James Landrith is...Taking The Gloves Off: syndicated

libertarian blogger, publisher, USMC veteran and activist

 

Washington, D.C. Is a Fourth Amendment-Free Zone 
October 29, 2008
Charles Peña

While the Fourth Amendment guarantees “the right of the people to be secure in their persons … and effects against unreasonable searches and seizures,” the Washington Metropolitan Area Transit Authority (WMATA) made it clear earlier this week that the Constitution does not apply in D.C. According to Metro Transit Police Chief Michael Taborn, “Inspections could take place at any Metrorail station or Metrobus stop. They will be random, unannounced and focused on explosive detection.” While the justification supplied for ignoring the Constitution was one of deterring terrorists, the unfortunate reality is that this gross violation of rights is likely to be completely ineffective.

Comprising 86 Metrorail stations (many with more than one entrance) and over 12,000 bus stops, the WMATA operates the second-largest rail transit system and fifth-largest bus network in the United States. Given that there aren’t enough officers (WMATA or D.C. police) to conduct searches at all those stations and stops, a would-be terrorist only has to find a location without a checkpoint. Also, searches aren’t likely to be conducted 24 hours a day, which creates another easy way to exploit the program.

Moreover, because the searches will be random, the odds of catching anyone are low. Let’s assume that 700,000 people ride Metrorail on any given day and that ridership is evenly distributed between all 86 stations. Let’s also assume that searches are being conducted at half the stations. That means 350,000 people would be subject to search. If 1 in 10 persons are searched, only 35,000 out of 700,000 total riders (about 5 percent) will be searched. If there are 10 possible terrorists amongst 700,000 riders (an almost infinitesimally small percentage of the population), the probability of catching even a single terrorist as a result of a random search is near zero. In other words, it amounts to a finding-a-needle-in-the-haystack operation with odds that are only slightly better than winning a million dollars in D.C.’s Powerball lottery.

And it’s worth pointing out that by planning to conduct thousands of random bag searches, the WMATA assumes that terrorists would be too dim to adapt by, say, strapping bombs to their bodies. Yet adaptive behavior is almost second nature to a terrorist. If bombs are the threat the WMATA is worried about, a better idea is to have bomb-sniffing dogs at Metrorail stations and bus stops—but even then they can’t be everywhere at once.

Random searches reflect the post-9/11 preoccupation with trying to prevent the unpreventable. We would do well to remember what the IRA once said after a failed attempt on the life of then-Prime Minister Margaret Thatcher: “Today we were unlucky, but remember, we only have to be lucky once—you will have to be lucky always.” And it’s telling that British authorities chose not to institute random searches on the London tube system after the July 2005 bombings, recognizing that doing so would be ineffective and cripple their transportation system. Instead of trying to be lucky always, we would be better off adopting an approach based on resiliency—“the ability to recover readily from misfortune”—which accepts the cruel reality that terrorist attacks can happen. So rather than playing the lottery with random searches with dubious effectiveness in preventing terrorist attacks, we would be better off ensuring that we have the capability to quickly recover from an attack while keeping the Metrorail and buses running (rather than having to shut down the entire system, which was the response on 9/11). This is exactly the approach the Israeli government has taken in response to the threat of suicide bombers on buses.

Benjamin Franklin once wrote, “They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.” The WMATA’s random searches will guarantee that we have neither.

Economic Illiteracy Is Not the Change We Need 
October 29, 2008
Art Carden

Barack Obama is campaigning for president under the slogan “Change We Need.” Unfortunately, many of his economic policy proposals would move us in exactly the wrong direction. As of this writing it appears that Senator Obama will be the next president of the United States. We can move forward by looking at the implications of some of his economic policy proposals.

Consider first the issue of trade. One of the fundamental principles of economics is that there are gains from exchange. During the third presidential debate, Senator Obama said that he believes in free trade but then proposed a slate of caveats and provisos that would undermine the principles of free trade. On the surface, environmental protection and labor standards sound noble, but they actually harm the desperately poor by artificially raising the cost of employing them and effectively legislating them out of the international marketplace. Restrictions on trade provide a short-run windfall for unionized American workers—a powerful Obama constituency—but this windfall comes at the expense of other Americans who have to pay higher prices and at the expense of poor people around the world who are then barred from the market.

Senator Obama has also proposed trying “to fix NAFTA so that it works for American workers.” However, it isn’t clear how NAFTA currently works against American workers, and trying to renegotiate agreements with important trading partners sets a dangerous precedent. The United States risks alienating the international community and imperiling future progress toward free trade.

Second, Senator Obama wants to create millions of new jobs via various environmental schemes. It is important to remember, though, that there is no such thing as a free lunch. The resources to create all these jobs must come from somewhere, and if the government is to get the resources to create these jobs, they must redirect them from other lines of employment. Where government intervention is involved, jobs created in one sector are jobs destroyed in another.

Third, Senator Obama wishes to make it easier for workers to unionize. This will raise some incomes for some workers in the short run, but these increases come at the expense of lower wages for other workers, reductions in investment, and reductions in the international competitiveness of the firms that are unionized. The near-failures of the Detroit automakers illustrate how union-friendly policies allowed special interests to bleed producers dry. In the late twentieth century, the government sowed the seeds of financial and social prodigality. Today, we’re reaping what was sown.

Finally, Senator Obama proposes increasing the minimum wage. This runs counter to economic theory and mountains of evidence showing that minimum wages hurt exactly the people they are supposed to help. Minimum wages reduce the number of workers businesses wish to hire and legislate some of them out of the labor market. If we wish to truly help the poor, we should eliminate the minimum wage, not increase it.

Both Senator Obama and Senator McCain have offered numerous proposals that are almost audacious in their economic illiteracy. As president, Senator Obama would do well to reexamine the economics of the changes he is proposing. Especially in a turbulent economy, many of his proposals exemplify exactly the kind of change we don’t need.

Cristina’s Plunder 
October 29, 2008
Alvaro Vargas Llosa

WASHINGTON—I recently suggested that the U.S. government’s bailout of the financial system, which includes the de facto nationalization of several banks, would arouse populists around the world and give them the perfect alibi to confiscate private property. President Cristina Fernandez de Kirchner of Argentina has been the first to confirm my prediction.

Terrified that she would not be able to pay off about $10 billion of public debt fast approaching maturity, Fernandez de Kirchner nationalized her country’s private pension funds. The 10 affected funds constituted the biggest source of savings for Argentina’s economy and the financial system’s primary source of liquidity. With the stroke of a pen, the savings of 10 million people—about $30 billion—have been passed on to the Peronist government, which is sort of like putting the family jewels in Ali Baba’s care.

Unlike what happened in other Latin American countries that privatized their social security regimes in the 1990s, Argentines who opted for private, individual accounts were allowed to go back to the old system if they so wished. When Cristina’s husband, Nestor, was president, the couple announced that they would change their own private pensions back to the state-owned system.

If that is not enough indication that the hand of the authorities was never too far from the workers’ pockets, consider this: The government was already using a large chunk of the money belonging to the private pension funds by virtue of the fact that 60 percent of their capital was invested in government bonds—something that was required by law. Given the magnitude of the government’s spending commitments and the national debt, not even that was enough.

The government wants to pay off the debt that will mature in 2009 so that it can request new loans and sustain its populist model. With a 30 percent inflation rate and the prices of commodities going south, the model is already in dire straits: The price of soybeans dropped 50 percent this year, as did the price of oil. (Argentina exports natural gas, whose price shadows that of oil.)

One-third of the 10 million Argentines who owned individual pension accounts were still economically active and contributing 11 percent of their wages. The government is betting on those contributions as a source of funding for its ongoing populist spree once it pays off part of the debt.

The financial meltdown in the U.S. and around the world gave Fernandez de Kirchner an ideal opportunity to plunder the people’s savings. “When the interventionist policies are adopted by the United States,” the president said, sarcastically, “they are charming and intelligent, but when Argentina adopts them they are statist and populist.” The pretext was that if the government did not nationalize the private pension funds, their investments would be dragged down by the financial crisis. Of course, as soon as the nationalization was announced, the Argentine stock market collapsed. The ripple effects were felt as far as Spain, where the markets also suffered dearly 

Unlike six years ago when Argentines took to the streets in order to protest the freezing and devaluation of their bank deposits, this time there has been little initial reaction. “Now,” says Argentine economist Gabriel Gasave, “you will not find the victims of this plunder in the public square. Many of the people affected are future retirees for whom retirement funds are an abstraction.”

Under the Kirchners, Argentina has been living in a world of make-believe. Following the old populist recipe, the presidential couple raised public spending 200 percent and salaries 40 percent in the last four years, kept interest rates artificially low, established price controls and created state-owned enterprises. But the truth is that there was little private investment and scant wealth-creation. Foreign direct investment dropped almost 30 percent in the last three years. Sooner or later, reality was going to explode ... in the faces of the middle class and the poor.

The Kirchners have prolonged Argentina’s modern tradition of self-destruction. To think that six decades ago, when Europe was engulfed in World War II, Austrian author Stefan Zweig could write in his famous autobiography that in Argentina, “there was an abundance of food, wealth, surplus, there was endless room and hence food for the future!”

The delicious irony here is that even Juan Domingo Peron, the legendary populist whom the Kirchners regard as a national hero, declared in the 1970s that “nationalizing private pensions is theft.” He was talking about his own heirs.

Every Crisis Becomes a Carnival of Opportunism 
October 27, 2008
Robert Higgs

As the financial crisis deepens and widens, a horde of supplicants is converging on the Treasury. Each of them has a story to tell, and although the details differ from one upscale beggar to the next, each one’s tale of woe shares a common theme: help me or systemic risk will bring down the whole economy, with painful losses and injuries to one and all.

Until recently, most people had never heard of systemic risk. It was a term of art for economists and financial theorists. Now every lobbyist in Washington knows how to link his special pleading to the claim that unless he extracts his own pound of flesh from the taxpayer, the entire world will have hell to pay. This not-so-thinly-veiled threat verges on extortion.

Commercial bankers have long practiced this rock-bottom-low form of politics, relying on the undeniable fragility of fractional-reserve banking to justify their appeals for public succor during a financial crisis. Lately, however, various newcomers have joined the bankers in playing this con game. In March, the Fed opened its credit window for the first time to investment banks. In September, it ponied up $85 billion to rescue AIG in a de facto government takeover of the insurance giant and took control of Fannie Mae and Freddie Mac, committing up to $100 billion to each company to augment its capital. A little later it announced that it would buy massive amounts of commercial paper―thousands of firms in all sorts of industries potentially stand to benefit from that intervention. Most recently, it has undertaken to prop up money market mutual funds.

The Emergency Economic Stabilization (“Bailout”) Act of 2008 makes eligible for its $700 billion of largess, not only banks, but also savings associations, credit unions, security brokers and dealers, and insurance companies. As if this scope of engagement were not sufficiently outrageous, the act stipulates that the eligible “financial institutions” include, but are “not limited to” the ones named. Will pawn shops be the next ones permitted to join the queue?

Exactly why security brokers and dealers have been invited into the government’s charmed circle might seem problematic, if systemic risk must be invoked as the rationale, but their inclusion makes perfect sense in the light of public-choice analysis once you have become aware of who the primary dealers are. These institutions, a handful of companies authorized to trade directly with the Federal Reserve System, include:

• BNP Paribas Securities Corp
• Bank of America Securities LLC
• Barclays Capital Inc.
• Cantor Fitzgerald & Co.
• Citigroup Global Markets Inc.
• Credit Suisse Securities (USA) LLC
• Daiwa Securities America Inc.
• Deutsche Bank Securities Inc.
• Dresdner Kleinwort Securities LLC
• Goldman, Sachs & Co.
• HSBC Securities (USA) Inc.
• J. P. Morgan Securities Inc.
• Merrill Lynch Government Securities Inc.
• Mizuho Securities USA Inc.
• Morgan Stanley & Co. Incorporated
• UBS Securities LLC

If you don’t see any likely suspects in the recent string of taxpayer robberies on this list, then it’s time you had your eyes checked.

As the recession worsens, we can expect more and more firms and industries to plead for a rescue operation at taxpayer expense. The auto companies have already received a promise of $25 billion from a compassionate Congress, whose members are ever ready to injure the general public interest in the service of a well-healed campaign contributor, especially if the beneficiary can demonstrate that he has dreadfully mismanaged a big business. Now that corn and soybean prices have retreated from their recent extraordinary heights, the farmers are sure to demand that a national farm emergency be declared so that the 17-room additions and new tennis courts they have planned for their rural palaces can proceed on schedule. Other interest groups will troop toward Washington in tight formations, each with a claim that unless its demands are met, the Good Life and the American Way will go up in flames.

Hundreds of billions here, hundreds of billions there―pretty soon you’re talking about real money. It will be highly depreciated money, however, because the government’s bailout commitments to date, along with its already huge budget deficit, ensure that the Fed will be flooding the world with newly created dollars, and, other things being equal, each one’s creation reduces the purchasing power of every existing one. So far we must contend with $700 billion authorized by the big bailout law enacted on October 3; $85 billion for the AIG loan; $100 billion each for Fannie and Freddie; an undetermined amount, but potentially as much as $1,300 billion for the Commercial Paper Funding Facility; $25 billion for the auto companies; and $540 billion for the money market mutual funds. Together, these giveaways, all ultimately taken out of the taxpayers’ hide, amount to an astonishing $2,850 billion―a sum almost equal to total federal government spending in the fiscal year just completed.

Of course, most of these outlays nominally take the form of loans, and much of the money probably will be repaid eventually. Nevertheless, extension of the loans must be financed in any event, and in the present circumstances, such financing is inconceivable without gigantic expansions of central-bank credit, which require nothing but a snap of the Fed’s electronic finger. If you are not expecting a surge in price inflation, then you need to review your economics notes. Already we have seen an extraordinary spike in the monetary base. After increasing fairly steadily in recent years, the reported monthly average base leaped from $847 billion in August to $908 billion in September―a 7.2 percent increase in a single month! If the Fed continues to increase the monetary base at anything near this rate for more than a few months, hyperinflation is virtually certain to result. Yet, in view of the lending commitments already made in the various bailout schemes, it seems likely that the Fed will have to continue to increase the monetary base rapidly. We therefore face the prospect of stagflation the likes of which we have never seen before, with real output falling, unemployment rising, and prices increasing rapidly. All of this ruin is brought to us courtesy of the economic czars who presume to know how to manage the economy.

Notwithstanding this frightening prospect, we can be certain that still more interest groups will be pressing the Treasury for their “fair share” of the plunder, even as the economic ship continues to sink. Members of Congress are already touting the desirability of another “stimulus” program like the one that sent checks for as much as $1,200 to most American families a few months ago. Somewhere in hell, John Maynard Keynes is laughing maniacally and dancing a jig.