a counterfeiting issue), are technically illegal, and therefore cannot currently serve a competitive role.

I doubt these things could knock down the Dollar's role even as international reserve currency, let alone domestic unit of account, any more than Federal Express and others were able to replace the United States Postal Service. But marginal, niche based competition provides a greater impetus for discipline than all the political oversight committees in the world. The Fed already competes with foreign currencies, gold and silver on an international stage. I think domestic competition could strengthen the dollar even more, making its role on the world stage, extremely important to the long term value of the dollar, virtually unassailable.

Laman's article stressed the role of perception in monetary strength. This is, of course, true in the short term. But all the lies in the world cannot overturn the underlying fundamentals in the long term; market discovery processes can be slowed, but not stopped. A well perceived currency with bad fundamentals will fall in the long run, betraying the trust of those who believed in the image presented. A poorly perceived currency with good fundamentals will perform well in the long run, rewarding those who were able to look past the hype and see the truth of the matter. Shall our monetary system be a duper of fools? Or shall it reward the prudent? If this is anything more than a rhetorical question for you... well, that's about what I'd expect from a politician. So surprise me.

Just thought I'd share.

The "Read the Bills" Debate

For those of you who don't know, there is currently a debate going about whether or not Congressmen should be expected to have read and understood the bills they vote in favor of. One argument against is the notion that government would "come to a standstill" if such a requirement were made.

Why? It is my understanding that the day-to-day functioning of government, the execution of the government's duties, is carried out by the executive branch. That is to say, the President, not Congress. The job of Congress is to tell the President precisely what his job is. In the absence of input from Congress, the executive branch is perfectly capable of continuing to do its job according to the most recent input. The only possible shutdown of government could occur if the money runs out, and Congress does not authorize appropriations... but this is an extreme example, and while Congress likes to make budgets complex in order to micromanage the job of the executive branch (and is perfectly within their rights to do so), if they find that no agreement can be reached in Congress over a complex budget, a simple budget, or simply a repeat of the previous year until further instructions are sent, could easily suffice.

What about emergencies? Once again, that is the province of the executive branch. The President already has, in the Constitution itself, the authority to respond to emergencies of a military nature without the leave of Congress (though Congress must ratify his actions by providing the funding to continue once they are able to do so).

Legislation and execution are not the same thing, and the two functions are wisely separated. Can someone describe to me exactly how a slowing of the legislative process would bring government to a halt? Can someone give me an example of how an extremely lengthy bill might need to be passed before it can be read?

Russell D. Longcore's Secession Paper: A reply

Over at Lewrockwell.com, Russell D. Longcore posted a piece about the questions that would have to be answered at the state level should a state decided to secede from the United States of America, with Texas as his model, entitled Will Austin Become 'Liberty Central' or 'Little Washington?'. He listed twenty questions he believes should be answered before secession occurs. Here are the twenty questions and my attempts at answering them.

1. A formal Declaration of Independence and Secession would have to be written and ratified, likely by the legislature and signed by the Governor. A date for presenting that document to someone like the sitting US President would have to be chosen.

Not too difficult. I might even put my hand to drafting something like what such a document would look like.

2. The actual form of the new government must be chosen. Will it be a Constitutional Republic...a Parliament...what? Remember that this is a new constitution for a single nation, not a confederacy of nations. The new constitution doesn’t need to be articles of confederation, but should be more like the Virginia Constitution of 1776 or the Swiss canton system.

I tend to favor a parliamentary form myself. This site has a lot of ideas on potential forms of government, but my favorite idea at this time is for an internet based form of democracy that is both direct AND representational... and a scan of my past writings reveals I haven't actually written this up yet!

Basically, everybody with the right to vote has an account on a gigantic web forum/chatroom/general hub site. Anyone can put forth a proposal, and anyone can vote on it. But because not everybody has time to sit around on the Internet all day, people could also designate others as their representatives, at any time, for any reason. They just set their account to vote the way their chosen representative votes in any vote in which they abstain. They could have a list of votes, which would move to the next guy on the list in the event the first guy also abstains. Or they could set it to go through their abstaining representative to HIS representative. Or they could designate a list of voters, and have their abstentions go the way of the majority in the group. Or any other mechanism people wanted and could be coded in easily enough. And if they decided they didn't like the way their representatives were voting, with a few clicks and a few keystrokes they could change their representative... instantly!

The actual functions of government would be carried out by an officer or officers elected by the legislature... the legislature consisting of all voters, either directly or by way of their representative(s), as the individual prefers. They would receive money from the legislature, and could be given direction as to how it should be spent by the legislature, but actual responsibility for carrying out those directions would be enforced primarily by the threat of removal: once the money was in the hands of the executive, it would be his responsibility to spend it. Removal could be done at any time by a vote of no confidence, after which a new executive would have to be elected.

The precise procedures by which that first line of officers below the CEO/Prime Minister/Whatever are chosen would in theory be done entirely by the CEO. However, the legislature having the power to remove a CEO they don't like, someone running for the office could make whatever procedural promises they want, with the legislature making whatever demands they want, with the legislature's final call on confidence votes being the enforcement mechanism.

3. Will all the existing politicians in Texas have to stand for election in the new government? The present legislators in Austin may be infected with statism and opponents of sovereignty. I nominate Ron Paul as the first President of New Texas.

Eventually, certainly. Secession doesn't free people from having to wrangle with people they disagree with, only those who live too far away with to wrangle with in a rational fashion.

4. Monetary policy is the keystone of the new nation. All commerce, and the very existence of New Texas hangs on this one issue. But if Texas decides to adopt any monetary policy other than 100% gold dollar, it will have swallowed the poison pill of Keynesianism before its life even begins. No government in the history of mankind has devalued its money and survived. Not One.

Were it up to me, I'd have no monetary policy at all, at least no public monetary policy. Of course, the legislature would have to decide what they want to accept in payment of taxes. Probably immediately after secession, folks would continue to use Federal Reserve Notes, and would probably continue circulating them for some time, possibly as long as they hold any value at all. But there would be no legal tender law forcing people to accept them at any particular rate, meaning that gold and silver would circulate alongside them, in whatever denominations folks found convenient, to greater or lesser degrees depending on the condition of the US Dollar, their values allowed to float relative to each other (no bimetallism!). I suspect Mexican Pesos would also be in the mix, at least in the southern parts of the state.

4 (sic). Courts system – Will the new Texas begin with a clean slate, or will it adopt the corrupt American court precedents existing today? You can predict that entrenched interests in the legal system will attempt to tie up the secession in court forever. Where will Texas find judges that are pro-secession? Will Texans allow themselves to be drawn into Federal legal battles when the US should have no jurisdiction in secession?

The principle of the independent judiciary requires that inherited common law not be messed with too much. In the absence of federal law, judges would have the leeway to decide for themselves what they think is just. In the event the Legislature wants to clear up a matter, they could make a proclamation directing judges to observe a new principle. This is how the anglo law system has pretty much always worked, and I see no reason to do any radical restructuring. That said, I would prefer to alter the system to utilize mutually agreeable arbitrators more, and the state's judges less.

5. What method of tax collection will the new nation choose? Any income tax will likely foment yet another revolution.

May I humbly suggest the Single Tax be looked into seriously?

6. There are a lot of Federal lands and military bases in Texas. Will the new nation buy them from Washington or simply confiscate them? And why should the New Texas national government presume that it should own the former Federal lands and bases? Should they not be sold to private parties?

I think the start point for the negotiations that would inevitably have to be done between state officials and the feds should be the respecting of a hands off policy with regard to federal properties and institutions. The Republic of Texas would not immediately seize federal lands and facilities (this would surely provoke an armed response), but also not expend any resources protecting them; it would be the Feds' responsibility to do so. As to the IRS, while without the mandate of law their operations would be technically illegal (if it isn't already), their facilities should be respected in the interim, and their employees not unduly harassed (though duly prosecuted, should they attempt to seize any assets).

Indeed, I would simply regard the United States Government under State law as a property owner like any other. Under a Single Tax, they would be responsible for paying taxes for what they continue to hold (send them a bill, and keep a record of it for when the feds decide that if Texas should leave, they should take their share of the federal debt with them). In the end, the Federal Government would either have to surrender their claim, or sell off their claim (more likely the latter).

7. The new Texas will have to create an immigration policy. Not only is there the existing problem with the Texas/Mexican border, but hundreds of thousands of Americans will want to relocate to Texas to take part in the birth of the new nation.

Simple. Let everybody in, but only naturalize after a period of time. When the legislature can't figure out how to spend all the money they get from the Single Tax, they release the money as a dividend to their shareholders, which don't include the really recent immigrants. A rising population results in rising rental values, which would result in a rise in revenues from the Single Tax, which could be spread among the shareholders (citizens). Immigrants have the freedom to come and try to establish themselves, have no choice but to pay taxes (since a land tax is paid by everyone who uses the land, not just citizens), and the citizens get a bit of a windfall as a result. Everybody wins.

8. Millions of Texans presently receive Social Security benefits of some sort. What will happen to their benefits after secession? Will Washington cut them off in retaliation? Will Texas assume that obligation?

Probably they get cut off. Personally, I would try to make provision in Texas law for continued participation in the United States social security program, if they want to. They could still pay payroll taxes if they want to, and receive the benefits when they retire... or they could NOT pay the payroll tax. Under no circumstances would I saddle a newly independent state government with this obligation: it's questionable whether the US Government will even be able to handle it.

9. Privatization of state services – will Texas try to set up new bureaucracies to deliver mail, collect the taxes, etc? The free market always performs better than government, and no compelling reason can be made for government service.

Why make new ones? Just make sure the US Post Office knows they're welcome to continue doing what they do in your state, delivering mail and selling stamps and such. Of course, in the absence of US law, they'd have private competition and no government guarantee within the state of Texas, but if they can cope, just let them keep doing what they're doing. If they can't, the market will fill the void.

9 (sic). Law Enforcement is already entrenched in every niche and corner of Texas. Will the new Texas continue with the failed War on Drugs, or recognize that drugs are morally equal to alcohol and lift its prohibition?

You ask what will happen; I don't know, having never been a Texan. If California were the seceding state, most likely the war on drugs would be reduced, if not ended outright... and this is how I would have it. But I don't know what Texans would do.

10. What will the New Texas do about a military? Will it embrace a national militia like Switzerland, or establish Army, Navy, Air Force and Marines?

I would say the New Texas Republic would need some kind of navy to assist in the securing of persons and property in the Gulf, in conjunction with Mexico, the United States, and the various island nations (maybe even open relations with Cuba, ha!). I don't know how well a militia system would work in this day and age. I wonder if Texans would accept compulsory military training, as the Swiss do.

11. Foreign policy issues will involve border states and other sovereign nations. Will New Texas make the same foreign policy blunders that Washington loves to make?

Probably not. I imagine the perspectives of Texans alone would be different from a perspective that incorporates people from the East, the North, and anyone else not living on the Mexican border in the presence of many ethnically Mexican people. And as to other countries beyond the sea, I can't imagine Texas, for all its size, would have the same level of arrogance those who represent the United States' foreign policy establishment, lacking the military might of the United States. This, for me, is the top reason for seceding: to deny capacity to the rogue nation that has taken root in Washington D.C.

12. Will New Texas assume the liability of a Medicare/Medicaid system?

I should hope not.

13. Will New Texas protect religious liberty and eschew religious subsidy? After all, there is no practical reason that religious organizations and churches should enjoy tax-free status at the expense of the rest of the population. This issue will be decided as New Texas forms tax policy.

Tax exempt status is a far cry from the tax funded state churches of the past. This, to me, falls under the category of "low priority."

14. Insurance makes the world go around. New Texas will need the wisdom of Solomon in its Department of Insurance to properly regulate insurance companies.

The widsom of Solomon... or the Free Market. How about NOT regulating insurance companies, beyond requiring they honor their contractual agreements the same as everyone else, and establishing the limits of liability in the event of bankruptcy. Personally, I favor extending liability to the owners of the company to some degree.

15. Securities law must be enacted. But copying the corrupt FTC and SEC won’t work.

What securities law beyond a basic prohibition of fraud is needed? Let people use their money for what they want, don't shield people from the consequences of bad decisions, let willful misrepresentation of the facts be considered unlawful (and make no exceptions where other unlawful deeds are concerned for securities), and the market, in conjunction with the courts where necessary, will hash out the details.

16. How many of the existing US Cabinet offices will find a place in the New Texas government? New Texas would probably run fine without most of the unconstitutional bureaucracies operating in Washington today. Copying Washington won’t work.

Under the legislative system I described above, this would be hashed out via the legislative process. Really, this is a matter of bureaucratic convenience, rather than constitutional design.

17. Texas is a microcosm of all the environmental issues facing America today. The "greenies" will fight hard to continue some of the dumb environmental laws in New Texas. They have money and they are patient.

Oh noes, teh enviralmentalists is gonna get us! Firstly, not all environmentalism is dumb. But you can head the dumb stuff off at the pass by creating property classes that acknowledge the interest of all stakeholders in resources that are by their very nature shared. Decision making with regard to rivers should be shared by all who live along it, from the headwaters to the delta (and beyond, with regard to a reverse delta). Farmers upriver have no god-given right to divert off all the water and impoverish downriver farmers and fishermen. Air basins should be shared by the people that live there; power generators have no god-given right to spew their filth into the air others have no choice but to breath (any more than your neighbor has a god-given right to dispose of his garbage by dumping it in your yard).

Environmental issues are more complex than "dumb environmental laws", but only because we have new problems that require new insitutions, that we haven't quite figured out. This is a fact even if Texas never secedes.

18. New Texas will have to make an early decision on public education. Will New Texas continue the failed policies of the federal Department of Education and the deathgrip of the teacher’s unions?

I should hope not. I'd rather any money that would otherwise be spend on public schools be instead emitted as a citizens' dividend, allowing people to make their own decisions with regard to education. However, if the people, via the legislature, express a desire to set up some schools instead of receiving the money as a dividend, I have no problem with this.

19. Texas has great colleges and universities. What will happen to them when Federal money dries up? More importantly, will Texas football teams be thrown out of American football conferences and the BCS? God help us.

Hopefully, sports conferences will recognize that "America" is not the same thing as "The United States." If baseball leagues can court the participation of Latin Americans and Japanese, surely the NFL can accept Texan teams, even if Texans no longer accept the dominion of Washington D.C.

As for colleges, who knows? I'm willing to let this issue be decided by others at the statuatory level.

20. New Texas will need an intelligent Energy policy which embraces nuclear energy, oil and gas, and alternative sources. Texas must throw off the American regulations that prohibit new nuclear power plants. 100% of the electricity for New Texas should come from nuclear power.

This looks more like an answer than a question, but aren't there a whole lot of Texans setting up wind plants in the windy Texas countryside? Aren't the deserts of Texas (not to mention New Mexico, Arizona, and California) ideal for solar power, which is becoming a more commercially viable alternative almost by the week?

Personally, where operations with wide ranging catastrophic failure risks are concerned, I would permit the people living in the failure zone (ie. the "blast radius") the opportunity to prohibit the building of something like a nuclear plant. The risks may well be low, and if this is the case, the would-be nuclear power plant builder is bound to find some place where the people are not scared of the plant. No "permission" would be required to start building, though a builder would be wise to secure permission first, lest he incur building costs and find out only later it's not going to be allowed.

The people living in the risk zone could incorporate for the purpose of managing that risk, probably requiring some kind of payment in exchange for assuming the risks inherent in establishing a nuclear facility (or other facility which imposes physical risks or conditions on the people living near it) for a period not to exceed fifty years. This would include only the people already living there; those who move in later know what they're getting in to.

Alternately, the builders could be required to appease each property owner in the area individually, working out a deal by which the provision "is near a nuclear power plant" would be attached to the deed for a mutually agreeable period of time not to exceed fifty years (after which the next generation would have the opportunity to renegotiate the terms under which they assume the risks). Someone wanting to build a nuclear plant could potentially locate their plant in a manner similar to how free market road builders could locate their roads under the program suggested by Walter Block.

To not include the residents of the area in the process is to permit people to impose inordinate risks on other people against their will, and to take from them an aspect of their land property. It's the same as if someone went and built a chicken rendering plant right next to a residential neighborhood, flooding the neighborhood with the stench; at the very least, the people should be compensated for the drop in their quality of life, and the only way to ensure the compensation is proper is to require that it be negotiated between the new neighbor and the old neighbors. (Neighbors after that, of course, are buying in at the new levels of property values).

The beauty of this system is that it can be applied to any manner of potentially explosive establishments. This allows the government to respect complete and total freedom to possess and bear arms, while providing the neighbors with the opportunity to object should they find themselves in harms way as a result. If pointing a gun at a man for a reason other than self defense ought to be regarded as improper, the possession of explosives (not to mention nuclear devices) the yield of which could encompass a man's neighbors' property should it accidentally go off, ought also to be regarded as improper. But with such a system, we leave the decision not with legislature or bureaucracy, but with the neighbors themselves. If the people living in a city decide they are willing to allow someone to possess a nuclear device, then it could be permitted.

The Evils of Capitalism

I swear, I do some of my best work on forums having nothing to do with my best subject. Over on the Off Topic forum of the El Goonish Shive forums (EGS is a webcomic), somebody comes in posting about "Net Neutrality." Someone else posts something about capitalism and the free market being essentially the same thing, and his absolute trust in free markets, as opposed to the other guy's distrust of markets. And this is what falls out of my brain. I'm calling it:

The Evils of Capitalism

And this is where you get it wrong, and lead folks like blort down the wrong road. The Free Market is nothing more than the notion than the notion that society allocates resources best when it does so via an unregulated market. This is true, so far as it goes. But Capitalism is more specific to the current era, and carries with it baggage accumulated thanks to a property regime that, in my opinion, is wrong in places, and results in concentrations of wealth that must, ultimately, turn into concentrations of power via government. Capitalism is its own worst enemy (and Adam Smith himself predicted this very phenomenon): under Capitalism, a John D. Rockefeller can make a fortune providing a plethora of petroleum products for the consumer at prices lower than ever before seen, thus creating opportunities for more innovation and more fortunes, overall a good thing. But then the big money can then turn around and use that fortune to cement his own and his people's position, by acquiring rent collecting opportunities--ramming legislation through that limits potential competitors more than himself is but one of the tools.

Markets are very efficient at property allocation. The question the market cannot answer (except, perhaps, under a condition of total anarchy, and even then the market only provides the evidence; we still must use our own brains to figure out the answers) is "What do we properly regard as property?" For when this is answered incorrectly, the market will show us, with brutal efficiency, why we are wrong... but we ourselves may be so enmeshed in the system we either fail to notice, or even deny the evidence. A perfect historical example is chattel slavery. American slavery was a very different thing from Mediterranean slavery (argument lifted directly from Stanley M. Elkins Slavery).

Mediterranean slavery was a heavily regulated institution, but both church and state watching over the institution with a close eye. It was as humane as slavery could be (which isn't very, but I'm just saying), and there were many opportunities for a slave to be freed. The pressure was toward gradual elimination of slavery, and, like so many other places, when it was finally abolished, the abolition occurred bloodlessly.

Slavery under Capitalism

Contrast the American experience. Under pure Capitalism, a thing is either property, or not property. Further, in the absence of a power system preventing a thing from becoming property (whether it be a substantial religious/philosophical influence, or access to friends and relatives), some people WILL reduce just about anything to property, and gaining by doing so, influence others to do so as well. Thus it was that, while white indentured servants had to be freed at the end of their term, lest word get back to England and Europe the fate waiting for future indentured servants in the Colonies, African servants had no similar defensive power structure, and as such could safely be, and therefore were, reduced to property. And once they were property, the law made few restrictions as to how this "property" might be "used".

But People are Not Property. Reduce them to such, and you reduce both them, and yourself, from personhood. For the slave must carefully avoid thinking, lest he notice his condition and despair, thus robbing the slave (and the public) of the creative potential of a human mind. The slave master, on the other hand, must devote his energies to suppressing rebellion, causing a similar impact on his potential as it does on that of the slave. Additionally, the master must singe, and ultimately burn out, his conscience, in the process of doing so; the more his conscience complains, the more likely he is to invent even more untrue ideologies (ie. racism), distorting his thinking further, and reducing his wealth producing capabilities even more.

Make no mistake: the market, left unrestricted, punishes both master and slave (and I'm not sure which gets it worse, since at least the slave has the benefit of a market value protecting him from excessive levels of cruelty!) for this violation of correct principle... by imprisoning them within this horrible system. For while the generation of slaveholders that first cemented the slave's condition in law doubtless saw benefits, the market quickly devours those benefits by pushing them into asset prices (the purchase price of a slave is higher than that of an indentured servant). Nobody after that point gets to be a free rider; he must pay a price for his slaves at least equal to the benefit the former owner could have gotten from the slave. But why would someone willingly buy into such a system, if it isn't even all that helpful in the long run?

Making Money or Taking Money?

My answer is that the vast majority of people understand accounting far better than they understand economics; or, to put it blort's way, people are greedy. For under capitalism, people follow the money, wherever it may lead. More profits is inherently better, and believed to be so, without reservation, by the layman economist because he imagines the only way to increase profits is to improve productive efficiency. And this is true... IF we're using the definition of "profit" used by economists, which is revenues minus ALL wages, rents, and interest... even the opportunity cost of this operation to the entrepreneur, himself. But most people don't; they instinctively use the accountant's definition. For the accountant, profit is what's left over from revenues once expenses have been paid. Profit equals revenues minus what you have to pay others for.

The difference is crucial, for under the accountant's definition, there are TWO ways to increase profits. Efficiency can be improved, leading to more revenues relative to the factors used; or, more factors can be brought under the ownership of the business owner, thus dropping the opportunity cost of these assets from the balance sheet. For example, if a man rents a storefront, he can increase his profits by making his store better (increasing revenues without increasing the resources used), or taking ownership of the storefront (thus dropping the opportunity cost of the storefront from the balance sheet). If he pays another for his labor (whether weekly, monthly, or for a five-year contract, in the case of indentured servitude), he can increase his profits by increasing the revenues of his operation through greater efficiency, or he can utilize the labor of someone he doesn't have to pay, thus dropping the opportunity cost of labor off the balance sheet.

It is very important to point out that from the economist's perspective, there IS NO PROFIT in either of those second options, the one that involves taking ownership of an asset he previously had to pay someone else for. There is, at best, a revenue neutral transferring of revenues from one person to another... but often, the effect is a net loss. The opportunity cost of a slave is the productive potential of a free man... but that does not matter to the slave master, since his revenues are up as a result of reducing a man to slavery. And if he DID buy his way into the system, while he has realized but small net gains to himself (having to pay the previous master the opportunity cost of giving up a slave), the abolition of slavery wipes his asset book clean. He goes from being a rich man to a poor man overnight... and therefore, though the slaveholders are every bit as held down by the system as the slave himself (witness the explosive economic growth in places were slavery was illegal, relative to that of the slave states), he dare not permit the institution to be abolished, because he is psychologically attached to the asset value of his slaves. It makes him "feel" rich, even though he isn't.

Political consequences of Rent Seeking

What does this have to do with Capitalism as a whole? The fact that while markets are the best way to allocate goods, it is also very efficient at entrenching evils (until such a society is overtaken from without by another society that has not entrenched that evil). People become wealthy by performing valuable services... but then can use that wealth to turn access to their profession into property. A big company may successfully petition the government to grant them a privileged position (generally protection from competitors) in exchange for a share of the loot. A particularly high paying profession may convince the government to erect barriers to entry (through state required licenses, etc.) in exchange for a share of the loot. A large developer might get preferential treatment with regard to the acquisition of land (to the point where municipal governments will deliberately create blighted areas for the purpose of seizing it to sell to a developer), in exchange for a share of the loot. Economist have a term for this sort of behavior: rent seeking. It's the effort to take control of something for purpose of requiring others to pay a toll to access it, whether customer or competitor... a thing they did not create.

And our economy is FULL of these kinds of things. Look at the health care debate, for example. A lot of people are convinced that the current costs are the result of the free market. Strictly speaking, this is true, but that is only because the market monetizes the rent seeking behavior of pretty much every participant in the health care system. Over the past century or so, enormous barriers have been erected against entry into pretty much every aspect of the health care system. There's doctor licensing (which requires far more in the way of expense than is actually necessary to acquire the necessary skill to perform basic services), centralized drug regulation (which big pharma can deal with much more easily than small pharma), tort law (which fails to recognize the inherent risk involved in medical care and medical procedures), preferential regulatory treatment of patented medicines over organic (and therefore unpatentable) alternatives, the insanely expensive nature of the legal system itself (which is, itself, caused by the cartelization of the legal profession), intense "fairness" regulation of health insurance and medical care which has the effect of shifting costs from those who incur them to others, employer health care requirements that have the effect of creating mini-monopolies over the employees of smaller firms, and mini-oligopolies over the employers of larger firms... the list goes far farther than I can even begin to go. At every point of contact, the money spent into the medical system is diverted from actual medical care, to the costs of maintaining, extending, and enjoying all the privileges granted by government... in exchange for a share of the loot.

Rent Seeking in the Communications Industry (Or, the Nexus of All Rent Seeking)

There is rent seeking in the communications industry, as well. Presently, rent seeking behaviors are likely low (in the Internet industry, at any rate), due to the fact that there are still plenty of real capital investments to be made. But when the field ultimately matures, the money that presently goes into laying new lines, sending up satellites, building towers, and such will go more and more into rent seeking behavior: efforts to control the communication system. And government will not merely support it in exchange for a share of the loot: large budget mass democracy creates a market for centralized control of media, the value of which is exactly proportional to the size of the government's budget. Centralized control over the media is the very engine of rent seeking, for everything the government does must pass muster with the electorate. The ability to saturate a market with a particular message, or to deny access to a particular message, has a value that can be measured in dollars, a value that is reaped by those larger companies that have the ability to edge out smaller competitors.

So with regard to Net Neutrality, we're between a rock and a hard place. On the one side, we've got the rent seekers, who will, if able, consolidate control over the medium of communication. On the other side, we've got government types saying they will protect us from the evil corporations (and rent seeking IS evil)... but it's every bit as likely that those very politicians are the tool of the rent seekers. In addition, the politicians AGAINST Net Neutrality might ALSO be the tools of the rent seekers. There are numerous examples throughout American history where BOTH sides of the debate were dominated largely by what we today call "Astroturf". It's entirely possible Net Neutrality is yet another example of that. That's why both sides of that debate scare me.