Power & Market

Don't Trust Cuban Health Care Statistics

06/20/2018Ryan McMaken

We've long been told that Cuba's health care system is one of the greatest in the world. In spite of the fact that health usually correlates with wealth in national statistics, we're assured that Cuba's obvious poverty is offset, at least in part, by amazingly low infant mortality rates and life expectancy.

But in a new short article for the journal Health Policy and Planning, Gilbert Berdine, Vincent Geloso, and Benjamin Powell examine some of the ways that the data is being manipulated in Cuba to ensure better-looking health statistics.

For example, on the matter of infant mortality, doctors have been known to redefine dead infants as dead fetuses:

[There is] evidence that physicians likely reclassified early neonatal deaths as late fetal deaths, thus deflating the infant mortality statistics and propping up life expectancy. Cuban doctors were re-categorizing neonatal deaths as late fetal deaths in order for doctors to meet government targets for infant mortality.

Abortions of babies in utero who might die soon after birth is a tactic as well:

Physicians often perform abortions without clear consent of the mother, raising serious issues of medical ethics, when ultrasound reveals fetal abnormalities because ‘otherwise it might raise the infant mortality rate.’ ... At 72.8 abortions per 100 births, Cuba has one of the highest abortion rates in the world.

The focus on infant mortality may have led to increases in other types of mortality:

[T]hese outcomes come at cost to other population segments. The maternal mortality ratio of Cuba in 2015 was higher than in Latin American countries like Barbados, Belize, Chile, Costa Rica, Mexico and Uruguay ( Trends in Maternal Mortality 1990 to 2015, 2015). In terms of healthy life expectancy, Cuba ranked behind Costa Rica, Chile, Peru and Bermuda and marginally surpassed Uruguay, Puerto Rica, Panama, Nicaragua and Colombia

Some factors that have led to a more fit population have nothing at all to do with health care delivery:

[C]ar ownership is heavily restricted in Cuba and as a result the country’s car ownership rate is far below the Latin American average (55.8 per 1000 persons as opposed to 267 per 1000) (Road Safety, 2016). A low rate of automobile ownership results in little traffic congestion and few auto fatalities. In Brazil, where the car ownership rate is 7.3 times above that of Cuba, road fatalities reduce male and female life expectancy at birth by 0.8 and 0.2 years

Forced exercise helps:

[Another factor includes] forcing the population to increase their reliance on more physically demanding forms of transportation (e.g. cycling and walking) (Borowy, 2013). In fact, local physicians attribute a strong role to the massive introduction of bicycles in order to explain the decrease in traffic accidents mortality

So does making the population go hungry:

During the ‘Special Period’ (the prolonged economic crisis caused by the collapse of the Soviet Union), there were ‘sustained shortages in the food-rationing system’ that led to reductions in per capita daily energy intake (Franco et al. 2007). Combined with the increase in the levels of energy expenditures due to the reliance on physically demanding forms of transportation, this led to a reduction in net nutrition...this crisis led to the halving of obesity rates and, although one has to be careful in causal terms, this likely contributed to important reductions of deaths attributed to diabetes, coronary heart diseases and strokes (there were also increases in the number of cases of neuropathy).

As Berdine, et al point out, a key factor here is the unseen opportunity cost of mandating that more and more resrouces be directed toward health care at the expense of other sectors of the economy. Cuban central planners have decided that large amounts of national income be devoted to health care so as to improve (some) national indicators on health. But, given the choice, would Cubans choose to devote so much to health care?

Many advocates for government-directed health spending like to claim that health and longevity are the most important factors. But ordinary human behavior makes it clear this is not actually true. People routinely spend money on non-essentials like non-basic automobiles, large houses, and costly vacations when they could save that money for medical emergencies. Even in countries with so-called socialized medicine often have options for private supplemental health insurance — which would expand and improve quality of care for the purchaser. And yet few elect to use this option. Clearly, living as long as possible is only one value balanced against many others.

In light of this, can we conclude the Cuban government is hitting the "correct" amount of health care spending? Since each person's value ranking differs, this is obviously impossible.

Nevertheless, the Cuban healthcare system is clearly geared toward hitting certain goals arbitrarily set by government officials. This can lead to abuse, of course, and also to unreliable data.

RELATED: "Life Expectancy: If Denmark Were a US State, It Would Rank Equal To or Worse Than Sixteen US States

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Does M&A Benefit the Economy?

06/13/2018Jeff Deist

The $85 billion mega-merger of AT&T with Time Warner appears headed for consummation, which will create another big digital media company with telecom underpinnings. But will this endless scramble for eyeballs and clicks, the quest to determine which platforms finicky content consumers will choose in coming years, actually create any value for shareholders? Or will it end up like the AOL/Time Warner merger of 2000, a poster child for unduly optimistic predictions about the value of merging technology platforms?

Beyond digital media companies, questions loom about the booming M&A market in general. Is the world of deals mostly malinvestment, as David Stockman charges, or does at least some transaction activity represent organic and healthy allocations of capital? Are company valuations and purchase prices completely out of whack, due to a Fed-juiced equities market? Do stock buybacks, creative recapitalizations, and listless horizontal mergers attempt to create ersatz "financial" growth in lieu of the real thing? 

All of these are open questions, and mises.org readers need no explanation of how central banks and low interest rates create malinvestment. But (cue movie trailer voice) in a monetary world controlled by central banks, the damnable answer is we can never know. That is precisely Stockman's point: because the Fed controls the most important price in the economy — the Fed Funds rate — it's impossible to know the true price of anything. 

Value is subjective, and supply and demand drives prices. But both measures are expressed in dollars.  

So the brilliant young tech kid who gets $30 million from a VC fund for a great new idea may have created value for society that justifies it — or may be the lucky recipient of cheap shotgun money, spread around by yield-chasing fund managers hoping whiz kid's idea pays 20X or 50X to cover losses elsewhere.

This is true of all speculative markets, to be sure. VC, M&A, and equity markets would have uneven distributions of winners and losers without the Fed. But one of the big problems with central banking generally is this: when you manipulate the cost of money and credit, you necessarily manipulate that distribution. This strengthens the perception that wealth is a rigged game, and in fact actually creates an undeserving class of Fed-connected elites in heavily "financialized" industries.   

One company hoping to cash in on easy money is Vice Media, a rough and tumble media platform focused on the advertising cliche known as the "youth market." You may have happened across Vice.com, or seen their ubiquitous videos on airlines or your social media feeds. The slant is decidedly leftwing, which is no surprise, but also fairly interesting — one recent video highlighted the tragic history between Haiti and the Dominican Republic with compelling on-the-ground storytelling.  

Still, it's a niche brand at best. So imagine thinking Vice.com is worth several billion dollars, ranking it among the most valuable private companies in America. Imagine thinking it will soon be worth $50 billion, perhaps within a decade. Imagine thinking the company is wildly undervalued, so that you pull $70 million in spare change from your back pocket and invest in something you don't quite understand but imagine represents youth and revolutionary thinking. 

We might call such a person a fool, someone suffering from historical amnesia when it comes to the dot.com and housing bubbles, who forgets the importance of fundamentals and real earnings in overvalued companies. We might call them a sucker who deserves to lose money. Or we might call them a genius, if it all works out. In fact that $70 million investor back in 2012 was no less than Rupert Murdoch — by all accounts a brilliant and shrewd media mogul, not to mention hard nosed investor. And he's not alone, as a very serious private equity player — TPG — invested $450 million just a year ago. 

Fast forward to today, and Vice Media is reeling from a combination of lagging revenue, a confusing array of platforms, and the struggle to figure out millennial TV habits. So the next round of Murdochs and TPGs might not be easily identified. 

Vice, mind you, produces "content" rather than tangible goods or services. And not just any content, but edgy content, which requires an almost preternatural understanding of the shifting social media and hipster landscapes. Edgy is amorphous, and quickly lost. Worse yet is the risk of a stale company imagining it's still edgy, i.e., lacking self-awareness. Now-shuttered Rare comes to mind, as does the struggling Buzzfeed. 

All of this suggests Vice needs the right people, and a constant new stream of them, to stay relevant. This is a tall order even in the older, slower print world, as anyone familiar with Rolling Stone or Spin can attest. So investing in Vice truly means investing in people, like its wild man founder Shane Smith, not management, products, brands, processes, or systems. And people are notoriously unreliable.

Rupert Murdoch and TPG should be worried. 

Addendum: the deal world today is not just a large-cap, headline-making phenomenon. Deal activity across company sizes is robust, both in terms of volume and value, despite cooling somewhat from a recent 2015 peak. M&A buyers spend nearly $5 trillion annually, more than $1.5 trillion of it in the US.

The two primary categories of M&A distinguishes between "strategic" and "financial" buyers.

Strategic acquisitions involve existing corporations scooping up competitors, new service lines, new brands, or new technology, with the goal of greater vertical integration and the economies of scale and management such integration makes possible. "Synergy" is the awful buzzword frequently used to describe big corporations either merging with a similarly sized company, snapping up smaller bolt-on businesses as subsidiaries, or absorbing established companies to fill holes in their product and service offerings.

Vertical integration, however, comes at a potential price. As Rothbard posits in Man, Economy, and State, corporations that become too large and dominant in a field risk losing perspective on profit and loss with regard to their intra-subsidiary transfer pricing, the amount each subsidiary "charges" the others for goods and services. Corporate executives who buy up too many similar companies might find themselves with imperfect information about internal profits and losses, and thus (like Soviet planners) become unable to allocate resources and price end goods/services effectively.

As a general rule strategic buyers are less sensitive to interest rates and central bank signals, because big existing corporations often bring cash to the table or swap their own valuable stock. When Amazon simply plunks down $13.7 billion in cash to buy Whole Foods, it's not doing so to make a quick buck or even take advantage of low interest rates (though it did issue corporate debt to raise some of the money). It's not openly engaging in the kind of financial engineering David Stockman decries, although he does frequently criticize Amazon's lack of profits and dividends relative to its sky-high P/E ratio. In essence, strategic buyers (especially public corporations) often have the luxury of long-range decision-making.

Financial buyers, however, generally consist of private equity or venture funds whose investors want to buy a company and sell it within a three to five year window. As Peter Thiel describes in Zero to One, for every investment that hits, most will fizzle. So the goal is to avoid too much downside risk while biding time to unearth the big winning investment — a story Thiel knows well from his experience with PayPal, Ebay, and Facebook (note that private equity firms often invest in large public companies; the strategic vs. financial distinction is based on the identity of the buyer rather than the target entity).

During the heady go-go years of private equity M&A, from the mid-1990s until the Crash of 2008, Alan Greenspan and Ben Bernanke demonstrated their commitment to making credit cheap and easy, and to making sure stock markets didn't crash. So private equity players responded rationally, buying up companies with 1 part equity to 6, 7, 8, or more parts debt. Often the 1 part debt was divided into tranches and split between various funds, isolating the risk of losing equity even further.

Keep in mind most corporate interest payments are deductible for tax purposes, while dividend payments are not. So it made sense to load up a company with cheap debt, and use revenue to pay off that debt quickly (while deducting the interest portion) rather than funding non-deductible capital expenditures to improve future productivity. Why worry about capex, product development, or improving factories when you plan to sell the company in three years anyway? Load it up with debt, fire existing management, install overseers, put every available dollar toward debt service, and get out before any long-term cracks began to show. After all, there was always another private equity firm (or IPO) waiting to buy. 

This model is what propelled Mitt Romney from being merely a rich man to being a very rich one.

It's hardly surprising that fund managers and corporate CEOs developed a short-term mindset: monetary policy almost demanded it. And it's hardly surprising that enterprise values rose to crazy heights, with many financial deals closing for a purchase price of 10 or 12X earnings. 

It was all driven by cheap credit, and it all came crashing down in 2008. But if M&A volume is any indicator, we haven't learned a thing.

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Daniel Lacalle on Trump's Deal with China

05/22/2018Daniel Lacalle

Our friend Daniel Lacalle was interviewed recently by BBC to discuss recent developments between trade negotiations between the US and China. 

On his blog, he goes on to further explain why a trade war would be particularly devastating for China.

What the Trump administration was doing was a negotiation tactic. Aggressive, bulldozer-type and, of  course, questionable. But a tactic to address the massive trade deficit with China, the largest in the world, at $375 billion. The negotiation tactic is clear, as proven by the tariff moratorium on the European Union, Canada, Mexico and South Korea.

China needs the U.S. surplus more than the U.S. needs China’s trade and finances. And that is why the trade war will not happen. Because China has already lost it.

This is a duel at dawn in which it is most likely that no one will shoot … Because the pistols are loaded with debt, not with gunpowder.

The trade war will not happen for various reasons:

  • China badly needs the surplus with the United States to keep its extremely indebted growth model, way more than the United States needs China’s purchases of debt of goods. China added more debt in the first quarter of 2018 than the U.S., Japan and the EU combined, and it has reached an estimated 257% of GDP. If it does not grow exports to its main customer, the U.S., its problem of overcapacity and debt soars, and the economy crumbles.
  • China cannot win a trade war with high debt, capital controls and US exports’ dependence. A massive Yuan devaluation and domino defaults would cripple the economy. The U.S. dollar is the most traded currency in the world, and growing according to the Bank of International Settlement. The Yuan is 4% of currency trade.
  • China’s currency is not backed by either global use nor gold. At all. It is as unsupported as any fiat currency, like the U.S. dollar, but much less traded and used as a store of value. China’s gold reserves are an insignificant fraction of its money supply. Its biggest weakness comes from capital controls and intervention. However, even with capital controls, capital flight has continued. $51bn outflows in the first quarter of 2018, according to Natixis.
  • China does not have a nuclear option on the U.S. debt. For once, it is not the main owner of U.S, bonds, not even close (China is less than 8.6% of U.S. bonds outstanding). The United States can guarantee the demand for its debt issues even if China sells. But, in addition, China has increased its purchase of U.S. bonds by $168 billion dollars since the U.S. elections. If China sells its Treasury holdings, its own currency would massively appreciate and the domestic risks, lower exports, lower growth, outweigh the threat. Even if it sold, the demand for U.S. bonds has increased and when China has reduced Treasury holdings, Treasury yields have fallen. The Federal Reserve and the main U.S. Fixed Income funds could buy the bonds in a very short period of time, a week at most.  Remember that 2018 has seen a record pace of inflows to U.S. Treasuries. $3.4 billion inflows in one week, with year-to-date inflows of $18.6 billion (data April 14th, 2018).
  • China cannot maintain its growth – based on a huge debt bubble – if its exports fall. And its trade surplus with the United States has been growing while its trade surplus with the rest of the world shrunk. A drop in the growth of China’s exports would mean a collapse of foreign currency reserves. These reserves have been recovering a bit recently, but have fallen 21% since the 2014 highs.

A collapse in the reserves of foreign currency would accentuate the capital flight that is already taking place, which would lead to increasing the already disastrous capital controls in China, and with it, three effects. Lower growth, higher debt and the risk of a very important devaluation of the yuan.

For China, a trade war would be devastating.

Of course, there are important negatives for the U.S. but not as dramatic.

The United States exports very little (12% of GDP), so any threat that leads to a positive agreement is an exponential improvement. But the duel is loaded with wet gunpowder.

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DeLong is Wrong on Trump's Tax Cuts

Bradford DeLong posted a vicious rant on his blog recently accusing the signatories of a letter in support of President Trump’s economic policies of being “both 100% cynical and 100% deluded” as well as "moronic and easily grifted." However, it turns out that Delong himself suffers from the delusion that a president gets to write and pass legislation exactly as he sees fit. In reality, the Washington swamp is under almost complete control of lobbyists and special interest groups. We would wager that very few of our fellow signatories are completely satisfied with these pieces of economic legislation as they were passed. However, Delong claims the signatories are:

1.    Cynical and delusional to think the 2017 tax reform legislation is a middle-class tax cut.

Well first you have to understand that nearly half of American taxpayers pays no federal income tax at all while the top 10% of income recipients pay over 70%. The middle class will receive a 1-4% cut in their federal income taxes. That’s not much but it’s a step in the right direction. The corporate income tax represents double taxation of profits, which are taxed again as dividends at the personal level.  Most economists recognize that the corporate tax is a counterproductive tax that stifles economic growth and needs to be changed, if not abolished.  

2.    Cynical and delusional to claim that Trump’s regulatory relief is anything but “Berlusconi-like corrupt advantaging of favored clients.”

It is regulation itself that is corrupt because the regulators are invariably “captured” by the regulated industry. The result is that regulated industries gain protection from competition and government largess and bailouts at the expense of consumers.   Thus regulation did not prevent Bernie Madoff's scam or the financial crisis, nor does it protect the American consumers from skyrocketing health care costs. Even a moderate dose of regulatory relief will produce lower prices, more jobs, and economic growth.

Washington has always been a swamp where the political elites and their connected financial and business cronies enrich themselves at the expense of the American people.  Unlike the delusional Delong, we fully recognize that Trump's legislative accomplishments fall far short of the ideal but they do represent a step in the right direction.  

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Democrats Side with FDA over Terminal Patients

03/14/2018Tho Bishop

Often the worst of Washington is a bipartisan affair, but late last night a solid Democratic voting block stopped legislation that would allow terminally ill patients the ability to seek help from non-FDA approved treatments. 

Needing a two-thirds vote to expedite right to try legislation, 140 Democrats voted against patient rights. Representative Frank Pallone Jr. of New Jersey, the senior Democrat on the Energy and Commerce Committee, defended his vote by saying "By defeating this bill tonight, we protected patients and supported F.D.A.’s continued role in approving experimental treatments that may help save a patient’s life.” 

Yes, in the twisted world of Washington politicians limiting the choices of dying patients is "protecting them."  

While Democrats desperately clung to the narrative that non-FDA approved drugs represented "false hope", we are given examples every day of how absurd this notion truly is. Rather than being some sort of scientific seal of approval, the FDA approval process is a bureaucratic nightmare, taking years of testing and millions of dollars to complete. The numbers of lives lost due to the FDA's actions is incalculable. As Timothy Terrell has noted:

The American public tends to think of the FDA as a protector against dangerous side effects, as we saw with Thalidomide decades ago. But how many Americans have died because of lags in approval? A five-year delay in bringing the antibiotic Septra to the US market may have cost 80,000 lives. A lag in the approval of beta blockers may have cost 250,000 lives.1 The FDA's ban on advertising aspirin as an effective preventer of first heart attacks may have caused the deaths of tens of thousands of Americans every year. But because it's easy to identify those harmed by side effects, and difficult to identify who might have been saved by earlier introduction of Septra to the marketplace, the FDA tends to be over-conservative in its regulatory process.

In spite of yesterday's vote, this right to try legislation isn't dead yet. Legislators supporting the measure have made it clear that it will be reintroduced and go through the standard voting process. Of course this delay, coupled with what will be required to get it through the Senate, could prove fatal for many of  Americans who could possibly benefit from medical freedom. 

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Don't Worry Consumers, Steve Mnuchin Wants to Protect You from Bitcoin

01/12/2018Tho Bishop

It seems like its only a matter of time before the US government introduces a new wave of regulations on cryptocurrency.

Steve Mnuchin was asked about the topic today at an event hosted by the Economic Club, and the Treasuy Secretary was quick to rattle off a number of cliched responses always used to justify bigger and more intrusive government:

"We want to make sure that bad people cannot use these currencies to do bad things," he said Friday at an event hosted by the Economic Club of Washington. He added the U.S. is working with world leaders in the G-20 on "making sure that this doesn't become the Swiss numbered bank accounts."...

Mnuchin also said he is concerned about speculation in cryptocurrencies. The price of bitcoin shot up 1,200 percent last year, and other digital tokens, such as ethereum and Ripple's XRP, have grabbed their share of attention. "I want to be sure consumers trading this understand the risks," he said on Friday. "I'm concerned consumers could get hurt."

Of course, there is some humor in the notion of Treasury Secretary Mnuchin as the protector of consumers against dangerous financial scams. After all, as owner of OneWest Bank bank, it was he that was accused by the California State government for engaging in fraudulent mortgage practices following the financial crisis. As CNN Money noted:

By January 2013, when the memo [written by California investigators] and complaint were prepared, OneWest had foreclosed on 35,000 California homes and had begun foreclosing on 45,000 more, the complaint said. The draft complaint accused OneWest of "widespread violation" of California foreclosure laws.

The memo said that OneWest backdated documents and caused them to be filed with county recorders. It also said that OneWest made unlawful bids at trustee sales, resulting in "the wrong parties winning auctions," and failed to comply with state rules for the timing and mailing of foreclosure documents.

"OneWest's false filings and unauthorized conduct in the course of the foreclosure process harmed homeowners by denying them timely and important information about their foreclosures and potentially shortening the amount of time they had available to find a way to become current on their mortgage obligations," the memo said.

The memo also said that investigators could not subpoena bank records and had been hampered by OneWest's "obstruction" of another state investigation.

Of course, in terms of defrauding consumers, any shenanigans at OneWest bank pail in comparison to Mnuchin's most outlandish con:

 

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Downward Trend in Initial Jobless Claims Is Flattening Out

01/11/2018Ryan McMaken

CNBC reports that "US jobless claims increase for fourth straight week":

The number of Americans filing for unemployment benefits unexpectedly rose last week, hitting their highest level in more than three months, likely as a cold snap kept some workers at home.

The news story uses the seasonally-adjusted numbers, which I'm not crazy about. There's always an easy way to incorporate seasonal issues: simply make year-over-year comparisons. 

If we do this — using the non-seasonally-adjusted data, we find that there is indeed some slow creeping upward in YOY numbers. But note that the YOY changes still mostly remain in negative territory: 

weekly.png

Last week (January 6), the YOY change in initial claims was still down 2 percent, although the change was flat at zero percent the week before that (December 30). 

As the graph suggests, the downward trend has lessened, and we're seeing more and more YOY changes clustering around zero in recent weeks. 

monthly.png

A similar trend emerges if we look at monthly totals. December 2017's initial claims were down 5.6 percent compared to December of 2016. That, however, is one of the smaller YOY declines we've seen in recent years. With the monthly data, also, we see a slowing in the downward trend. Initial claims even went up last September, compared to September of 2016, rising 7 percent. But most monthly comparisons continue to show downward movement in total claims. 

This flattening out will probably continue as the current expansion continues, although by itself, this data does not suggest any sort of turning point in the current economic trend. 

For greater context, here's are the monthly numbers over a ten-year period:

monthly jobless.png
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Don't Federalize the Gun Laws

12/06/2017Ryan McMaken

The GOP-controlled House of Representatives is set to further federalize gun laws and gun regulations. 

They're doing it, though, under the guise of what sounds like a harmless bill designed to guarantee property rights:

The House is poised to pass a bill that allows concealed carry permit holders from one state to legally carry their guns in any other state — legislation the National Rifle Association has called “their highest legislative priority” in 2017.

But the problem here is that what the House is doing is not reciprocity. Reciprocity, properly defined, is a matter of agreement among the states. It does not involve the federal government. The new bill seeks to further insert the federal government into gun laws by forcing reciprocity on all the states. We explored this important distinction here at mises.org in August: 

This issue can be addressed from both a legal and Constitutional standpoint, and from a general philosophical decentralist view:

Suzanne Sherman at the Tenth Amendment Center has already weighed in against the idea on Constitutional grounds, based on two main arguments: 

1. Reciprocity laws are compacts made among the states, and are not imposed by the federal government.

2. The Bill of Rights Doesn't apply to the states. 

On the first matter, Sherman notes that the proposed legislation would impose reciprocity on the states. This, Sherman notes, is a departure from what we usually mean by reciprocity, which denotes compacts that two or more states have voluntarily entered into. 

Sherman writes:

Many advocates of forced National Reciprocity point to the “Full Faith and Credit Clause” found in Article IV, Section 1 of the Constitution. Such application is likewise problematic because it deviates from the original intent of the clause, lifted directly from the Articles of Confederation without any change to its meaning. This clause, as ratified, simply ensured citizens in one state could own land or property in another with the full rights of a citizen of that state. It in no way implied that one state had to recognize the institutions or licensing of another state. Driver’s licenses are acceptable for passing through various states, but it is, like CCW licensing, by mutual assent of the states. In other words, there is no federal statute mandating that one state must honor another state’s driver’s licenses.

In other words, the sort of "reciprocity" imagined by the backers of nationwide forced reciprocity is a new kind of reciprocity that substitutes federal policy for decentralized state-level policy. 

The enormous downside to this is that it federalizes what has long been recognized as largely the domain of state and local governments. Further federalizing gun policy may look like a fine idea right now, but as Sherman notes, it only takes a couple of new anti-gun appointments to the Supreme Court for the whole idea to blow up in the faces of pro-gun advocates. It's far more prudent, Sherman contends, to work against any increase in federal involvement in gun policy. 

Sherman is correct. 

The second point is about the Bill of Rights. As Lew Rockwell points out, 

[T]he purpose of the Bill of Rights was to state very clearly and plainly what the Federal Government may not do. That's why they were attached to the Constitution. The states, under the influence of skeptics of the Constitution's limits on the central power, insisted that the restrictions on the government be spelled out. The Bill of Rights did not provide a mandate for what the Federal Government may do. You can argue all you want about the 14th amendment and due process. But a reading that says it magically transforms the whole Bill of Rights to mean the exact opposite of its original intent is pure fantasy.

Of course, even if the Constitution explicitly gave the federal government the power to regulate guns, it would still be a bad idea to do so at the federal level. As is the case with all types of policy, the federal government is primarily the domain of millionaire politicians who are nearly impossible to influence — or even get a meeting with — unless one is extremely wealthy or has the backing of a large nationwide special interest group. It is unwise to grant those people even more power. 

Moreover, if the federal government is going to make new federal laws in this matter, that means it must also enforce them. Will this be done through a new national bureaucracy? Or perhaps through the federal courts? Either way, the federal government will be more involved in crafting, regulating, and overseeing state policy. Republicans claim to be against this sort of thing. 

Also key to understandign the importance of decentralization is the fact that decentralization offers a multitude of choices between different regimes in the face of government restrictions and persecution. If only one huge government has been granted the power to protect rights, to where will one go when the government fails to do its prescribed task? On the other hand, when a wide variety of smaller governments are charged with protecting rights, the failure by one regime is not nearly as catastrophic since the offending regime can be far more easily avoided through emigration and boycott than can a large centralized regime. 

Thus, it might sound nice to put the federal government in charge of protecting gun rights, but the potential downside is immense given that federal policy can change easily, and then be imposed nationwide. 

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Decentralize New York City

11/30/2017Ryan McMaken

The writer known as Bionic Mosquito has helpfully brought to our attention some of the good stuff offered by Murray Rothbard in his articles for Libertarian Forum. Specifically, Mosquito points to Rothbard's 1969 article promoting the mayoral candidacy of Norman Mailer. Rothbard writes: 

The Mailer platform stems from one brilliantly penetrating overriding plank: the absolute decentralization of the swollen New York City bureaucracy into dozens of constituent neighborhood villages.

Mosquito notes that Rothbard would be unloved among some modern libertarians who strongly oppose secession by bits and pieces — especially by individual secession. You see, these libertarians claim that secession is illegitimate if a group of people decide to do it by referendum. Presumably, if a single person opposes the proposed secession by referendum, then it becomes a crime against humanity. Oh sure, these libertarians claim they like secession in the form of "individual secession." This option, of course, exists totally outside reality, as Mosquito notes: 

So…since libertarians cannot support secession by referendum, we are left with convincing seven billion people of the value of political, individual anarchy. They will all just opt out at the same moment – no pushback from the state or even their neighbors. All of them, simultaneously, having this “aha” moment.

Sounds like a great strategy. 

This, of course, is why Rothbard supported all sorts of localized secession movements. Mosquito continues with his look at Rothbard's article on Mailer: 

Rothbard is not waiting for the big bang – seven billion people simultaneously seeing the light:

Each neighborhood will then be running its own affairs, on all matters, taxation, education, police, welfare, etc.

As opposed to the idea that there is something un-libertarian about people living next to each other and sharing some desires in common for the neighborhood. In any case, the smaller and more local the political unit, the more control each constituent has and the more that those in government will be known individually – in person, face-to-face.

Rothbard recognizes that neighborhoods will separate into common groupings; he is not shy about discussing black and white. He recognizes that the idea of “diversity” is an idea formed to bring conflict; instead, he offers:

…in the Mailer plan, black and white could at long last live peacefully side-by-side, with each group and each self-constituted neighborhood running its own affairs.

Whites and blacks would be independent equals “rather than as rulers of one over the other….”

One of Mailer’s key proposals is that New York City secede from New York State and form a separate 51st State….

That the seceding New York City would likely be far more socialist than the rest of the state didn’t bother Rothbard one bit, it seems – decentralization was the key, the non-aggression principle put into practice. Also, keep in mind: Mailer ran as a democrat. Imagine that: a democrat for secession and political segregation. 

Rothbard goes on to support his effort at New York secession by noting that the city has more then enough wealth to support itself as an independent entity. In the past I've claimed that large cities ought to become their own states, and noted the states have more than enough population and wealth to do so. 

Moreover, Rothbard in the article makes the excellent point that if the federal government weren't siphoning off so much of New York City's wealth, the taxpayers there would have immense resources to address all the city's needs: 

Another superb part of Mailer's libertarian vision is his reply about where the New York City government would raise funds; he points out that citizens of New York City pay approximately $22 billion in income taxes to the federal government, and that New Yorkers only receive back about $6 billion from federal coffers. Hence, if New Yorkers kept that $22 billion in their own hands . . . That way lies secession indeed!' 

Those are 1969 numbers, but as I've noted in a similar context — in my "Decentralize the Welfare State" article — states like New York ought to be allowed to decentralize tax collections. That is, if we can't eliminate taxation, at least the wealth produced by New Yorkers — or whatever state you like — ought to at least stay in New York where the people who paid the tax bills actually live. 

All of these changes are baby steps toward real decentralization that provides small amounts of greater choice to taxpayers, and more control over their lives by localizing political power. 

As always, we're hear about how we should really be supporting secession for "7 billion people." That's fine. But as Mosquito notes: 

My responses to a couple of the anti-secessionist libertarians can be found here and here.  The very short version: we will never get from something like 200 political jurisdictions to 2,000 or 2 billion or 7 billion until we get to 201 first.  Support secession, then the next one and then the next one.  Do this a few dozen times and we might be getting somewhere.

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