The Swine Flu Is Already Infecting American Business

The Washington Post reported today that the Treasury Department has created a plan to take a 50-percent ownership stake in General Motors; however, bondholders, who are critical ownership stakeholders, are recalcitrant.  The other major decisionmaker is the United Autoworkers (UAW).  An analysis of the plan follows.

US Government Wants to Partially [sic] Nationalize GM

Below I list the three major ownership constituencies of GM, the capitalization invested or owed by each party*, and the resulting ownership stake the government will "grant" each party.  (*Note that, while the UAW has not invested directly in GM, it is owed $20 billion for a health fund for retired workers.  This trust is roughly equivalent to an ownership stake.)

You don't have to have solved Fermat's Last Theorum to do the math:  Bondholders have invested almost fifty percent more than the union, yet the union will own almost four times the amount of GM as the bondholders will.  Bondholders have invested more than fifty percent than the federal government has, yet the government will own more than five times as much GM as the bondholders will.

So, in keeping with the Statist, worker-friendly, business-unfriendly attitude of the Obama Administration, this much is clear:  The government takes care of itself and the union, and leaves bondholders out to dry.

The bondholders still have until May 8th to agree to this plan, or else GM will almost assuredly have to declare Chapter 11 bankruptcy, under which its assets will be sold off for a fraction of their sticker price.  Nevertheless, the bondholders believe that bankruptcy might present them with the best salvage opportunity.

This formula does not bode well for "kick-starting" the economy, because "bondholders" will be a dying breed -- potential investors will treat future bond offerings like the plague.  Not exactly the best way to encourage investment.

The Fatuity of the Supporters of the Gov't Nationalization Plan

And, again, we see the so-called mainstream media acting as the government's press agency.    The Washington Post story buried the details of the government's plan in the middle of the story, and did not even provide a simple analysis of the relative winners and losers of the plan.

Defenders of the government plan offered up biased, feeble support that was rife with errors of principle and purpose.  The Washington Post reported the Obama Administration's (unattributed, of course) defense of the union's proposed ownership stake:

"Administration officials argued that the UAW was making other sacrifices in wages and benefits, and that the company could not function without workers."

Actually, Unnamed Administration Officials, GM can function just fine without workers -- without UAW workers, that is.  Plenty of foreign automakers have plants operating in the U.S. without UAW workers.  The big difference between their plants and every UAW-dominated plant, of course, is that the non-unionized plants are ... profitable.

The very next paragraph showed how little Representative Gary Peters (D-MI) understands basic business concepts:

"Our state has been hit hard enough already," Rep. Gary Peters, (D-Mich.) said in a statement. "The purpose of providing General Motors taxpayer funded loans was not just to keep GM in business, but to preserve American jobs. . . . We all know that GM must make cutbacks, but preserving as many American jobs as possible must be the primary goal of all restructuring efforts."   [emphasis mine]

No, Congressman Peters, the primary goal of "all restructuring efforts" is to return GM to profitability, so it becomes a going concern -- without the need for continued taxpayer welfare to prop up GM's fetid business model.  "Preserving as many ... jobs as possible" is exactly what GM (and Chrysler and Ford, for that matter) has been doing for years.  That business practice, without buyer demand to soak up the supply of cars, led GM to bleed itself dry of cash.

And, to top it off, the Washington Post reports the infamous politician's trick of saying exactly what the public wants to hear, shamelessly ignoring facts that dispute his assertions:

"But the Obama administration said yesterday that it would not seek any seats on the company's board and vowed to take a hands-off approach to GM management. "This administration and this government have no desire to run an auto company on a day-to-day basis," said White House press secretary Robert Gibbs."  [emphasis mine]

How quickly Mr. Gibbs (conveniently) forgets.  Not one month ago, the Obama Administration forced out Chief Executive Officer Rick Wagoner because officials felt he was unable to lead GM to success.

And, does anyone believe that the Administration will stand by and let GM continue to build SUVs and pickups (its only profitable vehicles)?  The Administration merely needs to assert that it must intervene in GM's operations in order to act as a "prudent steward" of the taxpayers' money.  It can then claim the high moral ground, and proceed to implement the Administration's wishes -- not the wishes of GM.  Or the taxpayers.

Not quite 100 days into office, President Obama is doing a fine job of putting big business under the thumb of the State.  The potential long-term damage is clear.  In addition to investment in American industry potentially being snuffed out, big business now understands that the once-unthinkable step of the federal government injecting itself into (or making) corporations' financial, strategic, and structural decisions is not only real, but commonplace.  (For any doubters, see: entire investment and commercial banking sector.  See: Chrysler.)

And, for anyone who thinks that GM will be the last company in which the Administration wants to tamper, I have a blank sheet of paper entitled "The Government's Guide to Better Business Practices" to sell you.

Obama and Torture: Truth or Consequences?

As the entire world now knows, President Barack Obama has released selected memos from the Bush Administration that detail certain aspects of the so-called "enhanced interrogation" ("torture," according to anyone who is honest) program.

The release of the memos has triggered a storm of controversy among liberals and conservatives.  How Obama handles this will reveal a lot about his true intentions.

Back to the firestorm.  Liberals want blood -- specifically, Bush Administration officials' blood, for approving and engaging in torturing of suspected al Queda operatives.  (And, also, simply because they are Bush Administration officials.)  Conservatives also want blood -- anyone's blood who threatens national security by releasing interrogation techniques which would, presumably, alert America's enemies about how we extract information from captives.

On Sunday, Rahm Emmanuel followed up the memos' release by stating unequivocally that prosecuting Bush Admin officials involved in the torture program was off the table.  (Generating predictable outrage from the left.)  Just 48 hours later, however, Obama wavered a bit on Emmanuel's stance, and indicated that he was not interested in prosecuting those who conducted the torture; however, he left open the possibility of prosecuting officials who provided legal justification for the torture.  (Generating predictable outrage from the right.)

As I have written before, I am firmly opposed to torturing captives for two reasons:  first, because it is not been shown to extract useful, actionable information; rather, the captive tends to "reveal" whatever he or she believes the guards want to hear.  Secondly, and more importantly, I believe that torturing another person -- especially by the State, which can always concoct a reason in the name of "national security" -- is morally reprehensible.  No government should ever have that authority -- especially since torture has been shown not to work.

One of the emerging debates about the government's torture program is whether or not actionable intelligence was obtained.  The Bush Administration, no surprise, has been trumpeting that the program yielded information that helped stave off terrorist attacks.

Clearly, governmental inquiries of some type will occur to understand the "value" of the program, as well as its legality.  Such detail will be important, in case future geopolitical circumstances devolve ... to the point where government officials determine that torturing captured enemies for their intelligence is worthwhile.

I see a government investigation proceeding in one of two ways:  1) a search for the truth (to guide future decisions, among other reasons), in which case the best approach would be to grant complete immunity to participants; or, 2) a criminal prosecution, in which case immunity would not be granted to all participants.

According to Emmanuel, the administration is not interested in pursuing a criminal investigation.  According to Obama, those who provided the legal justification and cover for the torture might be prosecutable.  

Granted, Congress operates independently of the executive branch, and may proceed along a path different from what Obama would prefer.  Nevertheless, he will certainly share his preference regarding the direction and purpose of any inquiry.  Where he ultimately leans will be quite telling.

So ... what shall it be -- truth, or consequences?

Reflections on Tax Day and Taxation

"The intelligent man, when he pays taxes, certainly does not believe that he is making a prudent and productive investment of his money; on the contrary, he feels that he is being mulcted in an excessive amount for services that, in the main, are useless to him, and that, in substantial part, are downright inimical to him."

- H.L. Menken, More of the Same (1925)

April 15th has come and gone, and I felt it appropriate to share some my thoughts about that deadline for submitting income taxes, and about taxation in general.

With the possible exception of conscription, taxation is the most direct and visible State intervention into our lives.  Whether one believes the current level of taxation is appropriate or not, there is no escaping the blunt reality that it is forced confiscation of citizens' private property.  (With the State having a legal monopoly on violence, "forced confiscation" is not an exaggeration.)

Taxes fund government for tasks that people believe the government can perform, or perform better, than they can.  Just about everybody agrees that, at a minimum, taxes are necessary to fund government to perform the following:  1) defend Americans from foreign and domestic threats, 2) develop and maintain infrastructure (i.e., roads, bridges, etc.), and 3) enforce contracts.

Once the government moves beyond those three basic functions, however, no topic elicits greater controversy and heated debate than the "proper" amount of taxation needed to support "necessary" government services.  I, for one, think it unfathomable that people are content with having almost 50 percent of their income confiscated via taxes.

Perhaps the most brilliant, and pernicious, action the government implemented is the automatic withholding of federal income, state income, Social Security, and Medicare taxes from paychecks.  The government knew that citizens would have fewer objections to paying high taxes if they never saw their full paycheck; mindsets would adjust to recognize only their take-home pay.  

Just think about the concept of automatic withholding:  The government takes your money out of your paycheck before you even see it -- and it's hard to miss what you never see.  Essentially, the government has granted itself a greater claim to your income than you have, a Big-Brother concept if there ever was one.

As a small-business owner, my taxes are not withheld -- I send estimated federal and state income tax payments every calendar quarter.  Let me tell you -- it is no fun writing checks to the government for thousands of dollars every three months.  That simple act focuses one on the direct link between your income and government spending, and the government knows this.  Government spending would be a fraction of current levels if automatic withholding never existed.

Another simple change that would directly affect government spending would be if Tax Day occurred one week before elections were held.  Imagine how different the candidates would campaign if they knew voters' mindsets were shaped so recently by the grim reminders of paying taxes.

Of course, politicians understand how viscerally opposed people are to having taxes raised, which is why the federal government -- Republicans and Democrats alike -- has been funding itself via deficit spending.  

Deficit financing is pure heroin to politicians -- since the "benefits" are seen almost immediately (at least, if the recipients have "shovels" at the "ready"), and the costs are pushed into the future (when the politicians are no longer in office and unaccountable), it is almost costless.  The politicians get to hand out buckets of cash to their voters, and they will be long gone before the deficits have to be repaid.

Parallels Between Maritime Piracy and Home Defense

As I'm sure everyone on the planet knows, the U.S. cargo ship Maersk Alabama was attacked recently by pirates.  As of this posting (April 11, 2009), the captain was still being held by the pirates, though the crew of the Maersk Alabama was able to fight off the pirates and is now safe in Kenya.

Piracy off the coast of Somali is serious business -- one source has reported that pirates were paid over $150 million in ransom just from November 2007 to November 2008.

Why the prevalence of the piracy?  Because the area in question is enormous -- over a million square miles -- making it very difficult for navies to patrol.  Also, the International Maritime Organization (IMO), a specialized agency of the United Nations, prefers military action to be initiated by nations, rather than by the individual ships.

As I watched the saga of the Maersk Alabama unfold, I could not help but notice a parallel to the gun rights debate in this country.

Consider this:  Various organizing bodies prefer that individual ships' defense against piracy be limited to escape measures; should a ship be taken captive by pirates, the preferred course of action is to let national governments' militaries and hostage-negotiation personnel handle attempts to recover the personnel and the ship.

Translation:  If piracy is threatened, undergo escape or defensive -- but nonviolent -- measures to prevent a ship takeover.  However, if such actions are unsuccessful, do not resist with force.  Leave follow-up negotiations and any potential military responses to the countries' armed forces.  Do not try such efforts yourselves.

How similar to the current, state-supported approach to crime:  Undergo preventive measures -- install security systems, locks, etc. -- but, should an invader enter, or threaten to enter, your home, try contacting 911 and wait for the police response.

In both situations, waiting for the so-called 'cavalry' to arrive is, all-too-frequently, going to be too late.  By the time a country's navy, or a precinct's police force, is able to respond to the crime, the aggression has already occurred -- and any casualties tend to be weighted unfavorably to the unarmed parties.

However, should a merchant ship, or a person's home, be stocked with people trained to respond to aggression with aggression, not only does the ship or home stand a better chance to remain secure, but the chance of future attacks is reduced, as would-be criminals will pass up an armed camp in favor of a defenseless one.

Such a stance, however, is not favored by States, because that takes power and authority out of their hands, and into the individuals' hands -- thus limiting their reliance on the State for protection.  (And what authority wants to yield influence and power?)

A New Big, Bad SEC Sheriff In Town

Today, Zachary Goldfarb in the Washington Post profiled the new Securities and Exchange Commission (SEC) enforcement director, Robert S. Khuzami. Completely unsurprisingly, the pro-establishment slant could have been submitted directly by the SEC's press office, an annoying a teeth-gritting pattern I have discussed before.

In addition to the Washington Post siphoning work from John Nester, Khuzami's comments are troubling for anyone who values liberty and a fair, nonintrusive government. Let's deconstruct the fawning bio article.

Khuzami discusses how the SEC has been tarnished by the Bernard L. Madoff fraud, leading to plans to "shake up" his team of 700 lawyers and -- you can see this coming a mile away -- "put more arrows in the SEC quiver." (Has any government bureaucrat ever expressly stated a need to tone down its authority?)

As if having whistleblower Harry Markopolos tell the SEC for NINE YEARS about Madoff's alleged fraud wasn't sufficient "firepower"? Markopolos did all the work for the SEC -- the agency merely had to open its mail. But, of course, the oldest admonition in the book -- more authority is not needed; simply enforcing existing rules would suffice -- would fall on deaf ears.

So, to be clear, the governmental agency falls on its face humiliatingly, and yet it will be rewarded with increased power. This is the same bureaucracy to whom people are willing to hand over their healthcare.

...Khuzami continues: "We'll distinguish ourselves in the future by being fast and furious."

Wonderful. Given that white-collar financial crimes are incredibly complex and arcane, what is not needed is painstaking, analytical investigation. Not sexy enough. What IS needed, instead, is the Wall Street equivalent of jackbooted clowns SWAT teams launching illegal no-knock raids. Yup, "fast and furious" lawyers will certainly (not) dot i's and cross t's to ensure effective prosecutions. Perhaps Khuzami is using that language to appeal to the anti-finance sentiment in the country.

In case the reader is not concerned about this soon-to-occur grab for power, consider the words of Alfred Jay Nock in Our Enemy, The State:

"[E]very assumption of State power, whether by gift or seizure, leaves society with so much less power; there is never, nor can be, any strengthening of State power without a corresponding and roughly equivalent depletion of social power."

One can already sense that Khuzami is yearning to hear the strains of Il Buono, il Brutto, il Cattivo play as he swaggers through the doors of the NYSE's trading floor.

Abolish the Estate Tax

The debate of the estate ("death") tax has resurfaced.

President Obama's American Reconstruction and Reinvestment Act of 2009 ("ARRA"), better known as the stimulus bill, contains language to freeze the estate tax permanently at 2009 levels, but Senators Jon Kyl (R-AZ) and Blanche Lincoln (D-AR) have proposed an amendment to reduce the rates.

What follows is my rationale, from a libertarian perspective, about why the estate/inheritance/death tax is unsound, and why it should end.

Background
The 2001 tax-cut law (Economic Growth and Tax Relief Reconciliation Act of 2001, or EGTRRA) gradually phased out the estate tax by raising the exemption level and reducing the top rate. In 2009, estates valued at more than $3.5 million per individual ($7 million per couple) owe tax, with a top rate of 45 percent. Under EGTRRA, the tax will disappear completely in 2010 but reappear in 2011 under its 2001 parameters, with a $1 million exemption and a 55 percent rate on the largest estates.

President Obama has proposed extending the tax permanently at its 2009 level (taxing estates worth more than $3.5m/$7.0m at up to 45%). The Lincoln-Kyl amendment to the budget resolution would pave the way for subsequent legislation to increase the exemption to $5 million per individuval/$10 million per couple, and reduce the top rate to 35 percent.

Ideological Debate
Few issues divide people as starkly -- few fence-sitters here -- as how the government should treat a person's wealth after he or she dies.

Liberals believe that taxing an estate -- especially for the rich who, they assume, can "afford" it -- is eminently fair, as a redistributive measure towards those less fortunate.

A more ideologically honest argument in favor of the estate tax, I believe, would be that passing wealth on to one's heirs provides them with an unfair, unearned financial advantage in the game of life.

I believe the so-called "death" tax should be eliminated entirely for multiple reasons.

Fiscal Reason for Eliminating the Estate Tax

The fiscal reason is that any assets -- be they real property, financial, business equipment, personal property, etc. -- have already been taxed multiple times. Consider, for example, the tax obligations placed on a car purchased in Virginia (where I live):

• The car must be paid with income reduced by state and federal income taxes.
• The cost of the car itself is increased by three percent sales tax.
• Every year thereafter, the owner is assessed a five-percent personal property tax (although some relief is provided).

The end result is that shrunken income is used to purchase property made artificially more expensive by the government. (And, remember, the tax must be paid with taxable income.) While, it should be remembered, the State wants to extend its reach one last time when the owner dies, and confiscate half of the estate's value.

Philosophical/Ideological Reason for Eliminating the Estate Tax

I can understand (though disagree with) the thinking that guides the rationale of inheritances offering unfair to the heirs -- for why should someone who did not earn those assets be given essentially an unearned advantage in life?

Holders of that argument ignore -- nay, dissolve -- the rights of the property owner (i.e., the bequeathor). I have yet to hear a cogent argument about why the State deserves a claim on property of the deceased.

The inevitable, inescapable act of dying, it is implied, confers property rights for those assets to the State, which is a perfect example of the State's confiscatory nature to coercively demand any and all rights and property from the citizens.

As the economist Murray Rothbard states in For A New Liberty:

"Many people are willing to concede the justice and propriety of property rights and the free-market economy....But they balk at one point: inheritance. [W]hat ... is the justification for someone whose only merit is being born a Rockefeller inheriting far more wealth than someone born a Rothbard? The libertarian answer is to concentrate not on the recipient, the child Rockefeller or the child Rothbard, but to concentrate on the giver, the man who bestows the inheritance. For if Smith and Jones and Stargell have the right to their labor and property and to exchange the titles to this property for the similar property of others, they also have the right to give their property to whomever they wish."

The reality, I think , is that those in favor of an inheritance tax would probably not want their inheritance to their children halved. If that is the case, it is not logical to wish the opposite on someone else. Therein lies the basic flaw in so many ideological arguments: "Do as I say, not as I do."