“Style of Government” Poll

I’ve just posted a poll asking a very important question: If you had to choose between a government which kept you alive and comfortable and one that gave you freedom, which would you pick?

I understand that most people prefer some sort of middle-ground between the two. That’s why in the comments of the poll I ask the more qualitative question of, “Where is that middle ground?” I’ve heard a lot of people suggest that they’d be willing to give up a few inconsequential rights here and there in order to ensure that everyone has food to eat, a home to live in, a basic education, and doctors to stave off untimely death. But I want to know exactly how far you are willing to go for that cause. If the government told you they were going to put you on a strict meal plan to ensure the poor had food to eat, would you be okay with it? What if they said you had to follow a specific career path of their choice that would be necessary to provide for society? If it took 30% of your income to take care of everyone else, would that be too much? What about 40%? Or 60%?

At what point do your personal freedoms become more important than the survival and comfort of others?

I want everyone who takes the poll to try this thought experiment. I’m interested in hearing what people have to say.

EDIT: Post comments and explanations from the poll here, so that individual conversation threads can be maintained.

On Greed and Recessions

Whenever I try to discuss the causes of this recession that we’re in, I always get the same answer: Greed did it. Banks and corporations got greedy and started offering risky loans to people who couldn’t pay them off in the hopes of making a profit off the poor. It was predatory.

But that doesn’t make sense to me. You see, greed is a constant. Greed is what leads banks to want to find people who will actually pay off their loans. Subprime loans are dangerous, and most banking institutions would be very cautious about offering them, absent of any external stimulus. So if banks were always greedy, why were so many risky loans issued all of a sudden? Why had subprime loans never crashed the market before? Something had to have changed to cause such a massive upset of the economy.

Something did change, and it wasn’t greed.

In 1977, US President Jimmy Carter signed into law the Community Reinvestment Act, a vague declaration of the power of the federal government to oversee and regulate financial institutions and ensure they uphold their “continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered.” The act makes clear that race and sex of loan recipients may used as factors in determining whether or not financial institutions are “meet[ing] the credit needs of the local communities.” Essentially, affirmative action in financial loans and mortgages was established to be enforced at the federal level.

In 1995, President Bill Clinton asked CRA regulators to revise their standards to make them more consistent and “focused on results.” This meant establishing specific quotas that lending institutions had to fill in order to receive passing ratings under the CRA. Up to 50% of an institution’s rating would be based on the quantity, effectiveness, and “innovation” of loans to low- and moderate-income individuals and neighborhoods. At the time, the Cato Institute, a libertarian think-tank adamantly warned of the dangerous consequences of the proposed regulations. Most notably, Cato Institute Chairman William A. Niskanen testified that, “The proposed regulation would override any concern about bank soundness,” in its emphasis on helping poor communities. Essentially, banks would be required to provide many overly risky loans (many of them subprime) to people who couldn’t necessarily pay them back in order to meet CRA quotas.

Debate continued through Clinton’s second term as to the real effect of the CRA on financial institutions. Republicans complained that the Act was detrimental, whereas Democrats claimed it wasn’t going far enough. Thus, as a compromise, Congress passed the Gramm-Leach-Bliley Act, expanding the authority of the CRA to other types of financial holding institutions while requiring “a comprehensive study of CRA to focus on default and delinquency rates, and the profitability of loans made in connection with CRA.” This study would be delivered to Congress in March 2000.

The study concluded that nearly 50% of CRA-related home purchase or refinance loans were either unprofitable or less profitable than comparative non-CRA loans. This, of course, would be due to the riskiness of the loans being issued. Clinton’s solution to this foreseeable unprofitability was to urge Fannie Mae and Freddie Mac, two government-sponsored mortgaging enterprises which had come under the CRA requirements with the passage of the 1999 Act, to start collecting these risky loans. This was meant to both increase the number of CRA loans available and to provide some insurance for CRA-regulated financial institutions by pooling risky mortgages (similar to the way the FDIC insures savings). Once the full scope of the problem was revealed in the March 2000 report, Fannie Mae and Freddie Mac redoubled their efforts.

And here we have the recipe for disaster. The CRA had filled the veins of the financial lending industry with these risky subprime loans, this poison, which Fannie Mae and Freddie Mac, the liver and kidneys of the system, were gathering up and trying to neutralize. All it took was a small shrug in the housing market to make enough of those bad loans in Fannie Mae and Freddie Mac turn to poison and kill these protective organs. With the liver and kidneys gone, the rest of the body suffered as people bankrupting from the Fannie Mae and Freddie Mac disaster defaulted on loans from other banks. Hence, we had the bank crash, and later, the automaker crash as large-investment segments of the economy fell apart.

So really, it wasn’t greed that caused this recession that we’re in now. It was humanitarianism. It was affirmative action. It was the government’s attempts to redistribute wealth by applying harsh regulations with the CRA.

This wasn’t the first time government regulation and interference in the market caused a recession. Tariffs throughout the 1920′s weakened the US economy by pushing away trading partners and decreasing gains from overseas trade. Finally, speculation started to become pessimistic in September 1929, as Senate committee debates over the Smoot-Hawley Tariff Act became public. This Act would drastically increase tariffs and protectionist measures, effectively placing a 60% tax on any farmer who bought equipment from overseas. The next month, the stock market crashed. In June 1930, despite the pleading of economists and businessmen such as Henry Ford and partners of J. P. Morgan, Hoover signed the bill into law, and US foreign trade started rapidly declining. Nations around the world responded by putting tariffs on their own goods to counter the effects of US tariffs. The Great Depression had begun.

The government cannot be trusted to take control of an economy for what it believes to be “the greater good.” When innovation and individual choice is allowed to flourish, we succeed together. When law forces us into bad choices, even when some realize how bad it could be, that is what causes us to fail together.

EDIT 12/7/09: Added new link on the current efforts to increase CRA-related regulations.

EDIT 8/4/11: Thomas Sowell explains what happened to the minorities who were “helped” by the CRA.

The Cost of Health Care

In my debates, I come across quite a few people who are under the impression that more government-controlled health care would save the US money. The reason health care premiums are so high is because greedy CEOs are taking it all in the form of salaries, right? The belief that government-controlled health care would be more efficient is a horrible misconception.

The thing is, the country could save over $200 billion every year just from cleaning out the waste and abuse in Medicare and Medicaid. Barack Obama himself admitted as much. And then government regulation of the private industry adds an additional $300 billion in waste. Elimination of those costs alone could pay for health insurance for 40 million families.

On the other hand, I’ve quite often heard the suggestion that elimination of the for-profit aspect of the health care industry would save enough money to pay for public insurance. What most people don’t seem to realize is that the annual profit margins for private health care insurers hovers around 4%. The total profit of the health insurance industry last year was a mere $13 billion.

Take a minute to let those figures sink in. Private industry costs us $13 billion a year so they can profit, while the federal government costs us $500 billion per year in waste alone. And the solution is to add more wasteful government programs and regulation?

To further drive the point home, let’s take a look at the bigger picture. We are currently spending $2.2 trillion per year on healthcare in this country. $850 billion of that is spent on Medicare and Medicaid to cover 103 million people, and another $184 billion is spent on other government health programs. That means that the government spends 47% of total health costs to cover 34% of the people. Private industry spends 53% of the total costs to cover 51% of the people (pg. 12). Private industry clearly does a far better job of providing efficient health insurance services. And they’d do an even better job (39% of current costs to cover the same 51% chunk of people) if we passed tort reform and cut some of the regulations that raise costs so much.

Why would anyone replace private industry with the inefficient government and expect costs to decrease?

The Rights of Government

Allow me to start out by asking a simple question. It has been asked time and time again through the centuries, and many have provided answers, but still it must be asked: What gives government the right of power over the governed?

The answer suggested by 17th century philosopher John Locke is that there exists a social contract between the government and the people, whereby rulers may only hold power through the consent of the governed. Locke felt that the only way this could be true is if the government worked towards the common good, protecting every individual’s rights to life, liberty, and his own material possessions.

The United States Constitution was framed around this principle, implementing a representative democracy to ensure that all laws are the result of choices by people elected by the majority. But is this enough to ensure that every representative holds office at the pleasure of their people? Is a simple majority vote enough to give someone the right to commit every person under their rule to any number of arbitrary contracts and obligations?

I say no.

The purpose of government is to protect the people from deprivation of their rights by others. That is its sole purpose. It does not exist to take money or to provide services. There is no legitimate justification for letting Peter and Paul decide that they are going to take Mary’s money or possessions at gunpoint simply because it benefits them. A majority vote does not legitimize that. An income differential does not legitimize that.

If Robin Hood were a real figure in the modern world, would we applaud him? Would he get a general pardon for his crimes? No, he would not, because if he’s stealing in today’s civilized world, he’s not stealing from Kings and Noblemen who have illegitimately enslaved the populace. He’s stealing from you and me. He’s stealing from hardworking individuals who have labored for every penny. And before the reader considers the topic of inheritance as a counterexample, stealing from heirs is depriving the deceased of their right to let their money go towards their own intended purposes. Certainly final requests have precedence over the will of graverobbers.

So what does government have a right to do? What law can government legitimately force me, at gunpoint, to abide? Well, if I try to force anyone else into anything at gunpoint, government has a right to intervene. If I try to take anything from anyone against their will, or harm them in some way, government has a right to intervene. Basically, any breach of contract can be legitimately dealt with by government. I am not allowed to deprive anyone else of their rights against their will, and government may use any means necessary (including collecting taxes and maintaining a police force) to enforce that.

The rights which should be guaranteed to everyone are the right to life, liberty, and pursuit of happiness. But those are some very general words, which have been manipulated through the centuries to mean everything from a right to a proper slavemaster to a right to free money with every car purchase. Specifically, what those words mean is this:

• I have a right to life which no other human being has a right to take away.
• I have a right to make any contract I deem fit with any other human being, so long as all terms are made clear to and agreed upon by all affected parties.
• I have a right to use my own life and my own possessions for any means that do not infringe on the rights of others.
• I have a right to forfeit any one of my rights for any purpose and on any terms, so long as I am not forcing others to forfeit their own rights.

And how is the government to accomplish this? Well, the government is within its rights to do anything necessary to protect our rights. Thus, it may maintain a military and police force. It may support a judicial system to find ways to correct situations which ignore the equal rights of all, and ensures that offenses are not repeated. It may support a legislative system which defines laws to clarify rights in specific cases. It may even support an executive branch to provide checks and balances and act as the commander in chief. It may collect taxes sufficient to ensure efficient operation of these functions. However, no part of this government may produce or enforce any law which deprives any person of any right for any reason other than to protect the equal rights of all.

And where do the limits lay? What is the government not allowed to do under this system? Well, the government, no matter how democratically elected, cannot force you to give up your money or private possessions to fund its own pet projects. The congressmen from the east coast can’t vote to impose a 90% income tax on the people from the west coast, and have the proceeds go only to people on the east coast (something which is entirely possible in the current US system). There can be no government-imposed health care insurance system. The government can’t stop you from smoking, drinking, shooting heroine, eating fatty food, or doing anything else to yourself so long as you don’t harm others. And finally, the government cannot wage war for any reason other than to directly protect the rights of its people. To those who have debated with me, this may come as a surprise, but I do not believe tax dollars should have been spent on the Iraq War. It should have been conducted and funded entirely by private militias and nation-building groups, something which is impossible under the current US system, but would be possible under a system where the right to bear arms is truly and completely respected.

So then, everyone even the tiniest bit to the left on the political spectrum is going to ask “So what about the poor? Do you just let them die? Do they just get no services at all? Do we descend into a caste system where the rich rule over the poor?” My answer: private donations. Private donations, both for scholarly merit and as purely charitable financial aide, have paid for almost my entire education. The rest has been paid through loans which I will pay off eventually. I have not inherited (and will not inherit) a cent. And yet, without the help of the government, I could easily push my career towards a six-figure income. In a system where donations are not taken forcibly through taxation, donations will increase in number, grow in size, and have greater effect. This is how donations should occur, not at the point of a gun.

The goal of government is not to make everyone wealthy. It’s not even to keep every single citizen alive and healthy. The goal of government is to give people freedom from the oppression of others. It’s to maintain law and order so that no man may force another into a contract against his will. It’s to ensure that no person takes away the rights of any other. It is a contract with every other citizen guaranteeing that there is always a neutral higher power which seeks only to protect the rights of everyone equally, without favoring any man through means of race, religion, or class.

TLDR: I proposed a libertarian government, with a foundation in self-consistent basic moral rights, which will actually work. Also, read the article I referenced.

EDIT 10/26/09: Minor wording modifications to aid clarity. 11/26/09: Added a link to give one of my analogies basis in the real world. 3/16/10: After some thought, I removed the “right to a government that protects your rights,” simply because nobody should be forced to protect you from external threat if they have no agreement with you. Certainly, you should be able to choose whether or not you will accept a government’s terms of service, but in the absence of a government that protects your rights, it’s most correct to simply be your own government.