Category Archives: Free Trade

Venezuela Shows Why Price Controls Fail

In my regular Chavez-watching, I read an article about bickering between the United States, Colombia, and Venezuela over drug trafficking and interdiction efforts. As a libertarian and an opponent of the drug war, that’s little more than political theater. After all, for all the tons of cocaine stopped by the local government, tens or hundreds of times more make it out. After all, the profit in a black market is far too alluring to avoid.

Which is what makes the end of this article such a great lesson. Chavez is destroying his economy, with inflation and the often-following wrong response to inflation: price controls. Suddenly producing goods becomes more expensive than selling those goods at the regulated price. Thus, you see what happens:

The announcement comes after 145 tons of contraband food items headed for Colombia were found in San Cristobal, Tachira last week in an anti-smuggling operation by Venezuelan intelligence services. The items included a number of basic food products that are regulated by the government such as powdered milk, rice, sugar, cooking oil, cereal and canned fish. The government says that speculation and hoarding by private producers has contributed food shortages of basic products.

The regional daily, Panorama, reported that every night 50 to 60 trucks load up with Venezuelan food products such as rice and milk, leave the Las Pulgas market in Maracaibo in the opposition controlled state of Zulia and cross over the Colombian border illegally where they sell the products at up to five times the regulated price in Venezuela.

“No one says anything because the business is very big,” said an anonymous vendor in the Las Pulgas market to Panorama. “In order to not have any problems in transporting it is necessary to pay what they ask [the border guards], but in the end they earn a lot more there than here because of the regulation of prices implemented by the government,” he added.

As part of the measures adopted to combat smuggling and crime in the frontier zone a further 500 tons of food loaded onto 18 semi-trailers that were destined for Colombia were intercepted today and a clandestine landing strip near the border, along with a camp thought to be used for narco-trafficking logistics were uncovered.

Remember, just as in the drug trade, the numbers of tons they actually catch is an indication that the number making it through is much, much higher.

See what happens in a command and control economy? When it becomes a money-losing operation to try to sell at the regulated price, it doesn’t mean commerce disappears, it only disappears from store shelves. The “criminals” profit and the rich eat well, while the average citizen is duped by the government’s claim of “speculation and hoarding”.

Venezuela is like a living lesson of what happens when the government tries to break the law of supply and demand. Sadly, as I’ve said before, far too few people will understand the lesson.

Protectionism And Coercion

Economist Steven Landsburg has an excellent article in today’s New York Times on the relationship between protectionism and coercion:

Bullying and protectionism have a lot in common. They both use force (either directly or through the power of the law) to enrich someone else at your involuntary expense. If you’re forced to pay $20 an hour to an American for goods you could have bought from a Mexican for $5 an hour, you’re being extorted. When a free trade agreement allows you to buy from the Mexican after all, rejoice in your liberation — even if Mr. McCain, Mr. Romney and the rest of the presidential candidates don’t want you to.

Landsburg is right. Why should I be forced to pay more for a car because it was made in Japan ?

Federal Driver’s Licenses: The Government’s New Plan To Screw Up Your Life

The brainiacs who’ve made air travel almost as fun as a 10-hour Coca-Cola enema have unveiled their new master plan for creating an efficient security system…federally mandated drivers licenses for everybody under the age of 50, which all states will be forced to comply with by 2011, whether they’re capable or doing so or not, if the Department of Homeland Security gets its way.  The rationalization for this plan, of course, is the same as that for any authoritarian program…a centrally mandated, controlled, and issued driver’s license will make it more difficult for con artists, drug traffickers, illegal immigrants, or terrorists to gain access to identification that could compromise our security. 

What goes unsaid, of course, is that such a program will inevitably make it more difficult for everyone else to get a driver’s license as well.  Do you like the two-hour wait at your state DMV every time you have to renew your driver’s license?  You can bet it’s going to be longer once every application has to run through a federal database that’s responsible for processing 50 times as many applications which will need to be cross-checked against watchlists of known terrorists, criminals, or illegal aliens.  Considering how flawlessly this approach has worked for the FAA with their no-fly lists, I’m finding it a little hard to believe that the process will run more efficiently or effectively than it does now, or that you’ll be getting your new driver’s license back on the same day that you’ve applied for it (as you can now).  Especially since the systems and processes the feds use to cross-reference are notoriously buggy.

Of course now if you go to the DMV and the computers are down, the inconveniences are relatively minimal.  You may have to come back the next day and endure another two hour wait, and you have to be a bit more careful about any traffic violations lest you get busted for driving on an expired license but you’ll generally be able to go about your life relatively freely.  Under the feds’ new program, however, if you aren’t able to procure your license for reasons beyond your control, or if you’re actually denied a license you won’t be able to enter a federal building, board an airplane, open a bank account, buy a gun, vote, verify your identity when using a credit or debit card, or do anything else that’s significantly affiliated with the federal government.  Basically, the Real ID program will effectively strip anyone who doesn’t have a federally-issued ID card of their citizenship or ability to even function in everyday society.

Perhaps the people who oppose Real ID are being unfair and overly paranoid, but considering that the Bush’s new Czar of Homeland Security, Michael Chertoff, issues absolute gibberish like this…

“We worked very closely with the states in terms of developing a plan that I think will be inexpensive, reasonable to implement and produce the results,” he said. “This is a win-win. As long as people use driver’s licenses to identify themselves for whatever reason there’s no reason for those licenses to be easily counterfeited or tampered with.”

…to explain his position, somehow I don’t think that their fears are that insane, especially since the creation of an identification card that cannot be forged is about as likely as the ability to corporeally exist without occupying space.  And spending the better part of ten years watching my own little section of the federal government (the U.S. Army) screw up even the most basic of background checks has led me to believe that the feds are generally incapable of handling and should rarely, if ever, be entrusted with this sort of authority.

Update:  A commenter who expanded on this on his own site raised one very valid point that I think merits highlighting: 

It’s funny.  They keep calling it a “driver’s license,” but they never mention anything about driving.

Update 2:  Apparently 17 states have already objected to the Real ID plan. 

I Can’t Think Of A Catchy Title

I suppose the best way to describe myself would be to say that I have a problem with authority. I’ve always disliked when people told me what to do, even as a young child, and I’ve always preferred to find my own path through life and make my own decisions, even if it occasionally went against the conventional wisdom and sometimes worked to my short-term disadvantage. My dad said I inherited it from him, but that I’ve taken it to a whole new level. When I was young I wanted to be a journalist, until I got to college and realized that journalism was less about the search for objective truth than it was about writing the stories that best suited your employer’s interests, whether they were true or not (which didn’t sit well with me at all). So I drifted aimlessly through a couple of years of college as an indifferent (often drunk) student, unsure of what to do with myself until one of my fraternity brothers gave me a copy of “The Fountainhead” and I got hooked on the ideas that success and a refusal to conform to societal standards were not mutally exclusive, and that the greatest evil in the world was society and government’s failure to recognize or accept individuality and individual freedom as a strength, not a weakness. So I threw myself into studying politics and history, worked in a few political campaigns after college, had some success, and thought about doing a career in politics until I realized that most of the people I knew who had never had a career outside of politics had no comprehension of how the real world actually worked and tended to make a lot of bad, self-absorbed decisions that rarely helped the people they claimed to be representing.

That didn’t sit well with me either, so I decided to put any thoughts of going into politics on hold until I’d actually had a life and possibly a real career, and I spent the next couple of years drifting between a series of random yet educational jobs (debt collector, deliveryman, computer salesman, repo man, dairy worker) that taught me the value of hard work, personal responsibility and the financial benefits of dining at Taco John’s on Tuesday nights (2 tacos for a buck) when money got tight.

After awhile, however, the desire to see the world (and the need for a more consistent and slightly larger paycheck) convinced me to join the Army, where I spent ten years traveling around the world on the government dime working as an intelligence analyst. I generally enjoyed my time in the military, despite the aforementioned problem with authority (which wasn’t as much of an issue in the military as many people might think it would be), and I got to see that the decisions our political leaders make were sometimes frivolous, often ill-informed, and always had unforeseen repercussions down the road…especially on the soldiers tasked with implementing those decisions. I was fortunate enough to spend most of my 10 years in the military doing jobs I enjoyed, traveling to countries that I always wanted to see (Scotland is the greatest place in the world to hang out, Afghanistan is very underrated) and working with people I liked and respected, until I finally decided that at 35 it was time to move into a job where I didn’t have the threat of relocation lying over my head every two or three years, where I didn’t have to worry about my friends being blown up, and where I didn’t have to work in any capacity for George W. Bush.

I work now for a financial company in Kansas where I’m responsible for overseeing, pricing and maintaining farms, commercial and residential properties, mineral assets, insurance policies, annuities, etc. In my spare time I like to read books on economics, history, and politics (I’m preparing to tackle Murray Rothbard’s “Man, Economy & State” and Von Mises’ “Human Action”…should take me about a year at the rate I’m currently finishing books), watch movies, and destroy posers on “Halo 3″ (where I’m signed in under “UCrawford” for anyone interested in taking a shot at me some time). I used to play rugby until age, inconsistent conditioning, and a string of gradually worsening injuries finally convinced me to quit. I’m a rabid fan of the Kansas Jayhawks in general and their basketball and football programs in particular and I’m also a devoted fan of the Kansas City Chiefs and Royals. I’m also fond of going online and debating/picking fights with people on the merits of the philosophy of individual freedom…sometimes to the point of being an asshole (but hopefully a reasonably well-informed asshole). I’ve been a big fan of The Liberty Papers ever since finding it online, I respect the body of work they’ve put out, and I’m honored that Brad Warbiany invited me to join his jolly band of freedom fighters. So cheers, Brad, and to everyone else I look forward to reaching consensus or locking horns with you in the near future.

Web Sites “Fined” For Gambling Advertising

Web giants to settle gambling allegations

The U.S. attorney in St. Louis announced the settlements Wednesday with Microsoft Corp., Yahoo Inc. and Google Inc., which she accused of selling ads that steered U.S. Web surfers to offshore gambling websites. The Justice Department considers publishers of such gambling ads to be accessories to a crime.

Without admitting or denying liability, the three companies agreed to forfeit millions of dollars they took in from the suspect ads, and Microsoft and Yahoo vowed to run public service campaigns warning young people that online gambling is illegal.

All three Internet companies said they had stopped accepting gambling ads in 2004, more than six months after the government warned magazine publishers that similar ads were illegal.

So they did not participate in online gaming, they simply hosted ads (that until told otherwise, they believed to be legal). Ads for a service that allows adults to consensually engage in peaceful commerce, commerce that is legal in Vegas, California, Atlantic City, Alabama, and on countless riverboats and Indian reservations throughout this nation. Then, when told the ads were illegal, they stopped within several months and haven’t engaged in the behavior since.

And for this, they’re forced asked to pay Danegeld to the Feds, as well as run ad campaigns “informing” the public that online gambling is illegal. I guess I can’t blame them for settling. It may not be right, but I’m sure it’s a lot cheaper for them than going to bat against the feds, who have the advantage of writing all the rules in the first place. This probably shouldn’t be considered a fine, rather it’s “protection money” against the racketeers in D.C.

And it’s not going to stop:

She said her office was continuing to investigate whether other forms of promotion, such as the sponsorship of televised tournaments by a poker company affiliate, were “artifices to promote illegal gambling” and therefore illegal.

Any guess as to what her investigation will find– and whether it depends on how deep the pockets are of the subject of investigation?

Should Oil Producers Embargo America Again? The Democrats And Republicans Seem To Think So

In 1973, OPEC announced an embargo of oil sales to countries whose governments had supported Israel in the Yom Kippur war. In the U.S. this precipitated a major economic crisis as the U.S. government attempted to ration gasoline and control production and sale through a regime of price controls. The U.S. Central bank also embarked on an inflationary spree in an attempt to “stimulate ” the economy. Just as in the Great Depression, the result was a combination of inflation and economic stagnation, known as “stagflation.”

Today, nearly every presidential candidate is calling for something called “energy independence”, which amounts to an attempt to reenact the embargo, although this time it would be the U.S. government turning back oil shipments instead of the Saudi Government. This suicidal course is supposed to insulate the economy from high energy prices and to promote attempts to mitigate global warming. However, rather than insulating the economy from higher energy prices, these measures will have the perverse effect of making the high energy prices we face today more devastating and permanent.

Energy is merely a factor of production; one of many inputs that are converted into a more valuable product or service. Because energy is one of the most important inputs into most manufacturing processes, consumers of energy tend to be very price-conscious; attempting to get the most ergs for their dollar. However, unlike a person shopping at a grocery store, they can’t easily switch from oil to natural gas as easily as a consumer switches switches from buying eggs and bacon for their breakfasts to buying oatmeal. Once a factory or some other piece of heavy equipment or facility is designed to use on particular energy source, switching to another source is either very expensive or impossible. Thus, the largest consumers of energy look at not only the current price of energy products, but also at the long term trends. They try to lock in suppliers to long term contracts. They study the long term availability of the various sources and try to predict what the supply situation is like.

This desire for predictability forces energy producers to focus on keeping prices low and stable, if they want to attract customers. Because there are so many consumers of energy who will pick a supplier and stick with that supplier for a long period of time, and because these customers strive to understand their supplier’s business in great detail, the sources of energy that they choose to consume tend to be the most stable and cheapest sources then available, generally energy from oil or other petroleum products.

The plans being promoted by the politicians attempt to force American businesses to consume not the cheapest forms of energy, but rather more expensive and less economical forms of energy. They take one of four forms:

The Manhattan Project

Most programs call for the U.S. government to take money from tax-payers and to spend it on scientific research and engineering development to develop new sources of energy, or to make the consumption of new energy sources more “efficient”.

The problem is that these R&D programs will be funded by a political process and not necessarily based on criteria of which programs are most likely to bear fruit on a reasonable time-scale. The R&D that is expected to provide a payoff is already being done by investors or companies that expect to make a mint if they are the first to market with more efficient, less costly mechanisms that satisfy the demand for energy. The works that are not already being done, for the most part, are boondogles with an insufficient probability of a positive return. Essentially, the money confiscated and redirected to this research will necessarily displace investments that would otherwise be made in more profitable or less risky ventures. Thus, these programs are guaranteed to be as big a waste of money as other forays of the government into R&D such as nuclear power plant design and space exploration.

For my theory on why this is so, see my article Government Funding of Science: Inherently Susceptible to Junk and Superstition.

Subsidies for ‘local’ energy sources

Most plans involve subsidies for energy sources that do not use imported oil, things like wind-mills, ethanol and other ‘sustainable’ forms of energy. Essentially, these alternative sources of energy exist, but are so much less economical than imported oil, that nobody seriously uses them. The government’s plan is to subsidize these alternates so that the price demanded from people who are purchasing them is competitive with that of the hated imported oil. There is, of course, one problem with that: TANSTAAFL.

The subsidies must be paid by taxpayers, the same people who, for the most part, are consuming the subsidized energy. The result? The tax-man boosts the cost of energy to higher levels than we currently pay for “imported oil”. If the high cost of gasoline is painful, the cost of ethanol enhanced gasoline will be much more painful. In the end, this is the equivalent of treating the pain caused by a patient’s sore muscles by beating him up.

Subsidies for increased fuel efficiency

The rationale for this scheme is that if we could reduce the amount of fuel consumed, the price of the fuel would go down. However, it assumes that consumers want more efficient vehicles or factory equipment, but are powerless to influence manufacturers and producers to make more efficient machinery. This is, of course, poppycock. People balance fuel efficiency with many other criteria in making their choice. In times of bountiful, cheap energy, they may decide that a vehicle of large mass and carrying capacity is what they want. Increased efficiency generally comes at the expense of cost, or reduced performance in some other area.

Again, the principle of TAANSTAFL applies. By mandating that all products have a certain degree of efficiency, these plans essentially are forcing consumers to forgo other wants, or pay higher prices to purchase equipment that meets their needs.

Paying for Externalities

Currently it is in fashion to blame combustion of fossil fuels for causing a warming of the Earth. Of course, the change in climate causes people to bear costs in the form of reduced crop yields or loss of land to the sea etc. Many of these plans attempt to ‘mitigate’ this damage either through additional taxes levied on fuel consumption or from cap-and trade schemes. Both ideas suffer from flaws:

The rationale for remedying externalities through taxation is thus: Let us say that every gallon of gasoline burned in the U.S. causes $0.25 worth of damage to everybody on Earth. A tax of $0.25 is levied on each gallon of gasoline that is purchased or produced and the money is then spent to compensate the people suffering the damage.

Of course, the reality is quite different. The funds rarely are spent to reimburse injured parties, assuming that the injured parties can even be identified. Rather the funds are apportioned through a political process. A glaring example of this is, for example, the use of tobacco settlement money to pay for athletic programs in government schools as opposed to reimbursing Medicare for the costs of caring for ill smokers.

Cap and trade schemes have their own sets of problems. Under such a scheme, the state sells or issues permits to individuals or businesses permitting them produce X amount of pollution. The owners of these permits are then free to sell permits to those who wish to buy the right to pollute. There are two basic problems unique to these schemes:

First, there is the question of how many permits to issue? Of course, there will be a conflict between those who favor more permits and those who favor a reduction in the numbers of permits that are issued. The process for setting the number of permits will be a political one, and as such only loosely coupled with the actual number of permits that is appropriate, assuming that the number of appropriate permits is even calculable.

Secondly, there is the question of who gets the permits? If the permits are given away, then the state will have to ration the permits it issues. The distribution of permits will again be a political process with connected individuals and organizations being granted a windfall of permits that they can then sell at a great profit. Alternately, if the permits are sold, typically by auction, then once again the problems associated with the state levying taxes to repair externalities will manifest themselves.

Do We Need a National Energy Policy?

To me, the answer is a resounding NO! We no more need a national energy policy than we need a national food policy or a national entertainment policy or a national clothing policy.

The fact is that those who consume energy are already driven by reasons of frugality and profitability to seek the least expensive and most cost-efficient forms of energy out there. In order to prevent people from using oil, the state must force people to pay more for oil than they ever would under a volatile free market scheme. This means that in order to ensure energy the U.S. government must, in effect, force an embargo upon its subjects. Under international law, it is considered an act of war for one nation’s navy to blockade another nation’s sea trade. The fact that U.S. politicians are attempting to carry out such an act of war on their own people – worse that a significant portion of the U.S. population thinks this is a good idea – is quite disheartening.

I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.

Repeal The Shoe Tax !

Shoe manufacturers and retailers are lobbying Congress to repeal a seventy year old tariff that has outlived it’s usefulness:

WASHINGTON – Footwear manufacturers and retailers are trying to end a Depression-era federal shoe tax, a move they say could save American consumers hundreds of millions of dollars annually and kick-start relatively flat footwear sales.

Trade associations and their members, such as Payless ShoeSource, Nike Inc. and Columbia Sportswear Co., have been lobbying U.S. lawmakers weekly since the summer to get them to exempt certain categories of footwear, including all children’s shoes, from the import tariffs that can run as high as 67.5 percent a pair.

(…)

Imposed in the 1930s, the tariffs were designed to protect a domestic manufacturing industry from cheap imports. But that industry has largely disappeared over the past 20 years, as manufacturing overseas has become easier and cheaper.

(…)

Of the 2.4 billion pairs of shoes Americans bought in 2006, nearly 99 percent were made overseas, mostly in China, according to the American Apparel & Footwear Association.

U.S. shoe tariffs are among the highest in the world, compared with the European Union’s 17 percent, Japan’s 10 percent or Chile’s 6 percent duties, according to the centrist Progressive Policy Institute.

So basically what’s happening is that the price you’re paying for shoes if you live in the United States is artificially high because of a tariff imposed in the 1930s to protect an industry that, for the most part, doesn’t even exist anymore.

This story also illustrates a point — import barriers are really just a tax on American consumers because, to a large degree, the cost of the tariff will be built into the retail price. This is especially true in the case of shoes where the market is almost totally dominated by foreign manufacturers so there is limited price competition from American companies. It is a tax on the poor and middle class.

So where are the nativist trade protectionists on this one ?

Are Exports Good?

Now, I know this is a question that most people will answer with a resounding “YES!” After all, exports are the sign of a strong economy, right? And the reason that we’re so pissed off at China is because they keep sending us goods and we’re not sending them nearly as much in return, right?

Well, if you believe in 18th-century mercantilist theory, as I believe the Chinese do, you’d say yes. I don’t know that it is the right answer, though.

Let’s look at your personal lives for a moment. In order to live and be comfortable, you must buy food and goods, pay for shelter, etc. These are imports. Unfortunately, you need to pay for these imports, and to do so you must trade your labor, your chief export, for dollars that allow you to buy the imports.

What’s the ideal situation? Well, outside of the personal accomplishment many of us feel from working, the ideal situation would be to not work at all, and only receive imports. If you really want to be rich, you would import constantly and never export anything! Of course, that’s not possible for us. We as individuals cannot print money that people will accept for those imports they’re selling, so we must exchange something of value for them. Granted, in the world of voluntary transactions and division of labor, we are both being made richer through this trading process, but we are still forced to export labor in exchange for those imports.

Now, step outside of this situation for a moment, and look at the wider national picture. Should America find exporting to be beneficial? Is an export the sign of a rich populace? I would say that it is not. It may be a productive economy, and there may be low unemployment, but we are working to send stuff away to other people, rather than to be consumed here. A nation which exports constantly without importing an equal number of goods is sending away the fruits of their labor to other nations. They’re becoming poorer in the process!

Ahh, but there’s a conundrum here. That nation is not just sending those exports out as a charitable act, they’re doing so in exchange for money. But what is money? Is money a tangible store of wealth? If money is a tangible store of wealth, they are simply deferring consumption, and not becoming poorer. This is like the individual who wants to save to buy a house, so he defers consumption and lets his bank balance increase to save a down payment. He is not becoming poorer by saving. But what if money isn’t a tangible store of wealth? What if money, due to printing, is a constantly depreciating asset? Well, then the exporting nation does not benefit from the exports. They may have full employment, but they are not making their society richer. (Note that this is a general statement, and the productivity gains and economies of scale generated from such production may– and usually will– have side benefits for their society).

So what is the ideal for a nation? Well, for a nation, the ideal is to fool the world into believing that you’re sending them something of value in exchange for their exports, when you’re really just sending them an empty promise. They take that promise and store it in a “reserve”, where it slowly rots. As we pointed out here and here, America has been taxing the rest of the world in the form of their imports for the last 40 or so years (the time during which the dollar was the world’s reserve currency). America has been getting something for nothing from the world, and thus it’s silly for us to export goods to them instead of using those productive resources to satisfy ever-greater internal demands.

America may see exports as a good thing, but all they really are is a way for other countries to exchange their dollar reserves for durable goods. This is not something we want. We want other countries to hide their dollar reserves in a locked vault and never let them out, because if they use these reserves to start buying goods, the prices rise and we see the inflation that’s been hiding for the last 40 years. As long as those dollars leave our shores and never come back, we’re getting a free lunch. When the world decides they actually want to redeem those dollars for goods, we’ll all be working our butts off and sending the product of that work overseas. Sure, you’ll be making plenty of money by doing all that work, but everything you buy will have risen in price to the point that you’re not better off.

Just like an individual cannot borrow forever, the dollar hegemony won’t last forever. It will come crashing to a halt, and eventually result in crippling inflation and probable war. After all, if the world ever learns that mercantilism doesn’t apply when fiat currencies reign, they might become very upset with America. And rightly so, as they’ve held these dollars expecting us to keep our promises (and keep the dollar stable), and we’ve reneged on that promise. In the process, we’ve gotten a lot of something for nothing, but someday the bill will come due. When the bill comes due, it’s your butt in the factory seat that will be paying it.

Lou Dobbs Is Winning

David Brooks argues in the New York Times that the nativist, anti-free trade, anti-immigrant message of Lou Dobbs is winning the battle for hearts and minds:

Once there was a majority in favor of liberal immigration policies, but apparently that’s not true anymore, at least if you judge by campaign rhetoric. Once there was a bipartisan consensus behind free trade, but that’s not true anymore, either. Even Republicans, by a two-to-one majority, believe free trade is bad for America, according to a Wall Street Journal/NBC poll.

Once upon a time, the fact that hundreds of millions of people around the world are rising out of poverty would have been a source of pride and optimism. But if you listen to the presidential candidates, improvements in the developing world are menacing. Their speeches constitute a symphony of woe about lead-painted toys, manipulated currencies and stolen jobs.

And if Dobbsianism is winning when times are good, you can imagine how attractive it’s going to seem if we enter the serious recession that Larry Summers convincingly and terrifyingly forecasts in yesterday’s Financial Times. If the economy dips as seriously as that, the political climate could shift in ugly ways.

And this is despite the fact, as Brooks notes, that the things Lou Dobbs and his ilk say are demonstrably, provably wrong:

[D]espite the ups and downs of the business cycle, the United States still possesses the most potent economy on earth.

(…)

In the World Economic Forum survey, the U.S. comes in just ahead of Switzerland, Denmark, Sweden and Germany (China is 34th). The U.S. gets poor marks for macroeconomic stability (the long-term federal debt), for its tax structure and for the low savings rate. But it leads the world in a range of categories: higher education and training, labor market flexibility, the ability to attract global talent, the availability of venture capital, the quality of corporate management and the capacity to innovate.

(…)

[T]he number of jobs actually lost to outsourcing is small, and recent reports suggest the outsourcing trend is slowing down. They are swamped by the general churn of creative destruction. Every quarter the U.S. loses somewhere around seven million jobs, and creates a bit more than seven million more. That double-edged process is the essence of a dynamic economy.

And it gets better from there. But you don’t here that if you tune into Lou Dobbs’ nativist screed, or pick up the latest doom-and-gloom book from Pat Buchanan. To them, it is precisely the things that makes America strongest — it’s open economy, it’s willingness to accept new immigrants, and it’s openness to international trade and competition — that are leading to its destruction.

It’s the same nonsense we’ve heard before, really, but, this time, it seems to be gaining adherents in the mainstream of American politics.  And, Brooks is absolutely right about one thing — if the nativists like Dobbs and Buchanan continue to gain credibility, then things really will get ugly when the next recession rolls around.

Liberty and Racial Discrimination: Responding to David Duke

An earlier post of mine concerning members of Stormfront who are publicly supporting Ron Paul generated some very heated responses and a number of comments from people who are part of various movements that are generally tarred as being racist. Some of them made some very good points, and others raised questions that I think warrant an answer. This post is intended to acknowledge the good points and to answer those questions, especially the ones which were raised by David Duke.

The first point was made by commenter Drena who said,

I’m not sure if it’s a good idea to equate modern white supremacists with Nazism. The Nazis were anti-capitalist, protectionist, and in favor of central economic planning. There is nothing to stop a white supremacists from actively supporting laissez-faire capitalism. It is quite a leap to assume that because a person who thinks that his race is superior to another race, that he is in favor of Nazi economics. Nazis were economic fascists who just happened to be white supremacists. Modern day white supremacists may be more sophisticated than you think.

This is true, to a point. It’s quite possible to be a person who discriminates racially, but because you respect the rights of others and refuse to aggress against the people against whom you discriminate against. And certainly, I don’t have any problem with such forms of racial discrimination. I consider it to be stupid, but a person can chose whom he or she does business with, and I won’t try to prevent him or her from exercising his or her freedoms in ways that I consider stupid.

I say it is possible, but does not seem to happen much in practice. People who wish to practice racial discrimination often want to practice aggression against those whom they don’t approve of. Sometimes it’s out of an unwillingness to respect the rights of the people whom they don’t like, such as the Stormfront poster who claimed that the only thing certain black members of Congress were good for was target practice. Often, though, it’s the result of the economic disadvantage that people practicing racial discrimination place themselves in.

Discrimination Defined

At this point, I should digress to define discrimination. A lot of people have no understanding what it is, other than being told that it is bad. Discrimination is the act of judging someone by a quality they possess.

When is Discrimination Economically Beneficial?

Now, some discrimination is justified. For example, if a person wanted to hire someone to prepare a new translation of the 1001 Nights from Arabic into Swahili, he would almost certainly refuse to hire anyone who didn’t speak both languages. This form of discrimination against people who do not speak both Swahili and Arabic is entirely appropriate.

When is Discrimination Economically Harmful?

On the other hand some forms of discrimination are economically disadvantageous; for example, if the person refused to consider any candidate who wasn’t blond haired and blue eyed, he would be discriminating against people for reasons that have nothing to do with their abilities to do the job.

Why is this harmful?

Effects on the ‘victim’

For the “victim” of the discrimination, a dark-haired job applicant, the harm is quite obvious, since he cannot get the job. In fact, if such discrimination is endemic, he would have to settle for a job that does not fully take advantage of his wealth-creation potential, and thus his earnings will be less, his life less-fulfilled, etc. I should point out, though, that our dark-haired translator is not truly a victim; he has not been aggressed against – rather, an employer has merely declined to hire him.

Effects on the ‘oppressor’

But what harm to the employer?

Well, in my blatantly contrived example, he has limited his pool of applicants dramatically – whereas there might be fifteen applicants in the city who know both languages, there might only be one or two blond ones. The two guys can charge a much higher price for doing the work than they could command competing against a larger pool of talent. Additionally, the blond guys might not be the best in the field, and the employer could end up producing a very poor quality translation, and have to sell fewer books at a lower cost, reducing the return on his investment.

Effects on the ‘beneficiary’ of the discrimination

What about the blond Arabic/Swahili translator? Well, he might get a cushy job, but if the discrimination is widespread, the economic inefficiencies described above means that he will pay more for goods of less quality than he would in a society that did not discriminate against non-blonde people.

Using Government to Evade Economic Costs

The disadvantage suffered by those who practice racial discrimination was the historical impetus behind many Jim Crow laws. A racist who refused to hire black laborers had to pay a premium for his labor, while his less picky competitor would pay a discount for black workers and be able to undercut the racist. These people, unable to compete without sacrificing their cherished desire to racially discriminate often call for laws to prevent their competitors from taking advantage of the untapped pool of workers.

Note that this only applies if the racial discrimination is unwarranted. If one’s race truly is a determinant of one’s abilities, than the guy who uses race as a determinant in deciding whether to do business with someone could be making a great decision. In such cases, the person who refused to racially discriminate would be the one at a competitive disadvantage. I personally feel that racial discrimination is, generally, a dumb idea, as evidenced by the many laws passed to promote segregation and racial discrimination throughout history (and not just in the U.S.).

Now these laws were acts of aggression against innocent people. Primarily these laws targeted the freedom of association preventing people from conducting business with whomever they wish, for example when a school is forbidden from hiring black teachers., or a businessman is forbidden from hiring a black foreman or a bus company is required to segregate its customers by race.

Make no mistake, these laws are collectivist. In the end, they force people to trade goods and services not with the partners they would prefer, but with other people selected for them by the state. It really does not matter that the selection is performed impersonally.

The Difference Between Modern ‘White-Nationalism’ and German Nazism

Which now brings me to a point made by many respondents who posted comments to the effect that they were not “white supremacists” but rather “white nationalists”, and that their views diverged very radically from that of the German NDASP (the original Nazi party). » Read more

I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.

About That North American Union…..

….it’s absolutely false.

What’s the Security and Prosperity Partnership (SPP)? The precursor to the NAU, umm…no.

The SPP does exist, and its tri-national task forces continue to meet, but its members consider it a way for the United States, Canada, and Mexico to collaborate on issues such as customs, environmental and safety regulations, narcotics smuggling, and terrorism.

In other words, a commission in order to cooperate on cross-border issues. Nothing evil or sinister here.

What about this common currency, the Amero:

One of the vice chairs of the [Council on Foreign Relations] working group was a political science professor at American University and former Carter administration official named Robert Pastor. In 2001, Pastor had written a book arguing for greater economic integration between the three North American nations – and specifically discussed the possibility that the nations could jointly adopt an amero currency.

A former Carter administration official writes a book and serves on a CFR working group about greater economic ties between the US, Canada, and Mexico and talks about a common currency and people go apeshit. It was just an idea. Just because someone suggests a common currency between the NAFTA members doesn’t mean there is a plan to adopt one.

Finally, the NAFTA Superhighway:

The NAFTA Superhighway has a more complicated origin. One piece is a nonprofit organization, called the North America’s Supercorridor Coalition, or NASCO, dedicated to ensuring the efficiency and safety of some of the country’s major truck trade routes – a map from the organization’s website has shown up on NAU watchdog websites, erroneously labeled the blueprint for the NAFTA Superhighway. Another is a controversial toll highway that Texas is considering building to accommodate the sharp increase in freight traffic brought by NAFTA.

In other words, it doesn’t exist and there is no plan to build one.

To sum up the North American Union, it doesn’t exist outside of some books and the occasional think tank discussion. There is no plan to create one by the governments in North America.

Now can we start discussing the real issues affecting this country and can we start defending our liberty against real threats, instead of making up phony threats.

I’m one of the original co-founders of The Liberty Papers all the way back in 2005. Since then, I wound up doing this blogging thing professionally. Now I’m running the site now. You can find my other work at IJ Review.com and Rare. You can also find me over at the R Street Institute.

The Free Market In Action – The Giant Retailers Begin To Buckle

If you purchased a newspaper in the past week or so, you might have noticed a bunch of circulars advertising post-Thanksgiving sales. The stores publicize these sale prices in an attempt to attract customers for what is known as “Black Friday,” the day after Thanksgiving which, by custom, is one of the largest shopping days of the year. These circulars are important; even if the prices are not truly the lowest in the market, the perception of low prices will attract customers. And, in the days when comparing prices across many differently organized and formatted circulars was arduous, retailers could take comfort in the fact that the circular would bring in customers.

Unfortunately for retailers, the rise of the Internet made this practice dangerous: people started setting up websites that reorganized the sales information and allowed people to compare offers easily across stores an multiple product lines. This put the store owners in a quandary; they want to publicize prices to attract customers, but if the bargain hunting becomes easier, they will have to really slash prices to attract customers and their bottom lines will get tighter.

This gave rise to a new Thanksgiving tradition, the lawsuit against price comparison websites:

For the last several years, Wal-Mart Stores and other large chains have threatened legal action to intimidate Web sites that get hold of advertising circulars early and publish prices online ahead of company-set release dates. The retailers’ threats rest upon some dubious legal arguments, however, which may be the reason they haven’t shown a keen interest in actually going to court over the issue.

Wal-Mart has been among the most aggressive retailers in trying to cow consumer Web sites. Last month, it sent a cease-and-desist letter to BFAds.net, a site devoted to publishing Black Friday ads. Wal-Mart sent the letter even before BFAds had published Wal-Mart’s sale prices, so the cease-and-desist letter would be more properly called a “don’t even think about it” letter.

This year, however, retailers are unusually desperate to get bodies into their stores since the consensus is that this year will be an “off” year for retail sales. This desperation has prompted many chains to not attack the bargain hunting websites but to cooperate with them:

This holiday season, chains large and small quietly handed over their circulars to Web sites like Bfads.net and Gottadeal.com to ensure that millions of deal-hungry shoppers see their discounts well before the day known as Black Friday, traditionally the biggest shopping day of the year.

Over the past few weeks, Home Depot, Pacific Sunwear, CompUSA and OshKosh B’Gosh each supplied the sites with an advance copy of its ads, according to the chains and the sites’ owners.

In fact, some retailers even went so far as to check to ensure that their circulars had been published on Bfads.net, contacting the website’s founder when they didn’t see their sales listed on the website.

There are some firms that truly have the lowest price on some set of one or more goods. To these firms, websites life Bfads.net are not the enemy, but rather a powerful and free advertising tool. These firms are embracing these websites, and attracting the bargain hunters into their stores. And, since these bargain hunters tend to be mavens whose recommendations can drive tens, hundreds, or even thousands of people to a store these cooperating firms are ensuring banner years for themselves.

Even the officers of big, bad Wal-Mart recognize this. One even wrote a letter to the owner of Bfads.net, thanking him for bringing customers to Wal-Mart:

“I checked out your site today and yesterday and we pulled some traffic reports — great job … Almost over 43,000 clicks just yesterday alone. … Thanks for giving us a nice write-up on your front page. Keep up the great work!”

This is the essence of the free market. People who depend on the voluntary business of customers must excel at satisfying their customers’ needs to thrive and prosper. While most merchants would love to pay little and charge dearly for their wares, only the ones who charge the least dearly will be able attract the customers they need.

Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages. – Adam Smith, The Wealth of Nations

So, as you sit down for what is hopefully a nice feast, please remember to give thanks to the wonderful human invention, the one that has allowed our species to spread across the Earth and to enjoy lives that are anything but short and brutal, the concept known as the Free Market.

I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.

Iran Blasts Dollar At OPEC Summit — Calls Dollar “Worthless”

In a stunning example of a stopped clock being right, Iran’s President Ahmadinejad assails the dollar, suggesting OPEC should break the petrodollar link:

“They get our oil and give us a worthless piece of paper,” Ahmadinejad told reporters after the close of the summit in the Saudi capital of Riyadh. He blamed President Bush’s policies for the decline of the dollar and its negative effect on other countries.

Oil is priced in U.S. dollars on the world market, and the currency’s depreciation has concerned oil producers because it has contributed to rising crude prices and eroded the value of their dollar reserves.

“All participating leaders showed an interest in changing their hard currency reserves to a credible hard currency,” Ahmadinejad said. “Some said producing countries should designate a single hard currency aside from the U.S. dollar . . . to form the basis of our oil trade.”

He was unsurprisingly echoed by statements from Mini-Mahmoud, Venezuelan dictator Hugo Chavez.

This expands an already wide rift within OPEC, as several states (most notably Saudi Arabia) are allies with the United States. They fear that dropping the dollar will also destroy any semblance of friendly relations between their governments and Washington. Many of their regimes could face internal resistance if American backing disappeared, and given some of their internal policies, it’s not likely that they’ll be peacefully overthrown.

Quite honestly, this has been on the horizon for a long time. Our own Federal Reserve and politicians, in an effort to keep the American economy moving (and themselves from political harm), have engaged upon a credit glut that has covered the world with American paper. And the world is slowly starting to realize that this paper is becoming worthless. To a large extent, they were still stuck with the dollar, as there wasn’t an alternative large and stable enough to be an alternative. With the growth of the Euro, though, the dollar no longer has a monopoly position in the world market.

A global dollar crisis is a nightmare for the entire world. But it’s becoming increasingly likely, and while Ahmadenijad might be crazy, he’s not stupid. He knows that his best option for getting rich on the back of the falling dollar is to get on the leading edge and ditch it before the crisis materializes. And if divesting of the dollar manages to cause that world panic after he’s complete, all the better to damage “the Great Satan” and turn him into a hero to the extremists at home.

To the vast majority of Americans, the “high price of oil” is OPEC’s fault. But in reality, how much of the high price is a reflection of the weakness of the dollar instead of a short supply? The vast majority of Americans see “crazy Mahmoud” spouting off, but I guarantee the prospect of oil being sold in euros rather than dollars is a prospect keeping many folks in Washington awake at night.

Milton Friedman and the Power of Choice

Just over one year ago, the world lost perhaps the greatest economist of his generation. Milton Friedman had the ability to explain complex economic theories to the average person. I just recently watched his 1980 (and updated 1990) PBS series Free to Choose (based on a book Friedman had published with the same title). I cannot recommend this series enough to both proponents and critics of capitalism. If you can watch this series and still hold on to the notion that capitalism is not morally superior to any other economic system, then you are beyond hope.

http://i1.wp.com/www.businessinnovationinsider.com/Milton%20Friedman%202.jpg?w=860

In the 1990 updated version, Friedman discussed the power of the free market, tyranny of control, the Great Depression*, how cradle to grave “entitlement” programs harm the economy, equality, inflation, and much more. After each episode, Friedman discussed his theories with distinguished guests such as Donald Rumsfeld (mostly a critic of Friedman), Walter Williams, and Thomas Sowell.

Friedman’s thesis is that capitalism boils down to one important concept: choice. The ability for the individual to choose where to live, where to work, where to send his children to school, etc. makes all the difference between freedom/prosperity and tyranny/poverty. Economic freedom is every bit as important as any other freedom.

Though Milton Friedman has left us over a year ago his important work lives on. Its up to us to make sure what he taught us isn’t lost to future generations.

Watch the entire Free to Choose series at this link: http://ideachannel.tv/
» Read more

The Liberty Dollar Seizure

The big news for those interested in libertarianism and monetary systems over the last day has been the fed’s seizure of materials and metals related to the sale, production, marketing, and other business activities of the Liberty Dollar. Last night co-contributor tarran posted a very interesting piece related to the government’s tactics and rationale for going after the Liberty Dollar. I am not a lawyer, and cannot speak to that aspect (although I understand Doug is working on it), but there are some very interesting things when you look into it.

Is the Liberty Dollar (ALD) a competing currency? Or is it a scam designed to fill its creators’ pockets while suckering us into buying silver at inflated prices? The best place to understand what is happening is the full seizure warrant.

Looking over the full document, I can see where there might be some standing for a case against the Liberty Dollar*. I’ve never understood the difference between the “face value” of their currency and the US Dollar. For example, they suggest buying the Liberty Dollar $20 piece at a discount and “spending” it as if it is worth $20, when the silver inside is not worth $20. The feds refer to it as a MLM scheme, and through reading their case, I can see where they may have a point there.

As a second point, it does appear that in many ways the Liberty Dollar folks are violating the law against coining your own currency in metal. I consider it to be an improper law, and I don’t begrudge them for breaking it, but it does appear to be illegal.

Of course, none of this in any way should be understood as me being a supporter of the Fed’s system**. I believe strongly in competing market-created currencies.

It does seem, though, that the Liberty Dollar was created to secure profit for its creators from the US Dollar, instead of being a true alternate currency. The “convertability” and desire that merchants give Liberty Dollars as change, as well as the “move-up” process described in the Fed’s case belie a desire by the Liberty Dollar folks to sell silver in exchange for FRN’s at a consistent profit compared with the market price, cloaked in the language of undermining the current system.

For the Liberty Dollar to be a true competing currency, it should not be assumed as a “stand-in” for FRN’s at the same face value, which is what the Liberty Dollar proponents are suggesting. If anything, the cost of converting from FRN’s to ALD’s should be set by a market-based exchange rate, not by NORFED. It is here that I believe the fraud may be found.

As an example of a competing “currency”, my father is a self-employed architect and a member of a bartering group in the Chicago area. The bartering group acts more as a network of producers than anything else, but instead of bartering services directly, they have a system of trade “credits” tracked by the barter service itself. Thus, he can design a home addition in exchange for “trade dollars”, and then use those “trade dollars” at another business within the network.

This differs from the ALD in that trade dollars are expected to only be accepted by businesses who are members of the trade exchange, and are not interchangeable with FRN’s. Thus, much like competing national currencies, a business can accept FRN’s and also accept trade dollars, but their prices for a good or service might be substantially different based on the currency used. If a member of the exchange wanted to divest of their trade dollar holdings by selling them, the exchange rate would be determined by buyer and seller, establishing a market price, rather than a rate demanded by the trade group itself (which is what the ALD attempts to do).

A competing currency must not be interchangeable with FRN’s, which is the fiction that the Liberty Dollar creators try to uphold. Thus, the ALD becomes a method for them to sell silver at a profit while their associates or merchants work to defraud businesses by offering silver worth less (in FRN terms) for goods that are priced in FRN terms. At each level, it appears to have a cut of profit, as all multi-level marketing schemes do, and at the bottom of the scale, those who receive ALD’s as a “face value” equivalent to FRN’s are being shafted.

The Liberty Dollar does not seem to live up to what is bills itself as. If it were a true competing currency, merchants would price goods in ALD terms higher than in FRN terms, in order to receive identical value for their wares. If it were a true competing currency, the “exchange rate” between ALD’s and FRN’s would float, rather than be defined by the Liberty Dollar creators. I previously have written favorably about the Liberty Dollar, but given new information, I have changed my mind. It does not fit the bill of an alternative currency; it is a scam.
» Read more

The Violence Against Non-State Backed Currencies

Yesterday, agents of the FBI raided the offices of NORFED and, according to an email sent by its founder, confiscated all their assets:

Dear Liberty Dollar Supporters:
I sincerely regret to inform you that about 8:00 this morning a dozen FBI and Secret Service agents raided the Liberty Dollar office in Evansville.
For approximately six hours they took all the gold, all the silver, all the platinum and almost two tons of Ron Paul Dollars that where just delivered last Friday. They also took all the files, all the computers and froze our bank accounts.
We have no money. We have no products. We have no records to even know what was ordered or what you are owed. We have nothing but the will to push forward and overcome this massive assault on our liberty and our right to have real money as defined by the US Constitution. We should not to be defrauded by the fake government money.
But to make matters worse, all the gold and silver that backs up the paper certificates and digital currency held in the vault at Sunshine Mint has also been confiscated. Even the dies for mint the Gold and Silver Libertys have been taken.
This in spite of the fact that Edmond C. Moy, the Director of the Mint, acknowledged in a letter to a US Senator that the paper certificates did not violate Section 486 and were not illegal. But the FBI and Services took all the paper currency too.
The possibility of such action was the reason the Liberty Dollar was designed so that the vast majority of the money was in specie form and in the people’s hands. Of the $20 million Liberty Dollars, only about a million is in paper or digital form.
I regret that if you are due an order. It may be some time until it will be filled… if ever… it now all depends on our actions.
Everyone who has an unfulfilled order or has digital or paper currency should band together for a class action suit and demand redemption. We cannot allow the government to steal our money! Please don’t let this happen!!! Many of you read the articles quoting the government and Federal Reserve officials that the Liberty Dollar was legal. You did nothing wrong. You are legally entitled to your property. Let us use this terrible act to band together and further our goal – to return America to a value based currency.
Please forward this important Alert… so everyone who possess or use the Liberty Dollar is aware of the situation.
Please click HERE to sign up for the class action lawsuit and get your property back!
If the above link does not work you can access the page by copying the following into your web browser. http://www.libertydollar.org/classaction/index.php
Thanks again for your support at this darkest time as the damn government and their dollar sinks to a new low.
Bernard von NotHaus
Monetary Architect

For those of you not familiar with the Liberty Dollar, the architect intended them to compete with Federal Reserve bank notes. They currency takes many forms:

  • Specie in the form of silver and gold coins,
  • Bank notes backed by gold and silver in their vaults (in other words every bank note promising redepmption by an oz worth of silver has an oz of silver sitting in their vaults)
  • Electronic or digital money, again backed by specie in their vaults

Each bank note and coin was stamped with a suggested exchange rate with U.S. dollars. This exchange rate was far higher than the value of the metal in the coins, $15.00 USD worth of silver in a coin stamped with a $20.00 exchange rate. The company bent over backward to get treasury department approval and to comply with U.S. currency laws.

So why were they raided? Brian Doherty of reason magazine reports:

I’ve seen a copy of a Nov. 9 seizure warrant on an Asheville, NC, address, not available online, claiming that Liberty Dollars at that address are forefeitable for being connected with money laundering and mail fraud. I have not read the entire 38 page warrant, nor am I 100 percent certain it is connected with the actions in Evansville today, but given that the Indianapolis FBI referred me to the U.S. Attorney in North Carolina, probably so, and that multiple raids were planned or executed re: the liberty dollar.
The warrant explains that the FBI from Aug 2005 to July 2007 were “conducting undercover operations to determine the legality of the American Liberty Dollar currency.” The warrant also notes that von NotHaus sold an undercover agent a Liberty Dollar T-shirt, and that the agent observed von NotHaus driving a 1999 Cadillac Deville. It doesn’t take a trained federal agent to connect the dots here, I suppose. In other words: What-th-what-th-What?

This came after the U.S. Mint made dark warnings that people doing business in this currency were breaking the law.

Furthermore, NORFED is not the first currency backer to be so attacked. Last December, e-gold was also raided, by agents claiming to be going after money launderers.

Is this some plot to shore up the shaky Federal Reserve system by outlawing competition? I don’t think so, namely because government economists all believe that their system is a good stable one. I truly think they believe their propaganda.

The problem is that a system of commodity currency allows someone to do business anonymously. These systems were consciously designed to preserve people’s wealth from the depradations of misguided governmental monetary policy. This protection inherently makes monitoring the flow of money more difficult for government officials. It attracts people who distrust the government, a significant number of which whose fear is based on the victimful crimes they commit. This institutional distrust, in turn, engenders a hostility in modern law-enforcement who are understandably suspicious of people who distrust them.

In the end, it is quite clear to me that it is the hostility of these law-enforcement officers which is the problem. Confusing suspicion of the state with criminal intent, they are convinced that these institutions that have criminals as customers are in fact conspiring with the criminals. So they shut them down, ruining the guilty and the innocent indiscriminately. There is nothing precluding the FBI from reviewing e-gold or Norfed’s records while the firms continue to do business. Shutting them down is as absurd as shutting down the Motel 6 down the road, because it was the preferred resting place of mobsters visiting town.

Neither Norfed nor E-gold are defrauding anyone. Their fees might be a little high, but everyone doing business with them knows what the costs are going to be up-front. The reason that they are being raided and attacked is, in the end, a political one, hostility amongst law enforcement, perhaps egged on by some of the more conventional financial institutions seeking to knee-cap competition. As such, these raids should be condemned.

Update:

Ron Paul Radio interviews von NotHaus, who claims that the FBI agent in charge told him that the Department of Justice ordered the confiscation of all assets because the currency was illegal:

http://www.ebacherville.com/cgi-bin/uploaded/FINAL-LibertyDollarNotHaus11152007.mp3

Update II:

The search & seizure warrant have been posted by NORFED:

The search warrant orders the seizure of all records, all printing equipment, computer hardware and media, devices used to manufacture the coinage and notes, and somewhat sinisterly membershiplists of all Liberty Dollar Regional Currency Officers, Liberty Dollar Associates, Merchants who have registered themselves as accepting Liberty Dollars, and any individuals that have purchased the currency.

The seizure warrant states that

American Liberty Dollar and/or Hawaii Dala currency and/or percious metals of gold, silver, copper , platinum or other substance and Unites States currency are forfeitabls to the United States under 18 USC  §  982 (a)(1) because it is property involved in, or traceable to, money laundering, in violation of 18 U.S.C. § 1956 and 1957; under 18 U.S.C. USC  §  982 (a)(3) because it is, or is traceable to, gross receipts and proceeds obtained, directly and indirectly, as a result of mail fraud, in violation of 18 U.S.C. § 1341 and wire fraud, in violation of 18 U.S.C. § 1343. Authority for this warrant is provided by 18 U.S.C. § 981(b) and 21 U.S.C. § 853(f)

This is very interesting:

18 U.S.C. §  981(b) states:

       (b)(1) Except as provided in section 985, any property subject to
forfeiture to the United States under subsection (a) may be seized
by the Attorney General and, in the case of property involved in a
violation investigated by the Secretary of the Treasury or the
United States Postal Service, the property may also be seized by
the Secretary of the Treasury or the Postal Service, respectively.
(2) Seizures pursuant to this section shall be made pursuant to a
warrant obtained in the same manner as provided for a search
warrant under the Federal Rules of Criminal Procedure, except that
a seizure may be made without a warrant if –

        (A) a complaint for forfeiture has been filed in the United
States district court and the court issued an arrest warrant in
rem pursuant to the Supplemental Rules for Certain Admiralty and
Maritime Claims;
(B) there is probable cause to believe that the property is
subject to forfeiture and –

          (i) the seizure is made pursuant to a lawful arrest or
search; or
(ii) another exception to the Fourth Amendment warrant
requirement would apply; or

(C) the property was lawfully seized by a State or local law
enforcement agency and transferred to a Federal agency.

(3) Notwithstanding the provisions of rule 41(a) of the Federal
Rules of Criminal Procedure, a seizure warrant may be issued
pursuant to this subsection by a judicial officer in any district
in which a forfeiture action against the property may be filed
under section 1355(b) of title 28, and may be executed in any
district in which the property is found, or transmitted to the
central authority of any foreign state for service in accordance
with any treaty or other international agreement. Any motion for
the return of property seized under this section shall be filed in
the district court in which the seizure warrant was issued or in
the district court for the district in which the property was
seized.
(4)(A) If any person is arrested or charged in a foreign country

    in connection with an offense that would give rise to the
forfeiture of property in the United States under this section or
under the Controlled Substances Act, the Attorney General may apply
to any Federal judge or magistrate judge in the district in which
the property is located for an ex parte order restraining the
property subject to forfeiture for not more than 30 days, except
that the time may be extended for good cause shown at a hearing
conducted in the manner provided in rule 43(e) of the Federal Rules
of Civil Procedure.
(B) The application for the restraining order shall set forth the
nature and circumstances of the foreign charges and the basis for
belief that the person arrested or charged has property in the
United States that would be subject to forfeiture, and shall
contain a statement that the restraining order is needed to
preserve the availability of property for such time as is necessary
to receive evidence from the foreign country or elsewhere in
support of probable cause for the seizure of the property under
this subsection.

Now, what is interesting is that there is supposed to be a hearing, wherein a person can hear the claim and attempt to rebut it, unless:

(3) A temporary restraining order under this subsection may be entered upon application of the United States without notice or opportunity for a hearing when a complaint has not yet been filed with respect to the property, if the United States demonstrates
that there is probable cause to believe that the property with respect to which the order is sought is subject to civil forfeiture and that provision of notice will jeopardize the availability of the property for forfeiture. Such a temporary order shall expire not more than 10 days after the date on which it is entered, unless extended for good cause shown or unless the party against whom it is entered consents to an extension for a longer period. A hearing requested concerning an order entered under this paragraph shall be held at the earliest possible time and prior to the expiration of the temporary order.

while  21 U.S.C. § 853(f) permits seizure of property without a trial:

 (f) Warrant of seizure

The Government may request the issuance of a warrant authorizing
the seizure of property subject to forfeiture under this section in
the same manner as provided for a search warrant. If the court
determines that there is probable cause to believe that the
property to be seized would, in the event of conviction, be subject
to forfeiture and that an order under subsection (e) of this
section may not be sufficient to assure the availability of the
property for forfeiture, the court shall issue a warrant
authorizing the seizure of such property.

There’s only one problem – the law is one that pertains to Food and Drugs.  Obviously, NORFED is not involved in drug trafficking.

I am not a lawyer, so I could be wrong, but I seem to remember that the forfeiture process under the FDA statutes is far less burdensome to the state, and the odds are more heavily stacked against the defendant.  Is the Federal Governemnt violating its own rules by seizing property that falls under the money-laundering statutes using the process for narcotics related seizures? Doug?

It also seems to me that von NotHaus is giving some very bad legal advice.  A class action lawsuit will go nowhere – becasue the claimants will have no standing.

The laws for money-laundering related seizures permit “innocent owners” to file claims with the government.  If they jump through the right hoops, they may get their property back.  The courts will reject any class action lawsuit and instead require people to prove their claims through the regular channels.

More worryingly, the law for narcotics related seizures has no provision for innocent owners, at least that I could find.

Furthermore, the narcotics statute has this littlegem:

(k) Bar on intervention
Except as provided in subsection (n) of this section, no party
claiming an interest in property subject to forfeiture under this
section may –
(1) intervene in a trial or appeal of a criminal case involving
the forfeiture of such property under this section; or
(2) commence an action at law or equity against the United
States concerning the validity of his alleged interest in the
property subsequent to the filing of an indictment or information
alleging that the property is subject to forfeiture under this
section.

Basically, the people who own liberty dollar notes will have to petition the government for redemption of the silver, prove that they did not break the law, to have any hope of getting their money back.

The suit will be costly in time and money, and unless you are sitting on a huge pile of NORFED notes not worth your time.

I think NORFED has just been killed.  Even if the seizure is eventually found to have been unjustified under the law, and the staff be found innocent of any wrongdoing, NORFED is out of business.

I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.

Treatise on Property Tax Through Fiat Currencies

Below, please enjoy a guest article by Clayton Slade. Clayton is in the information technology field by trade, but has been an economics/finance buff for most of his life, as well as a believer in liberty and the free market.

Clayton’s article succinctly explains a rather complex concept rarely discussed, the effect of inflation as a tax on all those who hold dollars, both domestically and abroad.

As always, feel free to discuss in the comments. Clayton can be reached at clayton.slade@gmail.com.

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Treatise on Property Tax Through Fiat Currencies
By Clayton Slade

Property Tax
The United States has a property tax that applies to the entire world. In fact, all countries with fiat currencies do, but the extent to which they can tax is directly related to the distribution of currencies in circulation. This tax is called a fiat property tax. The tax rate varies between different currencies.

First, it must be understood that at any given moment, there is a finite total value of resources and services. Second, there is a total amount of currencies in the world, which can be manipulated. These two values form a ratio of Currency:Stuff. If more of a currency is created, such as new federal reserve notes, the total economic value of everything is not increased; this merely increases the currency side of the ratio, meaning that in the long run, it takes more currency to get the same amount of stuff. This amount of time is the response time or lag time of the market to realize the increased currency.

When more federal reserve notes (FRN) are created, the ratio of FRN:Stuff shifts accordingly, making it take more FRNs to get stuff. This means that each individual FRN is worth less than it was originally. The value of the “new” FRNs is derived from taking value away from the original FRNs. This is true for all fiat currencies when the quantity of a given currency in circulation increases.

The devaluing of each FRN is more than mere inflation. This is a property tax. It takes value away from assets, in this case currency owned by the holder, and redistributes it to the entity that creates the new notes (e.g., the Federal Reserve). Whomever has the power to create new currency inherently has the power to tax anyone and everyone who is holding that currency.

History
When the United States used the gold standard, people saw the US dollar as a sanctuary. The dollar was no more than a receipt (certificate) for a certain weight of gold, and the gold was protected in a safe location, which allowed the dollar to permeate throughout the world. When we moved off the gold standard domestically, we still met our obligations for foreigners who had gold certificates, and we also used relatively responsible monetary policies. This kept foreigners comfortable with using the US dollar.

At the same time, a very real economic boom after WW2 made the United States rich and a marketplace that other nations want to sell to. When the United States imports, it also exports federal reserve notes, which further serves to spread FRNs to all parts of the world. Some other consequences of WW1 and WW2 were that the borders in the Middle East were redrawn, and other political changes ensued that, for better or worse, involved making the US dollar the currency used in all major petroleum transactions. If anyone wanted to buy oil from Iran, Iraq, Saudi Arabia, etc, they first had to buy US dollars (now FRNs) on the foreign exchange market.

As a consequence. the world has been saturated with dollars, and then federal reserve notes, during the past century.

Real World
When the federal reserve creates new notes, it steals value from all existing notes. Since many existing notes reside outside of the United States, the property tax effect applies to anyone holding a FRN. This is a property tax on all notes that exist, and thus, the world.

When this newly taxed money is spent domestically, there is a net benefit to the United States. This has worked well for 30-50 years and is one reason why the trade deficit is not so bad. Money flows out of the country, but the value of it is then just taxed right back when new money is created. One must also consider that this is a tax on holdings, and not just cash flows. A country such as China that possesses a large quantity of federal reserve notes and treasury securities is taxed not only on the trade deficit, but also the notes from all previous trade deficits that are still held by the country.

Downfall
That sounds great, right? The United States gets to tax the whole world and spend it in ways that benefit itself! All moral issues aside, it would be wonderful if this could be done forever. However, other countries are not stupid and are wising up to this.

This most recent round of bail outs (paid for by fiat property tax) in the financial markets (sub prime, etc) is really waking people up. Take a look at the dollar against other competing currencies or even gold and silver. On it’s present course, the FRN will not be able to maintain reserve currency status much longer.

It seems like every year or two, another oil producing country moves away from the FRN in favor of other currencies that are destroying themselves slower. Most notably, Iran has been switching to Euro and Yen for oil transactions.

Effectively, all fiat money has a property tax rate associated with it. This system of fiat property tax only works when people are willing to accept a given currency. They have to either be naive to what is going on (general public), accepting it because it is the best option available (central banks, foreign governments, investors), or coerced (OPEC?). The Europeans are destroying (taxing) their currencies in order to help their exports, but they are doing it slower than the United States, making the Euro and £ the current better choice for maintaining value. This is why treasuries, central banks, regular banks, etc are shifting away from the federal reserve note to currencies such as the £, Euro, and gold – the fiat property tax rate is lower with those currencies.

It is a fragile system. Once the international community stops accepting federal reserve notes, the decline will be rapid. The decline may have already started. Depending on how widespread this rejection and decline is, the United States could experience massive inflation (WW2 Germany style).

Solutions
There are a only few ways to stave off a total rejection of the federal reserve note. One way is more conservative fiscal policies in congress that involve balanced budgets.

The other is to float some sort of commodity based currency that forces the value of individual currency units to be finite and relatively unchanging true value over time. If an option like this were adopted, it would be key for the new currency to be issued in a “natural” and non-obligatory manner in order to not shock financial markets. One such way would be to simply allow such currencies to float freely on the foreign exchange markets. If consumers of currencies wish to use that currency as a sanctuary, such as the dollars of old, they should be free to do so in a liquid manner.

The United States and some other super powers have had the luxury of a lifestyle that is subsidized through the taxation of the world with the practice of fiat property tax. One way or the other, those who currently are accustomed to the benefits of this system should begin to wean themselves off of it on their own terms as more and more people and organizations realize how this system works and refuse to participate.

Seigniorage is alive and well. Why should someone choose to hold federal reserve notes if there is an alternative that has a lower tax rate?

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Aside: There is probably only one candidate running for president who is concerned about this or even understands the situation. That person is Ron Paul. If someone does not understand how taxation through inflation works, they should not be president.

All conservatives, especially rich ones and those who would like to become rich, should be opposed to this system. It is a progressive tax that directly attacks savings, affecting those with more cash more than those with less. Such a property tax is contrary to conservative or libertarian principles. Anyone who wants to save money should be opposed to this.

This is a tax just like any other. The only difference is that congress does not have to pass a bill to raise or lower the tax rate and the general public does not even know what the rate is. It is meaningless to focus on marginal income tax rates, capital gains, dividend tax, etc while at the same time the government can tax all the money it needs regardless. And they do not even have to ask you for a dime. They simply confiscate it from your bank account.

The Truth About Trade

The Cato Institute’s Daniel Griswold puts to rest some myths about international trade that just won’t seem to go away:

Trade has helped America transform itself into a middle-class service economy. Yes, the country’s lost a net 3.3 million manufacturing jobs in the past decade – but it’s added a net 11.6 million jobs in service and other sectors where average wages are higher than in manufacturing. Most of these new jobs are in better-paying categories, like professional and business services, finance and education and health services.

Trade and globalization have also helped bolster the balance sheets of American households by delivering higher incomes, lower interest rates and wider investment opportunities. From 1995 to 2004, the real median net worth of U.S. households jumped by 31 percent, boosted by rising home values and stock prices. (Even with the recent housing slump, average home values remain more than 2.5 times what they were a decade ago, according to the S&P/Case-Shiller index.)

Despite frequently heard worries, American families are not “drowning in debt.” Yes, total household debt has risen in the past decade – but total assets have risen in value even faster.

On average, U.S. households spent 14.4 percent of their income on debt payments in 2004, not much different from the 14.1 percent they spent in 1995. The bulk of what we’ve borrowed hasn’t paid for groceries or big-screen TVs but for housing – which, again, has appreciated strongly in the last decade.

Like so many assumptions floating around about trade, the belief that more global competition has somehow lowered the living standards of the average worker and family is just a myth. In fact, trade has delivered lower prices, higher worker compensation and an upwardly mobile middle class.

You would think that people would’ve figured that one out a long time ago.

The Club for Growth Report on Ron Paul, An Analysis

The Club for Growth paper on Ron Paul has generated some discussion over pragmatism vs radicalism. The Club for Growth, while overall praising Ron Paul, took exception over some stances that they believed as too unrealistic. This post will take a look at the actual paper and evaluate which who’s right on any particular issue, Ron Paul or the Club for Growth.

1) Federal funding of elections:

Despite this impressive record, Ron Paul’s history contains some curious indiscretions, including a vote for $232 million for federally mandated election reform (only 1 of 21 Republicans to vote for it)

The Constitution is very clear on elections, states run them, but Congress can pass regulations on how they’re conducted for Federal offices. Without looking at the actual legislation in question, the legislation is clearly constitutional. I cannot comment on the merits of the legislation.

2) Line-item veto:

a vote against the line-item veto[27] -even after it was modified to pass constitutional muster.

The line-item veto is clearly a violation of the Constitution since there is no authority for the president to veto only parts of bills. The president must either reject or sign an entire piece of legislation.

3) Pork barrel spending:

Paul’s record on pork was outstanding in 2006, voting for all 19 of Jeff Flake’s anti-pork amendments in 2006, but his record took a stark turn for the worse in 2007, in which Paul received an embarrassing 29% on the Club for Growth’s RePORK Card, voting for only 12 of the 50 anti-pork amendments.

Some of the outrageous pork projects Paul voted to keep include $231,000 for the San Francisco Planning and Urban Research Association’s Urban Center; $129,000 for the “perfect Christmas tree project;” $300,000 for the On Location Entertainment Industry Craft Technician Training Project in California; $150,000 for the South Carolina Aquarium; and $500,000 for the National Mule and Packers Museum in California. This year, Ron Paul requested more than sixty earmarks “worth tens of millions of dollars for causes as diverse as rebuilding a Texas theater, funding a local trolley, and helping his state’s shrimp industry.”

In defense of his support for earmarks, Rep. Paul took the if you can’t beat ‘em, join ‘em position, arguing that “I don’t think they should take our money in the first place. But if they take it, I think we should ask for it back.” This is a contradiction of Paul’s self-proclaimed “opposition to appropriations not authorized within the enumerated powers of the Constitution.”

Paul has no serious defense for this special interest oriented spending for local projects.

4) Trade

Ron Paul embraces the importance of free trade, but lives in a dream world if he thinks free trade will be realized absent agreements like NAFTA and CAFTA. Paul himself argues that “tariffs are simply taxes on consumers,” but by opposing these trade agreements, he is actively opposing a decrease in those taxes. While Paul’s rhetoric is soundly pro-free trade, his voting record mirrors those of Congress’s worst protectionists.

The Club for Growth is absolutely correct, the only way the US will get lowered tariffs on its exports and imports is through trade agreements. There are too many protectionist special interests with too much clout in Congress and overseas, so the only way to get lower tariffs is to have trade agreements that demands other nations to lower their barriers in return for the lower barriers.

5) Social Security Reform:

Just as in trade, this tendency leaves Paul opposing pro-growth reforms of Social Security. He opposes allowing workers to divert some Social Security payroll taxes into private retirement accounts, arguing instead for cutting payroll taxes and leaving it up to workers to do what they will with the savings. While the ideal is admirable, it is not a sufficient reason to oppose the pro-growth, expansion of freedom that personally-owned retirement accounts represent.

I support private retirement accounts, however the Bush plan was a terrible plan. Ron Paul was correct to oppose it, however, he’s wrong to oppose the concept of private retirement accounts in general. Both sides have good points.

6) Welfare Reform:

The Congressman was also 1 of only 4 Republicans to join the Democrats in voting against the extension of welfare reform in 2002. While Paul probably opposed the bill because of his distaste for government welfare in general and the authorization of additional funding, the legislation was an important step towards weaning millions of Americans off the government dole and imposing new work requirements on welfare recipients.

There is no reason for opposing weaning millions off the government. Club for Growth is absolutely right here.

7) School Choice:

Ron Paul’s opposition to school choice stems from his opposition to the government’s role in education, arguing that federal voucher programs are “little more than another tax-funded welfare program establishing an entitlement to a private school education.” He consistently voted against voucher programs, including a 1998 school voucher program for D.C. public school students, and a 2003 bill for a DC voucher program.

Instead, Paul supported education tax breaks and introduced the Family Education Freedom Act (H.R. 612) that provides all parents with a tax credit of up to $3,000, available to parents who choose to send their children to public, private, or home school. While Paul’s sentiment is understandable, it doesn’t change the fact that his votes are a direct impediment to achieving high-quality school choice. By voting against school choice programs, Paul is aligning himself with Democrats and the National Education Association in opposing progress towards achieving a truly competitive, market-based education system.

I also prefer tax credits to school vouchers because of the fear that with government vouchers comes government control of private education. Having said that though, there is a way to come up with a voucher program that does not intrude on private education. Both sides have valid points here.

8) Tort Reform:

Paul recognizes the danger of runaway lawsuits and bemoans “malpractice premiums that cost doctors tens of thousands of dollars per year, and increasingly threaten to put some out of business.” To his credit-and somewhat incongruous-Rep. Paul voted against a measure that would allow negligence lawsuits against gun manufacturers, for liability protection for manufacturers of certain gasoline additives, and for a bill that would move national class-action lawsuits out of local state courts to federal courts in order to stop the pernicious practice of court shopping.

Instead of traditional federal tort reform, he proposes “private contractual agreements between physicians and patients” that “enables patients to protect themselves with ‘negative outcomes’ insurance purchased before medical treatment.” In theory, Paul’s solution may help alleviate the situation, but it is politically untenable. While Paul’s idealism is laudable, he has not offered a viable alternative for dealing with a problem that is hurting American consumers and businesses, while diminishing our international competitiveness.

I agree with Ron Paul mostly on this. I oppose Federal intervention in setting caps on punitive damages because each incident needs to be judged and damages awarded on the merits of each case. I also oppose any Federal measures that restrict the jurisdiction of state courts. Other than that, I am open to tort reform measures that are targeted on the Federal level.

In all, this passage from the Club for Growth’s report describes one of the reasons why I don’t support Ron Paul’s candidacy:

But Ron Paul is a purist, too often at the cost of real accomplishments on free trade, school choice, entitlement reform, and tort reform. It is perfectly legitimate, and in fact vital, that think tanks, free-market groups, and individual members of congress develop and propose idealized solutions. But presidents have the responsibility of making progress, and often, Ron Paul opposes progress because, in his mind, the progress is not perfect. In these cases, although for very different reasons, Ron Paul is practically often aligned with the most left-wing Democrats, voting against important, albeit imperfect, pro-growth legislation.

Ron Paul is, undoubtedly, ideologically committed to pro-growth limited government policies. But his insistence on opposing all but the perfect means that under a Ron Paul presidency we might never get a chance to pursue the good too.

I’m one of the original co-founders of The Liberty Papers all the way back in 2005. Since then, I wound up doing this blogging thing professionally. Now I’m running the site now. You can find my other work at IJ Review.com and Rare. You can also find me over at the R Street Institute.

US Steel Makers Keep Tariffs

The steel makers were successful in persuading the International Trade Commission to keep steel tariffs:

In a victory for U.S. steel makers, the federal government agreed Wednesday to continue tariffs on imports of certain steel products from China, India and four other nations.

General Motors Corp., Ford Motor Co. Chrysler and other steel consumers had opposed the tariff extension. But ending the tariffs would have increased steel imports, harming U.S. steel makers, said Alan Price, a lawyer for Charlotte, N.C.-based Nucor Corp.

“China has a staggering amount of excess (steel production) capacity,” he said.

The U.S. International Trade Commission extended the tariffs on so-called hot-rolled steel from Indonesia, Taiwan, Thailand and Ukraine, in addition to China and India but eliminated them for Argentina, Kazakhstan, Romania and South Africa.

About 60 million tons of hot-rolled steel, used to make autos, household appliances and many other goods, is consumed annually in the U.S., Price said.

Tariffs were first imposed in 2001 and vary depending on the country, but are as high as 90 percent for China. The duties were imposed to counteract what the U.S. and other nations call unfair trade practices, such as dumping or selling a product below production costs.

This is bad for many reasons:

1) Competition from overseas gives American steel makers an incentive to modernize and come into the 21st century. The tariffs give the steel makers no incentives to modernize and upgrade their mills.

2) The price of manufactured goods will continue to remain high, therefore continuing the exodus of manufacturing and the jobs that come with it from the United States.

3) This will harm relations with allies and potential allies like India, Indonesia, Taiwan, Thailand, and the Ukraine.

Only free trade will save the steel making and manufacturing sectors of the American economy.

I’m one of the original co-founders of The Liberty Papers all the way back in 2005. Since then, I wound up doing this blogging thing professionally. Now I’m running the site now. You can find my other work at IJ Review.com and Rare. You can also find me over at the R Street Institute.
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