Monday, October 20, 2008

My Latest On-Line Activism

Following are my responses to the comments of others at NJVoices, the on-line forum of the New Jersey Star Ledger. The specific comments I responded to are presented prior to my full response. To read the full article by Paul Mulshine and the correspondents, click here.

The subjects are the meaning of a free market, the root causes of the financial crisis, and the philosophical underpinnings of America's Founding.

Let us all hoist a beer in honor of Ron Paul, the only true adherent of the free market who ran for president this year and an opponent of rent-seeking behavior.

No wonder McCain hated him so much.-Paul Mulshine

... there is no such thing as a "free market".-hglindquist

Mr. Mulshine's understanding of McCain as an enemy of free markets is right on. He is dangerous because he is a statist running under the free market banner...just as President Bush waved the free market banner while destroying it the last 8 years. I had decided that rather than vote for one of the two statist candidates, that I would abstain from voting for president this year...for the first time in my 4 decades as a registered voter. But maybe I'll write in Ron Paul, who Mr. Mulshine describes as "the only true adherent of the free market".

A free market is a crucial ingredient of capitalism, and of freedom. It is based on the recognition of individual rights, in which each individual is free to think and act on his own judgement, to associate and trade with others voluntarily to mutual advantage, in pursuit of his own goals, welfare, and happiness. Rights are a guide to freedom of action, not to the productive efforts of others (ex.-a home, food, health care, a job, etc.). Philosopher Ayn Rand described individual rights as "the means of subordinating society to moral law."

The concept of individual rights...including the all-important property rights, without which no other rights are possible...contains the answer to the problem of so-called "externalities". If the actions of one violates the rights of another...causes physical harm to another's person or property as objectively determined in a court of law...then the government may properly step in to require restitution to the injured party. Such would be the case of an individual or group of individuals (i.e., a corporation) polluting the property of another. In the case of second-hand smoke, as long as a non-smoker is free to leave an area occupied by smokers, his rights are not violated. It is solely the right of the property owner...ex., a decide whether his establishment will allow smoking, and whether to segregate smokers from non-smokers.

The free market is not incompatible with government action to protect individual rights. Indeed, the protection of individual rights is the only proper function of government, and is vital to the functioning of a free market. The "free" in free market means to live one's life free from coercive interference (physical harm) by others, including by government officials and politicians, as well as criminals and the economic activities of others. The protection of rights, in a free society, is accomplished through objective laws against explicit types of behavior, or through the civil courts where grievances and disputes are resolved in an objective forum...and not through the arbitrary, dictatorial powers of government regulators.

Free market capitalism, properly understood, is the only practical and moral social system because it is the only system based on individual rights and a government limited to the job of protecting those rights. People can deal with each other in one of only two voluntary persuasion and logic, or by physical force. Under capitalism, rent-seeking pressure groups would not and can not exist because the government's power of economic interference on behalf of one private entity at the expense of others would not exist. The individual is protected against the predation of those seeking to trample his rights in the name of that mystic god of every power-luster...the "collective", or "common good".

It's either a free market, tyranny, or what we have today..a mixture of freedom and tyranny, in which tyranny steadily gains and freedom slowly recedes.

I choose free market capitalism.

Free markets are responsible for the financial melt down on wall street.-boobosie

Where do you see a free market in finances? You're committing the fallacy of equating the failures of private individuals and firms with a free market.

Who controls the money supply, the raw material of banking? The Fed

Who ended the gold standard? FDR, on the domestic front, by confiscating private gold currency and replacing it with fiat (i.e., counterfeit) paper. And Nixon, who closed the international gold window.

Who controls short-term interest rates? The Fed. (The Fed's inflationary policies and sudden tightening, based on control of money and interest rates, were largely responsible for the rampant 1920s stock market speculation and crash, as well as the recent housing boom and bust.)

The current crisis is rooted in the government's massive intervention in the housing and mortgage markets, beginning with FDR's "second bill of rights", which declared every family's "right" to own a home (which was reaffirmed in JFK's 1960 party platform.) Subsequent government policies were implemented to ensure that alleged "right." The home mortgage deduction; mortgage "insurers" (at taxpayer expense) FHA and FHLBB; the government-created quasi-private Fannie and Freddie that artificially created the mortgage resale "market."

Then when it was found that many low-income folks couldn't qualify for home loans, Carter created the CRA, to "encourage" lenders to extend loans to those folks. The government's extensive regulatory control over the banks was the club with which it enforced its "encouragement." Then when that wasn't enough, Clinton imposed "flexible" lending standards through the CRA, which led to no-doc and no-down-payment, or sub-prime, loans. But when banks that dove into these loans found that by restricting these gov.-mandated standards to just low-income folks they could run afoul of anti-discrimination laws, they had to extend these standards to all customers who wanted them. (Do not take this as a condemnation of low-income folks in general. It should be stressed that many low-income folks did purchase homes the old fashioned saving for a down payment and then securing conventional loans. Many low-income, sub-prime borrowers continue to make their payments on time. And many of the defaulters are high earners.)

When it was found that Fannie and Freddie, the government-created giants with the implicit (now explicit) backing of Uncle Sam, wouldn't buy those sub-primes, Clinton, and later Bush, (and with the complicity of Congress) intervened to force them to. The flood gates were open for a virtual government-created conveyor belt of bad lending. CEOs like Mozilo of Countrywide latched on to the game with a vengeance.

It was Fannie and Freddie who pioneered the practice of bundling good and sub-prime loans together into Mortgage-Backed Securities (later emulated by many Wall Street firms) for sale to the public. The implicit taxpayer-guarantee created a false sense of safety for these securities. The "bubble mentality" of ever-rising home prices, fueled by the Fed's inflationary policies, took over from there.

The government's Federal Deposit "Insurance" and the "Too Big To Fail" bailout well as the Fed's lender of last resort status...has led to an atmosphere of reward without risk, or profit without loss. In a free market, the threat of having to face up to one's own failings is a built-in protector against the kind of system-wide catastrophe we are now seeing. The free market rewards long-term prudence and penalizes irrational, short-term lenders, investors, and borrowers (I don't let the irresponsible borrowers, which included outright speculators, off the hook. Without them, there would not have been a crisis.) When profits are privatized (as they should be), but losses are socialized (as they should not be), what kind of behavior does one expect to take hold?

The fact is that the heavily controlled and regulated financial industry was responding to the policies of its own government. The sound and prudent institutions that resisted the sub-prime mania were, for a time, placed at a competitive disadvantage, leading to a loss of business. (They are now in a very good position, once the economy turns around.) According to an article by Bloomberg's Michael Lewis (NY Post, 9/17/08), "if any of these men had behaved well and resisted the pressures and temptations of the moment, his firm would have, for several years, dramatically underperformed the competition. He probably would have lost his job." He was speaking of the Bear Stearns, Merrill Lynch, and Lehman Brothers CEOs. What created a situation where prudence is penalized and imprudence is rewarded? The quick-buck charlatans who gained a position to bring down decades-old financial powerhouses were unleashed by market distortions created by government intervention.

I could go on and add to this already too-long post. The private lenders, borrowers, and investors that participated in this fiasco are part villain, part victim. But they are only the face of this crisis. Without government's massive interventions, the imprudent would have been weeded out by bankruptcy, foreclosure, and investment losses long before they could infect the whole system. One does not have to excuse the failures of private participants in order to understand that the government-created culture of homeownership entitlement and the policies they spawned are the real culprit here. It's a simple matter of cause and effect.

In a Money magazine interview (with Janice Revell, Sept. issue, I believe), Rep. Barney Frank made this startling statement: "But we have made a mistake in this society. The assumption that everybody can be a homeowner is wrong. We pushed and encouraged people into home ownership - people who, in some cases, weren't ready for it. You can't act on wishes that are unrealistic without having negative consequences."

That is about as close to an admission of the real cause as you will find in Washington. The free market is getting tried and convicted, where no free market exists. And along with it, our freedom.

I apologize for this long-winded post. But it was necessary. I could not let boobosie's unsubstantiated statement go unchallenged.

And "the collective or common good" is not some "mystic, undefinable god of every power-seeker" -- in my opinion. We can simply start by identifying those "things" the individual has a right to expect from his/her community, and in turn recognizes that his/her community has a right to expect participation from him/her. Or to put it another way, what do we expect to share in common as Americans?-hglindquist

I hope you're enjoying you're trip to New England. My wife and I plan on some day making a trip up there.

I'll address one more point...the key hopefully clarify my philosophical position.

I reject the collectivist premise in the entire statement. I consider the notion of "The collective or common good" to be invalid for two reasons. First; human beings...every one of us...are autonomous individuals each possessing his own independent mind, or rational faculty, which is the means by which he guides his life. This is a metaphysical fact of nature. The fundamental choice that each of us faces think or not. That is exclusively a choice of the individual, and only the individual. No one can do another's thinking, nor force another to think.

Second; the collectivist, or tribal, premise is un-American. A recognition of the validity of the first reason formed the basis for the Founders' creation of a nation that, for the first time in history, was based on the premise that the individual, not the group, is the supreme value upon which a society would be organized. And they recognized that certain fundamental requirements are required for such a society...the individual's unalienable rights to life, liberty, property, and the pursuit of one's own welfare and happiness...protected by a government which, for the first time, was explicitly deemed to be the peoples' servant rather than ruler.

Thus, there is no such thing as the "collective", or "common" good that is separate from the good of the individual...every independent individual. And since every individual possesses the same unalienable rights, equally, and at all times, and protected equally and at all times by the government, any private or public (i.e., governmental) action that violates the rights of even a single individual is not and can not be in the "common" good.

There is no such entity as a "community". The community is a number of individuals, as described above. The "community" has no right to expect anything out of any individual, and the individual has no right to expect anything out of the "community" one. That one "thing" that each of us owes the other individuals that make up a "community" is to respect, and to reframe from violating, their aforementioned individual rights...i.e., to avoid compelling another person to act against his own judgement and will. In a free society based on individual rights, anyone who initiates physical force against another is a criminal, and is subject to prosecution by the government. This same principle applies to government. The government is the protector of the individual's unalienable rights. Therefor, no one in the "community" may use the legalized force of government to violate the rights of other members of that community, no matter how big his majority or how small the minority. The same principles apply to a group of ten, a thousand, a million or 320 million. This is what is meant by the principle that "Individual rights are the means of subordinating society to moral law."

The use of the term "the common or collective good" implies that the group or society or the community is the supreme value and can do whatever it wants to its individual members. It is always the justification for any rights-violating governmental action...and of all tyrannies. There is no "collective" good in a free society. There is only the necessity to ensure, via limited government, that each member is free to pursue his own good...which means to be free from human predators.

What do we... share in common as Americans? We share the right to think for ourselves, to act on our own judgement in the pursuit of our own individual well-being, to engage in voluntary and uncoerced association with one another, to engage in voluntary trade to mutual advantage, to engage in voluntary and uncoerced charity, and the obligation to respect the rights of all of our fellow community members. We share, in other words, the principles of free market capitalism. Or at least, as Americans, we should.

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