Sunday, May 15, 2016

Was the 2008 financial crisis caused by greed and deregulation?

A friend recently showed me this excerpt from the book 13 Bankers by Johnathan Kwak and Simon Johnson, saying it pertained to libertarianism and the 2008 financial crisis.  The authors argue the crisis was caused by a combination of greed and deregulation, made possible by free market ideology.  Specifically, they posit that Wall Street power brokers used the mantra of economic freedom to pressure politicians into deregulating securities markets, thus removing or preventing safeguards which could have prevented the crash, so that traders and firms could make massive profits taking irresponsible gambles that eventually lost.  The insinuation is that we must strengthen government regulation of the financial sector – and really capitalism in general – to prevent another crash in the future.

In other words, the book is an academic articulation of the predominant media narrative in the immediate aftermath of the crash.  It also echoes the majority finding from the subsequent congressional inquiry into the cause of the crisis.

I find this explanation simplistic, exaggerated, politicized, and misleading.  The truth is more complicated, but offers more nuance regarding which policies and ideologies are truly to blame for what went down.

The mainstream explanation is pervasive because it comports with widely held stereotypes about the sort of person who generally works on Wall Street.   Indeed, the chapter of 13 Bankers my friend shared with me is titled “Greed is Good,” a clear reference to the Gordon Gecko caricature of a Wall Street investor that the left loves to imagine.  Perhaps the best response to this instinct to blame “greed” came from Steve Horowitz, who wrote an open letter to the left in the wake of the 08 crash:

“[the] effects of the profit motive that you decry depend upon the incentives that institutions, regulations, and policies create…Greed is always a feature of human interaction. It always has been. Why, all of a sudden, has greed produced so much harm? And why only in one sector of the economy? After all, isn't there plenty of greed elsewhere? Firms are indeed profit seekers. And they will seek after profit where the institutional incentives are such that profit is available.”

Many of you have rightly criticized the ethanol mandate, which made it profitable for corn growers to switch from growing corn for food to corn for fuel, leading to higher food prices worldwide. What's interesting is that you rightly blamed the policy and did not blame greed and the profit motive! The current financial mess is precisely analogous.

No free market economist thinks "greed is always good." What we think is good are institutions that play to the self-interest of private actors by rewarding them for serving the public, not just themselves. We believe that's what genuinely free markets do. Market exchanges are mutually beneficial. When the law messes up by either poorly defining the rules of the game or trying to override them through regulation, self-interested behavior is no longer economically mutually beneficial. The private sector then profits by serving narrow political ends rather than serving the public. In such cases, greed leads to bad consequences. But it's bad not because it's greed/self-interest rather because the institutional context within which it operates channels self-interest in socially unproductive ways.”

Of course private firms, bankers and investors will pursue profit – they’ve never done otherwise.  But how is it that gambling on the subprime mortgage market was so much more profitable than other investments these people could have put their money into?  The simple answer is that the government made it so, with a series of well-intentioned but ill-advised policies designed to increase home ownership.

Here’s a list of ways the government intervened in the housing market to make subprime lending profitable and abundant, thereby shaping the institutional incentives Wall Street was operating within:

1.   The creation of Fannie Mae and Freddie Mac.  These “government sponsored enterprises” were chartered in the late 1960’s with the explicit purpose of making credit easier to obtain for would-be homeowners.  They were never truly privatized, and in fact operated under fierce political pressure to lend liberally to the subprime market. 

The very author of the post-crash Dodd-Frank regulations – Senator Barney Frank of Massachusetts – was one of the guiltiest nudges in that direction.  As late as 2009, when nearly everyone else could see the writing on the wall, Frank was still writing letters demanding that Fannie and Freddie further reduce loan-qualifying standards for condo buyers. 

Fannie and Freddie also operated on the implicit promise that they would be bailed out were they ever to fail (which of course they were), enabling them take risks no private firm could take without danger or personal loss. And in the early 1990s, Congress eased their lending requirements
to 1/4th the capital required by regular commercial banks so as to increase their ability to lend to poor areas. 

Their mission was very clearly to help the poor get homes, which skewed the risk/reward analysis of lending decisions in favor of more risk.
      2.  The Federal Home Loan Banks.  These 11 banks were created way back under Herbert Hoover, but served the same purpose as Fannie and Freddie on a more local level.  At the time of the crash in 2008, there were 28 million “Alt-A” mortgages (code for subprime, weak, or risky loans – the sort which caused the crisis) in the housing market.  Of that 28 million, 20.4 million were held by government or quasi-government agencies like Fannie Mae, Freddie Mac, and the FHLBs.  ¾ of the problem was directly caused by government.

      3.  The Community Reinvestment Act.  Passed in 1977, this law requires banks to make a certain percentage of their loans within their local communities, especially when those communities are economically disadvantaged. Horowitz explains how created “enormous profit and political incentives for banks and Fannie and Freddie to lend more to riskier low-income borrowers.” In fact, the Clinton administration recognized this risk when the CRA was renewed in 1994, and did it anyway.

      4.  The Federal Deposit Insurance Corporation. This government created organization insures banks against failure, which incentivizes them to take more risk in general (not just in the housing industry.)

      5.  The Federal Reserve.  The “Greenspan Put” was the policy from 1987-2000 of lowering interest rates to fuel money into securities markets.  An artificially liquid money supply fuels inflation, which over the long term makes loans easier to pay off, which in turn makes banks more willing to give them out.

      6.  Tax deductions for home ownership and mortgage interest.  These give people more incentive to buy houses (and therefore to take out loans they wouldn’t otherwise take out) and also drive up the price of houses (which makes lenders more likely to lend).

      7.  Local land use regulations.  Not all government intervention happens at the national level, and studies show the housing bubble grew quicker in areas with stricter land use regulations.  The reason why is sort of complicated, but it has to do with the myth that home prices could only ever keep rising, and the role that played in the housing market’s 

The most direct cause of the crash was people being unable to pay back their loans.  One of the most pervasive ideas which caused lenders and traders to not worry about the possibility that these people would be unable to repay their loans was the idea that housing prices would keep rising.  The idea was that even if borrowers could not pay back their loans, and consequently had to foreclose on the house, the bank could just re-sell the house and recoup their losses, SO LONG as housing prices kept rising.

Why was it people believed housing prices would keep rising?  Well, one of the things which inflated home prices and fueled the housing bubble was restricted supply of land.  Horowitz explains:

the rise in prices affected most strongly cities with 
stricter land-use regulations, which also explains the fact that not every city was affected to the same degree by the rising home values. These regulations prevented certain kinds of land from being used for homes, pushing the rising demand for housing (fueled by the considerations above) into a slowly responding supply of land. The result was rapidly rising prices. In those areas with less stringent land-use regulations, the housing price boom's effect was much smaller. Again, it was regulation, not free markets, that drove the search for profits and was a key contributor to the rising home prices that fueled the lending spree.”

To step back from this enormously tangled body of laws and government agencies and describe what you see as a “free market” belies a complete misunderstanding of what that term means.  At best, the US has a mixed economy, wherein some sectors are more regulated than others.  Silicon Valley is relatively unregulated, whereas healthcare and financial securities are among the most regulated.

The pro-regulation crowd that enacted these policies and created these organizations never foresaw the unintended consequences that caused the crash – but many libertarians did.  Ron Paul famously predicted all of it in a 2003 speech to Congress. So did The Economist.  So did Thomas Sowell, who had an “I hate to say I told you so” column when the crisis erupted in 2008:

“Our current economic meltdown results from the federal government, under both Democrats and Republicans, declaring home ownership to be a "good thing" and treating the percentage of families who own their own home as if it was some sort of magic number that had to be kept growing-- without regard to the repercussions on other things.

We are now living with those repercussions, which include the worst unemployment in decades. That is the price we are paying for increasing home ownership from 64 percent to 69 percent.

How did we get home ownership to 15 million unemployed Americans? By ignoring the fact that there was a reason why only 64 percent of families owned their own home. More people would have liked to be home owners but did not qualify under mortgage lending standards that had been in place for decades.

Politicians to the rescue: Federal regulatory agencies leaned on banks to lend to people they were not lending to before-- or else. The "or else" included not having their business decisions approved by the regulators, which could cost them more money than making risky loans.

Mortgage lending standards were lowered, in order to raise the magic number of home ownership. But, with lower lending standards, there were-- surprise!-- more mortgage payment delinquencies, defaults and foreclosures.”

Another libertarian who predicted the crash (and was famous for confronting Occupy Wall Street protestors in its aftermath) was  Peter Schiff, who wrote a book in 2007 called “Crash Proof: How to Profit from the Coming Economic Collapse.”  In the aftermath of his predictions proving correct, he made a good 2-3 minute summary of the misconception that the “free market” caused the crash:

“Unfortunately all the blame is on the free market. All the blame is on capitalism. It’s because there wasn’t enough regulation. There was too much greed. Right?…President Bush, in one of his speeches, said that Wall Street got drunk. And he was right, they were drunk….But what he doesn’t point out is, where’d they get the alcohol? Why were they drunk?...

We’ve always had greedy people. Everybody’s a bit greedy, not just Wall Street. But all of a sudden everybody was greedy all at the same time? Can’t they understand there’s a trigger for this, there’s a reason that everybody acted this way?

Normally, when people are greedy, they’re also fearful of loss, and people’s fear of loss overcomes their greed and checks their behavior. But what the government did, repeatedly, was try to remove the fear – they tried to make speculating as riskless as possible.

First, they provided us with almost costless money with which to speculate. And then they created the idea of the Greenspan Put. But whenever there’s a problem, don’t worry, the government is going to rescue you. The government’s not going to let the stock market go down. The government’s not going to let your bets go bad, so go ahead and keep placing them. That was the idea, that was the mentality. It was nothing that the free market did.”

What do Kwak and Johnson say about this?  They seem to be aware of the connection between policy and subprime lending, but oddly attempt to reverse the cause and effect such that it fits in with their narrative that Wall Street was the origin of the trouble. 

At the top of page 110, they write “[The idea that homeownership is intrinsically good] may have its roots in various government programs.”  Later on, they specify:

“The Clinton administration had made an expansion of homeownership a central part of its economic strategy; in 1995, Clinton set a goal of a 67.5 percent homeownership rate at a time when the actual rate was 65 percent (it would peak the next decade at 69 percent). In order to help meet this goal, the Department of Housing and Urban Development mandated that Fannie Mae and Freddie Mac—the giant government-sponsored enterprises that provided funding for the mortgage market—had to devote 42 percent of their money to loans to low- and moderate-income households. That target was increased to 50 percent in 2000 and then to 56 percent in 2004…George W. Bush not only continued his predecessor's support for increased homeownership but even made the "ownership society" a centerpiece of his political message.”

After pointing this out, the authors concede that “Subprime lending had been around for decades, but only recently became a major source of money to buy houses, as opposed to refinancing them.”  But why did that recently become?  If they are to be believed, it was just because Wall Street suddenly figured they could make a bunch of money on it.  It wasn’t that government made it uniquely profitable to do it, with all the policies they themselves described, but that “Wall Street co-opted this ideology to justify the central place of modern finance in the economic and political system.”  I mean, sure – people will gobble up anything that validates their importance.  But who was feeding it to them? Where did this ideology come from?

On page 111 the authors describe how Wall Street was able to “ensure the political success” of mortgage backed securities by linking it in with increases in home ownership.  They lament how “the story stuck,”- as if it all started with some insidious scheme to bamboozle oblivious politicians into lining their pocket books!

It was the other way around.  The urge to increase home ownership did not naturally sprout from the minds of Wall Street traders or banking executives.  It was an inherently political incentive, because it tied in with the American Dream and sounded nice on a campaign platform.  It wasn’t that politicians who had never previously cared about home ownership were hoodwinked by lobbyists promoting its benefits for selfish ulterior motives.  It was that politicians had dedicated entire platforms and speeches and ideologies towards promoting home ownership as early as the 1950’s, and then made dozens of policies pressuring private actors to behave in a way which promoted home ownership.  Wall Street just responded to these pressures, singing the song their overseers wanted to hear.

The extent to which Wall Street “justified” subprime lending using this narrative is merely the extent to which they were forced to navigate and bargain with a complex web of government regulators and power-brokers, which is itself proof of just how un-free the market was!

They write “The idea that complex securities could help low- and middle-income families own homes was especially attractive to Democratic congressmen and officials who might ordinarily be distrustful of mortgage lenders and investment bankers, and helped seal off Wall Street's new money machine from criticism.”  This is exactly backwards. The fact that government had engineered a money-machine for Wall Street was what helped seal off the idea that complex securities could help low- and middle-income families own homes from criticism.

They go on: “Not only did the federal government make no attempt to regulate subprime lending, but it even became a cheerleader for the subprime boom.”  But the subprime boom itself was just a reaction to the very thing which the federal government had been a cheerleader for all along: increased home ownership, for all the social and economic and political benefits it was supposed to create.

Corruption requires two complicit parties.  Libertarians are the first to agree that politicians are too cozy with Wall Street or corporate leaders, but that is a consequence of regulation!  Wall Street is just adjusting to the rules of the game.

The Wall Street “takeover” that forms the running focal point of the book is nothing more than regulatory capture: the well-documented process by which the largest and most powerful firms in a regulated industry wind up influencing the regulations to their benefit, often enlarging their profits and strengthening their already-dominant market share to the detriment of both consumers and their competition.  This is a recurring, foreseeable and inherent problem with regulation, not some kind of inherent market failure! 

In fact, the existence of any such body for Wall Street to “take over” in the first place reveals the lie in the notion that the “free market’ was to blame for anything, because in a free market, firms wouldn’t need to navigate this complex web of agencies and authorities at all.  In a free market, firms compete with one another by lowering their prices or bettering their product.  This is healthy greed, because it better serves others.  But regulation allows firms to compete in another way:  by convincing politicians to write the rules which favor them, punish opponents, make their business artificially lucrative, or bail out their mess-ups.  In other words, it diverts that healthy, cooperative greed into unhealthy rent-seeking.

In summary, 13 Bankers is correct to point out that Greenspan and crew were hostile to government regulation of the financial sector, but incorrect that the resulting deregulation and lack of oversight is what caused the crash.  The authors themselves concede that Greenspan only thought markets were efficient so long as the participants had all the information necessary (page 103).  In a healthy market, prices are the vehicles which transport that information, and the “price” in the home loan market is the interest rate (the price of borrowing money).  But for decades prior to the 2008 crash, government interference in the loan market distorted those prices, along with the signals and information they are supposed to convey, by pressuring banks to give out ever more and ever riskier loans.  The crash occurred when too many of these loans were not repaid.  There was never any free market involved.

PS – I don’t dispute anything the authors said about derivatives, complexity, or financial innovation – they are mostly right that innovation isn’t inherently good. But I think the ever-more-creative ways to distribute all the risk the housing markets were taking on was a symptom of the bubble, not the cause.  Splitting up risk isn’t a bad idea, generally; there just shouldn’t have been that much risk to distribute in the first place, because Fannie and Freddie and the FHLBs shouldn’t have been giving out the loans they were giving.

Saturday, April 16, 2016

Should gay bakers have to make cakes with homophobic slogans on them?

Many anti-discrimination laws make it illegal for business owners to decline service on the basis of sexuality. In defense of these laws, most of the political left argues that all businesses have a social responsibility to provide their services equally to everyone who requests them, regardless of any personal biases or convictions they may have against the customer (or even the customer's beliefs).

Consequently, if an engaged gay couple requests a wedding cake from a bakery whose owners oppose gay marriage, with a written message wishing them a long and happy marriage, those bakers must set aside their personal beliefs and make them the cake.  To do otherwise is said to deny equal access to "public" services, thereby propagating oppression of a marginalized group.  If the bakers refuse, they can be fined hundreds of thousands of dollars and made to lose their business while all of Twitter mocks and jeers them for their bigotry.

These same laws also make it illegal to discriminate on the basis of race.  While Islam is not technically a race, Islamaphobia is often categorized as a form of racism on among sociologists, with good reason.  And many of these anti-discrimination laws cover religion as a protected category anyway.  As such, a consistent left wing person would also likely believe that conservative Christian bakeries should be required to bake religiously themed cakes for Muslim patrons who request them, perhaps for Eid al-Fitr or some other Islamic feast.

If you support the enforcement of anti-discrimination laws in each of these cases, consider the following situation.

Imagine a Muslim enters a bakery owned by homosexuals who sell custom cakes.  The Muslim knows the bakers are homosexual, and deliberately chooses their bakery for the purpose of making a point.  Imagine he requests a cake in the image of the Koran with one of the following quotes written atop it:

"For ye practice your lusts on men in preference to women: ye are indeed a people transgressing beyond bounds.” - Qur'an 7:80-81.
“When a man mounts another man, the throne of God shakes...Kill the one that is doing it and also kill the one that it is being done to.” - Islamic Hadith

Should the gay bakers be forced to bake this cake, under penalty of $135,000 fine, since declining solely on the basis of personal disagreement with the patrons' religion amounts to discrimination against an oppressed race of people? Or does forcing decent people to partake in such ugly homophobia, essentially propagating their own oppression, somehow disquiet your conscience?

If you stick to your guns and say they should have to bake it, what if the same situation occurred outside the United States, where violence against homosexuals is even more common? According to Gallup, an incredible 0% of British Muslims believe "homosexual acts" are morally acceptable - 19% in Germany, 35% in France (see page 31). Homosexuality (not just gay marriage) is illegal in 79 countries, most of which are Muslim majority. It is punishable by death in ten of these countries. All ten are Islamic theocracies.

I do NOT point out these statistics to disparage Muslims in any way.  Not all of Muslims accept the validity of the Hadith's, and surely there are more reasonable, progressive interpretations of Islam which allow for homosexual relations.   If you went to some isolated and uneducated communities here in the US, you would probably find horribly regressive polling data on these issues as well.  I could just have easily used the Westboro Baptist Church wanting a cake that reads "God Hates Fags" or something similar.  And in fact far-right Christian groups actually have ran this experiment, with predictable results.

I picked Islam merely to flip the script on two groups that the far left considers marginalized in our society, which it turns out can sometimes oppress one another.  I cite the statistics regarding the extent of global Islamic homophobia merely to illustrate how a gay baker could have plausible motivation to deny Muslim patrons certain services, on direct account of their religious beliefs.

As I have written previously, cases like these show why anti-discrimination laws are not a religious freedom issue, but a freedom of speech/association issue more generally. The right is wrong about Religious Freedom Restoration Acts like the one recently passed in North Carolina, because whether the origin of a deeply held political conviction is religiously motivated or not shouldn't matter to whether it gets legal protection.  But the left is wrong on these issues too, for a whole, long list of reasons.


PS - 
Perhaps you will say this is different - that the situations are not analogous - because the gay bakers are not refusing service to Muslims across the board.  If a Muslim wants a birthday cake for their son, for instance, the gay bakers would undoubtedly oblige.  The only reason they would not in the case I described would be on account of the beliefs they were asked to endorse, not the patron's fixed identity.

But, this is the same in the real-life cases regarding gay marriage.  Memories Pizza in Indiana never even hinted they would decline business to homosexuals across the board; neither did the Oregon bakery that was fined $135,000.  Nobody's posting signs that say "no gays allowed," and it would be preposterous for any food place to ask somebody their sexuality before taking their order.  What ran these venues afoul of the law was NOT blanket denial of services to a certain demographic, but rather an unwillingness to endorse a polarizing political message - "Support Gay Marriage" in one case in Ireland, or even just wishing a lesbian couple a long and happy marriage - in much the same way as my anti-Gay example.

Sunday, April 10, 2016

5 reasons Harry Potter is totally libertarian

1.  Harry himself, the hero and protagonist of the story, is always challenging authority and ignoring the rules. He breaks curfew constantly.  He uses magic over summer break when he’s not allowed to. He flies his broom when he’s not supposed to, and makes repeated ventures into the “Forbidden Forest.” He rides a flying car when people tell him it isn’t safe. In each case, he breaks the rules in a heroic and justifiable way, with good intentions that the reader sympathizes with.

2.  Harry even raises and trains a private militia (Dumbledore’s Army), without the government’s knowledge or approval, to fight off bad guys the state is incapable of protecting him from. That militia then fights a major battle, with privately owned weapons, to successfully defend their castle from enemy invaders. What could be more libertarian than that.

3.  The government in the story – the Ministry of Magic – is fighting against Harry the whole way. State run newspapers slander him. Attendance at school is made compulsory as a misguided and unpopular attempt to keep track of the kids. Azkaban is an oppressive state prison with horrible conditions and regular torture, in which not all the prisoners are bad guys who deserve to be there. The government is inept at best, and infiltrated with corrupt death eaters at worst. When Harry tries to spread a startling truth (Voldemort’s return) which runs contrary to government interests, he is silenced and ridiculed and made to appear crazy by the state run press. When a private school (Hogwarts) is found to be conducting its business in a way the government doesn’t like, the government creates a “Hogwarts High Inquistor” position to meddle with their affairs and ensure they toe the line. All the government characters are presented in a negative light; Cornelius Fudge as a bumbling fool, Dolores Umbridge as a dishonest and infuriatingly authoritarian busybody, and Percy Weasley as a naïve sucker who buys into it all.

4.  The protagonists are liberal on all the social issues. The muggle/wizard dichotomy is a clear microcosm for racism, with lots of analogies to Nazi Germany thanks to the “pureblood” rhetoric of the despised Malfoy family and Slytherin House. The reader sees how ridiculous this is throughout, however, since the smartest and most competent of them all is Hemionie, who is mixed blood. Speaking of Hermione, she is also a trailblazer for women’s rights, who encounters and overcomes sexist putdowns at every turn. Arguably the most beloved character, Dumbledore, is homosexual. Werewolf infection is treated similarly to HIV infection, or even leprosy, in that we are made to sympathize with the social castigation it causes. The reader also sympathizes with the enslaved House Elves, and Hermionie’s relentless social advocacy for their rights reinforces the themes of liberty, diversity, tolerance, and empathy which drive the leftist half of libertarian thought. The series is also anti-torture and anti-death penalty: only the bad guys use the crucio or avada kedavra spells. Harry himself only kills Voldemort in self-defense by deflecting his own spell against him. You could even argue it’s anti-war by illustrating the pain of losing friends in a major battle.

5.  Finally, there are conservative market themes as well, most notably the constant competition. A major plot line in each book is the running competitions for House Points. In addition, the houses compete against one another in Quidditch, which provides much of the excitement and drama. The magic schools compete between one another at the Triwizard Tournament. The students compete with one another for acclaim, respect and social standing (most notably Harry and Draco) and also for girls (most notably Harry and Cedric). Besides the competition, the whole book takes place at a private school, which nevertheless has voluntary programs in place to help students from low-income families (like Ron Weasley and Tom Riddle) attend. There are lots of little mom-and-pop stores that sell potentially dangerous items, and yet seem refreshingly unregulated. And Ron Paul would be pleased to see that the wizarding world still deals in gold-backed currency!

It's been a while since I've read the books, so maybe my readers will recall even more libertarian details. In any case, the Harry Potter series was one of my favorites growing up, so I'm pleased it's had such an influence on the moral outlooks of my generation.

Is military service compatible with libertarianism?

In the fall of my freshman year at Hopkins, I walked into debate team practice and was greeted by the best debater on the team, a Senior named Omar.  “So Doris,” he chided, “how does it feel to be a libertarian living off the government’s teet?”

As a libertarian ROTC cadet, I got that a lot in college.  I complained about high taxes, called for reductions in military spending, advocated the elimination of federal tuition assistance, and preached self-reliance…yet I myself had a four year, full ride scholarship paid entirely by tax dollars.  Many sparring partners were quick to pounce on that perceived hypocrisy, and I’m sure many others thought it to themselves without challenging me on it to my face.

What these critics overlooked is that my scholarship was not a handout so much as compensation: I was, and still am, working for that money.  During college, I assumed a whole series of responsibilities and time commitments in exchange for my tuition, which my civilian peers did not share, and which escalated each year I remained on salary.

Three times a week, I woke up at 5:15 AM for an hour of physical fitness training while my civilian peers were still sleeping (if not still stumbling home from the night before!)  I had to work out in the gym outside of those times as well, to ensure I met my contractually binding physical fitness standards.  I spent my Thursday afternoons and many weekends crawling through the woods conducting tactical lab exercises, or practicing land navigation with a map and compass.  I had to fit into my schedule some 30 credits of leadership classes nobody outside of ROTC had to take, which did not count towards my university’s major or minor requirements (and sometimes conflicted with other classes I did need for certain majors).  By my Junior and Senior year, these classes involved our assumption of battalion leadership positions, which consumed at least triple the time investment of any other class’s readings and homework.  There were training meetings, remedial PT sessions, weekend ruck marches, late-night OPORD briefs, mentorship meetings, and 1,000 other little obligations civilians wouldn’t even understand.  And most importantly, my receipt of this tuition money incurred an eight-year service obligation in the US Army after my graduation!  If I am discharged or somehow unable to fulfill this obligation, I have to pay the money back at full-sticker price, which at Hopkins (with no retroactive FAFSA financial aid, mind you) would amount to roughly $250,000 of debt.  I may not have paid for my college education out of pocket, but it certainly was not free.

In this way ROTC was not much different than a work-study arrangement, or a salaried internship with on-site training.  I am not the recipient of government charity; I merely signed a contract with the government, offering certain services and sacrificing certain liberties in exchange for a compensation package that included college tuition.  I never had much difficulty explaining this to people, and Omar’s teasing soon subsided. 

But now, having commissioned as a real Army Officer and deployed to a forward station in a foreign country, I’m faced with a series of questions that are a bit tougher to square with my libertarian sensibilities.

Libertarians decry state violence, and yet the military is the most explicitly violent of all state functions.  It kills innocent people every year.  It spends hundreds of billions of stolen tax dollars a year on wasteful bureaucracy, unnecessary wars, and foreign meddling in matters libertarians feel are none of our business.  This spending is funneled through a wasteful and corrupt military industrial complex which destroys wealth and limits economic freedoms here in America, to say nothing of the lives worsened in other places.  It also creates blowback that makes Americans even less safe.  How can I be proud to serve in such an organization?

Multiple libertarians who respect my opinions have told me I’m a hypocrite to my face.  One online friend went so far as to ask How do you sleep at night being such a perfect libertarian and simultaneously in the Army?” She posted the following cartoon in the ensuing conversation.

Point taken – there are some merit to these arguments.  But I did consider them before I decided to sign my contract. They did not deter me then, and they do not deter me now. I continue to believe my service is not only compatible with, but complementary to, my libertarian advocacy.

To explain why, the remainder of this post will take the form of a question and answer dialogue between myself and an imaginary libertarian who is cynical of military service.  I will write questions or accusations I commonly receive in red text, and then answer those accusations in regular typeface one at a time to keep it all organized.  This will give the impression that somebody else is arguing with me, when in reality it’s just me reproducing the conflicted inner monologue I sometimes have in my head.

Libertarian military cynic: “Libertarians believe taxation is theft, and also love to quote Thomas Jefferson in saying that “to compel a man to furnish contributions of money to the propagation of ideas which he disbelieves and abhors is sinful and tyrannical.”  Surely, many Americans disbelieve and abhor the actions of the US military abroad.  As a soldier collecting a salary and scholarship funded by tax dollars, aren’t you accepting money that was forcibly stolen from people who often don’t agree with what the Army is doing?”

Yes, but a) theft can sometimes be justified, and b) my individual choice to join the Army has no impact on how much money is stolen anyway. 

Regarding A, I have explained why some taxation is morally acceptable in prior posts.  One of the factors important to identifying those situations is legitimacy, which can be roughly approximated by constitutionality (Lysander Spooner would disagree, and I’m sympathetic to his argument. But the constitution is so popular on both halves of the political spectrum today that I have little doubt it would be re-ratified were the whole thing put up for a Yea/Nay vote as written).  Say what you will about the wisdom or ethics of funding such a large military, but there can be no doubt it is explicitly constitutional.  National defense is something I’m comfortable taxing people to support, even if I (and many others) disagree with many of the specific policies pursued towards those ends.

But more importantly, my military service does not increase military expenditures relative to what they would be without my service.  The Army offers a fixed, congressionally stipulated number of commissions and ROTC scholarships each year, based on how many officers they need.  Each school’s ROTC program gets X number of two-year, three-year and four-year scholarships to dispense to their prospective and existing cadets, and those are offered based on an order of merit list.  If a new scholarship is granted, it goes to the next most qualified cadet in that ranking.  If a previous recipient vacates, the next guy in line gets the remainder of his money.  There is no such thing as surplus scholarship funds.  The Army never credits taxpayers with leftover scholarship money that nobody used, because there are always dozens of cadets clamoring for that extra cap space.  Indeed, no bureaucracy ever returns the money it’s been allotted; if they run a surplus, they find a use for that extra money, because they’ve been legally instructed to spend it.

This means the money used to pay me would just go to somebody else were I not in the military; military spending would not decrease, and my accepting the scholarship did not cause it to increase.

Libertarian military cynic: “Okay, but don’t Libertarians believe the military is oversized and should be cut? And by adding yourself to its ranks, aren’t you doing the opposite? If you believe the government doesn’t need any more soldiers, then why are you tacking on one more? Isn’t that effectually the same as forcing others to pay for soldiers we don’t need?”

Even companies that are downsizing need to hire new people.  Freezing all additions and allowing the dead weight to be shed through attrition is a terrible force reduction strategy, because it just leaves your military old and destroys your recruitment infrastructure.  A better idea is to adjust the ratio of new soldiers to departing soldiers such that the army decreases in size over time, while simultaneously staying young and flexible enough to fulfill entry level positions and adapt its personnel to new challenges in a changing world.

I would happily vote to cut my own healthcare perks or retirement benefits in pursuit of cutting military spending.  But so long as that money is already being given out to somebody (and therefore, already being stolen from somebody for unnecessary government purposes), there is nothing immoral about accepting it.  Wielding the force is what’s immoral.

Libertarian military cynic:But isn’t that all the Army does: wield force? I understand you feel that can sometimes be justified, but lots of times the government thinks it is, and you don’t.  Libertarians disagree with a whole lot of what the Army has done in recent years, and really throughout American history.  Isn’t it very likely that the Army will continue to do objectionable things during your service time?

It is very likely.  In fact, by maintaining so many posts around the world and continuing to use too many drone strikes and fight wars without true congressional authority, it already is.  But to me, the solution to these problems is not to abandon the Army as inherently evil; it is to fix the Army, which can best be attempted from within the Army.

The same is true of government more generally. Congress and the President have done, and continue to do, many un-libertarian things throughout history.  Does that mean no libertarian should run for federal office?  Or is that all the more reason why we should – to seize control of the things which have historically been used to oppress, so we can shrink and restrain them from positions of power on the inside?  For example, I think it would be perfectly reasonable for someone in NORML to attempt nomination as head of the DEA (an organization they may not believe should even exist!) because they could do more to limit the drug war from that position than they could from any other.  It’s easy to be a critic of injustice, but people who sit on the sidelines and complain without “leaning in” to actually influence conditions on the ground aren’t doing much to fix the problem.

If all the people who object to collateral damage and undeclared war self-select OUT of the organizations responsible for those decisions, we will be left with a government and a military run exclusively by people untroubled by dead civilians and constitutional restraints on executive power.  That’s a much more dangerous world, which I don’t want to live in.  The military is already far more conservative and jingoistic than the nation at large, precisely because it doesn’t much appeal to peace-loving people.  That’s problematic!  It’s also part of the reason liberals think it’s important to let more women into the military: women think differently than men, and that disrupts groupthink and foments diversity and strengthens organizational decision making.  The same could be said for introducing more libertarians.

For so long as these wars are going to be fought – and I have no real control over that – I want them to be fought by people who care about minimizing civilian casualties.  For so long as the military budget is set so high – and I also have no say there – I want it to be spent by people who care about eliminating corruption and waste, and who understand and appreciate the national security damage of enormous debt.  And so on an so forth.

Libertarian military cynic:  I hear what you’re saying, but be honest: you’re not making those decisions from your current position.  Most military service is about executing decisions made by your superiors; lowly second lieutenants are not deciding matters with policy implications.  Isn’t it possible that in your attempts to rise up those ranks, you will be given an order to do something you feel is immoral or unwise?

I categorize those things distinctly: unwise orders, and immoral orders.  If I’m given an order which I believe to be unwise, I will bite my lip and give that order in my own name.  Smart, well-intentioned people can disagree on which is the wisest course of action, even in pursuit of shared moral ends.  Organizations cannot function at all without a sense of hierarchy and command authority, and to disobey any order with which I disagree would be to sabotage the effectiveness of our military to the detriment of both my fellow soldiers and the mission. 

So for example, I think the continued presence of ground forces in Afghanistan is counterproductive to US national security on net.  However, I see nothing unethical about killing a terrorist in Al Qaeda or helping my friends do the same.  And for so long as we are in Afghanistan (which I have no control over, and will happen whether or not I serve in the military), I would much prefer that our operations there be as effective, safe and just as possible (which I COULD control as an officer in charge of those operations).  Therefore, if ordered to deploy to Afghanistan, I would gladly go and serve my country with vigor and enthusiasm, keeping any national security disagreements I may have with elected officials and generals to myself.  I haven’t earned the right to make those decisions, I trust they are coming from good intentions, and the act itself which I am being ordered to engage in is morally permissible.

By contrast, there are other orders I could conceivably be given which I would consider not only unwise, but also ethically unjustifiable.  One example would be Donald Trump’s recent promise to kill the families of terrorists as a means of deterring terrorist recruitment or extracting information from those suspects we have in captivity.  This is not only plainly illegal, but also morally unconscionable.   If I’m ever ordered to do this, I will tell Donald Trump to go fuck himself and accept whatever legal repercussions ensue (which likely would be pretty light, because again, that violates the Uniform Code of Military Justice, which is an international treaty forming the basis of military law).

But I doubt this will happen, because most abuses of power are not waged by those at the top of the government pyramid.  Those at the top have the most visibility, the most scrutiny on their actions, and the most to lose from misconduct.  When wrongdoing happens, it’s often at the lower levels, and that’s where strong leaders can make a real difference on the ground.

When my uncle was in high school, he once got into a fight with the son of a local policeman.  He won this fight, and when the policeman found out about it, he didn’t like that one bit.  That night at dinnertime, this policeman entered my father’s house and tried to arrest my uncle, dragging him outside where his police car waited with lights flashing.  Just as he was exiting the doorway, my grandfather pointed his shotgun directly at the policeman’s face, and told him that if he took one more step with his son he would “blow his fucking head off.”  A shouting match ensued, but eventually the cop released my uncle and stormed off.  Had my grandfather not stood his ground, we have no doubt that my uncle would have been driven to a remote location and had the shit kicked out of him by a hotheaded father on a power trip.  With no witnesses, he would have gotten away with it on whatever fabricated story he drew up.

This is how government misconduct happens – not in massive conspiracies or overtly evil policies, but in isolated incidents where proud, selfish, and unaccountable agents in charge of something small prove utterly unworthy of the responsibility with which they are entrusted.  And so it is in the military.

Six years from now, an intelligence report will discover a suspected terrorist is hiding in a certain building, in a country in which we are not authorized to deploy ground troops for political reasons.  We will have the capacity to drop a bomb on this building if we like.  But in and around this building, there will just so happen to be a bunch of other people we cannot identify.  Some Commander, who is under pressure from his boss to accomplish the mission at all costs, and who is shielded from accountability for collateral damage by a skilled military PR team, is going to have to make a decision upon which the lives of innocent people depend.  Regardless of what decision he makes, it’s not going to make the evening news.  No American civilians will ever hear of his decision, nor will anyone on the outside know who made it.  If he wants to, he could concoct all sorts of reasons why

I joined the military in part because I want to be that Major.  For so long as government institutions confer the power to kill with impunity on somebody somewhere, I’d rather it be me than some Islamophobic neocon who thinks he’s Jack Nicholson from A Few Good Men.

Libertarian military cynic:  Cut the shit, Andrew.  You can’t wriggle out of this with analogies and flowery rhetoric.  Libertarians believe the government is an agent of oppression.  You swore an oath to serve and obey that very same government.  There is no way to square those two things!  Service, subjugation and violence are the literal antonyms of everything libertarians advocate.  You decry how the state can only do anything at gunpoint, and then literally volunteer to hold the gun!  This is doublethink at its most egregious.  You are a hypocrite and a coward and a statist jackboot - libertarian in words only.

Yes, rhetoric can be used on both sides of this debate.  But so can facts, and in fact I did not swear an oath to “serve and obey” my government; I swore an oath “to support and defend the constitution of the United States from all enemies, foreign and domestic” – which, believe it or not, can include that government.  I am not the President’s pawn, who unthinkingly executes every command at the drop of a hat. On the contrary, I have thought about the constitution and what it means for an uncommonly long time.

I took every constitutional law class that Johns Hopkins had to offer before my Senior year. During my senior year, I interned at the Federalist Society for Law and Public Policy in Washington D.C., where I worked on intricate con law matters on a daily basis.  I carry a copy of this constitution in my backpack every day because I’m a TOTAL FUCKING NERD.  If you scroll to the bottom left of this screen, you will see a catalogue of every topic upon which I have submitted a blog entry.  The second most common – with 49 entries once this is posted – is “constitution.”  Most of these entries are 3-10 pages long.  Suffice to say that I know precisely what that document says, and precisely what I will and will not do in service of it.

In one of these 49 entries, I summed up a long series of arguments evaluating the US constitution’s merits and drawbacks by explaining why I had taken the oath I took.

…the US constitution is not perfect, [but it is] the closest humanity has ever come…This was the first governing document (and arguably, still the only governing document) to fully outline the three unalienable human rights of life, liberty, and property.  It remains the most ingenious mechanism for securing those rights I know of.  And with some minor tweaks in wording and some major corrections in judicial interpretation, I genuinely believe that it is still humanity’s greatest hope for the protection of those rights.  Of all governing structures yet invented, the US constitutional model has the best chance to maximize the freedom, prosperity, and happiness of people everywhere.

It is for this reason (and this reason alone) that I consider myself a patriot. When I took the Oath of Enlistment in the US Army, I solemnly swore that I would “support and defend the Constitution of the United States against all enemies, foreign and domestic” and that I would “bear true faith and allegiance to the same.” I did not swear allegiance to any individual man or leader. That is by design. In Ancient Rome, soldiers pledged allegiance to their lord or ruler; they swore to follow one man wherever he went, and fight his battles, regardless of cause, for the glory of his name and the enrichment of his kingdom. But after the colonial militia narrowly defeated soldiers who served just such a king, it was decided that American soldiers would never make any such pledge to any one individual. Similarly, my allegiance is not to the territory enclosed my America’s borders. That land, though beautiful, is no more worth fighting for than the land anywhere else. And although I serve the American people, my allegiance is not to them either…American citizens are no superior in value or worth than the people anywhere else. Rather, my allegiance is to an ideal, the ideal inscribed on the document I’ve sworn to uphold. That ideal is individual liberty…I want to devote my life’s work towards ensuring that spirit never dies; that freedom’s “last, best chance on earth” “shall not perish from the earth.”

Maybe you think that’s a bunch of naïve, idealistic bullshit that sounds noble on paper but hasn’t panned out in practice.  Maybe you think I’ve been brainwashed by a romanticized, nationalistic, ethnocentric, public school rendition of state history.  Or, maybe you think I don’t even believe this stuff anymore – that I’m just assuaging my cognitive dissonance with comforting clichés because I’m in too deeply invested in my profession to get out now.  Maybe I’m scrambling to find redeeming qualities in an obviously oppressive organization so I can cling to my pride as a thinker and a soldier and an American.  I confess I have grappled with these possibilities myself.

But at the end of the day, I don’t really care what you think – that’s sort of the whole point of individualism.  I follow my conscience in all things, and this one passes the test.

The Army is an enormous and diverse organization that performs thousands of unique functions.  These functions cannot be lumped together beneath a single ethical adjudication just because we wear the same uniform.  My day-to-day life does not consist of bombing third-world families in pursuit of hiding terrorists.  I’m not waterboarding people, I’m not chasing down tax-dodgers, I’m not awarding cushy government contracts to crooked corporate mercenaries, and I’m not imposing myself uninvited in foreign social disputes.  I wake up each morning and reserve training areas for MEDEVAC helicopters, so we can rescue wounded people on the battlefield and transport them to a hospital.  I do this alongside native Korean soldiers in a rich and peaceful country, whose people and elected officials desperately want us here to protect them from an aggressive neighbor – a neighbor that just so happens to be one of the most evil and oppressive regimes in the world.  The contrast between good and evil demarcated by the DMZ could not be more clearly illuminated.  I don’t lose sleep over which side I’m on.

I am a libertarian because I want to live in a world in which everyone respects one another’s rights to life and liberty – where people don’t try to kill or rob or oppress one another over religious, economic or political disputes.  I am an American Soldier because we don’t yet live in that world, and that has implications for when the use of force is justified.

Libertarians can disagree on whether the US military and US constitution helps or hurts the cause of liberty on net, historically and presently.  But no matter which conclusion you come to, it does not follow that each individual soldier within that military is helping or hurting it through their service.  Individuals can only be said to have helped, hindered, or done nothing for the cause of liberty on a case by case basis, taking all their actions into account.  Soldiers can do some good in the world, whether you want to admit it or not.  Therefore, military service is wholly compatible with libertarianism.

Saturday, April 9, 2016

Three reasons the debt ceiling is constitutional, and the President is bound to obey it

A few years ago, Republicans in Congress threatened to let the government shut down rather than raise the debt ceiling, unless certain concessions were met.  This has happened several times, actually, and is likely to happen again.  I wrote the bulk of the argument below during the most recent of these occasions, but never got around to finishing it.  It is wildly out of synch with current events here in an election year, but I am posting it now anyway so I will have it ready when this debate inevitably resurfaces.

Many liberals have argued that if the debt ceiling is not raised, the President could constitutionally just ignore it.  The root of the controversy is that in that scenario, Congress will have given the president incompatible instructions: they’ve ordered him to spend a certain amount, while only providing him a lesser amount in revenues, and prohibiting him from borrowing the disparity between.  Something has to give, and the president would have to decide which of those instructions to break.  Since ordering the IRS to raise tax revenues isn’t a politically feasible option (yet…you never know what some creative lawyer might come up with…), the debate comes down to the other two laws: federal appropriations, and the debt ceiling.  If Obama obeys the debt ceiling and stops borrowing additional money, he will be ignoring federal instructions to spend X amount.  If he borrows the additional money necessary to spend X amount, he will be ignoring congressional instructions not to borrow additional money.  Which of these laws should trump the other?

Many from the left (most recently this lady) have put forth the argument that federal appropriations should win out, because the 14th amendment would render the debt ceiling unconstitutional.  Section 4 of the 14th amendment reads:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”
This view argues that this makes the debt ceiling unconstitutional; because the debt ceiling would prevent federal appropriations “authorized by law” from being paid, it would “question” the “validity” of those debts.

Others, such as legal scholar Garrett Epps, fiscal expert Bruce Bartlett, Treasury Secretary Timothy Geithner, and House Minority leader Nancy Pelosi, have argued that a debt ceiling may be unconstitutional and void if it interferes with the duty of the government to pay interest on outstanding bonds or make payments owed to Social Security recipients. 

The aforementioned article explains:

"Even if the President thinks the history of the public debt clause isn’t clear, it still seems preferable to set aside the debt ceiling than to ignore Congress’s mandate to pay the nation’s bills.  At minimum, the Fourteenth Amendment suggests a constitutional basis for ignoring the debt ceiling; nothing in the Constitution provides reason not to follow Congress’s mandate that the nation’s bills be paid."

This is a bad argument for several reasons.  I have explained the first one previously on this blog, in an entry responding to Nancy Pelosi’s argument that Obama should just ignore it.  As I argued then, there is a difference between the people we’ve promised to pay, and the people we’ve promised to pay back:

“...due to the 14th amendment, the validity of the existing debt of the US cannot be questioned.  But that is very different from saying that the amount of debt the US is allowed to accrue moving forward cannot be limited.  Debt is created when money is borrowed, not when it is agreed that money shall be spent.  A congressional apportionment saying that X amount of money shall be spent on certain programs is not the same as actually borrowing the money necessary to make those expenditures.  The actual borrowing happens gradually over the course of the year as the money is needed.  The 14th amendment does not say that projected increases to the debt cannot be preemptively limited; it refers only to the existing debt.

Democrats seem to be confusing two different types of legal obligations here.  If Congress passes a law that says “We will employ 10,000 postal service workers this year,” then what Pelosi is arguing is that Congress has incurred a “debt” due to its legal obligation to pay those people.  Since this “debt” cannot be questioned, she claims that any law which calls into question the government’s ability to pay those recipients (such as a debt ceiling) is unconstitutional.  But those pending outlays are not the kind of “debt” the 14th amendment refers to.  The 14th amendment was passed at a time when the federal government had just borrowed enormous amounts of money to pay for a war, and needed to pay back its creditors.  It’s reasonable to assume from this that “debt” refers to the debt the government incurs when individual lenders actually give their money to the government (often through federal bonds), with the understanding that this money will one day be repaid.  To put it another way, they’re confusing the people we’ve promised to pay with the people we’ve promised to pay back.  As the historical context of the 14th amendment reminds us, the debt which cannot be questioned refers to money we have to pay back.”

A second reason the President cannot legally ignore the debt ceiling is that borrowing money is not an enumerated executive power.  In fact, it’s an explicitly enumerated Congressional power, which clearly places it beyond the President’s authority.  Even far-left legal scholar Erwin Chemerinsky acknowledges this:

“Article I, Section 8 of the Constitution says that it is Congress that has the power "to borrow money on the credit of the United States." The Constitution thus could not be clearer that borrowing money requires congressional action.  Nothing in Section 4 of the 14th Amendment takes this power away from Congress or assigns it to the president.  Section 4 of the 14th Amendment says only that the debt of the United States shall not be questioned; it says nothing about who gets to determine the size of the debt or in any way shifts this power from the legislature to the executive.”

Perhaps it will be argued that Congress’s instructions regarding the debt are conflicting, so Obama is just executing one interpretation of their sincere intent.  But that doesn’t pass the laugh test; Congress hasn’t even passed a budget since 2009, whereas the debt ceiling has been renewed as recently as this year.  This is the third reason the debt ceiling is legally binding: the legal principle of lex posterior derogate legi priori states that in cases where two laws passed by the same body conflict, the newest can be assumed to have overruled the oldest.  This is particularly relevant when the party controlling Congress has changed in between the two laws being passed, which it has in between the last budget (passed by a Democrat controlled House and Senate in 2009) and the most recent authorization of the debt ceiling by the current Republican majorities.  The President cannot plausibly claim to be faithfully executing Congress’ instructions regarding how much money to borrow when they have explicitly prohibited him from borrowing so recently.