Christmas in California

We’re spending Christmas this year with my family in Laguna Beach. For those readers who aren’t familiar with Southern California, Laguna Beach is a town that makes Beverly Hills look like a trailer park in Blue Springs, Missouri. As nice as it is, spending time in California is always difficult for someone with my (anti-) political leanings. As I’m sure you’re aware, the state is in serious trouble these days. Decades of direct democracy combined with a strong socialist streak are taking their toll on the Golden State, which is now suffering from 12% unemployment.

Sad to say, the attitudes expressed by the locals don’t offer much hope of a quick recovery. I went to get a haircut a few days ago, and the stylist asked me where I was from. When I told her I was from Texas, she asked me how things were there these days. I told her that Texas has certainly felt the effects of the recession, but it was doing better than much of the rest of the country, as its unemployment rate was somewhere between five and seven percent.

“Really?” she asked, incredulous. “It’s so bad here. We’ve got 12% unemployment. The problem is that the state doesn’t have any money. And what really makes me mad is that the rich are still doing well.”

At this point I stopped talking. I know my limitations, and unwrapping all that was wrong in her statement was going to take a lot more time than I wanted to spend. And I have always lived my life according to the principle that it’s a bad idea to argue with someone holding a straight razor in her hand.

Nevertheless, I couldn’t help but think that my stylist was part of California’s problem. If you believe that people would be better off if the government would just take more money away from them, there will be no end of politicians lining up to provide that very service. Of course, businesses won’t be able to expand or hire workers, and you won’t have as much in your pocket to pay for the little things in life like food or rent. Before you know it, your state will be suffering 12% unemployment and you’ll be struggling to make ends meet. Hmm…

Sadly, that was not the worst of it. As much as it pains me to admit, the most shocking behavior I witnessed in Orange County came from my very own family, who evidently do not listen to a word I say. They tell me confession is good for the soul, so I guess I’d better come clean about the shameful rent-seeking behavior in which my relatives are currently engaged.

First, my sister is going to close on a condo next month, and in order to make the deal happen she will be taking advantage of the $8000 government incentive for first-time homebuyers. This is the “temporary” incentive that was set to expire this year, but was then extended so the Obama administration could further prevent the market from clearing out malinvestment in the housing sector and reinflate the very bubble that has caused so much trouble as of late. I can only assume that the temporary incentive will be extended over and over again, eventually becoming just another entitlement program.

But the rent-seeking does not stop with my sister. My very own parents have sidled up to the federal trough, and I’m not talking about their Social Security checks. If only! No, my mother and father took advantage of one of the most inane, ridiculous government programs ever devised.

They bought a golf cart.

That’s right, A FREAKIN’ GOLF CART! Taking advantage of the Cash for Clubbers program, my parents are now tooling around downtown Laguna Beach, California in a taxpayer-subsidized electric cart. The shame and betrayal is almost too much to bear.

Here’s a picture of my parents, smiling from behind the wheel of their ill-gotten-gainsmobile.

And here’s a picture of my kids in the same golf cart.

As you can see, my son is not impressed. Nor should he be, since he’s the one who will actually pay for this contraption. No doubt he’s thinking, “I’m only three years old and I already owe $7000 for this thing? I can’t even reach the pedals!”

Since it’s Christmas, I decided to put aside my disgust over my parents’ shameful behavior (at least temporarily). I even offered them some helpful suggestions for the vanity plate they should get for their new toy. Here are some of my ideas:

WLTHXFR
IOUSA
RENTSKR
DEDCTBL
UPAY4IT
TEEBILL
THXPRES
STMUL8D
CASH4US

I’d be happy to hear your suggestions as well. I’ll forward them to my parents, along with what I’m sure are your fondest holiday wishes for them. Merry Christmas, everyone. I’m going to hit the eggnog.

Lagniappe - December 2009

2009 A.D. Here, 2009 B.C. in Uganda
As regular readers know, I’m no fan of NPR. Nevertheless, I give them credit for a recent story about a particularly evil bill currently working its way through the Ugandan legislature. The Anti-Homosexuality Bill of 2009 would empower the Ugandan government to jail consenting adults who engage in gay sex, give life sentences to people in same-sex marriages, and even extradite gay Ugandans living overseas. According to NPR, homosexuality has been illegal in Uganda for over a century, but evidently the government’s codified hatred of gays doesn’t go far enough some Ugandans.

The bill’s author, David Bahati, says, "This is a defining bill for our country, for our generation. You are either anti-homosexual or you're for homosexuals, because there's no middle point. Anybody who does not believe that homosexuality is a crime is a sympathizer.”

Call me a “homo-symp” then, because I don’t believe that homosexuality is a crime. The crime would be to support or comply with such a disgusting law.

I write this post with the knowledge that if the bill passes I may never be able to set foot in Uganda. (And I had so hoped to visit “Africa’s Friendliest Country”). But as Stephen Langa, of Uganda’s Family Life Network, explains, “Providing literature [about homosexuality], writing books about it, standing up and saying it is OK — you should be arrested. Even if you are not in the act, you should be arrested. Anybody who tries to promote it should be arrested. That's why we need a stronger law."

Rewarding the Arsonist for Setting the Fire
Time magazine has named Ben Bernanke its Person of the Year. In what may be the single most sycophantic article ever written in the English language, Time lauds Bernanke for bailing out bankers, flooding the world with dollars, and setting the groundwork for the next big bubble.

It’s been a rough year as far as high-profile awards and commendations go. First President Obama wins the Nobel Peace Prize and now this. No doubt the Oscar for Best Picture will go to Michael Moore’s Capitalism: A Love Story.

Goldbugs Bug Stephen Colbert
On December 15th “The Colbert Report” ran a parody of conservative radio talk show hosts’ paid endorsements for firms that sell gold. I’m not sure what bugs Stephen Colbert more – Glenn Beck or gold? I suspect it’s a close contest. It seems most big-government types have an intense dislike for gold. After all, an increase in demand for gold is a very public no-confidence vote for the government, and what could be more insulting? And statists just don’t understand why people might prefer a yellow metal that exists in relatively fixed quantities to the limitless supply of paper money controlled by Time magazine’s Person of the Year. To each his own. I rather like having some gold as part of a diversified portfolio, but that may be due to the fact that I bought it in 2007 for $600 an ounce. Past performance is no guarantee of future results, but I wonder how many of Mr. Colbert’s investments have doubled in value over the last two years?

First-Grade Virtue
I took my family to the mall last weekend to wrap up the last of our Christmas shopping. Since it’s the holiday season the Marines had been deployed to strategic locations throughout the mall to collect donations for the Toys for Tots program. I handed my six-year old daughter a few dollars and asked her to drop the money in the bucket. After she did that, I explained to her what the Marines were doing.

I said, “They’re going to take the money you just gave them to buy Christmas presents for little boys and girls who don’t have many toys.”

My daughter thought about it for a second or two and then - in all earnestness - replied, “Well that was very considerate of me.”

My little girl may be forgiven for taking moral credit for my modest contribution to Toys for Tots. After all, she’s only six. But how often do we hear a similar attitude expressed by those in government? Isn’t this the ethical theory underlying much of the push for socialized medicine? Nancy Pelosi and Harry Reid claim the moral high ground because they want to spend other people’s money for the benefit of some politically-favored constituency. How considerate of them.

My daughter’s understanding of virtue and ethics will continue to develop as she grows up, which is more than I can say for those in Washington.

Stealing From Widows And Orphans

The cost of living is going up, so the House of Representatives figures the cost of dying should go up as well. On Thursday, the House voted to extend the 45% estate tax permanently. The estate tax is applied to any Americans stupid enough to die with at least $3.5 million in assets ($7 million in the case of married couples). Whenever that happens the federal government swoops down like a vulture to pick over the deceased taxpayer’s carcass, thereby depriving the grieving widows and orphans who are left behind of almost half their inheritance. Doesn’t anyone care about the children?

Supporters of the death tax tell us that rifling through the coat pockets of the dearly departed and helping ourselves to whatever spare change we can find is actually a good thing. After all, if we just let people dispose of their own estates however they saw fit, they might do something crazy like donate the money to charity, or worse - bequeath it to their survivors. That kind of blatant respect for private property could turn our fair Republic into an aristocracy! You wouldn’t want that, would you?

Even I have to admit that this argument has a certain superficial appeal, particularly when one considers all the damage that has already been done by aristocrats like the Kennedys and the Bush family. But even though there may be some trust fund babies out there who wouldn’t do much good with their inheritance, there are certainly others who could do a lot of good with it. Either way it seems clear that the intended beneficiaries of these large estates will either do less bad or more good with the money than the Federal government could ever dream of doing, so I don’t really see why half of anyone’s estate should automatically wind up in IRS coffers.

Since I’m not yet convinced, Representative Steny Hoyer (D-Maryland) invokes the ghost of Theodore Roosevelt (R-New York) to further strengthen the argument. Apparently it was Teddy who first proposed the estate tax, claiming that “the man of great wealth owes a particular obligation to the State because he derives special advantages from the mere existence of government.”

I see. Now we’re getting somewhere. At the core of Roosevelt’s (and, by extension, Hoyer’s) argument is the idea that it’s not really the man of great wealth’s money in the first place. After all, he just worked a lifetime to create it. But the wealth actually belongs to the State, which graciously allowed the individual to enjoy it for lo those many years. When that individual passes away, however, whatever’s left of the property should revert to its “true” owner, the Federal government. And by a remarkable stroke of luck, the Federal government just happens to be staffed by people like Roosevelt and Hoyer. I guess that’s why you never hear them saying that the money should go to the United Way or Habitat for Humanity instead.

But I still have this nagging doubt that’s keeping me from supporting the death tax. Maybe there’s something wrong with me, but I’ve always felt that what someone earns belongs to him, not to me or anyone else. The amount in question is irrelevant. No matter how rich or how poor someone may be, what’s theirs is theirs. So I still have a hard time accepting the idea that taking someone else’s money just because they’re richer and deader than I is the right and proper thing to do.

These antiquated notions of right and wrong are completely beside the point for most supporters of the death tax, however. They simply tell me that I shouldn’t concern myself with such things because this particular tax only affects the richest of the rich. Ben Harris of the Tax Policy Center assures me that "very, very, very few people" pay estate taxes anyway. “It only hits about 2 out of every 1,000 estates, and these estates are the wealthiest of the wealthy. These are very high-income individuals who are affected by the estate tax."

So the argument is that since no one cares about the rights of rich people anyway, stealing from them is perfectly acceptable and I should just shut up and get with the program. After all, based on my portfolio’s performance there’s no chance this tax will affect my children when I’m gone. I’ve got mine, but there’s no harm in helping myself to 45% of someone else’s. They’re so rich they’ll never even notice it’s gone.

Whenever I hear this argument bandied about in support of yet another tax, I can’t help but recall the history of the income tax. When the present income tax was originally pitched to a gullible American public back in 1913, its supporters also claimed that only the wealthiest of the wealthy would ever have to pay it. It seems the majority has always been solidly in favor of foisting costs on the minority. Well, I’ve got two questions for you. One, do you pay income taxes? And two, are you the wealthiest of the wealthy?

That’s what I thought.

But even if the death tax somehow manages to avoid the kind of mission creep that has marked virtually every other government program known to man and remains a tax imposed strictly on the rich, how does that make it all right? Why is it that the wealthier you are, the less secure your property rights become?

I’m not the only one asking these kinds of questions. There were, much to my surprise, a few members in the House who had qualms about the extension of this particular tax (so few that they lost the vote, but let’s give credit where credit is due). Congressman and former judge Louie Gohmert (R-Texas) rose to oppose the bill, correctly observing that, “After someone dies, and someone comes in and steals from them, we consider that reprehensible, that's just despicable. But when the government comes in — because we have the power to pass laws and legalize theft — it's OK.”

He then added, "I have sentenced people personally to prison for doing that."

Well said, Congressman Gohmert. Now will you please issue an arrest warrant for Congress? They’re stealing billions from widows and orphans.

The Upside of Government Failure

In June of this year, thousands of Iranians took to the streets to protest what they viewed as the fraudulent re-election of President Mahmoud Ahmadinejad. The protesters used cellular telephones and social networking sites to communicate news of the marches and of the violent reprisals by government security forces. The use of technology by the demonstrators was so widespread that the protest was quickly nicknamed “The Twitter Revolution.”

The US government, however, didn’t actually want us to know about any of this. In fact, multiple agencies within the executive branch have spent a great deal of time, money, and effort to ensure that the Iranian people were denied both cell phones and social networking services. Allow me to explain. The US Bureau of Industry and Security considers just about any encryption technology to be “dual-use.” A dual-use product has both civilian and military applications, and is therefore subject to a greater degree of government control than other consumer products. Cell phones and most software applications contain some degree of encryption and therefore fall under this category. BIS prohibits the transfer of encryption technology to any countries deemed to be state sponsors of terrorism, and Iran has long held a place of dishonor on that list.

In addition to BIS restrictions, other government agencies such as the Treasury Department’s Office of Foreign Assets Control (OFAC) maintain even broader sanctions against any number of countries. These sanctions vary in scope, but the most comprehensive OFAC programs ban facilitation of virtually any trade whatsoever by any US person, including companies and their subsidiaries. Again, Iran is subject to some of OFAC’s broadest controls.

These kinds of trade restrictions are extra-territorial in nature. The US government has claimed jurisdiction not only over the goods and activities of US persons operating within the borders of the United States, but also over transactions that may occur farther down the supply chain. For example, if a foreign customer buys a US product, that customer is also prohibited from selling or shipping the US item to a country the US government doesn’t like – even if the transaction is perfectly legal under the laws of the foreign country. Even products manufactured overseas by non-US persons may be subject to US control if those products are based on technology that the US government has deemed to be “American.”

The penalties for violating any of the confusing and sometimes conflicting rules can be severe, and they include fines, denial of export “privileges”, and imprisonment. Companies employ armies of lawyers and compliance specialists to ensure that they stay within the letter of the law. This is an unfortunate deadweight loss not only to the firm but also to society in general, because every dollar spent on regulatory compliance is a dollar not spent on bringing new goods and services to market. We are all made poorer as a result.

Yet despite all of the rules, regulations, threats, and penalties, Iranians still manage to get their hands on cell phones and Twitter. How is that possible? Maybe the rules would be more effective if, say, Motorola were the only company in the world that knew how to make a mobile phone. But unfortunately for the US government, times have changed. These days everyone is getting in on the wireless act. Finland, Sweden, Japan, China, and Korea all have their very own cell phone companies. Manufacturing takes place not only in the companies’ home countries, but also in Mexico, Brazil, Taiwan, India, and all points in between. Hell, even Venezuela is trying to make cell phones these days. It would seem that the toothpaste is out of the tube on this one, yet the US restrictions remain firmly in place.

The Iranian protests clearly demonstrate that attempts by the US government to control the transfer of ubiquitous consumer electronics like mobile phones and mass-market software like Twitter and Facebook have utterly failed to achieve their objectives. And in this case, I would argue that we’re all the better for it. Had the regulations actually done what they were intended to do, the Iranian people would not have been nearly as effective at communicating their outrage over a fraudulent election and their government’s vicious crackdown. In the “perfect world” envisioned by US regulatory agencies, no one outside of Iran might ever have known that the Iranian people were unhappy with their government. But who honestly believes that would be a better outcome? Surely both the Iranian people and the world at large have benefitted from the protesters’ ability to transmit important news instantaneously via these supposedly verboten technologies.

Of course, the trade restrictions imposed by Washington are not really aimed at foreign governments at all. They’re aimed at us, the American citizens. The idea is that by violating Americans’ right of free association they can effect some desired change in another country. The Cuban embargo is a great example of this. The US government prevents Americans from trading with Cubans. The US government prohibits Americans from traveling to Cuba. The US government will fine and imprison Americans, not Cubans, for violating these rules. As a result of these policies, foreign companies have access to the admittedly small and impoverished Cuban market while American firms are shut out completely. And yet the ostensible target of all these restrictions, the Castro dictatorship, rolls merrily along almost fifty years after the American embargo was first imposed. And the Castro boys get an added bonus out of all this – blame for the disastrous effects of their failed communist system can be shifted entirely to the US embargo while they remain secure in their places of power, and are even adored as “heroes” for standing up to American oppression.

As if that weren’t enough there are other, more mundane, consequences to these kinds of restrictions on peaceful trade. US companies are losing out to foreign competitors who can offer the same technology, but without all of the compliance restrictions that hang like an albatross around the neck of the American firm. Foreign companies have even modified their product designs to exclude US-made subcomponents just so they won’t have to deal with all the headaches that come with American products (similar headaches exist for foreign firms who wish to hire American workers, by the way).

These consequences are so obvious that even government bureaucrats are beginning to take notice. In a recent speech, Secretary of Commerce Gary Locke indicated that he is aware that the regulatory structure needs to be revamped in light of the new realities of global commerce. Only time will tell if he is able to make good on the promise to simplify and moderate the laws that put American firms at a competitive disadvantage and American citizens in legal jeopardy while serving no real national security purpose whatsoever. Seriously, does anyone really believe that Osama Bin Laden doesn’t have a cell phone? Knowing how things work in Washington, though, I don’t hold out much hope that change will be timely or effective.

That being said, I suppose we can take some encouragement from the lesson provided earlier this year by thousands of courageous Iranians who, armed with nothing but cellular telephones, took to the streets to protest an oppressive regime. The lesson is simply this: the one thing you can always count on in this life is government failure - and sometimes that’s a good thing.