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Self Defense in City Parks, Washington State Validates Right to Carry and Gun Free Zones Continue to Be Violence Magnets

A female Superior Court judge in King County, Washington has ruled in favor of individuals who sought to end a ban on carrying firearms in city parks.

Judge Catherine Shaffer did not mince words in her order, part of which was handwritten and issued from the bench following an afternoon hearing in her Seattle courtroom.

“The court finds that the plaintiffs have a clear legal or equitable right to carry firearms under the federal and state constitutions,” she ruled.

The judge also noted that the “court finds that there is no genuine issue of material fact on which reasonable minds could differ.”

As some people are aware, Indianapolis Councilor Ed Coleman (Libertarian – At Large) has introduced legislation which would eliminate the unconstitutional city ban on individuals, who have gotten permission from the government by way of a permit to exercise their rights (sarcasm intended), carrying their personal firearms onto city park property. In other words, he has introduced a proposal to restore an individuals right to defend themselves in a way that would align city code with both state and federal law where such restrictions either don’t exist or are expiring this month.Now before the anti-gun folks have a fit, let’s consider the following.You walk up and down city streets and drive all over public roads every day with countless other people who are licensed to carry their firearms and have them on their person or in their vehicles either openly or concealed. The streets are not running red with law abiding citizens shooting each other are they? Do you feel unsafe walking around Monument Circle at lunch time because some of those folks have guns on them? Of course not. Interestingly enough, in some states (like New Hampshire) one can legally “open carry” into the State House (although bureaucrats are trying to play games with it now [see this link and associated video] )!Where should you feel unsafe? So-called “gun free” zones maybe?This past week we saw a faculty member at the University of Alabama kill three people and wound others when she was denied tenure. We also saw this month where an elementary school teacher shot other faculty members when he was told he would not have a job next year. We all remember what happened at Columbine or at Virginia Tech. All “gun free zones”. Yet, that didn’t stop crazy people with criminal intent from taking a gun into those areas and attacking people who were legally (but unconstitutionally perhaps?) denied the choice of defending themselves. It was great to see the Fraternal Order of Police speak publicly in favor of Mr. Coleman’s proposal. Unfortunately, the proposal caught Mayor Greg Ballard (R) off guard and he probably spoke too quickly when suggesting he would veto the proposal if it landed on his desk. There is never a wrong time to restore rights or liberty to the people. Most conservatives and libertarians would expect Republican officials to fully support this kind of thing if they truly believe in protecting people’s natural rights. One can only hope that the Mayor doesn’t feel backed into a corner as after careful consideration there would be no reason not to support this except to play silly political games.There was a rumor that councilor Mike Speedy, who is running for State House this year, has been interested in this kind of proposal in the past but never thought it would get enough support. Now that with the Heller and the Seattle decisions showing courts will support individual rights, there should be no reason other councilors shouldn’t jump on as co-sponsors. But, again, political games could trump actually doing the right thing. We’ll see.The important thing to remember is that “gun bans” are “massacre enabling” restrictions and do not protect anyone. You can’t protect the sheep from the wolf by making all of the sheep weaker.

A Libertarian View Against the Banks

There has been much ado over bailouts and socialism, Wall Street and Main Street, greedy bankers and noble capitalists, and a myriad of other related catchphrases and ideological positions when it comes to a discussion of the state of our financial system over the last year and a half. The debate rages on as today former Fed Chairman Paul Volcker testified before the Senate Banking Committee and with Barack Obama’s recent call for a new tax on banks. Volcker has suggested a ban on proprietary trading for certain banks. This is a modified reinstatement of Glass-Steagall which served to separate standard commercial banking from hedge fund like behavior.

Lately, the conservative mainstream has taken to siding against such reforms. Typical free market rhetoric has led the way. It’s been suggested that a ban on prop trading would over-regulate the banks and inhibit growth. We also hear the usual arguments against corporate taxes which state that it such policies only hurt the end consumer. I’d like to offer an alternative point of view on this subject that I think libertarians (and Libertarians) should consider supporting. I’ll present my logic one point at a time.

1. Our System Encourages “Too Big To Fail”

This is a complex and very difficult issue. My free market ideals support a position which would say that companies can engage in any behavior they want and get as big as they want. They should be able to do this so long as they do not engage in fraud and/or stealing. The problem with today’s system is that fraudulent behavior is supported. Banks can engage in expanding the money supply at will via credit creation in our fractional-reserve, fiat monetary system. I recognize that there is a legitimate debate to be had on the degree of fraud that such activity constitutes, but banks are allowed (and encouraged) to extend their liabilities well beyond their liquid assets. This creates an environment which is recipe for Too Big To Fail.

2. The Federal Reserve Further Enables Such Behavior

The Federal Reserve is the watchdog of the banking system. Large institutions have a direct line to the Fed in the primary dealer relationship. The liquidity provisions which the Fed has created over the last two years has not only expanded its balance sheet, but it has allowed these large banks to trade potentially risky assets for cash. This strengthens their reserve asset positions artificially and allows for further credit expansion. In the case of the last year, credit expansion has been swapped for asset speculation via proprietary trading.

3. Too Big To Fail Presents a Hazard to the Broader Economy

I wish I had a dollar for every time I’ve heard Tim Geithner, Ben Bernanke, random talking heads on CNBC, or any other person in power discuss why we had to bail out AIG. I understand their point of view. Most Americans who were opposed to bailout frenzy probably do not truly grasp the meltdown we would have experienced. No one can say definitively how bad it would have been, but it would have been painful. I would posit that Too Big To Fail would not exist in a true free market. That is an ideal which is too far from reality. Poor investments should be liquidated but are allowed to persist and grow in a bubble economy. This should be prevented.

4. Proprietary Trading Serves Marginal Economic Value and Enhances Too Big To Fail

Some large banks also serve as market makers by providing liquidity to investors. This legitimate role was developed long ago to fill in the gaps in the market to make it easier for investors. (More on this in a future post.) However, market making has been extended to significant trading. This is gambling plain and simple. I am not opposed to gambling, but it is important to understand that it serves no economic purpose other than speculation. When several large banks trade in the markets for speculative purposes, they create counter-party risks between each other. So, large banks (and other financial institutions) which participate in such activities ultimately enhance Too Big To Fail regardless of their direct participation in commercial banking. (For more detail, read this at Naked Capitalism.)

5. Too Big To Fail Risks Should Be Insured by Too Big To Fail Institutions

There has been a lot of arm-wringing that certain large banks already repaid their TARP money and should not be further penalized with a new tax. I disagree; although I would not position this policy as a tax. The government has enabled and continues to support Too Big To Fail. This should be ended. However, in the interim, this continues to pose a systemic risk. Failure should not be covered by taxpayers. As the FDIC collects a tax (fee or insurance premium) to build its reserve fund to address failed banks, so too should the government collect a similar tax on Too Big To Fail institutions to protect the taxpayer. (There is also a legitimate libertarian debate against the FDIC, but we’ll save that for another post as well.)

It is not a popular position for libertarians to support government intervention in the markets. This is not the issue at hand. We must recognize that there is a close relationship between Washington and lower Manhattan. Our economy has been transformed over the last two decades to one built on financial engineering underpinned by credit expansion and cozy corporatism. This must come to end. It will either end by implementing policies which unwind it carefully or with a spectacular crash which will make last the last year and a half look like a walk in the park.

A Libertarian View Against the Banks

There has been much ado over bailouts and socialism, Wall Street and Main Street, greedy bankers and noble capitalists, and a myriad of other related catchphrases and ideological positions when it comes to a discussion of the state of our financial system over the last year and a half. The debate rages on as today former Fed Chairman Paul Volcker testified before the Senate Banking Committee and with Barack Obama’s recent call for a new tax on banks. Volcker has suggested a ban on proprietary trading for certain banks. This is a modified reinstatement of Glass-Steagall which served to separate standard commercial banking from hedge fund like behavior.Lately, the conservative mainstream has taken to siding against such reforms. Typical free market rhetoric has led the way. It’s been suggested that a ban on prop trading would over-regulate the banks and inhibit growth. We also hear the usual arguments against corporate taxes which state that it such policies only hurt the end consumer. I’d like to offer an alternative point of view on this subject that I think libertarians (and Libertarians) should consider supporting. I’ll present my logic one point at a time.1. Our System Encourages “Too Big To Fail”This is a complex and very difficult issue. My free market ideals support a position which would say that companies can engage in any behavior they want and get as big as they want. They should be able to do this so long as they do not engage in fraud and/or stealing. The problem with today’s system is that fraudulent behavior is supported. Banks can engage in expanding the money supply at will via credit creation in our fractional-reserve, fiat monetary system. I recognize that there is a legitimate debate to be had on the degree of fraud that such activity constitutes, but banks are allowed (and encouraged) to extend their liabilities well beyond their liquid assets. This creates an environment which is recipe for Too Big To Fail.2. The Federal Reserve Further Enables Such BehaviorThe Federal Reserve is the watchdog of the banking system. Large institutions have a direct line to the Fed in the primary dealer relationship. The liquidity provisions which the Fed has created over the last two years has not only expanded its balance sheet, but it has allowed these large banks to trade potentially risky assets for cash. This strengthens their reserve asset positions artificially and allows for further credit expansion. In the case of the last year, credit expansion has been swapped for asset speculation via proprietary trading.3. Too Big To Fail Presents a Hazard to the Broader EconomyI wish I had a dollar for every time I’ve heard Tim Geithner, Ben Bernanke, random talking heads on CNBC, or any other person in power discuss why we had to bail out AIG. I understand their point of view. Most Americans who were opposed to bailout frenzy probably do not truly grasp the meltdown we would have experienced. No one can say definitively how bad it would have been, but it would have been painful. I would posit that Too Big To Fail would not exist in a true free market. That is an ideal which is too far from reality. Poor investments should be liquidated but are allowed to persist and grow in a bubble economy. This should be prevented.4. Proprietary Trading Serves Marginal Economic Value and Enhances Too Big To FailSome large banks also serve as market makers by providing liquidity to investors. This legitimate role was developed long ago to fill in the gaps in the market to make it easier for investors. (More on this in a future post.) However, market making has been extended to significant trading. This is gambling plain and simple. I am not opposed to gambling, but it is important to understand that it serves no economic purpose other than speculation. When several large banks trade in the markets for speculative purposes, they create counter-party risks between each other. So, large banks (and other financial institutions) which participate in such activities ultimately enhance Too Big To Fail regardless of their direct participation in commercial banking. (For more detail, read this at Naked Capitalism.)5. Too Big To Fail Risks Should Be Insured by Too Big To Fail InstitutionsThere has been a lot of arm-wringing that certain large banks already repaid their TARP money and should not be further penalized with a new tax. I disagree; although I would not position this policy as a tax. The government has enabled and continues to support Too Big To Fail. This should be ended. However, in the interim, this continues to pose a systemic risk. Failure should not be covered by taxpayers. As the FDIC collects a tax (fee or insurance premium) to build its reserve fund to address failed banks, so too should the government collect a similar tax on Too Big To Fail institutions to protect the taxpayer. (There is also a legitimate libertarian debate against the FDIC, but we’ll save that for another post as well.)It is not a popular position for libertarians to support government intervention in the markets. This is not the issue at hand. We must recognize that there is a close relationship between Washington and lower Manhattan. Our economy has been transformed over the last two decades to one built on financial engineering underpinned by credit expansion and cozy corporatism. This must come to end. It will either end by implementing policies which unwind it carefully or with a spectacular crash which will make last the last year and a half look like a walk in the park.

Obama’s Second Chance

The President “did something unusual” today as he engaged the opposition at the Republican GOP House Issues Conference. I caught bits and pieces on the radio and television, and I plan to record and watch the event in its entirety over the weekend. I have to admit that I’m a bit impressed with Obama on what I’ve seen/heard thus far.

The GOP House delegation invited Obama for a Q&A today in Baltimore, MD, and the cameras were rolling. In what became an American version of Prime Minister’s Questions (of which I am a big fan), Obama took questions from GOP House members. A bit of political wrangling mixed with solid debate led to a few honest answers from Barack Obama which put his intelligence and oratory on display without a teleprompter.

From what I’ve been able to dissect thus far, both sides scored some points. But, to me, while Obama toed the line between playing politics and denouncing politics, he scored some big points tonight. This is the Obama that I favored over John McCain. This is the Obama I wished we would have seen more of in the last year.

Let’s be clear. I’m no huge fan of many of Obama’s policies. Admittedly, I’ve always had an open ear to his anti-Washington populist message. Let’s also be clear that I’m not so naive that I’d immediately assume that he has changed. However, his change of tone since the election of Scott Brown opens the door for a second chance.

The President now stands at a crossroads. Despite a poor State of the Union Address and a poor record of deficient action as it is measured against his populist rhetoric, his personality affords him the opportunity to prove Americans (like me) wrong. I’m skeptical of his commitment to cooperation and bipartisanship, his stance against the financial elite and powerful lobbies, and his willingness to support true reform and budget control. I’m very skeptical.

Actions speak louder than words. Let’s watch.

Obama’s Second Chance

The President “did something unusual” today as he engaged the opposition at the Republican GOP House Issues Conference. I caught bits and pieces on the radio and television, and I plan to record and watch the event in its entirety over the weekend. I have to admit that I’m a bit impressed with Obama on what I’ve seen/heard thus far.The GOP House delegation invited Obama for a Q&A today in Baltimore, MD, and the cameras were rolling. In what became an American version of Prime Minister’s Questions (of which I am a big fan), Obama took questions from GOP House members. A bit of political wrangling mixed with solid debate led to a few honest answers from Barack Obama which put his intelligence and oratory on display without a teleprompter.From what I’ve been able to dissect thus far, both sides scored some points. But, to me, while Obama toed the line between playing politics and denouncing politics, he scored some big points tonight. This is the Obama that I favored over John McCain. This is the Obama I wished we would have seen more of in the last year.Let’s be clear. I’m no huge fan of many of Obama’s policies. Admittedly, I’ve always had an open ear to his anti-Washington populist message. Let’s also be clear that I’m not so naive that I’d immediately assume that he has changed. However, his change of tone since the election of Scott Brown opens the door for a second chance.The President now stands at a crossroads. Despite a poor State of the Union Address and a poor record of deficient action as it is measured against his populist rhetoric, his personality affords him the opportunity to prove Americans (like me) wrong. I’m skeptical of his commitment to cooperation and bipartisanship, his stance against the financial elite and powerful lobbies, and his willingness to support true reform and budget control. I’m very skeptical.Actions speak louder than words. Let’s watch.

Citizens United Decision and Free Speech

The Supreme Court issued a significant ruling this week on the subject of campaign financing. It is a complex subject and the opinions authored by the Court illustrate this complexity checking in at 183 pages (read here if you dare). I have read most of them and will offer my thoughts.

In the 2008 election cycle, a group called Citizens United produced a film called Hillary: The Movie which was apparently quite an unfavorable depiction of the Presidential hopeful. Citizens United intended to distribute the film as an on-demand pay-per-view on DirecTV. The commercials which supported the film were deemed an “electioneering communication” by the U.S. District Court of the District of Columbia and the film was not shown. Citizen United is a non-profit 501(c)4 corporation which has special non-profit status in that, unlike standard non-profit 501(c)3 charitable corporations, they can participate in the political process via lobbying and and campaigns. If this sounds complicated already, then welcome to the world of campaign finance in the United States.

This decision set up the Supreme Court battle which was decided on January 21. In what appears to be a unique decision, the Court decided 5-4 in favor of Citizens United overturning precedent in previous cases and ruling parts of the Bipartisan Campaign Reform Act (McCain-Feingold) as unconstitutional. The effect of this decision is that corporations (and unions) may now use unlimited funds directly from the general treasury to engage in electioneering communications. However, such funds (still) may not be used to contribute directly to candidates or to other political committees (political parties and political action committees known as PACs). Further, contribution limits and regulatory disclosures are left unchanged in the decision.

An electioneering communication is one that clearly advocates the support or defeat of a particular candidate (follow the link above to get a complete definition) before an election. Corporations and unions were previously prohibited from such communications, but no restriction existed for individuals or various groups such as political committees or “527” groups. This nuance is essentially what led the Court to its 5-4 decision. They felt that Citizens United should not be prohibited from electioneering communications as it restricts free speech and argued that any relaxation of the prohibition must lead to the sweeping decision they ordered.

Justice John Paul Stevens authored the dissent. He lambasted the majority on two key points. First, he felt that the majority overstepped its bounds in the tradition of the Court by providing such a sweeping decision which essentially overturned two previous decisions and a major piece of recent Congressional legislation. Second, he felt that the consequences of allowing corporations to engage in unlimited spending on electioneering communications would be detrimental to democracy and inconsistent with the Founders’ vision. Justice Antonin Scalia offered a concurring opinion which focused largely on a rebuttal to the dissent’s view of the Founders’ intent.

There is a lot of big money in politics. Certainly, the electorate is aware and skeptical of how big money can lead to big corruption. It will be interesting to see how this ruling will change the political landscape of the 2010 elections. The fear expressed by those who disagree with the Court is that this will lead to more corruption and allow corporations to dominate the political discourse. A more philosophical opposition to the decision is on the nature of corporate personhood.

I am not going to devote a lot of effort here to the debate on corporate personhood. However, briefly, we must recognize that corporations engage in contracts, can litigate, pay taxes, and are subject to criminal, civil, and financial liability. Also, corporations are ultimately comprised of individuals. This allows for an interesting tangent of debate which I will not pursue. I will point out that limiting the free speech of media corporations or even non-profit corporations would seem to be anathema to most. I would find it difficult to objectively draw that line to prevent large for-profit corporations from exercising free speech.

Money gives power in many aspects of society. There is no doubt to that. Corporations have a lot of money and thus have a lot of power. Power in the political discourse allows for views and opinions to be expressed, candidates to be laud and vilified. Exercising power also comes with a price. While most of the electorate will be unlikely to monitor great sites like OpenSecrets.org to determine who is paying for campaigns and ads, the disclosure requirements of the FEC enable such organizations to educate and inform. The media, advocacy groups, and interested individuals are empowered more than ever by the internet to report perceived improprieties and report on the relationship between money and politicians.

Our system is not perfect and democracy is a dirty business. Corruption will always exist, but it is the duty of the electorate to be informed and educated in a functional democracy. We cannot force this upon voters, but that should not force us to restrict free speech. This may lead to more corruption or at least the perception thereof, so interested opponents should take steps to counter this.

Be active and hold your elected officials and candidates responsible for their actions. Vote with your dollars if you disapprove of a corporation’s political activities. Sell their stock. Boycott their products. Tell others to do the same. Last, but not least, be an advocate for better representation in government. Members of the House today represent about 700,000 citizens on average. Increasing the size of the House would lead to greater accountability, more equitable representation across the States, and less money involved in each race. This would be a far better remedy than restricting free speech.

Citizens United Decision and Free Speech

The Supreme Court issued a significant ruling this week on the subject of campaign financing. It is a complex subject and the opinions authored by the Court illustrate this complexity checking in at 183 pages (read here if you dare). I have read most of them and will offer my thoughts.In the 2008 election cycle, a group called Citizens United produced a film called Hillary: The Movie which was apparently quite an unfavorable depiction of the Presidential hopeful. Citizens United intended to distribute the film as an on-demand pay-per-view on DirecTV. The commercials which supported the film were deemed an “electioneering communication” by the U.S. District Court of the District of Columbia and the film was not shown. Citizen United is a non-profit 501(c)4 corporation which has special non-profit status in that, unlike standard non-profit 501(c)3 charitable corporations, they can participate in the political process via lobbying and and campaigns. If this sounds complicated already, then welcome to the world of campaign finance in the United States.This decision set up the Supreme Court battle which was decided on January 21. In what appears to be a unique decision, the Court decided 5-4 in favor of Citizens United overturning precedent in previous cases and ruling parts of the Bipartisan Campaign Reform Act (McCain-Feingold) as unconstitutional. The effect of this decision is that corporations (and unions) may now use unlimited funds directly from the general treasury to engage in electioneering communications. However, such funds (still) may not be used to contribute directly to candidates or to other political committees (political parties and political action committees known as PACs). Further, contribution limits and regulatory disclosures are left unchanged in the decision.An electioneering communication is one that clearly advocates the support or defeat of a particular candidate (follow the link above to get a complete definition) before an election. Corporations and unions were previously prohibited from such communications, but no restriction existed for individuals or various groups such as political committees or “527” groups. This nuance is essentially what led the Court to its 5-4 decision. They felt that Citizens United should not be prohibited from electioneering communications as it restricts free speech and argued that any relaxation of the prohibition must lead to the sweeping decision they ordered.Justice John Paul Stevens authored the dissent. He lambasted the majority on two key points. First, he felt that the majority overstepped its bounds in the tradition of the Court by providing such a sweeping decision which essentially overturned two previous decisions and a major piece of recent Congressional legislation. Second, he felt that the consequences of allowing corporations to engage in unlimited spending on electioneering communications would be detrimental to democracy and inconsistent with the Founders’ vision. Justice Antonin Scalia offered a concurring opinion which focused largely on a rebuttal to the dissent’s view of the Founders’ intent.There is a lot of big money in politics. Certainly, the electorate is aware and skeptical of how big money can lead to big corruption. It will be interesting to see how this ruling will change the political landscape of the 2010 elections. The fear expressed by those who disagree with the Court is that this will lead to more corruption and allow corporations to dominate the political discourse. A more philosophical opposition to the decision is on the nature of corporate personhood.I am not going to devote a lot of effort here to the debate on corporate personhood. However, briefly, we must recognize that corporations engage in contracts, can litigate, pay taxes, and are subject to criminal, civil, and financial liability. Also, corporations are ultimately comprised of individuals. This allows for an interesting tangent of debate which I will not pursue. I will point out that limiting the free speech of media corporations or even non-profit corporations would seem to be anathema to most. I would find it difficult to objectively draw that line to prevent large for-profit corporations from exercising free speech.Money gives power in many aspects of society. There is no doubt to that. Corporations have a lot of money and thus have a lot of power. Power in the political discourse allows for views and opinions to be expressed, candidates to be laud and vilified. Exercising power also comes with a price. While most of the electorate will be unlikely to monitor great sites like OpenSecrets.org to determine who is paying for campaigns and ads, the disclosure requirements of the FEC enable such organizations to educate and inform. The media, advocacy groups, and interested individuals are empowered more than ever by the internet to report perceived improprieties and report on the relationship between money and politicians.Our system is not perfect and democracy is a dirty business. Corruption will always exist, but it is the duty of the electorate to be informed and educated in a functional democracy. We cannot force this upon voters, but that should not force us to restrict free speech. This may lead to more corruption or at least the perception thereof, so interested opponents should take steps to counter this.Be active and hold your elected officials and candidates responsible for their actions. Vote with your dollars if you disapprove of a corporation’s political activities. Sell their stock. Boycott their products. Tell others to do the same. Last, but not least, be an advocate for better representation in government. Members of the House today represent about 700,000 citizens on average. Increasing the size of the House would lead to greater accountability, more equitable representation across the States, and less money involved in each race. This would be a far better remedy than restricting free speech.

Thoughts on Scott Brown

I suppose I wouldn’t be much a of a political blogger if I didn’t comment on the Scott Brown election. It’s certainly the hottest topic in politics today and will have implications on policy and action in Washington until November. In order to take a closer look at the real story behind the election, I’ll turn to the data. Rasmussen Reports conducted exit polling last night and I’ve broken down some of the results in the table below.

Source: Rasmussen Reports

I heard on the radio this morning that health care was the most important issue to voters in Massachusetts last night. We’ve all heard the talk the Brown’s election will likely lead to the end of the currently contemplated health care legislation. This is pretty much true. But, interestingly enough, Coakley had a seven point edge over Brown amongst voters who cited health care as the most important issue. This translates to 30% of the electorate voting for Coakley because of health care and 26% voting for Brown because of health care.

It is more interesting to me that Brown held a five point advantage for voters who believe the economy is the most important issue. This is a marked difference from the 2008 election where Obama dominated McCain 61% to 36% for the 63% of voters who named the economy as the most important issue (visit the link, select Massachusetts as the region and issues for vote preference).

Given that Brown voted for and supports the existing state health care plan in Massachusetts, it seems to me that the economy is the big deal here. (By the way, Brown did a pretty solid job of explaining his views on health care on the Today show this morning.) Brown also had a landslide victory over Coakley amongst the 11% of voters who said that either national security or taxes was the number one issue. Notably, his edge from this small constituency alone accounts for his overall margin of victory.

I see this as a true indication that Obama’s support on economic issues has horribly deteriorated. He spent a large amount of political capital on bailouts and stimulus. He has attempted to claim success on the basis of stock market gains and modest GDP growth in Q3. Wall Street and the talking heads care about this; Main Street does not care. Most Americans see huge debt burdens, foreclosures and unemployment. To them, Washington has failed and Massachusetts has sent the message.

Thoughts on Scott Brown

I suppose I wouldn’t be much a of a political blogger if I didn’t comment on the Scott Brown election. It’s certainly the hottest topic in politics today and will have implications on policy and action in Washington until November. In order to take a closer look at the real story behind the election, I’ll turn to the data. Rasmussen Reports conducted exit polling last night and I’ve broken down some of the results in the table below.Source: Rasmussen ReportsI heard on the radio this morning that health care was the most important issue to voters in Massachusetts last night. We’ve all heard the talk the Brown’s election will likely lead to the end of the currently contemplated health care legislation. This is pretty much true. But, interestingly enough, Coakley had a seven point edge over Brown amongst voters who cited health care as the most important issue. This translates to 30% of the electorate voting for Coakley because of health care and 26% voting for Brown because of health care.It is more interesting to me that Brown held a five point advantage for voters who believe the economy is the most important issue. This is a marked difference from the 2008 election where Obama dominated McCain 61% to 36% for the 63% of voters who named the economy as the most important issue (visit the link, select Massachusetts as the region and issues for vote preference).Given that Brown voted for and supports the existing state health care plan in Massachusetts, it seems to me that the economy is the big deal here. (By the way, Brown did a pretty solid job of explaining his views on health care on the Today show this morning.) Brown also had a landslide victory over Coakley amongst the 11% of voters who said that either national security or taxes was the number one issue. Notably, his edge from this small constituency alone accounts for his overall margin of victory.I see this as a true indication that Obama’s support on economic issues has horribly deteriorated. He spent a large amount of political capital on bailouts and stimulus. He has attempted to claim success on the basis of stock market gains and modest GDP growth in Q3. Wall Street and the talking heads care about this; Main Street does not care. Most Americans see huge debt burdens, foreclosures and unemployment. To them, Washington has failed and Massachusetts has sent the message.

When Magic Bullets Fail

I recently read an article written by former Fed economist Richard Alford over at Naked Capitalism. He focused his criticism on the zero interest rate policy (ZIRP) currently deployed by the Fed under the watch of Chairman Ben Bernanke. There has been increasing noise surrounding ZIRP and more mainstream suggestions that interest rates were too low for too long between 2001 and 2006.


Alford’s article gets into quite a bit of detail, but it is worth a read if you enjoy geeky economics stuff. Mainstream macroeconomists believe that the economy can be explained and managed with mathematical formulas. In fact, the formulas are really quite simple and do not capture the dynamics of the millions of “irrational” actors therein. One favorite is the Taylor rule which suggests a target for the Fed funds rate – the key interest rate set by the central bank. Alford points to a Taylor op-ed which states that rates were too low from 2002-2005.

Bernanke has suggested that rates necessarily had to be low (and must stay low) to fend off the threat of deflation. When analyzing Bernanke’s definition of deflation, however, Alford suggests deflation was never a threat. Thus, interest rates were lower than they “should have been” for no good reason.

I don’t believe that the Fed should be setting short term interest rates or any interest rates at all for that matter. It is fun to watch the various economists who think they have a magic bullet to optimize the economy take shots at each other. None of these men (or women, but mostly men) can outsmart the market dynamics of a multi-trillion dollar economy. All of these men think they are smarter than you. What is worse is that such hubris causes damage.

The Austrian school of economics (which is not accepted in the mainstream) teaches us that low interest rates lead to malinvestment. Malinvestment leads to over-production, inflation, and asset bubbles. These factors ultimately collapse when the rates are raised or, worse, when credit expansion leads to bankruptcies and unemployment.

The Fed has implemented disastrous policies for decades. Big Wall Street institutions who benefit have created a system to lobby and support policy makers in Washington. Our Congress, Executive Branch, and the Federal Reserve have been all too willing to play right along.

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