This Blog Contains Chemicals Known to the State of California to Cause Cancer

So I was just getting off my flight home to California and while walking up the off ramp I saw one of those signs. Yes, THOSE signs the ones that say “This Site Contains Chemicals Known to the State of California to Cause Cancer.” What am I supposed to do? Turn around and get back on the plane? The fact is that while these signs may have been well intentioned, they no longer serve any purpose other than to annoy. Virtually any chemical that has a positive correlation with cancer rates is now listed so that these signs are essentially required to be on every business with more than 10 employees.

I think the problem with this system is degree. While it makes sense in principle to warn people when they are being or about to be exposed to cancer causing agents, when virtually every place you go and any product you buy has such a sign it becomes an unavoidable annoyance. I think the State needs to increase the general threat level necessary for such signs or simply eliminate them all together.

As these signs currently stand, they cost money but are too ubiquitous to actually cause people to change their behaviors.

Government can NEVER Legislate Morality

The fact is some of the largest issues that get put forward in national politics today should not even be issues. There are actually several problems with legislating morality, but today I am only going to address the practical problem.

Morality is essentially a set of rules which an individual believes to be final in dictating the rules of right and wrong. While there was a time when each nation state had a national religion and thus believed in essentially the same set of moral laws, that time has long passed. What this means is that today there is no longer one moral code subscribed to by a population but many. Moreover, as time goes on these moral codes will diverge. For legislators this means that it is no longer POSSIBLE to legislate morality. Of course in theory a legislature could pass a law dictating a certain code of moral behavior. But, barring the existence of an absolute police state, it is not possible to force people to behave according to a moral law that they do not subscribe to.

One would think this was obvious by now. With excellent case studies such as Prohibition, it should be clear that the result of passing a law which a large portion of the population disagrees with is flagrant violation and lawlessness. But somehow our elected officials still cling to this misguided notion that they can force their constituents to follow a moral dictate with slim majorities. The result is apparent today. In California, where most of the population has virtually no problem with marijuana, it is grown and sold openly. medicinal marijuana use in California is now far beyond the federal governments ability to crack down. In fact drug usage in general has gone up in the United States since the war on drugs started. As liberalism has expanded into the realms of sexual freedom, there to has it now become impossible to enforce rules against homosexual relationships and abortion. Yet people still try.

This is not a failure on the part of the “moral” to enforce their beliefs. This is a symptom of people trying to take the wrong approach; the theoretical “easy route”. The notion that by making a moral belief “the law” will cause people to follow it is flawed. People put their own moral beliefs above laws. In fact, our society encourages, and rightly so, civil disobedience in the face of laws one disagrees with.

In fact, if you want to spread your moral beliefs, or make other people more “good” the ONLY way to do this is to convince them that your morality is worthy of being upheld. Tyranny, even of the majority, is doomed to fail in a developed democracy. I say this despite agreeing with the intent behind each of the aforementioned moral laws. The fact is I have voted against laws which enforce the morality that I subscribe to precisely because I understand that significant portions of the population do not agree. You can only use such moral laws to codify widespread beliefs, not positions on an open issue.

Let me give some examples:
Thou shalt not steal. This is essentially a moral judgment. One could imagine a hypothetical society when steal was acceptable. But well over 99% of our population agree that stealing is wrong. So the moral is followed naturally by virtually everyone, and the law can be enforced on those few who violate it.

Thou shalt not kill(murder). You should notice again these are derived strait from religion. Yet, most of us are in agreement that killing is wrong. I cannot even conceive of society were arbitrary murders were acceptable. This law is also naturally followed by virtually everyone, and the law can be enforced on those few who violate it.

You shall not bear false witness against your neighbor. Again this is is still a law in our society at least in a court of law. A vast majority of people seem to agree that lying in court is wrong and thus the law can be enforced. Again I’d like to emphasize that in order for the law to be functional it has to be subscribed to by most(90%+) people prior to enactment.

Remember the Sabbath and keep it holy. This law, or more accurately laws forcing certain businesses to be closed on Sunday are still on the books in many places. Such rules are already flagrantly violated and are being phased out of our legal codes.

Thou shalt not commit adultery. Interestingly, this is found only rarely in remaining laws mostly only on local levels. Likely, this is a result of the fact that despite widespread agreement with it in principle any such law became unenforceable in modern times.

Why does this happen? When people find laws they strongly disagree with, they break them. This is only natural. When a law forbids an action many people want to perform, they find ways to hide. They form societies that privately indulge in such law breaking. And perhaps worse, these societies have the potential to act as gateways to worse lawbreaking of more widely accepted laws. I would go so far as to claim that moral laws passed by slim majorities make society less moral, not more moral. So if you seek to make people act “morally”. Convince them, don’t force them.

Why the Auto-Industry is Failing

So Ford, GM, and to a lesser degree, Chrysler, have spent the last week making waves in Washington trying to get more money to save them from bankruptcy. Everyone’s arguments come from surface issues: saving jobs, forced restructuring, cost to the tax payer, and compensation. What everyone seems to be missing, even those who are calling for “restructuring,” is that the problem is neither with the structure of these companies nor with the health of the industry. The problem quite simply is supply and demand.

What we have here is three companies which refuse to acknowledge that the market for cars at the prices they are selling them for is oversupplied. Significantly. This has been a growing problem for the last decade. These manufactures have been producing more cars than the market demanded at the price they were paying to produce them. Quite simply this was not and is not a viable business model. So they decided to cut prices and sell these cars at loss, offer trade ins, anything to avoid cutting production. They gave huge incentives to encourage people to buy cars earlier than they normally would and have thus lowered future demand.

Well today the future is here. The economy is down and people are cutting consumption. And everyone already has a new car! So who is going to buy one? In a sense there was an auto-bubble and it too has popped. At this point I suspect the only way out is for one of the big three to die. I don’t like it but I don’t think they are going to be able to survive this competition without cost cutting that they are either unable or unwilling to commit to. I mean they are going to have to sell or shut down entire factories. Or they are going to have to figure out how to chop several thousand dollars off the price they pay to build each vehicle.

This was of course avoidable. This happened precisely because the government was willing to give these companies sub-prime loans to keep deficit spending. These companies spent so much money trying to compete for market share with a better company: Toyota. The idea is sound, you lower your own prices below the price that the other company can afford to sell cars at and force them out of the business because they can’t afford to operate at a loss. Of course, when everyone is doing it, and everyone is getting annual assistance from Congress to keep doing it, everyone is operating at a loss, and everyone gets cut off at the same time. So now everyone is in trouble. Of course they ask for assistance and we’ve been giving them more assistance every year. I suppose we were the ones who bought cars for less then they cost to manufacture, so in way it balances out. But more assistance is not going to solve this problem, just prolong it. Every time the government interferes with markets it makes things worse.

It is going to take years for American demand for cars to return and for those years the big three have no plan, no way of staying afloat.

I for one believe that people are responsible for their own actions. Which means the blame here falls chiefly on the auto industry itself. It doesn’t help their case that there is now a car in India that will sell for about a tenth of what a Ford costs. Of course it may not sell well in the United States. But the auto industry seems to have fallen into a pattern of missing the boat on new markets and technology. Toyota didn’t win this race by selling at a loss. Toyota won by building a better more reliable, more fuel-efficient car.

The lesson here: Capitalism, it works. Government help, it doesn’t.


Piracy in the Gulf of Aden

The resurgence of piracy off the coast of Somalia presents an interesting opportunity for a comparison with the the early days of the United States.

Prior to the Treaty of Paris, which removed the wide spread acceptance of privateers (pirates who were authorized by one state to attack vessels of their enemies) under international law, piracy was quite common on the high seas. While many of the most notorious privateers were of Spanish and English origin, in American history the first significant pirates (who were actually privateers) are those from Tripoli, North Africa.

In fact, at the time of the Declaration of Independence, most of North Africa was dominated by several pirate states who made their money not just from piracy but by demanding tribute from states such as England and France for NOT attacking their ships. For ships that were attacked, the primary funding was not in the goods stolen but in the ransoms demanded for hostages. Hostages who were not paid for would find themselves slaves in North Africa. This was permitted by the European nations, not because they lacked the resources to fight the pirates, but because they were too busy building armies and navies to fight each other to divert resources to fighting this mutual threat.

Shortly after the end of the revolutionary war these pirates started to attack American vessels, which were no longer protected by the British tribute. For several year the American government attempted to appease these privateers. In fact, for a time we even paid tribute equal to roughly 20% of the Federal Budget. However, without the costs of a protracted war in Europe nor the entangling alliances forcing it to maintain a balance of power, the United States found itself free to act against the pirates.

After his inauguration, the new president, Thomas Jefferson refused the pirates demand for continued tribute. In response, the pirates of Tripoli declared war and began to attack American shipping vessels. The First Barbary War lasted for nearly 4 years. During, this period pirates quickly found themselves outmatched at sea and retreated to the safety of their ports. After years of blockade and with American ground forces then advancing on their capital, the pirates eventually gave up and turned over all of their American hostages in exchange for America’s POWs. This was an important moment for the United States because it demonstrated to the world that America was capable of supplying and fighting a war far from home. While this certainly did not put the United States on the same level as the European powers, it significantly raised American prestige in Europe.
Historical note: Piracy based in North Africa was not stopped until the second Barbary War in which American and European forces crushed the pirates and forced them to stop enslaving Christians. (I say Christians here because that was specifically in the treaty not out of some religious preference)

The world again finds itself in a similar position. With American and Nato forces deployed all over the world putting out fires, we again find ourselves unable to deploy the force that would be necessary to end piracy. In fact, virtually every military power in the world is now involved in playing the “balance of power” game and is unwilling to devote the energy to deal with this very real threat to international trade. I suppose the real question now is who will step up to the stage and again deal with piracy when the rest of the world seems content to pay them off? My guess: India. With Pakistan, its historic enemy, severaly weakened by political instability, India has the same army but less of an enemy. A play right now by India would insure their continued rise to the status of “great power” on the international stage.

Bailout Cancelled? Hopefully.

If you haven’t seen the news, it looks like Paulson is now backing away from the 700 billion bailout plan. I for one am quite happy at this news. I was against the original bailout philosophically and practically.

Philosophically, I am in the laissez-faire camp, on economic issues. “Deregulated” capitalism allows for faster GDP growth than any other economic system. However, it also brings with it more severe recessions. In the long run it does create a better economy. But you must be willing to take the bad with the good. If you do not, and instead try to “beat the business cycle” as we’ve been trying for the last 20 or so years, the result is both a slower rate of growth and a much more severe recession than you would otherwise have endured.

A better answer to most people is “the bailout would never have worked”. While our current economic problems may have been caused by bad assets, the crisis has now moved past that. The “problem” is that banks are voluntarily withholding a larger share of their deposits, which has decreased the money supply. However, we need to understand that the reason for this was that they were withholding too little of their deposits in the first place. The fact that we tolerated an essentially 0% withholding requirement is more to blame than that banks are now withholding a more reasonable proportion.

Now if you look at interest rates, the difference between the rate on corporate bonds and government bonds is staggering. While US Treasuries are floating at near record low return rates, most bonds and interest barring 5-10% higher rates. Furthermore, many stock dividends are over 10%. The gap is essentially caused by investors who are afraid of these assets (stocks and bonds) collapsing and losing their investment. What this means is that people demand a much higher interest rate for their money. This is called a risk premium. Even if you gave the banks more money (by buying all their bad assets) the market interest rate wouldn’t move that much, at least as a percentage of the current rate, because most of the rate is caused by the risk premium not the cost of credit. (This is also why lowering the interest rate is not helping.)

The good news is that without the bailout we may actually be at the beginning of the end. The problem can’t be avoided, were going to have to take our medicine and move on. Now all we need to do is wait for the risk premium to go back down to normal.

Which essentially means no more big failures (Bailed out companies still count as Failures!)

Watch Ford and GM try to get Bailout money, hopefully they don’t need it and are just trying to get money from the Fed. If they actually need it, we’re screwed either way.