GM: The Other Shoe Drops

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After having run ads in Michigan boasting of its “success” in rescuing GM and Chrysler, the Obama administration won rather narrowly in the general election. It now feels safe enough to let the other shoe drop: it has just announced that it will start selling off its remaining stock in Government Motors. It will sell 200 million shares immediately and the remaining 300 million over the next 12 to 15 months.

All of this allows us to assess the costs of the Great American Carmaker Nationalization Game. And the price is high, indeed, at least to the US taxpayer.

Start with the direct costs. The 200 million shares will be sold by Uncle Sap back to Greedy Motors for about $27.50 per share. Let’s charitably suppose — though it is not at all clear that this supposition is realistic — that the other 300 million shares will also fetch the same price. That returns to the taxpayer about $13.75 billion, out of the $30 billion the US is owed, so the loss is about $16.25 billion.

But wait. The sale of Chrysler stock last year netted a loss to the taxpayer of at least $1.3 billion. That brings the total loss to $17.5 billion.

But wait again. In the corrupt bankruptcy engineered by the Obama administration, the new GM was illicitly allowed to carry forward a tax writeoff of at least $15 billion. So that brings the total to $32.5 billion.

Those are only the direct costs to the taxpayers. Let’s follow Bastiat’s advice to look for costs that are not salient.

Fist, the very fact that bankruptcy law was corrupted and the top position of the secured lenders put aside in favor of the UAW (big Obama financial backers) doubtless led to at least some investors becoming reluctant to loan to business out of uncertainty whether the administration would stiff them, too. How much business activity this crony deal deterred we can only guess at.

Second, Ford Motor Company, which did not get crony bankruptcy treatment, is now at a disadvantage, because its profits will be taxed, while GM, with that tidy tax writeoff, will face no such disadvantage for quite a while.

As if to rub the taxpayers’ noses in the fiscal dirt, the UAW has grandly announced that its members will be getting $7,000 profit-sharing checks this year. This is on top of all the loot the UAW already pocketed. What are the chances the true patriots at the UAW will use their bonuses to make whole the secured creditors, much less the taxpayers? Absolutely zero — the UAW is only too happy to rip off fellow citizens.

One can understand why a corrupt administration should have waited until after the election to let the other shoe drop. It would have been difficult to explain the massive losses during the campaign. Harder to understand is why people put up with these things.




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Santa’s Not-so-Secret Spy Network

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Have you ever wondered exactly how Santa knows who is naughty, and who is nice? In 2005, a mother-daughter team wrote and self-published a book, ostensibly for kids, that set out to answer just that question. That book, The Elf on the Shelf, is both a smash-hit bestseller and a creepily straightforward symbol of our overreaching national security state.

Here’s how it works. Parents buy the Elf on the Shelf kit, which comes with a copy of the book, as well as their very own elf doll (available in both sexes and diverse shades, the better to maximize marketing potential). The parents read their children the book, which outlines how it is precisely this elf who informs Santa when they’ve been bad and when they’ve been good. Every night, in fact, when they’re sleeping, the elf flies from the kid’s home up to the North Pole and passes along the fruits of its surveillance, and then flies right back so as not to miss a minute of potential misbehavior.

The sign that the elf is making this trek is that every morning, it’s moved to a different location in the house. I leave it to the reader to divine what sophisticated method produces the elf’s locomotion — as far as the kids are concerned, though, the one hard and fast rule in the Elf on the Shelf state is “Don’t touch the elf.” You can talk to it — tell it your deepest desires — confess to it — reveal to it the misdeeds of siblings or parents — but don’t you dare lay a finger on it, or else, as it notes in plaintive verse, “My magic might go, and Santa won’t hear all I’ve seen or know.”

Yet this is precisely the demand the American surveillance state makes on us: to respect above all else its presence, its wisdom, its necessity. And this demand becomes ever more pressing; as the Wall Street Journal recently revealed, the National Counterterrorism Center [NCTC] now claims the right (backed by the signature of the attorney general) to “examine the government files of U.S. citizens for possible criminal behavior, even if there is no reason to suspect them.” Moreover, they can store this data for up to five years (with longer durations doubtlessly on the way, if not already de facto present) and share with any foreign government for joint investigations.

While Santa always represented unimpeachable extrajudicial authority, it wasn’t as if he had a uniformed agent present inside the house itself.

As the WSJ article shows, anyone speaking out against this new regime from within was purged from the ranks — their meddling potentially preventing Santa from hearing all that the elves had seen, and thus endangering the magic of the entire system. Those left to oversee the activities of the NCTC are the same ones who were gung-ho for it in the first place — those falling all over themselves to put an elf on every shelf, the better to have minutely detailed lists of the naughty and the nice (or, more accurately, the naughty and those who might yet prove naughty, if only we survey them long enough).

The Elf on the Shelf fad might seem innocuous — in most cases, is innocuous: a little bit of wonder added to the days leading up to Christmas. Still I can’t help but wonder myself about anything that encourages citizens, and especially children, to recognize the validity of an arbitrary authority; still more, to internalize that authority, by conducting themselves by thinking first and foremost about what that authority will report to its higher-ups.

Is this really such a big revision of the much older and still creepy idea that Santa (or some other omniscient white-bearded figure) is keeping tabs on you? I would argue yes; while Santa always represented unimpeachable extrajudicial authority, it wasn’t as if he had a uniformed agent present inside the house itself. And you could petition him directly, making the case for your goodness by letter. Now, a kid hoping to sway the balance to “nice” has to appeal to Santa’s intermediary, and hope nothing gets lost on the way through the North Pole bureaucracy.

I’m sure there’s no causal connection here. It’s not as if the DHS or CIA or anyone is funding Elf on the Shelf as part of some grand conspiracy to produce a more compliant citizenry. They don’t have to: as the Journal report and the deafening lack of protest shows, we’re already compliant enough. Rather, games like this — and often the sillier, the better — help prepare children for the age in which they will live; it’s a form of socialization that doesn’t have to evade resistance because it doesn’t seem like there’s anything to resist. It’s just natural that there’s a spy in your midst, the public face of a distant organization whose power you can’t imagine; it’s just natural that this power must go unquestioned and even unexamined. Because that’s the fundamental assumption of American and much other modern governance today — and any who dare resist will find themselves on the naughty list. And as a recent Christmas release, Zero Dark Thirty, taught us: we have ways of dealing with the naughty. If contemporary America excels at anything, it’s in its many and various ways of dealing with the naughty.



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Nobels Oblige

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I don’t know who serves on the committee that awards Nobel Prizes, but I can’t help thinking they’re not very different from the guys on committees in civic organizations all over the planet, the do-gooders who get together for lunch one Wednesday a month to gossip and tell faintly bawdy stories and, Oh yeah, does anybody on the Peace subcommittee have any thoughts about who gets this year’s prize?

I’ve been on committees, and there’s usually somebody who became infected by a big insight on the way over. In the case of the Peace Prize subcommittee, the insight was probably something along the lines of, “You know, I’ve been thinking. There hasn’t been a war in Europe for a long time. We should encourage that kind of behavior. What if we give the Peace Prize to the whole continent?”

Then somebody would have pointed out that, “Well, there was that affair in Bosnia.”

“The European Union, then. Bosnia isn’t part of the EU. There haven’t been any wars in the European Union.”

“But there’s only been a European Union for 19 years. There’s no way it could have kept the peace all the way back to 1945.”

“Wasn’t there something before that? Some kind of iron and coal deal between France and Germany in the Fifties? Maybe that’s the reason we haven’t had a war.”

“It was the European Coal and Steel Community.”

“The arms manufacturers, then. Maybe we could give the . . .”

“You’re telling us we should give the prize to an arms manufacturer?”

“Why not an arms manufacturer? Alfred Nobel made his fortune selling dynamite.”

“Now you’re saying Alfred Nobel was an arms manufacturer?”

“Just saying.”

“An arms manufacturer would be a bold stroke, I’ll give you that.”

“We should try something new this time around. I don’t think we’ve given the prize to arms manufacturers before. Here, let me check the list. Krupps is available. Nobody’s awarded the Nobel Peace Prize to Krupps of Essen.”

“You think the rest of the world would stand for it?”

“I think the rest of the world stood and applauded when we gave the prize to Barack Obama for . . . does anybody remember what we gave it to President Obama for?”

“For not being George Bush?”

“And for having an African father.”

“But Krupps of Essen? That’s a different kettle of pickled herring. Surely . . .

“That’s the beauty of the thing. We could give it to the European Union and not have to say anything about Krupps.”

And that was that. Awarding the Nobel Peace Prize to the EU was just the ticket to encourage Europeans to keep on not murdering each other. And the cent-or-two in prize money they all got out of the deal would create real, tangible benefits for good behavior.

Now, I don’t want to come down too hard on guys who donate their time to good causes, but the whole process seems a bit slapdash to me. I mean, there’s no denying the subcommittee was onto something. A clam would have known that entire European countries going 67 years without invading one another is not only a big deal, it’s a big, historically unprecedented deal that hadn’t happened on the continent since, well, since before the invention of invading. That kind of behavior deserves recognition, and receiving the Nobel Peace Prize is just about as recognized as anybody gets in this life. I just think the subcommittee’s aim was bad when they picked the EU to honor.

It was the same sloppy thinking that led them to look at the results of the 2008 American elections and decide to encourage our good behavior. Then, instead picking the American voters, or the constitutional system that allowed us to dump Jim Crow and George W. both, the subcommittee fixated on the beneficiary and handed the prize to President Obama.

As worthy as their intentions were, it doesn’t take much to know that it wasn’t the EU that kept Europe out of war. It wasn’t Europeans at all. If peace had been up to Europeans the Eiffel Tower would have been melted down for cannon years ago.

It was us who kept them from exterminating each other. For two-thirds of a century Italy hasn’t attacked Austria. Spain hasn’t gone to war against Holland. Greece hasn’t had a final smackdown with Turkey, and none of the other possible permutations of the way European governments find to kill each others’ citizens have taken place because we wouldn’t let them. And for a really good reason.

It wasn’t just to keep the Reds out that we didn’t bring home all of our troops after the Second World War. Having already sent two generations of Americans to die saving Europeans from each other, we didn’t want to do it a third time and we stayed over there and sat on them and made sure they didn’t start shooting again. For decades we even drafted otherwise decent young men and forced them to go to Europe to do the sitting. If our guys had wound up in the Balkans after WWII, Bosnia wouldn’t have gone to war, either.

Had the members of the Nobel subcommittee thought it through, they would have given this year’s Peace Prize to the ones who deserved it . . . not to the beneficiaries of the peace Europeans enjoy, but to those responsible for the peace: the American military. Besides, America doesn’t have anywhere near as many soldiers as they have people in the EU and the prize money would have gone a lot farther.




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A Miracle in Lansing

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On December 11, in a stunning surprise, Michigan became the 24th state to adopt right-to-work (RTW) legislation, that is, a law that prohibits any union from forcing workers to join or support it. In other words, Michigan has finally allowed people to exercise their right to free association.

This victory for workers’ freedom was amazing in that it was unlike most RTW states — which are mainly Southern states with no deep history of unionization. Like Indiana, the most recent state to adopt RTW legislation, Michigan is a large, upper Midwestern state; and it has long been dominated by union power.  

In fact, Michigan ranks fifth highest on the list of the states in terms of the percentage of its workforce who belong to unions (19.2%, compared to a national average of 11.8%). It has watched as businesses fled the state in droves — especially to Indiana, which after it passed its RTW law picked up 90 companies from Michigan.

The victory was notable for how quickly it occurred. It was only on December 6 that both chambers of Michigan’s legislature passed the Workforce Fairness and Equity Act. Under legislative rules, the state’s Governor Rick Snyder had to wait at least five days before signing the bill, during which time the unions mounted loud, furious, and occasionally violent protests. But the governor signed the law on the first day he could, despite the fact that Snyder had earlier in his term stated that he was not inclined to support RTW legislation.

But the really surprising thing is that Michigan has often been a bastion of the Democratic Party. The state’s citizens voted overwhelmingly for Obama in the recent election (54% to 44%). As surprising as the victory for the RTW law was, however, there were several reasons why the state legislature and governor felt the time was right to free the workers from their union oppression.

First, Michigan has been on an economic road to hell for years, with the crisis of its leading city, Detroit, as just the most striking example. Detroit is now teetering on bankruptcy, in great measure because of the excessive compensation and pension packages that public employee unions enjoy. Michigan has the highest unemployment rate in the Midwest — despite the tens of billions of taxpayers’ dollars that the Obama administration has given to GM, Chrysler, and the United Auto Workers Union.

The unions not only didn’t help to solve the problems, they made it nearly impossible for the governor and legislature to act. In particular, the public employee unions opposed all efforts to institute reasonable fiscal reforms to rescue distressed cities and school districts, virtually shutting down dysfunctional Detroit.

Second, the unions overreached. Seeing nearby Wisconsin cut back on collective bargaining rights for some public employee unions and nearby Indiana adopt an RTW law, Michigan’s unions put a proposition (Prop 2) on the ballot to amend the state constitution to make public employee collective bargaining beyond all legislative control. They also pushed an amendment (Prop 4) that would have forced unionization on all home health workers. Their arrogance in pushing these propositions and their impotence in failing even to come close to passing either one of them made the unions look asinine.

Third, the unions displayed their vicious side too prominently during the legislative debate. As legislators examined the RTW proposal, union supporters screamed “Heil Hitler! That’s what you people are!” at the Republicans speaking in favor of it. The Democratic legislators tried every parliamentary trick to stop a vote, including a Wisconsin-style walkout. A Fox reporter was beaten up by union thugs, and union supporters collapsed a tent owned by Americans for Prosperity (supporters of the legislation) on the people inside it, while screaming insults at them.

The question is now: which states will follow Michigan’s lead?




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One More Non-Tragedy

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Another crazy gunman opened fire at a movie theater this weekend, this time as a crowd of happy filmgoers exited the building. Police think the shooter was angry at his girlfriend, who worked at a restaurant next door. The incident took place Sunday night at the Mayan Palace Theaters in San Antonio.

Why isn't this tragic event hitting the national press? Because it didn't end tragically.

San Antonio is in Texas, where citizens can carry guns. An off-duty deputy saw the man, heard the shots, and took him down before he could kill anyone.

Fatalities when no one but the shooter has a gun: 28. Fatalities when a licensed bystander is carrying a gun: Zero. Even the shooter made it out alive.

Gun control is not the answer. Terrorists took down four jet planes without a single gun.




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Well, Freddie My Fannie!

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A recent piece in the Wall Street Journal, buried by the brouhaha surrounding the election and the Libya cover-up, indicates that the Federal Housing Administration (FHA) is in profound financial trouble. Indeed, it seems to be following its siblings Freddie Mac and Fannie Mae into the swamps.

The FHA has been around for nearly 80 years, and gives taxpayer backing to loans for homebuyers who put as little as 3.5% down. But more recently, the FHA has been used to reinflate the housing market by allowing lots of mortgages to be written. It now guarantees a staggering $1.1 trillion in loans.

The FHA is supposed to use its reserves to cover losses of the loans that go bad. As late as last year, it was estimated that after covering losses, the FHA would have $2.6 billion left in reserves. But, especially because of dicey loans issued between 2007 and 2009, the FHA is projected to lose $46.7 billion this year. That exceeds the $30.4 billion in reserves. The $16.3 billion deficit will almost certainly have to be covered by tax dollars from the budget. This is on top of the $137 billion already ripped off from taxpayers to cover the rescue of those Twin Towers of Corruption, Freddie Mac and Fannie Mae.

In fact, independent housing economist Thomas Lawlar states bluntly that “if [the FHA] were a private company, it would be declared insolvent and probably put under receivership like Fannie and Freddie.”

There is no doubt even more of this to come. The federal housing agencies (FHA, Freddie, Fannie, and lesser ones such as the VA) now back 90% of all new home loans, and the Fed continues to pump out the money ceaselessly. God help us if there is another major “correction” in the housing market.

In a better world, we would amend the Constitution to require that after ten more years (say), the federal government will have ended all housing subsidy programs and be permanently banned from any involvement in the housing market from that point on.

But this is far from a better world.




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The Indie Revolution

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I would like to give Liberty’s readers an update about technological progress regarding a device that some thought would never change: the book.

A number of years ago Amazon.com, the huge online bookstore, developed an invention, the Kindle, which was a mini-computer (what would now be called a “tablet”) for reading books. Once the technology was perfected, the Kindle represented a paradigm shift in the book publishing industry. Previously the price of a book had been deeply connected with the cost of printing it. The bigger the print run, the more the publisher could achieve an economy of scale and lower the per-book marginal unit production costs. This meant that in order to be cost-effective a print run had to be large. And because of this a small group of highly successful publishers came to dominate the book publishing industry.

This group, sometimes called the “Big Six,” was, for aspiring authors, “both the gatekeeper and the gate.” If you found a literary agent who had connections to editors then you could get your foot in the door and get published and get into bookstores. If not, you were shut out. Self-publishing developed a horrible stigma, but this is simply because it was not cost-effective and there was no economic impetus to change popular perceptions.

Enter Kindle. The Kindle works by downloading electronic files from Amazon.com, which can then be read on the device itself — no printing costs. This made Kindle ebooks much cheaper than print books. Amazon.com began by instituting a practice of dramatically slashing the retail price of its ebooks, such that most of them cost $0.99 to $3, whereas comparable print books cost $10 to $14.

The Big Six rebelled. They used their pressure to switch ebooks to the “agency” pricing model. Under the traditional pricing model the publisher sets the list price, which is basically the wholesale price that the publisher receives, while the retailer sets the retail price, which is the price that consumers actually pay. Under the agency model, the publisher, not the retailer, sets the retail price. The agency model enabled the Big Six to force Amazon to sell ebooks at prices roughly comparable to paper books. The Department of Justice and FTC recently launched an antitrust lawsuit arguing that the Big Six were trying to prevent Amazon.com from competing on price. Several Big Six publishers have agreed to settle the antitrust litigation, although a few of the Big Six continue to fight in court. The antitrust litigation is interesting and complicated, and it also involved Apple, which used its iBooks store to help the Big Six exert pressure upon Amazon. It is still unclear how ebook pricing will look in the future.

Self-publishing once carried a horrible stigma, but this is simply because it was not cost-effective and there was no economic impetus to change popular perceptions.

Kindle instituted another major change. Now, with no production manufacturing costs, you can self-publish on a zero-dollar budget. In 2010 a young woman named Amanda Hocking wrote a “paranormal romance” novel (half fantasy, half romance) and self-published it on Kindle, using Amazon’s newly developed self-publishing program, “Kindle Direct Publishing” (KDP). She was working as a waitress at the time, and put her novel up on Kindle after many rejections from agents and publishers. She didn’t spend any money to promote her book, which she titled “Switched.” She just sent review copies to a handful of book blogs. Initially she sold several thousand copies, and she considered this a success.

Then in late 2010 and early 2011, her sales rose to several hundred thousand copies. From 2011 to 2012, estimates are that she sold over one million copies of her novels. Her books, priced from 99 cents to about $3, have made her a self-published millionaire. I have read what Hocking wrote about her success, and I don’t think even she knows how she sold so many copies, other than by writing a high-quality novel in what was then a wide-open market. These days the many thousands of novelists (me included) who have been rejected by the gatekeeper Big Six and their literary agents have been lured by the Amanda Hocking dream into self-publishing. We don’t even call it self-publishing anymore; we call it indie publishing, “indie” meaning “independent.”

When I decided to self-publish my own novel, Rob Seablue and the Eye of Tantalus (which can be found on Amazon), the selling points of going “indie” were simple. You make a royalty rate per sale of about 65%, in contrast to the Big Six’s typical 25% or less (not including the literary agent’s cut), you get published immediately instead of waiting three years for your book to come out (6–12 months to get an agent, 6–12 months for the agent to land a book deal, and one year of pre-release publicity), and you have a very tiny possibility of success either way. You typically have to do your own book promotion, even if you can get a Big Six book deal, because the Big Six care mainly about their established bestsellers, not their unproven debut authors. Within the last two years I estimate that at least 10,000 books have been indie published, and the number grows every day.

The Big Six are very much afraid of losing the “browse” effect. Most book sales used to happen, so it was said, from consumers browsing through shelves in a bookstore. Browsing’s ebook replacement is the book blogging community: there are now over 2,000 book blogs, where bloggers write a constant stream of reviews. The Big Six have some advantage in promoting their ebooks, but the book bloggers don’t favor them as heavily as the browse effect did.

Most successful indie authors write romance novels. The frequency with which e-readers like Kindle are used for this genre has prompted some to speculate that women feel less embarrassed reading soft-core erotica on Kindle than reading a print book with half-naked men on the cover. But indie fantasy and science fiction (which is what I write) are also growing. Hocking herself has said she thinks book publishing is moving toward a model in which most debut authors go indie, then successful ones attract the attention of the Big Six and sign major book deals, leaving the many unsuccessful authors to fade away. Hocking herself signed a major book deal, although she still uses an indie format for some of her books.

A postscript: enjoy your local bookstore while it still exists. After Borders went bankrupt, Barnes & Noble emerged as the only major chain bookstore left. B&N has come out with an e-reader, the Nook (which is very nice, but doesn’t sell as well as Kindle). It has a self-publishing program called PubIt, although it doesn’t yet care about PubIt as much as Amazon cares about KDP. Barnes & Noble’s fate is deeply connected to the Big Six, and to the public’s continuing to go to “brick and mortar” retail stores to buy books made out of paper. B&N is caught in a tight spot between clinging to the paper book business model and getting 100% behind Nook and the e-reader business model. I go to my local Barnes & Noble a lot, mainly to drink coffee and look at magazines, and the place still looks as if it does a lot of business in-store. But Barnes & Noble is in danger, and knows it: it has hedged its bets by promoting the Nook heavily within its stores.

Your local library won’t be around forever, either. The Google Books Project has tried to scan every book in ten libraries, so as to create a huge digital and searchable public library. Google ran into legal trouble about the copyrights of old books and is stalled by ongoing litigation, but it is only a matter of time before paper libraries are replaced by more efficient online digital ebook file repositories.

As for book publishing, it isn’t clear what the future will look like. But I think the indie movement and ebooks are not going away. The summer of 2012 might be looked upon as the birth of the indie movement. History has shown that technology and economics are two hugely powerful forces behind social change. So don’t be surprised if a dramatic shift happens within the next five to fifteen years, not unlike the “dotcom” shift of the 1990s, when the internet took off: the Big Six and paper bookstores will collapse, and the book universe will consist of hundreds of thousands of indie titles, all available for 99 cents with the push of a button.




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The French Disease

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The French were just handed an affront to their out-sized pride. Moody’s has just downgraded their national debt. France has now lost its sterling AAA rating, dropping a notch to Aa1.

Moody’s cited a number of reasons, including France’s rigid (i.e., over-regulated) labor market, its lack of innovation, and its high level of national debt. The first two factors seem likely to lead to the undermining of its industrial base, and the last leaves it open to the bad debt problems of Greece and Spain, the agency noted.

Of course, it is unlikely that the new, avowedly socialist regime of Francois Hollande will alleviate any of these problems — in fact, it will likely exacerbate them by further poisoning the economic system with statist nostrums.

But lest we laugh too loudly at the French, we need to remember that we have the same disease. The neosocialist regime of Obama has also massively proliferated restrictions on the labor market. Start most notoriously with Obamacare, whose onerous provisions become fully operational in 2014, and which will slap huge new expenses on companies for employees working 30 or more hours a week (at least for companies with 50 or more employees). Add the aggressive use of the NLRB to force unions on hapless employees and businesses, insane new regulations on fossil fuel energy (especially coal production), the Lilly Ledbetter Act, dramatically expanding the ease of filing sex discrimination lawsuits, and so on, and you have the same fate in store for our productivity and innovation.

Regarding our national debt, we are already worse than France, not just in absolute amounts (we are a bigger country), but as a percentage of GDP. The French are at about 90% debt to GDP ratio, while we exceeded 100% early in Obama’s profligate tenure.

No doubt this is what has moved Treasury Secretary Tim Geithner to call for a radical new change in our legal system. He recently proposed that America should just eliminate the limit to debt altogether, knowing that the existing limit will be hit in the very near future, and not relishing a congressional fight over the matter. Let’s just borrow money with no limitations, until we spend ourselves into prosperity.

Jason’s Law of Karma in political ethics is that people get the government they deserve. This is just as true for us as it is for the French. We are all Greeks now.




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Kelo: The Unintended Consequences

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I chuckle whenever I hear Rush Limbaugh warn that the reasoning behind the Supreme Court’s Obamacare decision (National Federation of Independent Business v. Sebelius)can now lead to legislatures mandating the eating of broccoli. No more. The July 21 issue of the Economist reports how one California jurisdiction is taking the Kelo v. City of New London decision where few imagined it would go. And it is well to remember that where California innovates, the rest of America often follows.

In Kelo, the Supreme Court held that eminent domain could be used to transfer land from one private owner to another as a permissible "public use” to further economic development for the general benefits of a community under the “takings” clause of the 5th Amendment of the Constitution. It was a 5-4 decision, with Justice Kennedy providing the swing vote.

Traditionally, the power of eminent domain had been interpreted to justify the taking of private property only for direct government use — for roads, railways, government buildings, and such. But this concept had been undermined over the years, first by Berman v. Parker (1954), which allowed the taking of private property to combat “blight” (in the broadest sense), then by Hawaii Housing Authority v. Midkiff (1984), which allowed takings to break up oligarchies. Both concepts were vague, and subject to pure demagoguery. Subsequently, scores of in flagrante takings were never properly contested — until Kelo.

The majority opinion’s reasoning was based on the concepts of “minimum scrutiny,” the idea that government policy need bear only a rational relationship to a legitimate government purpose; and “judicial restraint,” the idea that judges should hesitate to strike down laws that are not obviously unconstitutional (though what counts as obviously unconstitutional is itself a matter of debate). Precedent also plays a major role in the application of “judicial restraint.” Even though a law may seem a clear breach of constitutional precepts, if it’s the result of a long-established and generally accepted trend, then “judicial restraint” can be used to uphold it — a curious, priority-reversing application of the principle. Applied in this manner, “judicial restraint” becomes a recipe for specious reasoning and sophistry. The same applies to “minimum scrutiny,” but with fewer qualifications.

In response to the Kelo decision, many states passed laws limiting or prohibiting the use of eminent domain to take private property for conveyance to another private owner. California, however, was not one of those states.

When housing prices burst in 2008, California took the biggest hit, and San Bernardino County was punched particularly hard. Entire neighborhoods were “blighted” by foreclosed properties, with boarded-up windows and unkempt facades. Property values plummeted, in some cases by 50% or more. Nearly half the mortgages in the county are now “underwater,” meaning that the value of the outstanding loan exceeds the market value of the properties.

“So,” the Economist explains, “the county and two of its cities (including Ontario) are considering an innovative proposal: to use the powers of eminent domain to seize underwater mortgages from investors and chop them down to size.”

The scheme was hatched by Mortgage Resolution Partners (MRP). As theEconomist elaborates, this is what would happen:

MRP would work with officials to identify mortgages ripe for seizure; at first, only homeowners who were up-to-date on their repayments would be eligible. MRP would drum up private investment to finance the mortgage purchases at prices determined in court (as in all eminent-domain cases). Once the loan is bought, the principal would be cut and the repayment terms eased. A win for the homeowner; a win for the local economy, thanks to growing consumer spending and (with luck) a revived construction industry; and a win for MRP, which earns a juicy fee from each transaction.

But there would be losers: mortgage providers and investors in mortgage-backed securities. If the scheme were implemented, the American Securitization Forum (the industry’s round table organization) fears it would choke off credit and depress house prices. And there are other problems.

As the Economist notes, “Thomas Merrill at Columbia Law School thinks MRP might struggle to convince a court that it has satisfied the ‘just compensation’ clause of the Fifth Amendment.” Additionally, affected mortgage providers could sue San Bernardino County and MRP for interference with valid contracts. It could be a costly nightmare for the municipalities that implement the proposed plan.

For these reasons the plan may go nowhere. County officialshave emphasized that no decision has been made, and there are signs that the process is stalled. However, merely the concocting of such a plan may open a door for some very ingenious applications of the already broad Kelo decision.

Are these really “unintended consequences”? No. Something like them could easily be predicted. To judicial originalists they are — with a nod to Donald Rumsfeld — unwelcome “known unknowns.” That is why, anticipating them, originalists advocate parsimony in the interpretation of law. To modern-liberal jurists, the consequences might also be “unknown unknowns,” but they are unknowns redolent with creative possibilities for increasing the power of the state to provide what modern liberals regard as social justice.




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Crony Car Capitalism Capper

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Obama’s reelection hardly negates the fact that his regime is one of the most corrupt in American history. This fact is by now obvious to all but the most partisan Obamistas. Crony green energy deals, crony college deals, crony car industry deals — the list is long.

But among the most egregious was the rigged bankruptcy of GM and Chrysler, in which the legitimate secured creditors were cheated out of what they were due under settled law in favor of the UAW — which had conveniently contributed tens of millions of dollars to Obama’s coffers. The UAW was to begin with the biggest reason that American auto companies became basket cases, and it received massive amounts of stock in both companies. It was then allowed to liquidate its stock before the taxpayers were allowed to liquidate theirs. The taxpayers ate billions of bucks in losses.

All this dirty business was done to protect grossly inefficient, overpaid, greedy auto union workers, most of whose jobs would likely have been saved (albeit at lower compensation) in a regular bankruptcy.

Finally we learned what has to be the ultimate joke. In the corrupt crony bankruptcy, Chrysler — after being bailed out with billions of taxpayer dollars — was essentially given away free to an Italian car company, Fiat. Fiat used the opportunity to expand its presence in America. And the most recent news is that Fiat will likely move some of the Jeep operations to China, and the rest of the Jeep and Chrysler operations to Italy.

As the report explains, “To counter the severe slump in European sales, [Fiat] is considering building Chrysler models in Italy, including Jeeps, for export to North America. The Italian government is evaluating tax rebates on export goods to help Fiat.”

So the Italian taxpayers will pay the highly unionized Italian auto workers to make cars at a cheap subsidized price — to put American auto workers out of work, and ensure that the American taxpayers get the ultimate hosing.

The stench from this corrupt deal grows in intensity every day, with each new permutation of the putrid process.

Is it too much to hope that the House of Representatives will mount a serious investigation into the whole crony crowd responsible for this abortion? I mean (to name names) Obama, “auto czar” Steve Rattner, the management team of GM and Chrysler, including Sergio Marchionne (CEO of Fiat), and especially all the leaders of the UAW?

Alas, it probably is too much to hope. The crime of the century will likely be swept under the carpet of history.




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