TFP Column: Titanic Proportions

I truly intended to get a mid-week posting up on time this week; but the more I worked on the effort, the more it became apparent that the effort fit more with the TFP than with JBS. (I will still do a mid-week effort, but it may be a day late ... or so.)

With that in mind, I turned this effort over to Editor-in-Chief Michael Miller (who's work on the upcoming Titanic event in fact instigated this week's column).  Michael, kind soul that he is and ever willing to attempt to save a drowning man a lifesaver (cherry, my favorite) agreed to publish "Titanic Proportions" on the website.  While the piece is not about my ongoing battle of the bulge, you might find it interesting as exercise in tying two things together that shouldn't normally find themselves in close proximity (you know, like steamships and icebergs).  

Since this is happening in the middle of the week, you will find it while reading the mid-week Star Edition on the website; but I'm sure that there will be even more promising efforts there as well in the weekend edition of that which remains the largest Sunday circulation newspaper in Toledo, and Ohio's Best Weekly Newspaper for the third year in a row, the Toledo Free Press.

"The Law"

Time and circumstance permit me a very little of the former to share something with you in the middle of the week. However, you're in luck.  Over the years and with the help of some pretty damn smart people that I've been lucky enough to know, I have slowly been gaining a bit of knowledge. Such knowledge, when acquired at all, is usually done by reading the words of much smarter people than me (a list almost as long as that of the National Register). The best of that knowledge was acquired by reading original source material.

Thanks to their advice, I am  able to say that I am becoming a good deal closer to the thinking of such giants as Thomas Sowell, Walter E Williams, Henry Hazlitt, and Milton Friedman (among others) whose books I have read. Many of these scholars and pundits have in turn referenced a writer from the 19^th Century, Frederic Bastiat, in tying their efforts to those of the past. More specifically they reference an essay of his first published in 1850, “The Law”.

With these limitations in mind, I am would like to share some brief part of that which I am currently reading. I hope that you appreciate it in the same way that I have, and promise to come up with something more original for the weekend.

“Since everybody traffics in law for his own profit, we should like to do the same. We should like to make it produce the right to assistance, which is the poor man's plunder. To effect this, we ought to be electors and legislators, that we may organize, on a large scale, alms for our own class, as you have organized, on a large scale, protection for yours.”

“Yes, as long as it is admitted that the law may be diverted from its true mission, that it may violate property instead of securing it, everybody will be wanting to manufacture law, either to defend himself against plunder, or to organize it for his own profit.”

“This plunder may be only an exceptional blemish in the legislation of a people, and in this case, the best thing that can be done is, without so many speeches and lamentations, to do away with it as soon as possible, notwithstanding the clamors of interested parties. But how is it to be distinguished? Very easily. See whether the law takes from some persons that which belongs to them, to give to others what does not belong to them. See whether the law performs for the profit of one citizen, and, to the injury of others, an act that this citizen cannot perform without committing a crime.”

“And this is what has taken place. The delusion of the day is to enrich all classes at the expense of each other; it is to generalize plunder under the pretense of organizing it. Now, legal plunder may be exercised in an infinite multitude of plans for organization; tariffs, protection, perquisites, gratuities, encouragements, progressive taxation, free public education, right to work, right to profit, right to wages, right to assistance, right to instruments of labor, gratuity of credit, etc., etc. And it is all these plans, taken as a whole, with what they have in common, legal plunder, that takes the name of socialism.” 

  

Days of Bread, Circuses, and the Budget Supercommittee

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For those of you who didn't pay attention in ancient history class, let me be the first (OK then, the second) to let you know that the Roman Empire was not in fact brought down by the barbarian hordes  (or even the World of Warcraft Horde for that matter).  In fact the Roman Empire had already brought itself down, its moral and intellectual foundation having so crumbled that the first strong wind would bring it down.  It was there waiting for a tipping point, when a group of people who had once been in the service of the Empire, had the vitality and the drive that Romans once had, and were willing to earn what they needed to keep from starving (by fighting if necessary), reached the center of this empire to pick at the remains of the carcass that was once the greatness of Rome.

That greatness began to fade when the politicians (in this case the Emperor and Senate), continued to try to maintain power by giving the citizens what later became known as 'bread & circuses'.  It was Government at that point, that provided food made from the grain confiscated (taxed) from subjugated lands and peoples, and entertainment to keep them distracted from how bad things had actually become and unaware of the storm growing around them. 

Like many throughout history, the Romans soon enough discovered that the strength required to maintain an empire exacted far more than gaining it. They also learned the tragic lesson of empire that eventually the producers begin to resent those living off their labor, a resentment which will sooner or later boil over.  Unfortunately for most empires, by the time they realize these facts, they also realize that once you give citizens something that they have not earned for themselves, it's ever more difficult to withdraw it and stay in power.   Like every government before and since, they failed to learn the lesson of history that 'there's no such thing as a free lunch'; and that eventually all things must be paid for. (Of course this is a much simplified version of ancient history, but one with no factual errors that should stand up to fairly close scrutiny.)

Step forward some 15-18 centuries (depending on where you wish to begin the fall of Rome), and view now the 'empire' of the United States. (Anyone who says it's not an empire is kidding themselves. But look at a map of the location of these united 'States', and the 'territorial possessions' of this country and make your best case.)  We too are seeing our 'bread and circuses' in the form of entitlement programs handed out by a ruling elite to a common man.  (I make no comment here about the desirability of such entitlement programs, but many will be able to draw the comparisons.)

Now we see a nation just passed the $15,000,000,000,000 mark in national debt (and yes, that's 15 trillion and those are 12 zeroes).  The nation is functionally bankrupt, except for its ability to print money and functionally reduce the 'value' of the debt owed.  The upper house of Congress, the Senate, controlled by Democrats since 2007, has failed to pass a budget (good, bad, or indifferent) since April of 2009.  The House of Representatives (or lower house) , controlled by Democrats from 2007-2011 and by Republicans from early 2011 to the present, has recently passed budgets, but ones which they knew would never pass in the Senate.

In the most recent 'kick the can down the road' confrontation, the two parties once again managed to accomplish next to nothing.  No agreement to cut spending (or even significantly reduce the automatic annual increases in spending was achieved). Neither was any realistic look to increasing revenues as an offset made by closing some of the gaping loopholes in the tax code that they themselves had previously created under pressure from lobbyists and well-to-do contributing constituents.  Instead they managed to defer the jobs for which they were hired and sent to Washington for (regardless of party) to a 'Super Committee' which would, because of its smaller numbers, supposedly be able to do the heavy lifting that this larger and politically fractious group of apparent Statesmen could not.  

Not surprisingly, since most of those appointed by both parties were firmly entrenched in the political posturing of their masters, this so-called 'Super Committee also failed in its task; a failure which supposedly will lead to drastic and unsupportable cuts in the government across the board, to the tune of $1.5 trillion over 10 years.  Setting aside the trivial number involved, considering the size of the government budget and that of the debt, we find that most of these cuts are a twisted form of "Wimpy Economics" at best, where cuts are made tomorrow for tax increases imposed today.  Any actual cutting however, is usually pushed out far enough that by the time it's must be done, no one remembers it's there; making it easy for those in power to conveniently forget about it and never make the cuts.

But this is OK, according to those in power, because it allows the politicians to enter the 2012 election year with clean hands and not being directly responsible for either the raising of taxes on those contributing to campaigns (or many of those voting).  Neither are they responsible for any cutting part of the unsustainable entitlement funding that many of those not paying much in the way of taxes (also a significant voting bloc) have come to count on as part of their fair share.

Congress and the Super Committee have once again provided us a valuable lesson in ancient history, and as we see them continue to provide the modern form of 'bread and circuses' we cannot help but wonder if it will turn out better for us than it did for the Romans.  I doubt it ....
 

The Greater Threat

Though there appears to be some confusion regarding the priority of the legislative agenda right now, it is apparent that sooner rather than later Congress will be looking to take up the subject of Financial Reform in this country. 


There is little doubt that miscalculation in the the relative values of real estate and the stock market in this country contributed significantly to the financial dilemma of unprecedented proportions beginning in 2008. There is little doubt as well that the public was duped by the system of banks and brokers, screwed by the regulatory processes that we counted on to protect us, and clueless of the rather arcane rules involved with the banking industry in general, and those curious things known as financial derivatives in particular. 


I will not attempt to provide specific definitions on these particular items, as even Wikipedia admits that its explanation may involve too much jargon and be too complicated to understand without further clarification. Neither will I attempt to apologize in any way for the actions of bank managers and stock brokers who appeared to have proved little more than thieves and prostitutes while selling us out. They took our trust in the system as well as our money; and if it can be in any way proved that any broke the law, they should be jailed. 


None of this appears to matter anyway, as Congress (which is becoming well-practiced in attempting to repair things that it doesn't understand either), has decided that only now can we bring all of this to the attention of the American people. Now many might question why it is that if the issue of this abuse (real or imagined) is such a critical one, it has taken so long to bring it to the public eye.  


Some might even be cynical enough (like me) to see that we are well into an election year, and the timing is all about the fact that there is now enough potential political advantage to both sides to finally bring up the issue. Some might even ask if the attention being drawn to one evil group might draw attention away from some other. For as we join in the charge to castigate the moneylenders, we might want to notice that the crisis is also far enough in the past that many will forget that there was already government oversight in the banking industry and the stock market ... oversight that failed rather miserably. 


The Security and Exchange Commission (SEC) was apparently incapable of oversight of its own employees, let alone the markets which they were tasked to watch. Forget that some of those employees were too busy surfing the Internet for porn to perform the tasks assigned to them, the truth of the matter is that they didn't appear to understand the house of cards being built as stock brokers and banks became interchangeable, or make any attempt to limit risks with other people's money which increased exponentially as a consequence of such inaction. 


Meanwhile, the House Oversight Committee on Banking not only allowed banks to become further embroiled in the risky nature of certain parts of the stock market, but encouraged (threatened) the banking industry to make riskier investments in the mortgage industry in order to provide home ownership to all. At the same time, they stood idly by as these companies loaned money in excess of inflated housing values to those who could not afford it. When the lack of regulatory oversight responsibility on the government's part met the fiscal irresponsibility of banks gambling on drawing an inside straight in the derivative market, a perfect storm of economic unsustainability was created and we have all been forced to live wit the results in the days since. 


We must now deal with the future rather than the past however, and our concern might better be to look at the continued political philosophy that if improperly handled regulatory practices have failed, more regulation is the best and only answer to fix it. If the existing regulators fail to fulfill their responsibilities, then the only answer is to add even more regulators to fix it. This seems to be philosophy of Congress when dealing with anything from Income Tax to Social Security, and while the while the complexity of the regulations continues to grow (the Tax Code is over 13,000 pages currently) and the number of regulators continues to grow as well; the problems of understanding these complex regulations and proper oversight of such programs yet remain. 


In other words, both groups have taken billions of dollars of our money over the years to keep for us. Both groups appear to be untrustworthy with this money, having squandered it for their own gain while ostensibly holding it in trust for our future use. Both seem incapable of following the often conflicting, confusing, and often contradictory rules either by monitoring themselves or under the oversight of outside groups set up specifically for this purpose. 


One cannot help but wonder therefore, whether the greater threat to Main Street (as politicians love to call us) is Wall Street or Congress?