I recently watched the Cato Institute’s interns take on the Heritage Foundation’s interns in a debate on conservative vs. libertarian philosophy. [Cato does not currently have an archived video on their site.] Many aspects of the conservative/libertarian conflict were discussed, but one point, I think, deserves special consideration. A key point of difference between conservatives and libertarians is the matter of “legislating morality.”
We’ve seen this debate before — the libertarians say that the conservatives’ project of trying to legislate on drug use or sexual ethics is meddlesome and unwarranted if not downright dangerous. The conservatives retort that libertarians want to deprive the law, nay, society itself, of any ethical character or foundation. The team from Cato was far to quick to concede this point, saying that rights were logically prior to ethics, the implication being that rights claims are not ethical claims. This is not entirely accurate, illustrating a fundamental misunderstanding many libertarians have about libertarianism.
This misunderstanding is that libertarianism implies a separation of law and ethics. Certainly, there are some libertarians who advocate this. They tend to take a Hayekian approach to law, arguing that the American legal system is derived from English Common Law, an example of spontaneous order without a designer and not reflecting any certain conception of justice. John Hasnas would be a modern example of someone who thinks this way. However, you don’t necessarily need to believe the law ought to be completely amoral to be a libertarian, and I will argue that there are good reasons to believe law is an ethical matter.
Somewhat ironically, those libertarians who do believe in a strict separation of law and ethics are that much closer in philosophy to conservatives like Edmund Burke. Both argue that we ought to preserve existing institutions even if we do not have a philosophical proof that they are good. The relevant criterion is whether the institution is “time-tested,” whether it “works.” This belief is in direct tension with the moralistic paternalism conservatives argue humans require of government. This becomes apparent when we ask what it means to pass or fail the test of time, to “work.” Why do some institutions persist, and others wither away? The only answers I can see are (1) utilitarian superiority, (2) divine guidance, (3) some other reason lacking ethical significance.
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Ed Pinto, who was an executive at Fannie Mae long before it went into the toilet and nearly took the financial system down with it, notes that “the financial crisis resulted from an unprecedented accumulation of weak and risky Non-Traditional Mortgages (NTMs)” promoted by both the government and the government-sponsored mortgage giant Fannie Mae. “Each type of NTM featured increased borrower leverage and risk.”
In Government Housing Policy: The Sine Qua Non of the Financial Crisis, he describes in detail how government housing policy explicitly promoted massive increases in leverage and moral hazard by both borrowers and investors and chronicles the central role played by Fannie Mae and Freddie Mac as the clearly-acknowledged kings of moral hazard and leverage. As he points out, government involvement included the facts that (1) Congress, at the behest of community advocacy groups, forced Fannie and Freddie to replace conservative underwriting with flexible underwriting knowing that banks would follow suit; (2) Fannie vowed to transform the housing finance system using flexible underwriting, in an effort to protect its charter privileges bestowed by Congress; and (3) HUD, after a decade of effort, proudly took credit for a revolution in affordable lending. This revolution then led directly to the 2008 financial crisis, which precipitated a $160 billion bailout of Fannie Mae and Freddie Mac, the nation’s two government-sponsored mortgage giants.
(Unlike the private banks, which repaid their bailouts with interest, Fannie Mae and Freddie Mac are not expected to repay taxpayers, and their bailout tab may rise to $1 trillion, according to Bloomberg News. The Obama administration earlier lifted the $400 billion limit on bailouts for Fannie Mae and Freddie Mac, so that they could continue to buy up junky mortgages at taxpayer expense, and showered their executives with $42 million in compensation. In May 2010, the administration and its congressional allies blocked efforts to reform Fannie Mae and Freddie Mac.)
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Yesterday’s Wall Street Journal article highlights another reason why farm subsidies need to be put to rest.
Land prices are way up and so are bank deposits, as high corn and soybean prices mean local farmers are making the most money in their lives. At Sloan Implement, which sells John Deere tractors, “This could be our best year ever,” says chief executive Tom Sloan.
CEI has blogged about the archaic subsidy program before. With the budget crisis looming, Congress had a reason to cut the tax squandering program. It looks like the current economic outlook for the farming industry simply adds fuel to the fire.
What’s the reason for agriculture’s new found fortune?
The global grain markets shifted in 2006 when Washington began to require that the oil industry mix billions of gallons of corn-derived ethanol with gasoline annually. Around the same time, rising numbers of middle-class consumers in emerging economies such as China began seeking more grain-fed meat and milk, boosting demand for soybeans, pork and, most recently, corn from the U.S.
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Pedicabs are the 21st century version of the rickshaw. A two-seat carriage is attached to a bicycle, and the driver will pick up customers and take them where they want to go. They’re especially popular around the National Mall in Washington, D.C. Many of the drivers are cycling enthusiasts who get to make a little extra money and meet friendly people while getting some exercise.
The city has traditionally treated pedicabs with a light regulatory touch. At least until recently. The D.C. Council now wants to require pedicab passengers to wear seatbelts.
That’s not all. Pedicabs will be required to have standardized braking system, no doubt to the delight of at least one lucky brake manufacturer. When cars are present, pedicabs will also be required to stick to the lane closest to the curb. This is legislating common sense.
The D.C. Council is expected to pass the legislation this fall.
As if America didn’t already have enough bailouts, the Obama administration is planning yet another — one that could enrich “McMansion homeowners and property speculators.”
As Philip van Doorn notes at The Street,
A report on Wednesday that the U.S. Treasury is considering “a plan that could help 1 million or more homeowners avoid foreclosure,” leaves some very disturbing questions unanswered. First and foremost: Why should taxpayers bailout McMansion homeowners and property speculators? According to Bloomberg, the proposal is “aimed at promoting modifications of delinquent or defaulted home loans, including writedowns of principal” for “mortgages that are bundled into mortgage-backed securities not issued by government agencies.” . . .According to the report, the plan would address the difficulty in writing down the principal balances of the “nonconforming,” privately securitized mortgages because “writedowns can’t happen under the covenants governing such securities.” Private-label notes represent about 20% “of the $6.8 trillion in mortgage-backed securities outstanding.”
Supposedly, the plan
won’t cost the Treasury a thing, while obviously forcing investors to take it on the chin. The securitized private-label mortgages didn’t conform to Fannie and Freddie guidelines for a variety of reasons. Some are “jumbo loans,” with initial balances exceeding the agencies’ limit. Others are loans with small initial down payments or other higher-risk “features” that caused the government-sponsored enterprises to stay away. Finally, many of the private-label securitized mortgage loans were collateralized by investment properties or second homes.
If the Treasury indeed announces this plan, while touting its aim of “helping families,” it will be very interesting to see if the families being helped include speculators, wealthy borrowers and those who enjoy a vacation homes in the Hamptons. Of course, if the government places, as President Obama put it, “some pressure” on banks to facilitate writedowns on the private-label mortgages, the banks — especially Bank of America (BAC_) — are likely to suffer as well, possibly beyond their current expectations.
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In yesterday’s New York Times, trade economist Jagdish Bhagwati takes the Obama administration and Congress to task for letting the World Trade Organization’s Doha Round languish. Bhagwati points out that with all the attention focused on bilateral agreements, special interests can have a hey-day and exercise their clout. Witness what trade unions have increasingly demanded with the pending Free Trade Agreements, cloaking their protectionist demands with talk of worker rights.
When the United States negotiates bilateral deals with other countries, the unbalanced nature of the one-on-one negotiations also opens the way for all manner of lobbies to ram their self-serving demands into the agreements.
Bhagwati noted that in a multilateral trading system, special interest lobbies are often stymied by emerging developing nations that clearly see the anti-competitive protectionist slant.
American labor unions have learned these same tricks, urging Democratic legislators and administrations to block bilateral trade deals unless their demands for labor protections are met, as they did with the three long-delayed agreements now pending.
But larger countries with more clout, like India and Brazil, will allow no such provisions. They correctly see these labor provisions as a form of anticompetitive protectionism. And they point out that it takes chutzpah for the United States to argue for labor rights abroad that often exceed those at home.
Bhagwati calls for President Obama to bring Democrats and Republicans together to add the Doha round to the packages of pending trade deals:
The president should ask Democrats and Republicans to immediately add the Doha round, as it has been negotiated over 10 years, into the same all-or-nothing package as the three bilateral deals. Such a bold gesture has a precedent. After sitting on the fence his first year in office, President Bill Clinton embraced the cause of trade, despite the political costs, and fought fiercely, and against great odds, for the Uruguay round. Mr. Obama should do no less.
Amen to that.
A judge has ruled that the Service Employees International Union (SEIU) improperly benefited from an employer threatening workers with loss of raises in a 2010 election in California that pitted it against a breakaway SEIU local. The election was to determine whether 43,500 Kaiser Permanente workers were to be represented by SEIU, the former SEIU affiliate, or no union. The Washington Post‘s Alec MacGillis reports:
Administrative Law Judge Lana Parke ruled that Kaiser had improperly withheld pay raises from workers in Southern California who had switched to the new union and that SEIU had then improperly threatened the workers voting in the Northern California election that they, too, could have raises denied if they made the switch.
Leaders of the new union, the National Union of Healthcare Workers (NUHW), decided to split from SEIU in response to what they perceived as a power grab by the SEIU national headquarters, then under the leadership of Andy Stern.
Stern sought to consolidate several locals into a handful of giant mega-locals, a strategy that led to a series of embarrassing setbacks for the SEIU, including the split that created the breakaway NUHW and a corruption scandal in Los Angeles.
MacGillis further states:
Leaders of the breakaway union noted that the ruling came at the same time as SEIU and other unions are arguing in favor of new rules proposed by the labor relations board to reduce employer coercion against workers before union elections.
However, for NUHW to portray this incident as a case of employer intimidation is disingenuous. Kaiser’s conduct may hardly be exemplary, but its real fight was with SEIU, which has a history of making deals with employers without members’ input, and has tried to intimidate NUHW through strong-arm tactics ever since it became an independent union.
For more on the internecine SEIU fight and its related scandals, see here and here.
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