Coyote Blog

Many marketing analysts will argue that the famous Pepsi challenge advertisements helped Coke as much as Pepsi, by defining it in consumers minds as the standard to which other beverages should be compared, and by giving it nearly as many mentions to support name recognition as Pepsi gave itself.   The GAO reports that anti-drug advertising may be encountering the same type failure:

A Government Accountability Office report on research tracking the
impact of the federal government's $1.2 billion anti-drug ad campaign concludes
that "the evaluation provides credible evidence that the campaign was
not effective in reducing youth drug use, either during the entire
period of the campaign [1998 to 2004] or during the period from 2002 to
2004 when the campaign was redirected and focused on marijuana use."
The GAO adds that "exposure to the advertisements generally did not
lead youth to disapprove of using drugs and may have promoted
perceptions among exposed youth that others' drug use was
normal....Westat's evaluation indicates that exposure to the campaign
did not prevent initiation of marijuana use and had no effect on
curtailing current users' marijuana use, despite youth recall of and
favorable assessments of advertisements." In fact, during some periods
and for some subgroups, exposure to the ads was significantly
associated with an increased tendency to smoke pot.

I have written a number of times that one of the problems with the Katrina aftermath was not that the federal government did too little, but that they try to do too much.  For example:

While turning down offers to help, when everyone agrees not enough
is being done, may seem unthinkable, these are actually predictable
outcomes from a [government] bureaucracy of technocrats.  Technocrats value process
over results, order and predictability over achievement.  More
important than having problems fixed is having an ordered process,
having everything and everyone under control.  In this context, you can
imagine their revulsion at the thought of having private citizens
running around on their own in the disaster area trying to help
people.  We don't know where they are!  We don't know what they are
doing!  They are not part of our process!  Its too chaotic! Its not
under control!

Nearly everyone who is in government has a technocratic impulse -
after all, if they believed that bottom up efforts by private citizens
working on their own was the way to get things done, they would not be
in government trying to override those efforts.  But most emergency
organizations are off the scale in this regard.  99% of their time,
they don't actually have an emergency to deal with - they are
planning.  They are creating elaborate logistics plans and procedures
and deployment plans.  Planners, rather than people of action,
gravitate to these organizations.  So, once a disaster really hits, the
planners run around in circles, hit by the dual problem of 1) their
beautiful plans are now obsolete, since any good general can tell you
that no plan ever survives first contact with the enemy and 2) they are
by nature still planners, trying to get order and process underway and
create a new updated plan, rather than just getting every possible
resource out there fixing the dang problem.

Kerry Howley in Reason's Hit and Run discusses a similar problem in Southeast Asia in the aftermath of the deadly Tsunami:

A year and a half after the deadliest tsunami in recorded history, a
pan-Asian warning system seems about as likely as, say, competent
airport security stateside. So Sri Lankans have poured donations into
DIY monitoring stations, using the Web and volunteers to watch for quakes...

How do officials react to the exciting new world of distributed warning technology?

But the government does not want ad-hoc tsunami warning centres handing out advice to local communities.

"Only the Met Department is authorised to give tsunami warnings and
evacuation orders. They cannot do it. It is illegal. That creates
unnecessary panic," Darmaratne said.

Just as in the Katrina aftermath, the government answer is that we would rather have nothing happen than positive efforts occur that we don't control (or take credit for).

It frustrates me some when the government's Katrina response is cited as an example of government failure.  This implies that the government should perform better, but just didn't in this particular case because of some process or personnel problem.  But the government's Katrina response was not the government failing, but the government doing exactly what it always does.  Governments of all types are hard-wired to produce the mess we saw.  And it was a mess, as Ralph Reiland summarizes a recent NY Times article:

• An estimated 1,100 prison inmates across the Gulf Coast collected in excess
  of $10 million in rental assistance and disaster-relief money. Crime pays! FEMA,
  in addition, distributed millions of tax dollars to people who used names and
  Social Security numbers belonging to state and federal prisoners.
• A hotel owner in Sugar Land, Texas, has been charged with submitting
  $232,000 in invoices for evacuees who allegedly never stayed at his hotel,
  billing FEMA for purportedly empty rooms or rooms occupied by paying guests or
  hotel employees.
• An Illinois woman who was living in Illinois at the time of the storm sought
  relief benefits by claiming she had watched her two daughters drown in the flood
  waters of New Orleans. The children never existed.
• A Department of Labor employee in Louisiana, appropriately named Wayne
  Lawless, has been charged with handing out nearly 100 falsified disaster
  unemployment benefit cards in exchange for kickbacks of up to $300 per card.
  
• In New Orleans, two FEMA officials have pleaded guilty to pocketing $20,000
  in bribes in exchange for inflating the count on the number of meals a
  contractor was serving to relief workers.
• With the $2,000 debit cards distributed by FEMA for disaster relief, an
  estimated 5,000 people have double dipped, receiving both the $2,000 plastic
  card and a second $2,000 by check or electronically.
• Two men, one a representative of the Army Corps of Engineers, have pleaded
  guilty to taking kickbacks in exchange for approving payments for removal of
  nonexistent loads of hurricane debris. In contrast, with loads of debris that
  were not nonexistent, a councilman in St. Tammany Parish, Louisiana, has been
  charged with attempting to extort $100,000 from a debris-removal contractor.
  
• One creative scam artist is charged with collecting 26 federal disaster
  relief checks totaling $139,000 by using 13 Social Security numbers and fake
  claims of damage at bogus addresses. Others collected and pocketed hurricane
  relief donations by posing as Red Cross workers.
  All told, what the above
  represents is "one of the most extraordinary displays of scams, schemes and
  stupefying bureaucratic bungles in modern history," reports the Times, "costing
  taxpayers up to $2 billion."

Note that this isn't a unique failure - this story can be written about any government handout program.  And this wasn't a case of FEMA moving too fast without restraints when everyone around it was signaling caution - in fact just the opposite.  Everyone on the sidelines at the time was criticizing FEMA for being too slow in handing out money willy-nilly.

One of the problems never discussed very often is that increasingly, the government has insisted on an exclusive monopoly position for itself in providing disaster assistance.  In effect, past disaster assistance was provided by people you never see or hear about, private people taking private action.  In Katrina, the government worked hard to shut most of these people out.  So, in this sense, Katrina was probably a worse response than in other disasters because the bottom-up, thousands-of-people-helping-out response was not allowed.  FEMA, under pressure from both sides of the aisle, increasingly take the Al Haig "I'm in charge here" approach, much to everyone's detriment. 
Unfortunately, most analyses of Katrina are saying the government did not do enough.  I think it did too much.

Alex Tabarrok of Marginal Revolution makes a point I have been trying to communicate for some time now:

It's naive to only blame particular people (Bush, Cheney et al.) and
depressing when people at CT claim that if only "our guys" had been in
power everything would have been ok.  When you see the same behaviour
again and again you ought to look to systematic factors.  And even if
you do believe that it is all due to Bush, Cheney et al. it's not as if
these guys came to power randomly, they won twice.  The worst
get on top for a reason.  As a result, government ought to be designed
(on which see further below) so it works when the knaves are in power and not just when the angels govern.

I made a similar point in this post:

Over the past fifty years, a powerful driving force for statism in this
country has come from technocrats, mainly on the left, who felt that
the country would be better off if a few smart people (ie them) made
the important decisions and imposed them on the public at large, who
were too dumb to make quality decision for themselves.  People aren't
smart enough,they felt, to make medication risk trade-off decision for
themselves, so the FDA was created to tell them what procedures and
compounds they could and could not have access to.  People couldn't be
trusted to teach their kids the right things, so technocrats in the
left defended government-run schools and fought school choice at every
juncture.  People can't be trusted to save for their own retirement,
so  the government takes control with Social Security and the left
fights giving any control back to individuals.  The technocrats told us
what safety equipment our car had to have, what gas mileage it should
get, when we needed to where a helmet, what foods to eat, when we could
smoke, what wages we could and could not accept, what was and was not
acceptable speech on public college campuses, etc. etc....

the technocrats that built our regulatory state are starting to see the
danger of what they created.  A public school system was great as long
as it was teaching the right things and its indoctrinational excesses were in a leftish direction.
Now, however, we can see the panic.  The left is freaked that some red
state school districts may start teaching creationism or intelligent
design.  And you can hear the lament - how did we let Bush and these
conservative idiots take control of the beautiful machine we built?  My
answer is that you shouldn't have built the machine in the first place
- it always falls into the wrong hands.

I am particularly amazed of late at the popular leftish criticism of Bush that he was too slow after 9/11 (spending 10 extra minutes with the school kids), too slow during Katrina, and too slow entering the diplomatic fray in Lebanon.  I can't remember who, but someone lately was quoted publicly saying that they were frustrated with Bush taking vacations and that they would never vote for someone with a ranch.  Is that really the dual criticisms that people have of Bush?  That 1) he is evil and an idiot and 2) they want him to get involved faster and more aggressively in more types of problems?

Here's something everyone should know, which I have embodied in Coyote's Second Law (here's the first) which states:

Any person elected to government office has their effective IQ cut in half

I don't know if politicians wake up from this fog when they leave office or not.  I can easily imagine Bill Clinton, a man who is supposed to have a high out-of-public-office IQ, slapping his head and saying "did I really go running into Somalia and running right back out after the first casualties?' or maybe even better "jeez, I can't believe I turned down the chance to take Bin Laden into custody -- what was I thinking".  Whichever the case, governments are always stupid, even those made up of people provably of high IQ in their private lives.  Tabarrok has this humorous but depressing observation:

The Pentagon is the Post Office with nuclear weapons

Like Tabarrok, I think the bar has to be pretty high to send our military into battle, and I never thought the situation in Iraq justified the excursion.  However, perhaps differing from Tabarrok, I am sensitive to historic precedent and thus doubt that defense can always just end at our borders.  While I think the Bush administration is overly optimistic to think that Iraq will become a shining beacon of democracy that will help rally the democratic forces in neighboring countries, I also think Bush opponents are overly optimistic when they say that terrorists and Middle Eastern fascists will leave us alone as long as we just keep our distance.  There are too many historical reminders that the latter is not true.  Sometimes you do have to go over there to kick their ass before they come over here.  Afghanistan probably met this criteria, but I don't think Iraq did - Iraq feels more like the Gulf of Tonkin, a war certain people in power wanted to fight and for which they needed a public excuse.

All this means that I think that the number of times we need to go out and fight wars overseas is greater than zero and less than what we actually do.  I'm not smart enough, I guess, to make a clearer policy statement, but I would be really interested to ask all those who think they would have prevented Israel and its neighbors from going to war for the 47th time if only they had been in office what their coherent policy statement would be.

One of the good things about living in AZ is that it is the home of several of the unfortunately dwindling number of Republicans who consistently cast votes for lower taxes and smaller government. 

Recently Arizona Congressman Jeff Flake, who I have given props to in a number of columns on this blog, sponsored a series of 19 bills aimed at cleaning up the appropriations process and making it harder for Congress to slip earmarks through the appropriations process, at least without having gone explicitly on the record as having done so. 

The Club for Growth has a scorecard of how each Congressman voted on these bills.  In each case, a 'YES' vote is a vote against pork and a vote to clean up the Congressional appropriations process. 

My Congressman, John Shadegg, who is another reliable small government low tax voter, came through with 19 of 19 'Yes' votes.  Way to go Congressman!

Want to get worked up about price collusion in the oil industry?  Don't waste your time.  No study has ever found collusion effects that raised US gasoline prices more than a few percent, and only for a very short period of time.  The reason is that in a free market, there is too much incentive for new entrants undercutting a price collusion attempt.  Railroads and airlines have probably the most severe economic incentives to collude, and they have never pulled it off for any period of time EXCEPT when the government stepped in to enforce the arrangement (e.g, airline controls pre-deregulation).

If you want to see a real cartel at work raising prices at the expense of consumers, check out this from the Mises Blog:

The raisin agricultural marketing order (AMO), with roots in the
Depression-era Agricultural Marketing Agreement Act, is rationalized as
a way to "stabilize" prices. However, it allows the Raisin
Administration Committee (RAC), controlled by producers, to determine
how much of each crop can be sold, with the rest forced into storage.
That power to jointly restrict output to raise price makes it a cartel.
A cartel with so many members would not usually succeed, and the mere
attempt would be prosecuted if antitrust laws were applied, but AMOs
are enforced by the government, through the USDA...

The RAC "stabilization" is accomplished by restricting sales, often
substantially. "Free tonnage" has been as low as 53% of the crop in
2001, and less than 80% in most years. That helps producers by harming
consumers, turning price "stabilization" into price enhancement....

The raisin cartel's effects on American consumers can also be seen
in the gap between the "free tonnage" prices and "reserve pool" prices
for raisins destined for low value markets. In 2001, those prices were
$877.50 per ton versus $250 per ton; in 1998, it was $1250 versus $357;
in 1984 and 1994, the differential approached 10 to 1.

Per the WSJ($):

The Internal Revenue Service dealt a serious blow to
organizations that provide down-payment assistance to home buyers in a
ruling that could curtail the ability of lower-income U.S. citizens to
purchase homes.

In the past eight years or so, a number of large
nonprofit organizations -- including Nehemiah Corp. of America, of
Sacramento, Calif., and AmeriDream Inc., of Gaithersburg, Md. -- have
doled out hundreds of millions of dollars of cash down-payment
assistance to mostly low- and moderate-income home buyers. According to
industry estimates, as many as 625,000 people were assisted by such
groups with their down payments between 2000-05. The programs have been
widely viewed as helping to increase the nation's homeownership rates,
which rose to 69% last year from 67% in 1999.

Why?  A lot of the tax code is skewed to promote home ownership.  So why is the IRS penalizing a program that seems to make a lot of sense?

In its ruling yesterday, the IRS said these aid groups funded largely
by home builders and other sellers no longer qualify for tax-exempt
status because the benefits of the programs are going to sellers and
profit-making entities. In its statement, the IRS said it has found
"that organizations claiming to be charities are being used to funnel
down-payment assistance from sellers to buyers through self-serving,
circular-financing arrangements."

Uh-oh.  Its those nasty profit making ventures again.  What's going on here?  Basically a home-builder gives the down payment for a home to a charity which in turn gives it to a buyer who in turn gives it back to the home-builder.  Let's say the down payment is 10%.  This arrangement acts as if the home-builder is giving the buyer a 10% discount, just circuitously.

So why is it so circuitous?  Why don't they just give the discount directly?  Is it some kind of tax dodge?  The answer to the latter is probably not.  From a corporate tax standpoint, the current circuitous charity method produces a 10% charitable donation on a 100% price sale.  The discount approach just produces a 90% price sale.  Tax wise, these are equivalent.  So why doesn't the home-builder, if it wants to be generous to low-income buyers, just give them the discount?

The answer is, because the government does not allow it! 

The majority of home buyers affected by this ruling are those who
qualify for mortgages insured by the Federal Housing Administration, a
federal agency responsible for aiding first-time and lower-income home
buyers. Under FHA guidelines, home buyers seeking mortgages must have
their own funds to use for a down payment or they can get assistance
from a relative, employer or a charity. They can't get assistance
directly from the seller.

The only argument against this practice made by the IRS is that the price of the house is increase by a fee added in the process by the charity that facilitates the transaction.  But this is one of those classic government regulatory jobs where the result that instead of getting a home with a bit of extra fee in the transaction, people will instead not be able to get a home at all.  No one points to anyone being hurt, and in fact the article points out that 35% of FHA loans depend on these charities for down payments.  (There is also some hint that this process may increase default rates, but the only evidence is that default rates for this type of transaction are up --  but default rates on mortgages are up across the board right now.)

And, by the way, what is wrong with charity by a business that, in addition to helping out a charitable cause, also helps out its business?  For example, my company gives coupons for free one-day jetski rentals at Lake Havasu all the time to charity auctions in our area.  We do it to support charity, but also because it provides us some free advertising and often people who win the certificate also show up with friends who become paying customers.  So what?  Is my charity tainted because I have created a win-win? 

Today, Instapundit linked to this Howard Kurtz article, with the following line as a teaser:

But seriously, folks, has Congress become something of a joke?

I was excited to read on.  You bet Congress is a joke.  An out of control joke.  But then, in the next paragraph, he says this:

Are these toothless lawmakers no longer capable of passing anything with bite?

Bite?  BITE?!  Everything Congress does bites.  Every single day it does something to increase regulation or paperwork requirements or adds another necessary license or government approval process or tax or subsidy.  I may spend as much as half my time in my business just on government compliance and taxation issues.  Is that really Kurtz's concern, that the Congress does not pass enough legislation with bite??

Later in the article, he says something else I thought I would agree with:

isn't it telling that the one thing lawmakers can agree on is handing
out goodies as opposed any measure that involves the slightest
sacrifice?

Absolutely, I thought.  All Congress does is spend money on useless hurricane "relief" and earmarks and bridges to nowhere  and subsidies for ADM and don't forget that new prescription drug entitlement that will cost a ton of money once someone figures it out.  So given a Congress hell bent on spending like a drunken sailor, what does Kurtz use to illustrate his point of "handing out goodies?"

Of course, there is one issue on which Congress seems poised to act: extending tax cuts

I know that we libertarians have fought this issue and never seem to be able to win, but having the government let private citizens keep more of the money they earned is not "handing out goodies".  Handing out goodies is when you take tax money from one person and give it to another who did not earn it.  Tax cuts are one of the few things that inhibit handing out goodies.  Run far away from anyone who claims that tax cuts are handing out goodies, because it means that they consider your money to be the government's, and what portion you keep is yours not by right but by the grace and goodwill of the Congress who determines how much you get to keep.

After spending gobs of electrons on this post about the US trade deficit explaining why it is not a debt, and is not even necessarily bad, I got a depressing number of comments and emails like this one:

The trade deficit is a debt. We cannot get the dollars back we have
spendt unless we export to get them back. It is called an external debt
for a reason. It is called a current account debto for a reason.

Aaaaargh.  It is depressing that we can get such economic ignorance, particularly in a self-righteous way.  The crappy media coverage of these issues has people convinced that it just has to be this big old debt out there someone is going to have to repay someday. 

OK, I will try again.  But in response to this specific post, it is only called "external debt" or "current account debt" rather than "deficit" by really, really sloppy media people who have no idea what they are talking about (unfortunately, there are a lot of these).  And a deficit is not a debt, though it can sometimes create a debt.

I try to be very respectful of my readers.  I never delete a comment, unless it is spam/bot stuff or in a few cases where commenters have asked me to.  So it is only with the deepest respect that I say the following:  Please do not bother to comment on this post if a) you do not understand the difference between the federal government deficit and the trade deficit and/or b) you do not understand the difference between an account deficit and a debt.  Seriously.  Just take my word for it that you need to educate yourself a bit first, and then feel free to leap into the debate.  (Update:  This was a poor tone to adopt, see here).

First, A Thought Experiment

This is not meant to constitute proof, but for those who are concerned that the trade deficit is potentially disastrous for our economy, I can only ask, When?  Because we have been running a substantial trade deficit as a nation for over a quarter of a century, and by all accounts, over that same time period, we have had just about the strongest economy in the world.  In fact, I would propose that the causation is more likely just the reverse.  Because we have had a strong economy, with extraordinary wealth creation, we have taken some of that wealth and spent it on goods from other nations.  And because we have the safest nation in the world in which to invest, demand for our local investments tends to shift exchange rates in a way that increase the trade deficit.

In the late 80's and early 90's, everyone was in a panic about Japan.  We were running a massive trade imbalance with Japan.  They were going to buy all of our real estate.  Their government was tipping the scales in their own favor.  They were purposefully depressing the yen to encourage exports.  Blah, blah, etc, etc.  And you know what happened?  They subsequently went into a decade and a half long recession they are only just now climbing out of, and we had one of the strongest economies in history. 

How do the Dollars Get Back?

With a couple of exceptions that don't really change our conclusions, dollars do follow a closed loop.  In other words, if we send them to China or India, they generally eventually come back.   The question is how.  To understand this, it is first important to understand that the balance of trade deficit only measures some monetary flows.  In particular, it looks at the balance between manufactured goods traveling between two countries.  If the US has a $20 billion trade deficit with China, it means that they shipped $20 billion more of manufactured goods to us than we shipped back to them.  It includes some but not all services.  It does not include goods or securities or investments purchased by foreigners that remain on US soil.

To understand how the dollars come back from China in a closed loop is to, in a sense, ask the question of what monetary flows are not included in the trade deficit.  If we have a trade deficit with China, there are a number of things it can do with its extra dollars:

1. It can do nothing with them - just hold them in a big pile
2. It can lend the money to people buying their products
3. It can buy certain US services
4. It can buy US goods, but not take them out of the US
5. It can buy US public and private securities and real estate

Lets look at each in turn

1.  China can do nothing with them - just hold them in a big pile

Two words:  In-Sane.  By just holding them, they would effectively be sticking them in a mattress and foregoing any interest or investment income.  It's just not going to happen.  And don't say, well they could just put the dollars in a Chinese bank.  Fine, but the only way the Chinese bank is going to pay interest on dollars in the bank is if they turn around and invest the dollars in dollar-denominated investments.  One way or the other, the money, if it does not buy anything else, will get invested, which we will deal with in point 5.

I know there are paranoiacs that worry that the Chinese, despite the financial disincentives, will hold these dollars anyway in a big vault or something out of spite.  Gee, hurt me, hurt me.  Holding our dollars in a big mattress in Peking does nothing to hurt us.  And dumping them all on the market simultaneously may sound scary to conspiracy theorists, but in practice it would hurt them worse than it would hurt us, and the pain would be relatively short-lived  (just ask the Hunt brothers about this strategy).

2.  China can lend the money to people buying their products

I suppose that for those who don't get the federal deficit and the trade deficit mixed up, this is what they assume is happening, that Americans are borrowing from the Chinese to finance manufactured goods purchases.  The only problem is that it is not happening, at least to a greater extent than any normal purchase-financing arrangements.  Take corporations such as Wal-mart, a huge buyer of Chinese stuff.  Is Wal-Mart going into debt to buy Chinese stuff?  No, and certainly not to the Chinese. 

Well, are individual Americans going into debt to buy Chinese.  Maybe, but the key point is that they are not going into debt because what they are buying is Chinese.  They are going into debt because Americans, for whatever reason good or bad, are saving less and choosing to buy more on credit.  This would be happening if what they were buying was Chinese or American made.  In other words, American consumers may have debt, but that debt would exist even if we had no trade deficit with China.  It is a personal choice people are making that has no relation to the source of goods.

3.  China can buy certain US services

Note that many US services are not included in the trade deficit calculations.  If Chinese companies engage McKinsey & Co. consultants in the US to figure out how to sell more stuff to Wal-mart, those payments for services are probably bringing dollars back to the US from China, but aren't included in the trade calculations.  This really is just a subset of point four:

4.  China can buy US goods, but not take them out of the US

Many, many of the dollars the Chinese end up with come back to us in this way.  As did many of the dollars the Japanese had in the eighties.  If a Chinese company uses dollars not to buy US goods and take them back to China, but buy them and consume them in the US, then this does not show up in the trade numbers.  Chinese and Japanese companies bring their US dollars to the US to build factories and infrastructure.  This is sometimes why it is said that the trade deficit is not a measure of differences in cash flows, but of a difference in where goods are consumed. 

If you flip the equation around, the Chinese have a wicked balance of stuff deficit.  They are sending a lot more manufactured goods to the US than they get back.  I could argue that Chinese workers are getting hosed, since they only get to enjoy a fraction of the goods they produce for themselves, since a large portion of the product of their labor is sent overseas for others to enjoy.  Hmmm, doesn't sound so bad that way.

5.  China can buy US public and private securities and real estate

Of course, what happens with a lot of the US dollars the Chinese find themselves with is that these dollars get invested in US investment vehicles, from real estate to government bonds to private equities.  There are several points that need to be made here:

a.  Just Because Chinese invest in US Government Bonds does not make them or the balance of trade responsible for this debt

As I intimated above, a lot of people get the US federal budget deficit confused with the trade deficit.  Making this confusion worse, the Chinese use a lot of the dollars they earn in trade to buy US Government Bonds that help finance the federal budget deficit.  Now, by buying a lot of government bonds, one might argue that the Chinese lower interest rates and make government borrowing easier, thus making the federal budget deficit worse since there is a ready source of debt financing. 

While there may be a link here, it is tenuous at best.  If the government was a private company, then its borrowing level might rationally fluctuate up and down based on interest rates and capital availability.  But the US Government is not this rational.  It runs a budget deficit primarily because legislators and bureaucrats alike have the incentive to spend other people's money to protect their jobs and power base.  This happens equally at 3% interest rates and 9% interest rates.  It happens equally if guys from Peking or Omaha are buying government bonds.  In fact, one could argue that Chinese reinvestment of their trade dollars in US securities actually marginally reduces the government debt by reducing interest costs.

This same argument holds equally true for Chinese investments in private debt.  Chinese dollars may increase borrowing slightly, but only because the influx of their cash reduces borrowing costs.

b.  Chinese Ownership of US Assets is GOOD

In the Japanese scare of the 1980's, everyone was freaked out that the Japanese were buying up American assets and real estate.  During that time, while I almost never play the race card, it was almost impossible not to come to the conclusion that some racism had to be involved in this fear.  America had welcomed, in fact, had prospered, via foreign investment for years.  For a century, the US has been the safest place for foreigners to put their money,something we should be proud of  -- A sign of strength, not weakness.

But suddenly, everything was different because the new buyers were Japanese.  Note the following:

Despite the notoriety of
Japanese investors, the British have the largest U.S. direct investment
holding"”with the Dutch not far behind"”as has been the case since
colonial times. In 1990 the United Kingdom held about 27 percent of
foreign direct investment in the United States, significantly greater
than Japan's 21 percent. The European Economic Community (EC)
collectively holds about 57 percent. Moreover, according to research by
Eric Rosengren, between 1978 and 1987, Japanese investors acquired only
94 U.S. companies, putting them fifth behind the British (640),
Canadians (435), Germans (150), and French (113).

But no one was complaining about the British, Canadians, Germans, or French.  Only the Japanese.  I have to come to the conclusion that there was some racism involved, with the same primal fears at work that caused us to ship US citizens of Japanese decent off to concentration camps in WWII but we did not do the same of citizens of German or Italian decent.  And in this case, it could not have been security concerns.  Since 1945, Japan is one of the most pacifistic nations in the world- we probably face a bigger security threat from Belgium than we do from Japan.

I get the same feeling today with the China panic that I did twenty years ago with Japan.  Its a race and a culture we don't understand well, so we get xenophobic.  People lament that China is a real security threat, and that certainly is true to an extent.  But ask yourself this - Is China more or less of a threat to hurt us if their economy, their financial prosperity, and most of their assets are tied to the US?  Is China more or less stable now that their people are not starving and they are rapidly developing the largest middle class in the world?

Conclusion

If you are still having trouble understanding, the problem may be that you insist on thinking of economics as zero-sum.  This is the fallacy of 18th century mercantilists, who saw the economy as a big fixed tank, and if more flowed overseas than flowed back, the tank level would fall until the country was bankrupt.  There are at least two key fallacies here:

1. Wealth is not zero-sum.  It is created.  It is expanded.  Some can even be spent frivolously on big ass plasma TV's from China and we are still wealthier than we were decades ago.
2. Trading has value in both directions.  As mentioned above, looking at only the currency side of trading misses a lot.  By definition, in a free trade, both sides believe the trade increases the value to themselves, or they would not have made the trade.  So trading per se, no matter what the currency flows, can only lead to wealth creation, not its destruction.

Postscript - New Mercantilism

Lamenting the trade deficit is always a precursor to interfering with free trade.  It is important to note that free trade has always led to prosperity, while protectionism has always led to stagnation. 

Several protectionists today are trying to make the argument that OK, that might have been true in the past, but today is different, and today, free trade is uniquely bad.  Economist Paul Craig Roberts made this argument, that, as Don Boudreaux summarizes it:

the American standard of living is threatened by the world's growing
prosperity, improved education, better governance, and greater fluidity
of capital and resources to move in search of higher returns

Boudreaux, a writer at the fabulous Cafe Hayek, does a good fisking of this argument, but I think I can demolish it even faster.  By this logic, California would be better off if the eastern part of the US was suddenly impoverished and made educationally backwards.  This is absurd.   Sure, the industrial east suffered some temporary dislocations as the south modernized and competed for factories.  But this was only temporarily.  As the south got richer, it wasn't a contest between regions for a fixed number of factories, the number of factories and jobs grew, so that all parts of the country had more. 

Is there anyone who thinks that half of the US would be better off
economically if the other half were turned into a third world nation?  Is there any company executive that thinks they could survive if half their market went away?  So why is half the world better off if the other half is impoverished?  If you are saying, gee, the only reason I can come up with is that zero-sum fallacy Coyote keeps talking about, go to the head of the class.

Update:  In comments and emails, my readership educates me that citizens of German and Italian decent were interned in WWII as well.  While I knew that Germans and Italian POW's were interned in large numbers in the US in WWII, I was not aware of internship of US citizens with German or Italian blood, though the programs for these nationals do seem more limited than the west coast movement of Americans of Japanese decent.   My first and second generation German immigrant family members never reported being harassed in any way, either publicly or privately, during the war and most all served either in the US military or war production industries.  I will still stick by my core point that investment in the US by Asian nationals is not treated the same as investment by European or Canadian nationals.

I have also gotten a number of emails and comments on the differences between various trade and current account deficit indicators.  I tried to avoid getting into all that, assuming, I think rightly, that it would just clutter up the argument and would not substantially affect the conclusion.  Just for the record, though, there are many different metrics, that range from narrow measures of manufactured goods flows to much broader measures of capital and services flow.  You can assume that 90% of the time, the media article you are reading about the deficit probably does not correctly describe the metric it is using.

The US Congress is considering a federal licensing requirement for all paid tax preparers.  Apparently, even most paid preparers can't get the returns correct:

The senators heard from investigators at the Government Accountability
Office, who found mistakes in virtually every tax return filled out by
commercial chain preparers. The investigators said they looked at a
tiny number of tax returns, and that their conclusions could not be
generalized to the rest of the tax preparation industry.

You know why?  Because I would bet you that the same amount of scrutiny could find errors in every single return submitted.  There is just no way to get it all right.  How about, you know, actually spending some time in Congress making the return easy enough that individuals don't feel the need to seek out paid preparers.  Of course, the real reason for this initiative is that higher-dollar CPA firms and large accounting firms would like Congress to sit on its low-price competition  (note that only chain-type firms were investigated).  As Milton Freedman pointed out long ago about licensing:

The justification offered is always the same: to protect the consumer. However, the reason
is demonstrated by observing who lobbies at the state legislature for
the imposition or strengthening of licensure. The lobbyists are
invariably representatives of the occupation in question rather than of
the customers. True enough, plumbers presumably know better than anyone
else what their customers need to be protected against. However, it is
hard to regard altruistic concern for their customers as the primary
motive behind their determined efforts to get legal power to decide who
may be a plumber.

Of course, the last paragraph of the article demonstrates there is already a solution in place for poor tax preparer service:

Had the IRS found these problems on real returns, many preparers would
have been subject to penalties for negligence and willful or reckless
disregard of tax rules

So why is licensing needed at all?

As I mentioned in an earlier post, we recently won the concession for Elk Creek Marina on Blue Mesa Lake, Colorado.  For the last week, I have been scrambling to take the steps necessary to take over this business without disrupting service to customers. There are a lot of things to do from a customer service standpoint to get the business up and running, but there is a staggering list of permissions and licenses we need from the state of Colorado and other government bodies to be able to conduct this business, particularly since this is our first entry into Colorado.  Here is what we know we need so far, though I caution that this list continues to grow at the rate of 2-3 more items a day as we learn more:

• Our corporation must register with the Colorado Secretary of State as a "foreign" corporation, foreign in this case meaning that we are registered in another state.
• To register as a foreign corporation, we need to hire a person to be a "registered agent" to be a contact with the state.  The only real purpose of this person I have ever found is to provide an avenue for mail to get lost
• We have to register to pay Colorado unemployment insurance tax
• We have to register to withhold Colorado income taxes from our employees
• We have to register to pay state corporate income taxes and franchise taxes
• We have to register to collect sales taxes
• I think we have to get a special license for collecting electricity taxes, since we sell power to boats at some of the docks
• We need to go through an extensive application process to transfer three current liquor licenses into our name.  I wrote about liquor license hassles here.
• The person on the phone today told me a corporation in Colorado cannot own more than two liquor licenses.  If this is true, we will have to form a second company in Colorado, repeating all the tasks above plus the initial work just to form the company
• I need to fly to Colorado to get fingerprinted for my FBI background check that is needed for the license.  This despite the fact that I have been fingerprinted and background-checked for liquor licenses in several other states.
• Since the company will hire out fishing guides from the marina, the company has to have a Colorado outfitter license, which includes a 13 page application and very detailed regulations and required contract terms I must use to provide the life-and-death service of helping people find fish.
• The outfitter license requires that I post a bond, which in turn requires I submit detailed financial and background information to get the bond approved
• Our managers need to attend food handlers training in Colorado.  Of course, they have attended the exact same course in California, but Colorado wants them to sit through it again within their state's borders
• We need to fill out a pretty elaborate application to sell Colorado fishing licenses, and may need to post another bond to do so. (Update: Confirmed, we need a $4000 bond).
• We will likely need an occupancy license from the county
• We will need a health department inspection and license for the two retail stores, since they sell packaged foods, and a more detailed inspection for the restaurant
• We will need a fire inspection of the restaurant
• We will need Coast Guard inspection and certificate for the docks
• We will need to change the registration of all 45 boats that are kept at the marina for boat rentals  (imagine standing at the DMV to register 45 cars).
• We will need Coast Guard inspection of all the boats

75 days until we open.  Eeek.

You gotta love the government.  In September, the State of California sent me a check for $81 as a tax refund.  I did not file for the refund -- they sent the check out of the blue.  Since no one human being is smart enough to keep up with all the taxes and user fee formulas in California, I just accepted it, cashed the check and forgot about it.  This refund was for my unemployment taxes, and I just assumed my rate had changed slightly leading to a refund. 

Then, in December, the State of California sent me a notice that the $81 was in error, and I needed to send it back.

OK so far, I guess, though they seem a little Keystone Cops with this.  But here is the good part- they claim I owe interest and penalties for holding their $81 since September, despite the fact they sent me the check out of the blue and it was their error.  LOL.  If this was a lot of money and not just $15 in interest and penalties (equaling a 97% implied APR) I would freak out, but at this level its just kind of funny.  I mean, if I as a company was running this scam with consumers, sending them refund checks and then asking for the money back 3 months later with interest and penalties,I would be going to jail, would I not?

A few weeks ago I responded to Economist Philip Verleger, a classic technocrat, who lamented what private industry had done with the auto industry and felt government run by smart people like himself could do better:

Suppose a government plan could revitalize the
automobile industry and the rest of the transportation sector, encouraging it to
leapfrog several generations of technology; suppose this same plan could cut
U.S. dependence on foreign oil to zero; and suppose, finally, that the plan
could develop new technologies that would bump our economy to a higher growth
path and foster U.S. economic leadership in the 21st century. Would that idea be
worth exploring?

I am not sure there are that many adults who don't also believe in Santa Claus who can imagine the government succeeding at this, but in case there are, here are some further thoughts on government efficiency:

But while Harrison County and all but one of its cities hired contractors on
their own, Jackson County and its cities, at the urging of the federal
government, asked the Army Corps to take on the task. Officials in Jackson
County said it was a choice they had regretted ever since.

The cleanup in Jackson County and its municipalities has not only cost
millions of dollars more than in neighboring counties, but it is also taking
longer. The latest available figures show that 39 percent of the work was
complete in Jackson County, while 57 percent was done in Harrison County and its
cities that are managing the job on their own, according to federal records....

Pascagoula and other Jackson County cities are sticking with the corps. But City
Manager Kay Kell of Pascagoula said she was disappointed. Her city had a private
contract to clean debris for $7.80 a cubic yard, but now relies on the corps,
which is paying its contractor $17 to $19 a cubic yard for the same work....

Officials in Jackson County and Pascagoula cite numerous reasons for the
delays.

One is the complexity of the contract the Corps of Engineers has with
Ashbritt, a Pompano Beach, Fla., company that is overseeing the debris
collection in Mississippi
and parts of Louisiana. Its 192 pages include sections on the type of office
paper the company uses and a ban on releasing information to the news media
without the written permission of the Army Corps. (Ashbritt officials declined
to comment for this article.)

Simply getting an agreement from the Army Corps on the exact wording for the
legal release document that residents must sign to authorize contractors to
clear their homes took several weeks, officials said.

Then the Army Corps and its federal partners repeatedly gave new demands,
such as satellite-based measurements on the location of each house, before
large-scale clearing could start, county officials said.

Welcome to the Carnival of the Capitalists and my second time hosting the COTC.  Note that several people tried to submit multiple posts - when that happened, I picked just one to include this week.

Many thanks to Silflay Hraka for starting the Carnival of the Vanities, of which this is a spin-off, to showcase smaller blogs to a wider readership.  Look for future Carnivals of the Capitalists at these sites (you can submit articles here):

December 26, 2005      Multiple Mentality   

January 2, 2006      Chocolate and Gold Coins   

January 9, 2006      The Social Customer Manifesto   

January 16, 2006      Wordlab   

January 23, 2006      Patent Baristas   

January 30, 2006      PHOSITA   

While you're here, feel free to look around -- this post will tell you more about what I do at Coyote Blog.

In what has now become a tradition of my hosting the COTC, and, in true capitalist fashion, I have taken on a sponsor for this week's Carnival:

This Carnival of the Capitalists is Proudly Sponsored by"¦ ACME Maker of fine anvils for over 50 years

Government Spending and Regulation

Here at Coyote Blog, I have been warning for years that government-funded health care is a Trojan horse for more regulation of your personal life.  I hate it when I am right.

Porkopolis,
a blog highlighting the insanities of pork barrel spending, offers an
out-of-the-box alternative to rebuilding New Orleans at government
expense.

BardsEyeView takes a look at the Federal Budget through the lens of Shakespeare.  Really.

Joshua Sharf at A View from a Height looks at government price and supply regulation of taxis, and wonders what's the point.

Taxes

Jeff Cornwall at the Entrepreneurial Mind gives us the happy news that 2006 will bring us more IRS audits and more people paying the AMT.

Property Rights

Multiple Mentality asks why a man in Atlanta was handcuffed and arrested for selling his own property.

This Carnival of the Capitalists is Proudly Sponsored by"¦ ACME Escalating crises since 1952

Blogging and the Internet

Kicking over My Traces observes that robot blogs are clogging up Technorati, and that Google blog search does a better job of weeding these out

Wayne Hurlbert of Blog Business World is, not surprisingly given his blog's name, bullish on professional blogging and business blogs.

Similarly, ProHipHop is bullish on the business of podcasting.

Barry Welford
brings us a fable to illustrate that InternetLand or cyberspace can be
as complex and confusing to executives as Wonderland was to Alice

The China Stock Blog has the 12 hottest search term keywords in China.   Not sure the Coyote is doing well on any of these...

Gaurav Agarwal's Blog
observes that while computers have penetrated the developed world,
mobile phones have been much more popular in the develop ping world.

Marketing and Growth

Elisa Camahort in Worker Bees Blog reinforces the idea, via two customer service tales, that a bad customer experience can last a lifetime.

Fire Someone Today goes after the difference between "small business owner" and "entrepreneur", and posits that every self-described small business owner who is not focused on growth is probably a hobbyist, a slave, or an impending failure

Jim Logan advises aiming customer communications at the customers, not at grammatical nitpickers.

This Carnival of the Capitalists is Proudly Sponsored by"¦ ACME The secret to Glenn Reynolds success

Business Opportunities

Jane's Fit by Five enjoys getting her first "press" credential and reviews the Fortune Innovation Forum

Anita Campbell at Small Business Trends is doing her annual trends series, and spoke by phone with noted futurist Watts Wacker who gave his forecast
of trends we can expect to see in 2006, along with a bit of advice
about how to interpret and use trends.

Starling David Hunter investigates the success of the $15 apple in Japan, and draws some broader conclusions about the nature of business opportunity.

Barry Ritholtz observes in the Big Picture that the film industry has been much savvier in responding to market and technology changes than has the music industry.

Personal Finance

My Money Blog deconstructs Ameriprise Financial and finds their hiring criteria and training seem to support his concerns about the company (Lots of interesting comments to the post as well with further information)

All Things Financial has a positive review of Lee Eisenburg's book "The Number", which discusses the dollar figure you need to have set aside to retire the way you want to retire.

Free Money Finance lists 10 questions you should be asking about your retirement

Why Homeschool discusses the importance of early economics training for your kids, and some approaches for teaching them outside of the classroom.

Searchlight Crusade responds to privacy concerns over real estate and mortgage forms, and explains why you have few alternatives to providing your information if you want to close the deal.

Jim at Blueprint for Financial Prosperity describes how he saved $200 on a car repair by ordering parts himself, but still letting the mechanic do the work.

David Porter advises you to make sure you understand your ARM in the light of recent interest rate increases.

This Carnival of the Capitalists is Proudly Sponsored by"¦ ACME Leader in dehydration technologies

Wall Street & Investing

Retired at 30 announces the brand-new Carnival of Investing, which seems like a pretty good idea given how many investing and personal finance posts the CotC is attracting.

George at Fat Pitch Financials discusses the phases associated with
publicly traded corporations going private to avoid Sarbanes-Oxley
regulations.

The Internet Stock Blog analyzes what impact the new Google music search function may have on other search and music sales-related stocks.

Mike Price discusses his value-investing strategy

The Japan Stock Blog brings news that the XBOX 360 is not selling well in Japan, for reasons that may be bad news for Microsoft.

Triple Pundit reports that institutional investors are beginning to press insurance companies over their risks/exposure to global warming.

Michael Cale of Financial Methods argues that based on current inflation and interest rates, investors should
allocate more assets to bonds and gold and fewer assets to equities.

Triple Witching Friday has camera-phone pictures of the floor melee that ensued from MIzuho's $335 million trading error, potentially one of the most expensive typos in history.

Patri Friedman of Catallarchy argues that index funds using the S&P 500 are not true index funds as the composition of the index is actively managed by humans

Having just exercised some employee stock options, Early Riser explores potential investments for his money.

Economic Forecasts

Financial Options has a summary of economic indicators for release next week, with commentary.

This Carnival of the Capitalists is Proudly Sponsored by"¦ ACME Never be without a date on Friday night

Economic & Business Theory

James Hamilton in Econbrowser takes another stab at bringing sanity to the gas price "gouging" meme.

The Prudent Investor discusses a seismic shift in power in global financial markets from west to east.  "When a conflict-torn dwarf nation like Serbia can sell debt maturing in
20 years with a coupon of 3.75% while the USA has to pay 4.50% for the
same maturity it is high time to throw the old dogmas of investing
overboard."

Sophistpundit looks at the effect of tradition on journalism and the evolution of successful media companies.

The Common Room draws from a book written in the 1870s where 'Aunt Sophronia' advices her nieces on economic principles.

Thinking about Peter Drucker leads David Foster of Photon Courier to some conclusions about what is wrong with today's business schools.

Health Care and Malpractice

Good News!  InsureBlog reports that it may be getting easier for cancer survivors to get life and health insurance.

This Carnival of the Capitalists is Proudly Sponsored by"¦ ACME California Dreamin' with Earthquake Pills

Business Practices

David Daniels in Business and Technology Reinvention argues that companies' use of forced stack ranking of employees is out of date.

Ed at Daily Dose of Optimism observes that when a Japanese business struggles, its execs often get a pay cut.  He wonders why this logical practice is much rarer in the US.

Jack Yoest writes that corporations don't seem to be showing their traditional hesitation at firing employees before Christmas.

Joe Kristan tells us a tax fraud story and draws the moral:  Don't cheat on your taxes and then piss off the CFO who is helping you do it.

200Motels engages the Three Stooges to explain why Enron is pushing up daisies.

The Coyote Within (hmmm, coyotes and business blogs) provides us a business fable about finding out your true character.

Humor and Other

Wordlab looks at politically correct alternatives to "Christmas"

Noah Kagan advises the occasional reversal of holiday gift-giving.

Gill Blog has a picture of the portable inflatable meeting room

Closing Notes

Thanks to the Original Illustrated Catalog of Acme Products for the advertising copy.  You can find more ACME promotional material here.

Thanks, its been fun.  Gotta go...

This Carnival of the Capitalists is Proudly Sponsored by"¦ ACME Escape from it all with the Smoke Screen Bomb

I run a recreation business that tends to be seasonal.  Many of the campgrounds we run are at high altitudes, and are closed most of the winter because they are snowed in.  We tend to open them in the spring and close them in fall, meaning we hire people in April or May and their job ends in September or October.  Everyone we hire knows from the time they get their job offer that the job is just seasonal, and they will not have a job past some date.

This arrangement is fine with most of my workers, since they tend to be semi-retired already and work during the summer and take winter off. 

The only state where we have a problem is California.  In California, we have an incredibly large number of employees who register for and get unemployment benefits over the winter, even when they have no intention of working.  Most states require that unemployment seekers be actively looking for work.  I don't know if California checks less or if California employees are more adept at gaming the system, but the state unemployment system there seems to be paying for a lot of my employees' vacations.  I know of several who are getting unemployment and are not even in the country - they are down in Mexico fishing all winter.

As a result, I am in the worst California unemployment category, cleverly labeled "F+".  In New Mexico I pay .03%, in Florida I pay 1.3%.  In California, I pay a whopping 6.2% of wages into the system.  Which leads me to another thought - even if no one was cheating the system, why should I be punished with the worst rating in the state?  The nature of my business is that I can only offer jobs April to September.  The only alternative is not full-time work, but no job at all.  The unemployment system was created for the GM guy who has worked the line for years and gets laid off when the economy goes bad.  But my employees know from the moment I offer the job that they are not going to have a job in November.  Unlike the guy at GM, they get exactly what was promised to them.  If this was unacceptable, if they needed full time work, they should have sought out another job.  Why am I punished with higher taxes because I only have seasonal work to give?  Why, when I only have seasonal work, do I have to fund full-time income?

Give credit where it is due, California has done a pretty good job over the last couple of years cleaning up its workers comp. system.  I would like to see them do something similar with unemployment.

Until recently, I have never really been a passionate participant in the immigration debate;  however, living here in Arizona, it is virtually impossible to avoid this discussion.  One observation I can make with some confidence is that, like most political debates, few of the participants seem to have opinions that are grounded in a consistent philosophy (rather than just a pragmatic collection of political points of view, as discussed here).  As a result, rather than quoting stats on illegal border crossings or the number of Al Qaeda operatives supposedly running around the Arizona desert, I thought I would try to lay out the philosophical argument for immigration.

Individual Rights Don't Come From the Government
Like the founders of this country, I believe that our individual rights exist by the very fact of our existance as thinking human beings, and that these rights are not the gift of kings or congressmen.  Rights do not flow to us from government, but in fact governments are formed by men as an artificial construct to help us protect those rights, and well-constructed governments, like ours, are carefully limited in their powers to avoid stifling the rights we have inherently as human beings.

Do you see where this is going?  The individual rights we hold dear are our rights as human beings, NOT as citizens.  They flow from our very existence, not from our government. As human beings, we have the right to assemble with whomever we want and to speak our minds.  We have the right to live free of force or physical coercion from other men.  We have the right to make mutually beneficial arrangements with other men, arrangements that might involve exchanging goods, purchasing shelter, or paying another man an agreed upon rate for his work.  We have these rights and more in nature, and have therefore chosen to form governments not to be the source of these rights (for they already existed in advance of governments) but to provide protection of these rights against other men who might try to violate these rights through force or fraud.

So Citizenship Shouldn't Determine What Rights You Have
These rights of speech and assembly and commerce and property shouldn't, therefore, be contingent on "citizenship".  I should be able, equally, to contract for service from David in New Jersey or Lars in Sweden.  David or Lars, who are equally human beings,  have the equal right to buy my property, if we can agree to terms.  If he wants to get away from cold winters in Sweden, Lars can contract with a private airline to fly here, contract with another person to rent an apartment or buy housing, contract with a third person to provide his services in exchange for wages.  But Lars can't do all these things today, and is excluded from these transactions just because he was born over some geographic line?  To say that Lars or any other "foreign" resident has less of a right to engage in these decisions, behaviors, and transactions than a person born in the US is to imply that the US government is somehow the source of the right to pursue these activities, WHICH IT IS NOT.

In fact, when the US government was first formed, there was no differentiation between a "citizen" and "someone who dwells within our borders" - they were basically one in the same.  It is only since then that we have made a distinction.  I can accept that there can be some minimum residence requirements to vote in elections and perform certain government duties, but again these are functions associated with this artificial construct called "government".  There should not be, nor is there any particular philosophical basis for, limiting the rights of association, speech, or commerce based on residency or citizenship, since these rights pre-date the government and the formation of border.

New "Non-Right Rights" Are Killing Immigration
In fact, until the 1930's, the US was generally (though not perfectly) open to immigration, because we accepted the premise that someone who was born beyond our borders had no less right to find their fortune in this country than someone born in Boston or New York.  I won't rehash the history of immigration nor its importance to the building of this country, because I don't want to slip from the philosophical to the pragmatic in my arguments for immigration.

In the 1930's, and continuing to this day, something changed radically in the theory of government in this country that would cause immigration to be severely limited and that would lead to much of the current immigration debate.  With the New Deal, and later with the Great Society and many other intervening pieces of legislation, we began creating what I call non-right rights.  These newly described "rights" were different from the ones I enumerated above.  Rather than existing prior to government, and requiring at most the protection of government, these new rights sprang forth from the government itself and could only exist in the context of having a government.  These non-right rights have multiplied throughout the years, and include things like the "right" to a minimum wage, to health care, to a pension, to education, to leisure time, to paid family leave, to affordable housing, to public transportation, to cheap gasoline, etc. etc. ad infinitum.

Here is a great test to see if something is really a right, vs. one of these fake rights.  Ask yourself, "can I have this right on a desert island".  Speech?  Have at it.  Assembly?  Sure, if there is anyone or things to assemble with?  Property?  Absolutely -- if you convert some palm trees with your mind and labor into a shelter, that's your home.  Health care?  Uh, how?  Who is going to provide it?  And if someone could provide it, who is going to force them to provide it if they don't want to.  Ditto education.  Ditto a pension.

These non-right rights all share one thing in common:  They require the coercive power of the government to work.  They require that the government take the product of one person's labor and give it to someone else.  They require that the government force individuals to make decisions in certain ways that they might not have of their own free will. 

And since these non-right rights spring form and depend on government, suddenly citizenship matters in the provision of these rights.  The government already bankrupts itself trying to provide all these non-right rights to its citizens  -- just as a practical matter, it can't afford to provide them to an unlimited number of new entrants.  It was as if for 150 years we had been running a very successful party, attracting more and more guests each year.  The party had a cash bar, so everyone had to pay their own way, and some people had to go home thirsty but most had a good time.  Then, suddenly, for whatever reasons, the long-time party guests decided they didn't like the cash bar and banned it, making all drinks free.  But they quickly learned that they had to lock the front doors, because they couldn't afford to give free drinks to everyone who showed up.  After a while, with the door locked and all the same people at the party, the whole thing suddenly got kind of dull.

Today, we find ourselves in political gridlock over immigration.  The left, which generally supports immigration, has a lot at stake in not admitting that the new non-right rights are somehow subordinate to fundamental individual rights, and so insist new immigrants receive the full range of government services, thus making immigration prohibitively expensive.  The right, whether through xenophobia or just poor civics, tends to assume that non-citizens have no rights whatsoever, whether it be the "right" to health care or the more fundamental right, say, to habeas corpus.

A Not-so-Modest Proposal
So what would I do?  Well, this is blogging, so I am not really obligated to come up with a plan, I can just complain.  After all, Howard Dean said "Right now it's not our job to give out specifics", so why should I have to?  But, I will take a shot at it anyway:

1. Anyone may enter or reside in the US. The government may prevent entry of a very short list of terrorists and criminals at the border, but everyone else is welcome to come and stay as long as they want for whatever reason.  Anyone may buy property in the US, regardless or citizenship or residency.  Anyone in the US may trade with anyone in the world on the same terms they trade with their next door neighbor.
2. The US government is obligated to protect the individual rights, particularly those in the Bill of Rights, of all people physically present in our borders, citizen or not.  The government may also define a certain number of core emergency services (e.g. fire, police, trauma care) to which all residents, citizens or not, have equal access.
3. Certain government functions, including voting and holding office, may require formal "citizenship".  Citizenship should be easier to achieve, based mainly on some minimum residency period, and can be denied after this residency only for a few limited reasons (e.g. convicted of a felony).  The government may set no quotas or numerical limits on new citizenships.
4. All people present in the US pay the same taxes in the same way.  A non-citizen or even a short term visitor pays sales taxes on purchases and income taxes on income earned while present in the US just like anyone else.  Note that this is not radical - I am a citizen and resident of Arizona but other states like California tax me on income earned in that state and purchases made in that state.
5. While I would like to eliminate much of the welfare state altogether, I won't address that today (Don't underestimate, though, how damaging the welfare state and the
   highly regulated economy can be to immigrants, and the problem that can
   cause, as demonstrated today in France)  For purposes of this plan I will merely state that the non-right right type government services should be divided into two pools:  Services only available to citizens and services available to those who are paying into the system. 
   • The first category might include pure handouts, like Welfare, farm subsidies, and public housing.  This category can even include public policy decision like "allowing squatters or vagrancy on public lands", since this is an effective subsidy as well in the form of public housing. 
   • The second include services like public transportation or unemployment insurance -- if the individual is paying the fair (for example, the employer is paying her unemployment premiums) then they should have access to the service.  Social Security is a tough beast to classify - I would put it in the "Citizen" category as currently structured, but would gladly put it in the "available to everyone" category if SS could be restructured to better match contributions with benefits, as in a private account system.

That's enough for now.  I wrote more on immigration here.

Postscript-  And please don't tell me that a government's job is to "defend its borders".  Its not.  A government's job is to defend its citizens and residents.  There are times that this job may literally require defending the borders (e.g. France in 1940) but that clever misrepresentation of the role of government is the linguistic trick immigration opponents use to justify all sorts of semi-fascist actions, like building this happy little wall in Nogales:

Which seems awfully reminiscent of this wall in Berlin:

Compare Berlin and Nogales.  What is the fundamental principle that makes preventing the movement of people one-way across a border one of the worst human rights violations in the last century, but preventing them from moving the other way across a border is a fine policy with bi-partisan support here in Arizona?

Technorati Tags:  Immigration, Economics,
Philosophy,
International

Only the government (in this case the state of Texas) could have a line on a form like this:

17.  Enter the ending date of the twentieth week of employment in the calendar year in which this organization had at least one person employed in Texas

So I am confused about this.  What week do I enter if operations started in September of this year, pushing 20 weeks into next year?  Well, fortunately the state included a sheet along with this form to provide instructions for filling it out.  This is how these instructions explain it:

Item 17:  Enter the ending date (Saturday) of the 20th week of the calendar year in which one or more individuals performed services in Texas.

Well, now its clear.

A while back, I wrote the Porkbusters post on Arizona farm subsidies, which are mainly cotton subsidies.  Cotton gets subsidized both with direct farm subsidies as well as price-subsidized water (this is a desert, after all, and unlike Egypt we don't have the Nile running through it).

Porkopolis is on the case with a further potential subsidy, as the US Government is apparently transferring a valuable piece of Phoenix commercial real estate to Arizona cotton growers:

A review of the final bill passed by both the House and the Senate shows that Senators DeWine and Voinovich, along with 97 other Senators,
voted for a provision that transfers a federal facility and surrounding
land to the Arizona Cotton Growers Association and Supima:

SEC.
783. As soon as practicable after the Agricultural Research Service
Operations at the Western Cotton Research Laboratory located at 4135
East Broadway Road in Phoenix, Arizona, have ceased, the Secretary of
Agriculture shall convey, without consideration, to the Arizona Cotton Growers Association and Supima all right, title, and interest of the United States in and to the real property at that location, including improvements.

They've got a very deep investigative report. 

While it comes as no surprise to me, Republicans are making it official:  After dallying with small government notions in the eighties and nineties, under George Bush they are refocusing themselves on statism.  Going forward, Republicans see themselves locked in an arms race with Democrats over who can spend more and advocate more statist controls.

This news comes to us via conservative David Brooks, via Volokh:

[Brooks] rejects Bartlett's charge that Bush has betrayed conservatism. According to
Brooks, "Bush hasn't abandoned conservatism; he's modernized and saved it." As
Brooks tells the story, "conservatism was adrift and bereft of ideas" until
President Bush came along.

Almost single-handedly, Bush reconnected with the positive and
idealistic instincts of middle-class Americans. He did it by recasting
conservatism more significantly than anyone had since Ronald Reagan. He rejected
the prejudice that the private sector is good and the public sector is bad, and
he tried to use government to encourage responsible citizenship and community
service. He sought to mobilize government so the children of prisoners can build
their lives, so parents can get data to measure their school's performance, so
millions of AIDS victims in Africa can live another day, so people around the
world can dream of freedom.

"Government should help people improve their lives, not run their lives,"
Bush said. This is not the Government-Is-the-Problem philosophy of the mid-'90s,
but the philosophy of a governing majority party in a country where people look
to government to play a positive but not overbearing role in their lives.

Barf.  The last sentence contains a pure contradiction:  There is no way for government to play any role, positive or negative, without being overbearing, at least to some.  There is no way for the government to improve some lives without running others.

Despite what politicians may argue, the government has only one unique quality no one else can match.  They are not uniquely smart, or uniquely capable, or uniquely compassionate, or uniquely efficient, or even uniquely able to run large organizations.  Their only unique capability is to deal with people by force, and to use force and the threat of force and imprisonment to compel individuals to do things they would no choose to do themselves.

This unique ability to use force is necessary to the government in fulfilling its core roles of protecting us from the use of force from outside our borders (military) and protecting its citizens from the use of force or fraud by other citizens (police and courts).  When the government uses its unique ability to coerce in other spheres, there are always winners and losers.  That is because by definition the government is using force to cause an outcome or a decision that people would not have made on their own, based on their own self-interest and of their own free will.  So when politicians blithely say things like "help people improve their lives", what they ALWAYS mean is using force to compel someone to do something they would not have to do in a free society.   

For this reason, there is no such thing as having the government "play a positive but not overbearing role in their lives".  The best you can hope for with such an activist government system is to hope that the government plays a net-positive role in your life, while being overbearing to others.  Which pretty much sums up why politics are so high stakes today - if government is about sacrificing one group to another, I want my guy in there so he can be overbearing to some other group for the benefit of mine.

I dealt with these same themes a couple of days ago in this post, where I said "the entire Republican and Democratic platform each boil down to 'we
support government intervention except where our major donors oppose
it'".  My summary statement on the full range of government interference with free individual decision-making is here.

Update:  While Marginal Revolution is still optomistic for libertarians, they point out that "progressives" see the opportunity now for real expansion of socialism in this country

Democrat Matt
Yglesias writes:

If you did have a progressive president, there's no longer a
particularly large amount of popular resistance to expanding the activist state.
Even most Republicans don't especially care about small government.

I read an interesting article in the NY Times, via Marginal Revolution, interviewing the CEO of homebuilder Toll Brothers about housing prices.  His assertion was:

"In Britain you pay seven times your annual income for a home; in the U.S. you
pay three and a half." The British get 330 square feet, per person, in their
homes; in the U.S., we get 750 square feet. Not only does Toll say he believes
the next generation of buyers will be paying twice as much of their annual
incomes; in terms of space, he also seems to think they're going to get only
half as much. "And that average, million-dollar insane home in the burbs? It's
going to be $4 million."

I don't necessarily buy this whole story.  For one, Mr. Toll has business reasons for taking a public position that prices will keep rising - after all, his customers buy his product in part as an investment, and would be leery about paying current prices if they thought prices might fall in the future.  Second, as I have talked about a number of times with petroleum, when prices of any product start to rise, observers always tend to underestimate market and technology responses that might bring supply more into balance.

However, the one exception I did make in my oil price posts was that government supply restrictions, both on lands that can be explored for oil as well as things like refinery permitting, may indeed put structural upward pressure on prices.  And in fact, this is where Mr. Toll puts the blame for high housing prices as well:

Toll agrees with Glaeser et
al. that the key force driving up prices is zoning and growth regulations. 
In New Jersey it now takes Toll Brothers up to two million dollars in legal fees
and ten years in time to get the permits necessary to build.

Which got me thinking that home owners (of which I am one) may be the worst rent-seekers of all.  Most people are already familiar with the very large tax breaks for home buyers, in the form of the mortgage interest tax deduction, that is not available to people who rent or to people who borrow for purposes other than home purchase.  However, it may be that a much larger implicit subsidy to home-owners is the government restrictions on new home supply.  By restricting supply, the government is keeping prices up for current home-owners and restricting new entrants who might compete with our homes in the resale market.

Frequent readers of this blog, all 12 or so of them, are probably tired of my recent obsession with Katrina examples of how government values control over results (posts here, here, here, here, here, and here, lol).  So I will let someone else say it now:

There has been a lot of political and ideological discussions surrounding
Katrina. Clearly the political sector handled the disaster with great
inefficiency. Yet many people, including (as usual) most of the media, seem to
believe government failure somehow proves we need bigger government.

This is an odd conclusion. If the voluntarily sectors (market and civil
society) fail we hardly conclude that government must shrink. To put it another
way, if Katrina had been handled with great efficiency by the state the same
people would conclude this was an argument for even stronger government. But now
the exact opposite is also taken as meaning we need greater government. I am
curious to know if there is any world development the NYT does not see as
evidence for expanding the welfare state, at the expense of individuals and of
the civil society.

There is much more, from Truck and Barter.

Arizona Watch makes a great observation about water use here in the desert.  All-too-often, the anti-growth folks use the water issue to try to make us feel like Phoenix is heading toward some parched apocalypse.  Arizona Watch makes the following point:

Scott Patterson's "Swimming in the desert," is dangerously miss-informed. To
advance his anti-growth agenda, he predicts future water shortages in Arizona
due to urban population growth. Urban growth is not to blame.

Nearly 70% of Arizona's water is used for agricultural purposes. What's more,
the cost of water for agricultural use is significantly lower than for
industrial or household use. The problem is not that people live in this desert,
it's that people inefficiently grow crops in this desert, and the inefficiency
is encouraged by price controls on water. If water costs for agriculture were
not subsidized, then market pricing would ensure a plentiful supply of water for
generations to come.

Read the whole thing for the cites to the actual statistics.  I cannot understand why water can't be sold at a market rate.  If you subsidize water prices, and more people then come to the desert than the water supplies can support, is it the fault of the individuals who show up, or is it the fault of the government that can't seem to allow markets to operate when it comes to water?  This is yet another example of the government creating a problem with regulation, blaming the adverse results on the free market, and using the ensuing mess to justify more regulation.

Farmers in particular are getting paid by you and me, in the form of subsidized water, to try to grow wet-country crops out here in the desert.  This water subsidy is on top of the huge farm subsidies Arizona farmers get, including over $100 million a year in cotton subsidies alone.  The government is paying farmers to dump tons of water on cotton plants in the desert that grow perfectly well without irrigation in many other states. 

Postscript:  Farmers really have done an amazing job lobbying for themselves in this country.  They are particularly succesful here in Arizona, where the largest farms are owned by Indian tribes, that have the added lobbying strength of protected-group status.  The other night I was serving out my painful 7 hours or so in drivers ed. class when it was mentioned that us urban dwellers will get a huge fine for not having our 4 year old strapped down in a car seat, but rural pickup truck drivers in Arizona can legally have a 6-month-old rolling around in the back of a bouncing pickup truck without any restraint and be perfectly legal.  Why the difference?  Because the farmers wanted it that way.

My liberal in-laws always give me this strange condescending look whenever it comes up that I have voted for a Republican at some point in time, that same look you might give the otherwise beloved family dog that keeps pooping on the front lawn.  As a libertarian, I seldom fully agree with any political candidate of either party.  Every election is a tradeoff:  Do I vote for the unelectable and perhaps truly odd Libertarian candidate?  Or do I vote for a mainstream party with which I disagree with about half of everything they promote?

So here is how I normally make the decision:  On pure self-interest.  Since, as a small business owner, I am much more likely to need strong protection of property rights than I am going to need an abortion, a gay marriage, or legal marijuana, I end up voting Republican more often than I vote Democrat.  For this reason, the Republican party has generally garnered a good many libertarian votes, and the two most identifiable libertarians in Congress (Flake and Paul) have both called themselves Republican, though I am sure with some reservations.

This relationship, however, may be at an end as Republicans are disavowing their libertarian wing, and returning to their large government tendencies of the 1970's.  Bush and his buddy Tom Delay are turning out to be classic Nixon Republicans.  The most recent evidence comes from the fact that the following is not from our Republican President, or our Republican Speaker of the House, but from the for-god-sakes Washington Post:

But this spirit of
forbearance has not touched the Louisiana congressional delegation. The
state's representatives have come up with a request for $250 billion in
federal reconstruction funds for Louisiana alone -- more than $50,000
per person in the state. This money would come on top of payouts from
businesses, national charities and insurers. And it would come on top
of the $62.3 billion that Congress has already appropriated for
emergency relief.

Like looters who seize six
televisions when their homes have room for only two, the Louisiana
legislators are out to grab more federal cash than they could possibly
spend usefully. ...

The Louisiana delegation has apparently devoted little thought
to the root causes of the Hurricane Katrina disaster. New Orleans was
flooded not because the Army Corps of Engineers had insufficient money
to build flood protections, but because its money was allocated by a
system of political patronage. ...

The Louisiana bill is so preposterous
that its authors can't possibly expect it to pass; it's just the first
round in a process of negotiation. But the risk is that the
administration and congressional leaders will accept the $250 billion
as a starting point, then declare a victory for fiscal sanity when they
bring the number down to, say, $150 billion. Instead, Congress should
ignore the Louisiana bill and force itself to think seriously about the
sort of reconstruction that makes sense.

The Republicans are lost.  Combine this kind of spending with their Patriot Act and Sarbabes-Oxley driven Big-Borther-Is-Watching intrusiveness, luke-warm committment to free-trade, and bizarre , and I find nothing at all attractive about the party.  Only the economic insanity of the opposition party continues to keep Republicans in power. 

More on the Louisiana money grab here.

Following up on posts here, here, here, here, and here is yet another in a series on government preference for control over results, this time via Overlawyered.com:

In the midst of administering chest compressions to a dying woman
several days after Hurricane Katrina struck, Dr. Mark N. Perlmutter was ordered
to stop by a federal official because he wasn't registered with the Federal
Emergency Management Agency. "I begged him to let me continue," said Perlmutter,
who left his home and practice as an orthopedic surgeon in Pennsylvania to come
to Louisiana and volunteer to care for hurricane victims. "People were dying,
and I was the only doctor on the tarmac (at the Louis Armstrong New Orleans
International Airport) where scores of nonresponsive patients lay on stretchers.
Two patients died in front of me.

"I showed him (the U.S. Coast Guard official in charge) my medical
credentials. I had tried to get through to FEMA for 12 hours the day before and
finally gave up. I asked him to let me stay until I was replaced by another
doctor, but he refused. He said he was afraid of being sued. I informed him
about the Good Samaritan laws and asked him if he was willing to let people die
so the government wouldn't be sued, but he would not back down. I had to
leave."

In a formal response to Perlmutter's story, FEMA said it does not accept the
services of volunteer physicians:

"We have a cadre of physicians of our own," FEMA spokesman Kim Pease
said Thursday. "They are the National Disaster Medical Team. ... The voluntary
doctor was not a credentialed FEMA physician and, thus, was subject to law
enforcement rules in a disaster area."

So for those of you who draw the conclusion from Katrina that we need more big government rather than less, that would help.... how?

Technorati Tags:  Katrina

From the Mises Blog:

For those who maintain that the government "failed" its "mission," I must say
that they are wrong. True, the government with its ham-fisted policies of
blocking relief missions, imposing price controls, and acting in a dictatorial,
but incompetent style, seems to have "failed" in making things better,
especially in the days directly after the storm passed. But, if you understand
that government is a mechanism by which some people impose their will by force
over others, then you would have to admit that the government succeeded and
succeeded beyond its own expectations.

Thus, I leave readers with this question: If you believe that the government
"failed" in the aftermath of Katrina, will the government then have less or more
"authority" when the next disaster strikes? I think all of us know the
answer.

You can always expect government to behave exactly like government. When you
consider your political position, consider whether this institution ought to be
put in charge or disaster relief at all, or the economy, or society, foreign
policy, health care, education, courts, the environment or anything at all.
Katrina and its aftermath is only the latest exhibit in the ongoing historical
documentary in favor of a government-free society

I had similar thoughts here and here.