Solving the Budget Crisis Through Theft

"If you steal from one author, it's plagiarism. If you steal from two, it's research."
- John Burke

"PlagiarizeLet no one else's work evade your eyes
Remember why the good Lord made your eyes
So don't shade your eyes
But plagiarize, plagiarize, plagiarize
Only be sure always to call it please 'research'"
- From "Lobachevsky" by Tom Lehrer.

The federal budget fight has been unusually acrimonious. On July 14, Obama walked out of the budget talks. On July 22, Boehner walked out of the budget talks. And throughout these talks, the American public has been walking out from both parties, and for good reason: neither party has been serious about tackling the debt crisis. Sure, both sides crow about how they have proposed drastic cuts, but these spending proposals are "cuts" only in a sense that is accepted no where else than Washington. What they mean by cuts is that they propose spending less than projected 2011 spending. Neither the "Cut, Cap, and Trade" proposal nor the president's most recent proposal would reduce 2011 spending to less than the previous year, even after adjusting last year's spending for inflation and population growth. The Republicans have been reluctant to really address the looming entitlement crisis. Congressional Democrats are even worse on this issue, threatening to block any entitlement program changes, while hypocritically complaining that the Republicans are too inflexible about taxes.

We need not worry the August 2 deadline, however. For starters, the default deadline is bogus anyways: the government need not default nor miss sending Social Security checks if the debt ceiling is not raised by August 2. But now that both sides have propped up this phony crisis, they will have to save face by coming up with some compromise before the "deadline". The bigger problem is that the compromise that the president and congress will likely fall far short of what is needed to reassure the rating services such as Standard and Poor's. They want to see creditable deficit reduction if U.S. government bonds are to retain their AAA ratings. If U.S. bonds are downgraded,

1. Bond holders will be hurt; and
2. The costs of U.S. borrowing will balloon.

So we may dodge the August 2 bullet, only to be hit with the S&P bond downgrade.

Dramatic action is required to prevent our bond rating dropping to AA. We need a deficit reduction plan, and fast. One effective approach would be to find a previous successful budget, and steal it. In short, we can solve our money problem by theft - not of money, but ideas.

I propose that the 2011 budget be based on the U.S. budget from 2000, one of the last budgets assembled before the 2 recent spendthrift administrations. This budget covered the basic government functions while spending less than the revenues collected. This budget was put together by a Democratic president working with a Republican congress - if they could do it, why can't we? When you adjust the 2000 budget for inflation and population growth, it comes out to $1,965,999 million. This would allow us to meet the S&P deficit reduction limits without taking the perilous action of raising taxes in a troubled economy. So one simple approach would be to adopt the 2000 budget, adjusted for inflation and population growth. This is the one sequel that we would all welcome.

Critics will immediately point out how the world has changed since 2000. We are now fighting 3 simultaneous wars, we have a slew of new agencies that have cropped up to fight the "War on Terror", a bunch of new Czars, not to mention ambitious new programs such as designing and building a whole new rail system. How could the 2000 budget cover these programs that did not exist 10 years ago? To this argument, I would reply that a large part of the reason we are in this mess is that we adopted expensive new programs without figuring out how to pay for them. We simply cannot afford all of them, so we need to prioritize. Given that we almost certainly cannot do both, should we engage in nation building in 3 middle east countries, or should we rebuild our own nation? Do we really need all these agencies that we were able to get along without for two centuries, and if so, could we pay for them by making cuts elsewhere in the 2000 prototype budget? If we really need the TSA, could we pay for it by eliminating the Import-Export bank or by cutting farm subsidies paid to millionaire farmers?

Real budget reform is possible. In fact, it is inevitable: the only real question is whether we fix the budget ourselves now or let our creditors decide how to fix it in the future. With the 200 budget austerity program, we can avoid default, avoid a credit downgrade, pay down the deficit, revive the economy, and then we can party like it's 1999.

Should Someone Take the Fall for the Central Falls Pension Mess?

"Liberty means responsibility. That is why most men dread it."
- George Bernard Shaw, "Man and Superman" (1903)

"With great power comes great responsibility."
- Stan Lee / Steve Ditko / David Koepp, "Spiderman" (2002)

Many state and local governments are burdened with unfunded pension liabilities. Recently it was revealed that Central Falls, Rhode Island, a small, impoverished city, has a pension obligation of $80 million. This is more than the city could possibly pay, so Central Falls is looking into filing for municipal bankruptcy. The backup plan is to go into receivership.

I wonder if this rash of municipal pension problems is caused in part because there is no one individual who is legally liable when a municipality makes pension agreements that are not fully funded. Private company officials have done the "perp walk" for not funding their pension obligations. But who will go to jail for Central Falls' pension promises that cannot be met? The mayor? City councilors? The city's union contract negotiators? And who, if anybody, should go to jail for the California pension mess?

Please contribute your thoughts: who, if anyone, should be held liable if a municipality does not properly fund its pension obligations? And if we do not hold any one person liable, what is the best way to prevent future pension crises? Feel free to also discuss the mothers of all unfunded liabilities, social security and medicare.

The Great Fall of China

"To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm."
- F. A. Hayek

"Yeah, the harder they come,
The harder they'll fall
One and all"
- "The Harder They Come" by Jimmy Cliff.

The U.S. economy may have "recovered" according to some criteria formulated in D.C., but for most American citizens, this is the weakest economy they have seen in quite a while. The last time that unemployment was hovering around 9% for this long was before WWII. Over 2.7 million Americans live in a home with a mortgage that has not been paid in more than a year. The U.S. debt crisis has become a concern for the IMF.

The financial reports from Europe are also rather grim. The one country that seems to be avoiding the downturn is China. China benefits from a steadily growing GDP and now has a substantial middle class. But all is not well for the Chinese economy. An Australian news report indicates that China has a serious real estate bubble, and when it bursts, the impact could dwarf the 2008 U.S. recession.

China has a mixed economy, and the communists still control the real estate sector. Anticipating a rapidly rising upper middle class, the communists built vast cities of luxury apartment buildings. These apartment buildings are going up faster (much faster) than the ranks of Chinese yuppies who are supposed to be renting them. There are new towns where the apartment occupancy rate is 25%. The government doesn't provide statistics, but it is estimated that China has 64 million empty apartments.

Even more amazing is the story of the New South China Mall, the largest shopping mall in the world. This impressively designed mall is more than twice the size of the Mall of America. The mall, however, lacks two essential ingredients for a successful shopping center: merchants and customers. Since opening their doors in 2005, the occupancy rate has never risen much above 1%. The New South China Mall was basically born as a dead mall.

So how will this Chinese real estate bubble play out? Anyone who has lived in the U.S in 2008 knows the script. The building owners cannot keep tossing their money into these pits forever, and will have to figure out some way to recoup some of their investment. Undoubtedly, they will have to dramatically slash rents in order to get something for their empty spaces. This will drive down the value of real estate, and therefore any fund based on property values. This devaluation weakens the economy, which creates further downward pressure on rents, therefore making the real estate crisis even worse. The situation is like the 2008 American housing market, but China's bubble is much bigger. And when this bubble bursts, it will be felt across the globe.

The impact of a Chinese bubble burst would have a mostly negative impact on European and American markets, delaying any possible recovery. But there is some good news that could come out of a Chinese market crash.

• A real estate market crash will greatly reduce the prestige and power of the Chinese communist elites. It may even bring an end to one party rule.
  
• The economic success of China has been used to advocate authoritarian measures in the west. On "Meet the Press", New York Times columnist Thomas L. Friedman asked wistfully "What if we could just be China for a day" so that we could pass measures he likes without having to go through our messy democratic process. The failure of the Chinese command economy would end this sort of totalitarian nonsense.
• The crash would teach the nations of the world a valuable lesson, namely to avoid what Nobel prize winning economist F. A. Hayek called "The Fatal Conceit", that is, the belief that "man is able to shape the world around him according to his wishes." In the wake of China's failure to create prosperity on command, governments might take a more flexible, decentralized, market-based approach to decision making.

So hard times may be with us for a bit longer, but we will eventually come out of this both wiser and more prosperous. Unfettered by bureaucracy, humans always work out some ingenious methods to create wealth. As Nick Gillespie and Matt Welch put it in their excellent new book "The Declaration of Independents", we'll see a "future so bright, we gotta wear shades."

Warring Tribes Join Forces To Fight Smut!

"Pornography is now considered as addictive as drugs"
- Rev. Jimmy Swaggart

Katie: The internet is really really great,
Trekkie Monster: For porn!
Katie: I've got a fast connect, so I don't have to wait!
Trekkie Monster: For porn!
- From "The Internet Is For Porn" by Robert Lopez and Jeff Marx

It is hard to think of a time when pornography was not in the news. When the navy seals found Bin Laden, they found a stash of pornography in his lair. Several weeks ago, Sen. Orrin Hatch sent a letter to Attorney General Eric Holder demanding more obscenity prosecutions. Going back to the 1980's, Ronald Reagan's Attorney General Ed Meese created a Commission on Pornography. A presidential commission on pornography was assembled in the late 1960's, but when this commission recommended legalization, then President Richard M. Nixon rejected the commission's findings. In the mid-sixties, financier Charles Keating (a man who later had his own ethics issues) bankrolled an anti-pornography drive.

The most interesting anti-smut movement in my lifetime was the Women Against Pornography group formed in the late 1970's. Before this group was formed, most of the support for obscenity laws came from conservative religious groups. These early Christian right groups used to argue that pornography should not be given first amendment protection because it subconsciously alters the mind, causing both addiction and a host of anti-social behaviors. Reverends Pat Robertson, Jimmy Swaggart, Jerry Falwell etc. asserted that if pornography were legal, we would see a dramatic increase in rape, adultery, divorce, teen pregnancy and wife beating.

I was in college in the 1970's, and there was strong support for civil liberties and free speech on the campuses of that era. That ended with the arrival of Women Against Pornography, a group founded to advance the work of feminist authors Andrea Dworkin and Catharine McKinnon. Dworkin and McKinnon argued that smutty books, magazines and films, and even publications as innocuous as Playboy were a crime against women. What I found remarkable about this group's arguments on the porn issue was how close it was to the case made by the religious right. These feminists said that pornography had special mind-altering properties, that pornography is like an addictive drug, and that it causes a plague of social ills. Attending one of their rallies, I felt like I was hearing Jimmy Swaggart and Jerry Falwell dressed up in drag (sorry for that rather unpleasant imagery). To be fair, the anti-porn feminists did come up with one argument not previously made by the religious right: they argued that porn convinces men that women are only good for sex, and hence porn consumers will not accept females in professional positions. I didn't find this argument convincing, but at least it was original.

Amazingly enough, this group had a profound impact on college campuses. I was astounded with how many students and professors did a 180 degree turn on obscenity laws, and doing so on the basis of arguments that were soundly rejected a few years ago. It was not as though everyone had just discovered the genius of Pat Robertson. So what happened to the ideals, such as free speech, civil liberties, and sexual freedom, that we used to share? This experience demonstrated an important principle. Although most people think that their political / social / religious views are shaped by their ideals, what really shapes their views is group identity, also known as tribalism. They feel the pressure to conform with the prevailing opinion of the social group that they are members of. The Women Against Pornography story is really about one tribe (feminists) joining forces with an enemy tribe (the religious right) in order to fight a common enemy, smut peddlers. And as a committed civil libertarian, I found it appalling that this would be the issue that brought these sides together.

Fortunately, Women Against Pornography disbanded in the late 1980's, so now only the social conservatives carry on the battle against smut. The right has lost a lot of its enthusiasm over this issue: if P. J. O'Rourke and Greg Gutfeld got together to discuss porn, they'd probably end up talking about where to find the really good stuff. But frankly, this issue was settled in the 1990's with the invention of the internet. The internet made pornography more available than ever. If there was anything to the right (or left) case against porn, then the rise of the on-line community would have been accompanied by large increases in rapes, divorces, teen pregnancies, etc. But as this Hit and Run post pointed out, all of these social ills have actually lessened since 1991.

To this, I would add that the internet also disproved the theory that porn consumers could not accept that women can be good for something besides sex. Since web browsing hit the big time, women have been swelling the ranks of many professions. And as a man, I am happy to report that the popularity of the Chippendales has not produced a hoard of women who think that men are only good for the full monty.

When Will We See War Declared the Right Way?

"The Congress shall have Power... To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water;"
- Section 8 of the U.S. Constitution

"Then it’s war!
Freedonia’s going to war!
Each native son will grab a gun.
And run away to war!"
- From "The Country's Goin' to War" by Bert Kalmar and Harry Ruby;

Pundits have criticized the U.S. bombing of Libya for its ill timing, its lack of planning, and for the fuzzy end goals. As serious as these issues are, there is an even bigger problem with this military action: is it constitutional? According to section 8 of the constitution, the power to declare war resides with congress. The decision to set up a no-fly zone was made without a vote in the house or the senate, or even consulting with most Senators and Representatives for that matter.

Does the President have the constitutional power to do this? Voices as disparate as Rep. Dennis Kucinich (D-OH) and Rep. Ron Paul (R-TX) agree that this action is clearly a violation of Obama's oath to uphold the constitution. In fact, some feel that this is an impeachable offense. One former Senator and presidential candidate said in 2007, that if then President George Bush unilaterally took military action against Iran, he would move to impeach him. That candidate was Sen. Joe Biden, our current Vice President.

In December 2007, the Boston Globe asked the Presidential candidates

"In what circumstances, if any, would the president have constitutional authority to bomb Iran without seeking a use-of-force authorization from Congress? (Specifically, what about the strategic bombing of suspected nuclear sites -- a situation that does not involve stopping an IMMINENT threat?)"

Candidate Barack Obama's response started with

"The President does not have power under the Constitution to unilaterally authorize a military attack in a situation that does not involve stopping an actual or imminent threat to the nation."

Absolutely correct, candidate Obama! Now can you please impart this constitutional expertise to President Obama?

To be fair, section 8 of the constitution has been ignored for many administrations. The last American war officially declared by congress was before the Korean war! The U.S. has not fought a war as proscribe by the constitution in my lifetime, and I fear that I might not live to see a constitutionally declared war. But previous presidents have at least had some sort of congressional vote to approve wars that did not involve a threat to the nation. Obama has crossed a new threshold with the Libyan no-fly zone.

Instead of waiting for congressional approval, our President acted on the approval of two other bodies: the United Nation and the Arab League. This is troubling for reasons other than the fact that these bodies have zero congressional authority: neither of these bodies are elected by U.S. citizens. War can impact U.S. foreign relations for generations. The cost of American wars is born by U.S. taxpayers. Our wars also kill many of the our best young people. Given the burden on U.S. citizens, shouldn't war decisions be made by a body elected by these citizens?

The wars in Afghanistan and Iraq are being fought, in part, to bring democracy to those countries. But who's fighting to bring democracy to America?

The Machinery of Egyptian Freedom

"Then said Jesus to those Jews which believed on him, If ye continue in my word, then are ye my disciples indeed; and you will know the truth, and the truth will set you free.”
- John 8:31-32

"Harmony and understanding
Sympathy and trust abounding
No more falsehoods or derisions
Golden living dreams of visions
Mystic crystals revelations
And the mind's true liberation
Aquarius...
Aquarius!”
- From "Age of Aquarius" by James Rado, Gerome Ragni and Galt Macdermot

Hosni Mubarak's brutal repression of protesters proved to virtually everyone except Vice President Joe Biden that he was a dictator. And like many dictators before him (Shah Mohammad Reza Pahlavi, Idi Amin, Bébé Doc, Ferdinand Marcos, Nicolae Ceaușescu, Augusto Pinochet and Mobutu Sese Seko, just to name a few), his own people forced his exit from power. But there is something extraordinary about the overthrow of Mubarak: he was forced out with very little real or threatened violence. In contrast to their government, the Egyptian protesters were astonishingly peaceful.

How did the protesters prevail without engaging in thuggery? The answer may be found in the 1973 book "The Machinery of Freedom" by David Friedman (son of economist and Nobel prize winner Milton Friedman). In this book, David Friedman makes the case for a much smaller government, replacing most forms of state coercion with voluntary arrangements. I learned a lot from this book, even though I do not subscribe to Friedman's rather extreme form of libertarianism. "The Machinery of Freedom" forces the reader to reflect on the assumptions we often make about the need for government power. No wonder that this book made Australia's Institute of Public Affairs list of 20 books that you must read before you die.

Two chapters of this book are quite apropos to the current middle east revolts. In "Revolution is the Hell of It", Friedman rejects violent revolution as a tactic to produce a libertarian state. Violence is counterproductive violation of libertarian principles. The final chapter, "How to Get There From Here", proposes a peaceful alternative to revolution: undermining the state's legitimacy. Even in the worst dictatorships, government power derives mostly from the majority of the population believing in the legitimacy of their leadership. They may dislike their leaders, but they think that only the current leaders can run their country, and that without these leaders, their nation would descend into chaos. As the Milgram experiments demonstrated, the pressure of group conformity can reinforce such a viewpoint. Friedman felt that an overbearing state could be reigned in through a combination of education and demonstration, convincing citizens that they can run their country without sacrificing their freedoms. As Lennon and McCartney wrote in the song "Revolution", "You better free your mind instead".

Is this recipe for peaceful overthrow of a tyrannical state too optimistic? I certainly thought so when first read this book. But consider what happened in Egypt. In a very short period, Mubarak's legitimacy vaporized. Shahira Amin, one of Nile TV' most popular journalists, abruptly quit because her network would only present government propaganda, a violation of her journalistic principles. In the days before Mubarak stepped down, there were a sizable number of policemen that refused to take action against the protesters. So somehow, the Egyptians pulled off Friedman's Utopian vision of how to end government repression.

I doubt that this kind of revolt could have happened in 1973. What made it possible today is a technical breakthrough: social networking. Earlier this year, an Egyptian blogger posted a video of police rape and torture of dissidents. And as Mubarak supporters learned, once a video hits the internet, it never disappears. This video, along with unrest in Tunisia, became popular Facebook topics. Opponents of Mubarak saw that they were not alone in their concerns. Facebook also turned out to be an excellent organizing tool. Recognizing the threat, the government tried cutting off internet access (is that the reason why there is talk in Washington about an internet kill switch?), but the dissidents found ways around this, including going back to dial-up access to foreign internet providers. So remember folks, don't throw away those 56K modems!

From the start of the Mubarak regime until shortly before his downfall, the various U.S. administrations have been solidly behind him. For that reason, it is hard to find an Egyptian protester with a positive word for an American Politician. There is an American, however, who is spoken of quite highly by these protesters: Mark Zuckerberg, founder of Facebook. If anybody gets a Nobel Peace Prize for the handling of the Egyptian crisis, it should be Zuckerberg, but unfortunately it will probably go to some politician instead. But history will remember that Facebook was a very important part in the Egyptian machinery of freedom.

Crossing the Board Game / Electronic Game Divide

"You have to learn the rules of the game. And then you have to play better than anyone else."
- Albert Einstein

"I think it's wrong that only one company makes the game Monopoly."
- Steven Wright

Video games have dominated the entertainment industry for the last few decades. The video games' older analog equivalent, the board game, has lost favor during this period. The number of board games sold last year was down 10% from the year before. In an attempt to reverse this decline, Hasbro will be releasing hybrid electronic / board games this fall. The first of these will be "Monopoly Live", followed by "Battleship Live".

The Monopoly Live board has a battery powered computer control tower at its center that guides the players through the game. Hasbro contends that this tower's guidance allows a new player to start playing right away without having to first study the rules. The tower provides the following services:

• It takes on the thankless job of banker;
• It computes taxes and mortgage fees;
• It rolls the dice;
  
• It reads the Chance and Community Chest cards (with appropriate sound effects);
• It manages the money electronically (players have ATM cards); and
  
• It runs additional games events such as auctions, horse races and tax audits.

A demo of Monopoly Live can be seen here.

Needless to say, there are purists who object to this merger of traditional gaming and electronics, defending the superiority of analog-based fun. Now I don't dispute that traditional board games can be a lot of fun. When I was a child, video games had not been invented, so my family had fun with classic board games Operation, Mousetrap, Monopoly, Life, Clue, Checkers, Chinese Checkers, and Bridge-It, as well as sadly forgotten games such as Careers and Masterpiece.

But even with these fond memories for the traditional board games, I do not reject the Live board game concept. First of all, the golden age of board games is overrated. When studying the history of a cultural phenomena, such as shopping malls, comic books, network TV, and even retro video games, one often ends up romanticizing the past. One tends to remember the successes and forget the failures. As one who lived through that era, I can vouch that for every classic board game, there were dozens of dull, uncreative games that were not worth playing once. Most of the worst board games were TV or movie tie-in games (The same thing could be said about video games). Our neighbors had a "Dick Tracy" game that was so bad, the only way we managed to have fun with it was to figure out how we could make a good game out of the game board and pieces. Note: if anyone knows of a ROM hacker who has succeeded in making a good video game out of a bad one, please tell us about it in the comments.

These "Live" games will not be the first time that electronics have promoted a board game. Two classic strategy games, Chess and Go, are probably more popular now than any time in history, thanks to the fact that one can play virtually any opponent on the planet in real time, using an internet connection. Computers almost certainly saved the game Othello from extinction. Othello is a much older game than most people realize: it was originally published as Reversi in nineteenth century England. For many decades after its invention, Reversi was known only to a small but enthusiastic group of strategy game enthusiasts. It was not until a PC version of the game, under the name Othello, that the game finally attracted a large following. There are Othello leagues in many nations, as well as international competitions. I doubt if you would be able to buy an Othello set at most game stores if it were not for the PC game.

Computers have made our work life much easier. Since the invention of the Monopoly game, file cabinets have been replaced by databases, typewriters have been replaced with word processors, checks have been replaced with electronic transfers, and postage meters have been replaced with E-mail. All of these changes allow us to do a better job with less effort. But if electronics can make our work life easier, why not use this same technology to make our gaming easier, especially since gaming is supposed to be a recreational activity?

Finally, keep in mind that the point of a board game, or any game for that matter, is to have fun, and these Live games look like they'll be a blast. I'm hoping they are working on a "Clue Live" where the tower gives voice to a detective that sounds like Basil Rathbone.