Sometimes Nothing is the Right Thing to Do

I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.
— John McCain

Despite the fact that Senator McCain has said the economy isn’t his strong point, he has a lot stronger grasp of basic economic principles than anybody else running for president, not to mention a lot of other people in Washington who ought to know better.

In addition to the Bear Stearns bailout, since the beginning of the year, the Fed has loaned over $260 billion to banks that got into financial trouble by making bad mortgage loans. The Foreclosure Prevention Act of 2008 is on the horizon, and there’s another bill lined up behind it to extend an additional $300-400 billion in federally guaranteed (that means guaranteed by you and me) mortgages for people who overextended themselves to buy houses that were well beyond their means.

Senator Obama talks about “folks [being] tricked into purchasing loans they can’t afford.” Both Senators Obama and Clinton think we need to kick in a $30 billion dollar emergency housing fund (at taxpayer expense) to help bail out these poor victims, never mind that they’re victims of their own greed and irresponsibility. Senator Clinton also wants to freeze subprime mortgage rates and impose a 90 day moratorium on foreclosures for the poor dears. And, earlier this week, Senator Clinton suggested that perhaps the government should start buying up foreclosed homes. It’s not enough for the government to be in the healthcare business, now she wants to get it into the real estate business, too. (Is there any business Mrs. Clinton doesn’t think the government should be in?)

While Senators Clinton and Obama are leaping over one another trying to come up with more innovative and expensive ways for the government to manipulate the housing market, Senator McCain is quietly saying it isn’t the role of the government to bail out either the banks or the borrowers. The Democrats scoff. Democratic National Committee Chairman Howard Dean sneers that McCain is taking “the same hands-off approach that President Bush used to lead us into this crisis.”

What the Democrats fail to understand is the basic principles of economics. (But what else is new?) It was not a “hands off” policy that got us into this mess, but a “hands on” policy of lowering interest rates and expanding FHA, FNMA, and FHLMC financing to encourage unprecedented (and unwarranted) growth in the housing market. The government got us into this situation by meddling in the free market. It isn’t going to get us out by meddling more. What needs to happen is the market needs to find a balance where the demand meets the supply. The only way for that to happen is to let it occur naturally. Yes, it means housing prices will drop. They’re doing that anyway. Yes, it’s painful. But it has to happen.

Federal policies aimed at making it easier for first time home buyers to buy houses before they could actually afford those houses led to an artificially high demand, which artificially inflated prices. People (and financing companies) started playing fast and loose, speculating that the manic spiral in home prices would continue indefinitely. But it couldn’t. Supply increased to meet demand, interest rates went up, people who overextended themselves couldn’t meet their payments and started defaulting, demand fell off just as supply was peaking, and the market was oversaturated. Now it has to correct.

The laws of economics weren’t made up by economists, any more than the laws of physics were made up by physicists. These “laws” are based on observation and analysis of naturally occurring phenomena. They can’t be changed or wished away. Imbalances do occur but, over time, they correct themselves. The housing market is self-correcting now. It will eventually reach equilibrium. Any measures that attempt to forestall that will only postpone the inevitable. A problem deferred is not a problem solved.

The Democrats insist that the government can’t just stand by and do nothing. Something bad is happening. We must do something! Anything! They have no idea how to solve the problem, because the problem can’t be solved by more government meddling, and government meddling is the only thing they know how to do. But, since they can think of nothing more embarrassing than standing around doing nothing, they’re leaping over each other trying desperately to show us that they will do something. (Not nothing, like Senator McCain.) And what they’ll do is what they always do. When they see a problem, they throw money at it. Your money. My money. Everybody’s money. Unfortunately, that won’t solve the problem. Because, sometimes, nothing is the right thing to do.

The Democratic response, as usual, is like a parent with a spoiled child. They think it’s their job as parent to prevent their child from ever experiencing any pain, so they go to any lengths to shield it from the consequences of its own actions. But a child who never faces consequences never learns. Sometimes pain is necessary, especially when it’s a natural consequence of irrational behavior.

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Libertarian at Home, Conservative Abroad

I have always been, and will always be, at core, a libertarian. I used to be an idealistic libertarian. The first time I ever voted was in 1980, for Ed Clarke. (Anybody remember Ed Clarke?) I was a purist then, in favor of non-intervention and no foreign entanglements. But that was before we were attacked on our own soil, killing thousands of civilians, in a clear and compelling act of War. Now I’m a pragmatic libertarian.

I understand the standard Libertarian argument that, if we just leave everybody alone, they’ll leave us alone too. It’s very nice and neat and rational. The problem is, it assumes everybody else in the world is nice and neat and rational, too. It doesn’t account for terrorists who want to destroy us because we’re infidels and our Western culture is an abomination to Allah.

I’m still a libertarian, albeit a conservative one.  But I’m not a pacifist or a non-interventionist. The Monroe Doctrine just won’t work today. Back in the day, there was an entire ocean separating the eastern hemisphere from the western hemisphere, and it took months to cross it, at great peril, and we felt pretty secure from whatever they were doing over there. Today, we have satellites that traverse the globe (Iran just launched one),  and nuclear weapons that can decimate entire cities at one pop. (And Iran may soon have those, too.) Back in the 1800s, everything ran on coal or wood, and we had all the coal and wood we needed right here. We had no dependencies on resources controlled by others on the other side of the globe. Today, our entire economy would grind to a halt and people would starve and freeze to death if our oil supply were cut off.

In a rational world, with a free market ruled only by the laws of supply and demand, that would not present a problem. But, when you have ideological enemies who are determined to see your culture brought to its knees, and they control the supply of your economy’s life blood, you have a very different situation. We need to protect our access to the vital fluid that sustains our economy and culture. I’m not suggesting that we have a right to take it just because we need it. We’re willing to pay – but we can’t afford to be cut off entirely.

That’s the world we live in today. It’s a lot more complicated than it used to be. With satellites and nuclear weapons, and the ease of transcontinental transportation, our neighbors are no longer just the countries in our hemisphere. The whole world is our neighbor. And some of them are nuts.

When it comes to domestic policy, I’m still a libertarian. I’m for minimizing government and maximizing individual freedom and responsibility. But when it comes to foreign policy, I’m a hard line conservative. We can’t change the world. But we can preserve our own sovereignty and, within our own borders, we can maintain a free society. And people who share our values, and revere the principles on which our nation was founded, and have something to contribute to our country and our economy, are welcome to come here and carve out their own niche in the land of liberty. And I believe we should make it easier for those people to become citizens. But open up our borders, grant entitlements to aliens, increase our exposure to terrorism, or compromise our sovereignty by entering into binding agreements that let other nations dictate our policies? No way.

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Leveraging Diversity the Right Way

A number of studies* in recent years have demonstrated that diverse groups come up with better solutions than homogenous groups in a variety of different types of problem-solving and decision-making tasks. The more complex the task, and the more creativity required, the greater the advantage of diverse groups over homogenous groups. This is not particularly surprising. When each member has something unique to bring to the table, the group has a larger pool of experience and skills upon which to build. A solution subjected to input and examination from multiple perspectives is also apt to be more robust. Given the evidence, and the logic to support it, it’s clearly in the best interests of businesses to leverage diversity in their workforces.

There are many types of diversity. As a society, we’ve become much more focused on categorical diversity than individual diversity. We go to great lengths to acknowledge and embrace every category of diversity imaginable. The government provides incentives and even sometimes quotas to ensure diversity in our workplaces and educational institutions, and certain “protected classes” of people cannot be terminated without consulting the legal department first. But are we focusing on the right kind of diversity, and are we doing it in the right way?

The original purpose of diversity legislation was to remove barriers for qualified individuals who belong to certain categories that have been subject to discrimination based on negative stereotypes. However, by creating quotas, special protections, and diversity incentives, we induce employers and others to think in terms of categories rather than the unique merits of each individual. That was clearly not the intent of these policies, but the result is nevertheless predictable. Policies that don’t accomplish their intent are, at best, ineffective and, at worst, detrimental.

Attempts by the government to promote diversity can indavertently encourage employers to “lower the bar” for individuals who happen to belong to a targeted category when they need to fill a quota or qualify for an incentive. This is harmful in two ways. On an individual basis, the person who is accepted with lesser qualifications than his or her peers is not made aware that their qualifications are inadequate, depriving them of the opportunity to improve their qualifications before entering the field. This puts them at a greater risk of failure than those who had to meet a higher bar to get in. This phenomenon, taken on a large scale, ensures that a greater proportion of people from the targeted categories will be less successful than their peers, reinforcing (or even creating) the same sort of negative perceptions the diversity measures were intended to counteract.

A rational way to address this problem would be to focus on individual diversity rather than categorical diversity. The value in each individual lies in what’s unique about them rather than what they have in common with others. An individual may belong to multiple categories (whether by birth, by choice, or by circumstance), and each one may contribute in different ways to their overall identity. But each individual is far more than the sum of the categories to which they belong, and should be judged solely according to their own unique merits.

If we truly value individual diversity, then all other types of diversity follow without need for special designation. The studies referenced above show that it’s in the best interest of employers to hire individuals who are not only highly qualified, but also have diverse backgrounds and experiences. Employers who hire the best resources available, and know how to leverage diversity, will be more successful than their competitors who don’t. If diversity leads to success, then success will lead to more diversity. It’s not necessary for the government to legislate that businesses act in their own best interest. If the government gets out of the diversity business, the free market will accomplish it more effectively.

*Sources:  Stanford Graduate School of Business, Leiden University, Tufts University, University of Michigan

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The Supreme Court Takes On the Second Amendment

The last time the Supreme Court entertained a 2nd amendment case was almost 70 years ago. At that time they focused on minutiae around the concept of a militia, and concluded that the 2nd amendment only applies to types of firearms that would be pertinent to the preservation of a well-regulated militia. They did not address whether the right iself applies to all individuals, or only those belonging to a militia, perhaps assuming that was clear enough in context. Nevertheless, that ruling has bolstered the anti-gun lobby by focusing on the militia aspect of the 2nd amendment, rather than acknowledging the imperative that “the right of the people to keep and bear arms shall not be infringed.”

Perhaps, this time, the Supreme Court will get it right. Or perhaps not. It’s always a crap shoot when the Supreme Court takes up interpretation of a Constitutional amendment. Once they rule, either all of us win or all of us lose. However, if they’re going to undertake it, better to have them do it now. The next administration may pack the court with liberals who would rule that the amendment doesn’t apply to individuals at all, and only those belonging to a state militia (e.g., National Guard) have the right to keep or bear arms.

Those who argue that the 2nd amendment does not apply to individuals base their argument on the ambiguous wording of the dangling participle at the beginning of the amendment, which refers to “A well-regulated militia being necessary to the security of a free state.” It is not clear from the wording in the amendment whether that participle represents a condition upon which the right to keep and bear arms is contingent, or an example of a reason why the right was considered important. Nothing in the text of the amendment specifies that the existence of a militia is a required condition for the people to maintain their right to keep and bear arms. Neither does it say that is the only reason why this right should be protected. It simply mentions the importance of a militia, and then leaves it dangling. The grammatical taboo against dangling participles lies in their inherent ambiguity. Now that the framers of the amendment are long gone, there’s no way to clarify with absolute certainty what they intended, — at least not by simply by reading the text of the amendment itself.

Therefore, to understand their intended meaning, one must look further than that specific amendment, and take into account the context in which it was written, specifically the fact that it was included in the Bill of Rights. The purpose of the Bill of Rights is to secure protection for individual rights from infringement by the government. If all of the other amendments in the Bill of Rights are intended to secure the rights of individuals, why would the framers have slipped one in that had nothing to do with securing the rights of the individual, but rather applied to some abstract collective body?

The same people who want to wield a dangling participle to abridge our individual rights also claim that the term “the people,” as used in the 2nd amendment, does not refer to individuals, but rather to the collective population, or representatives thereof (e.g., the militia). The 4th amendment also refers to “the right of the people” to be secure against unreasonable search and seizure. Would anybody seriously argue that the 4th amendment does not protect the right of individuals to be secure against unreasonable search and seizure, but rather the right of some abstract body that represents the collective population? Perhaps what the founding fathers really meant was that only the police should be secure against unreasonable search and seizure…

Given the context of the 2nd amendment, and its prominent inclusion in the Bill of Rights, it could not be more clear that it refers to the rights of individuals. It would have had to have been included by accident if it truly had the singular characteristic that it, alone among the amendments that constitute the Bill of Rights, was not intended to protect the rights of individuals from being infringed by government.

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What’s Wrong With This Picture?

I’m so disgusted with the $150 billion “economic stimulus package” that I’m choking on my own thoughts, unable to express them coherently. First there are the rebates. But wait, I’ll save that for later because everybody’s blogging about that and, no doubt, everything I have to say has already been said and said again. (Not that our oh-so-wise policy makers are listening, of course…) But there’s another part to this package that’s tucked away discreetly beneath all the fanfare over the rebates. And that’s the part that addresses the subprime mortgage crises. After all, it’s the mortgage crisis that got us into this mess.

There are two contributing factors to the subprime mortgage crisis.

1. Fiscal irresponsibility on the part of borrowers.
2. Fiscal irresponsibility on the part of lenders.

The Democrats want to ignore the first factor, and lay all the blame on the lenders. They call the lenders “unscrupulous” and the borrowers “victims.” But the fact is that record numbers of Americans are going bankrupt and losing their homes because record numbers of Americans overextended themselves during the real estate bubble, taking out variable rate loans with low/no downpayments on houses that were well beyond their means, or taking out second and third mortgages to finance their whims and treat themselves to luxuries they couldn’t afford. They are not the blameless lambs the Democrats croon over. And, if they really were that financially naive, they had no business buying a house in the first place.

Owning a house isn’t a right; it’s a responsibility. A house is the largest investment most people make in their entire lives. Many people never own their own house. Anybody contemplating such a significant, long-term financial commitment ought to have the sense to do a little research and understand what they’re getting into, because they’re betting their family’s future and financial security on their ability to meet this commitment. This is truly a situation where, if you don’t know what you’re doing (and you’re too lazy or complacent to learn), you’d best not do it.

The lenders were irresponsible, too. They should have known that lending more money to people than their credit rating would justify was a stupid thing to do, — especially people who were such bad credit risks that they could only qualify for subprime mortgages. Whatever were they thinking? IMHO, if the lenders were actually putting their own money on the line, they would have exercised better judgement. But, under our current system, the natural incentive to protect their interests is mitigated by the fact that they’re not actually lending their own money. All loans get bundled and bought up by larger financial institutions, so the original lender who makes the decision to lend the money isn’t the one at risk if the borrower defaults. 

And who’s at the top of this lending pyramid? Fannie Mae and Freddie Mac, sponsored by the U.S. government, are by far the largest mortgage loan aggregators. And then there’s the FHA, whose role it is to insure these loans and guarantee that everybody has an opportunity to buy way more house than they can afford (backed by the full faith and credit of the U.S. taxpayer). 

So that’s how we got here. Now that we’re here, the Fed has come up with a plan to “fix” this mess, as part of the economic stimulus package. How are they going to fix it? By doing more of the same, of course. Here are two interesting articles, published three days apart.

Reuters, January 22, 2008

The largest U.S. housing finance companies, Freddie Mac and Fannie Mae, may report $16 billion in write-downs for the fourth quarter due to the falling value of  their subprime mortgage investments, according to Credit Suisse analysts.

Chicago Tribune, January 25, 2008

The stimulus package contains several features designed to improve the troubled housing market.

It would increase the Federal Housing Administration’s loan limits from $362,000 to $729,750 and those of two federally sponsored entities, Fannie Mae and Freddie Mac, from $417,000 to $729,750…

The measure would also enable the FHA to become more active in dealing with the direct impact of the housing crisis, permitting more borrowers facing defaults to refinance subprime loans through the federal agency.

Is it just me, or is there something really wrong with this picture?

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This Little Girl

will make some lucky man a fine wife someday.

 What a cool kid! — You go, girl!!

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Feeding the Needy or Bolstering the Bureaucracy

One reason why many private charities are both more efficient and more effective than government welfare programs is because charities in the private sector are accountable to the people who contribute to them. There’s a significant amount of variance in administrative and fund-raising overhead among different charitable organizations. For example, the American Red Cross spends 6 cents out of every dollar contributed for overhead, while the American Cancer Society spends 31 cents out of every dollar for overhead.* Private charitable organizations are required to make this information available to the public. As a private contributor, you can choose the charities to which you contribute, and make sure you get the best return on your investment for whatever causes you support.

The government, on the other hand, does not publish the percentage of money allocated for social welfare programs that goes to bureaucratic overhead. Given the usual proliferation of bureaucracy in government, I’d be willing to bet that the overhead is pretty high. But you have no way to find out. Nor do you have any choice in the matter, even if you knew.

Nevertheless, there are people who, even while acknowledging that government welfare programs are less efficient and less effective than private charities, still believe the government should appropriate their (and everybody else’s) money to pay for them. Why? They believe that the very fact that it’s involuntary is a good thing. There are two reasons people think involuntarism is good.

1. They have very little faith in human nature. They believe that they themselves are good, but most other people are not. Consequently, they believe, if the government didn’t force people to support humanitarian causes against their will, they wouldn’t support them at all. What they don’t realize is that empathy is a fundamental aspect of human nature. Empathy is not only the root of conscience, but also of altruism. When we see someone in need, we have an instinctual impulse to help them. However, by delegating that role to the government, we absolve ourselves of the need to take personal responsibility for the welfare of our fellow man. From the perspective of social evolution, that’s not necessarily a good thing.
    
2. They want to feel like humanitarians but, if it were left up to their own discretion, they’re not sure they would be as generous as the government is with their money. It isn’t that they have such great faith in the government, but that they’d rather hand over the responsibility to someone else than to accept that responsibility themselves. Then they can feel good about supporting social welfare without having to make the hard decisions themselves.

Unfortunately, the ultimate result of leaving it up to the government is that less of the money spent to aid those in need actually benefits the people who need it, and more of it gets absorbed into the ever-expanding bureaucracy. Private charities have to compete in the free market, where benefactors vote with their dollars.

* Charity Navigator provides comparative data on charitable organizations, incuding how much they spend on actual program services vs. overhead.

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Giving Away Other People’s Money

People who favor social welfare programs seem to think that they’re acting out of altruistic impulses, and that those who don’t support these programs are uncharitable. There’s a fundamental difference between altruism and redistribution of wealth by the government. Altruism is characterized by an individual acting of his own free will in the interests of others. No matter how magnanimous your intentions, it isn’t altruistic to give away somebody else’s money. Especially when it’s counter-productive.

Philanthropy is intinsically rewarding because being able to help someone in a meaningful way makes people feel good about themselves. That’s human nature. And that positive reinforcement motivates people to increase their generosity. But having something taken from you is not the same as giving. If, instead of being freely given, the same money is appropriated by the government and allocated indiscriminately to people who may or may not be deserving, rather than making the donor feel good, it makes them feel resentful. That, too, is human nature.

Unlike government agencies, individuals exercise judgement in their philanthropy, whether the recipient is a person, a family, or a charitable organization. Even the most altruistic individual doesn’t head down to the nearest skid row and start handing out money to every junkie and bum on the street who’s “less fortunate” than they are. An individual always wants to see a return on their investment. — Not necessarily a return to themselves, but they want the sense of gratification that comes from knowing their “investment” has effected a positive change, rather than subsidizing the status quo.

When one keeps giving money to someone, and they just keep asking for more, eventually one feels like one is flushing money down the pipe, and stops the cash flow. That’s the right thing to do. People are remarkably resourceful, when they need to be. But, for some people, mitigating that need results in prolonging their dependency. Some people are viscerally motivated by the shame of having to accept charity, and feel compelled to prove they’re worthy by striving to better themselves. Others see it as a way to sustain their current level of subsistence without having to make the effort to change.

When charity rests in the hands of individuals, or private organizations that are not legally bound to treat every applicant the same, the way a recipient deals with the assistance they receive effects a kind of natural selection. People who use it to good advantage are apt to receive more. Those who don’t are not.

However, when the government extracts money from us and gives it to whoever signs up for it, as long as they can prove they aren’t gainfully employed, the principle of natural selection is turned on its head. Those who use it to sustain their status quo keep receiving more, while those who use it to pull themselves up and get ahead get less. The insidious aspect of this is the Pavlovian implication it has. — Government social welfare programs reward the very behavior that natural selection (even benevolent natural selection) would rule against.

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Paraphrasing Jefferson

Thomas Jefferson said:

“A wise and frugal Government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government.”

NotYourDaddy says:

“Get your hand out of my pocket and leave me alone!”

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Huckleberry and the Will of God

On January 1, 1802, Thomas Jefferson addressed the following words to the Danbury Baptist association in Connecticut.

“Believing with you that religion is a matter which lies solely between man & his god, that he owes account to none other for his faith or his worship, that the legitimate powers of government reach actions only, and not opinions, I contemplate with sovereign reverence that act of the whole American people which declared that their legislature should make no law respecting an establishment of religion, or prohibiting the free exercise thereof, thus building a wall of separation between church and state.”

On January 14, 2008, Mike Huckabee addressed the following words to a group of Christians in Michigan.

Separation of church and state has become a hot button phrase for many conservatives because of its frequent abuse by the ACLU to thwart the free expression of religion, rather than to protect it. This has driven some conservatives to deny that the first amendment actually establishes a separation of church and state, but Thomas Jefferson was pretty clear about that. So let me clarify that my opinion on this question is based on Thomas Jefferson’s interpretation, not the ACLU’s. (One can twist any precept beyond sense or recognition, but that doesn’t mean the original precept was unsound.)

I revere the principles on which this nation was founded, which define this nation and make this nation great. Those principles were profoundly influenced by the Judeo-Christian heritage of the culture in which our nation was conceived and brought forth. But I would not revere those principles less if had they originated from some other source. They stand on their own, and their merit is intrinsic. We do not need to amend the Constitution to insert God into it.

The reason the founding fathers believed it was important to separate church and state is because there is nothing more personal than one’s relationship with God, and it is nobody else’s business, least of all the government’s. Different religions, and even different denominations within the same religion, interpret God’s will differently. It is not the role of government to be the arbiter of the will of God, but rather to protect the rights and liberties of its citizens. The inherent danger of making the state an instrument of enforcing any interpretation of God’s will is that you end up with Shari’a, rather than representative government. As an inveterate American, I prefer representative government.

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