The West's protectionist war on the yuan
China apparently worked hard behind the scenes to make it through the G20 Toronto Summit without getting mentioned in dispatches. The final communique says not a word about China specifically, although the country is imbedded in a reference to the need for "greater exchange rate flexibility in some emerging markets."
But the United States wasn't going to let China off that easily. President Barack Obama issued his own final communique, zeroing in on China as the world's bad-boy currency:
A strong and durable recovery also requires countries not having an undue advantage. So we also discussed the need for currencies that are market-driven. As I told President Hu yesterday, the United States welcomes China's decision to allow its currency to appreciate in response to market forces. And we will be watching closely in the months ahead.
It was the standard U.S. pitch on China, a fake free-market curve ball accompanied by threats of a trade war in Washington: raise the value of the yuan or face tariffs on exports to the United States. In Canada and across Europe, bashing China over its currency regime has become routine. After China announced before the summit that it would allow its currency, the yuan, to rise, Canada weighed in with a condescending response. "Some countries will want to see more detail and perhaps even a schedule of some sort," said Finance Minister Jim Flaherty.
An army of Western central bankers, IMF bureaucrats and economists have joined the China currency war, with vast media support. That support is likely mostly based on the idea -- reiterated by Mr. Obama at the Toronto summit -- that the Chinese yuan become subject to "market forces." Under this good-bad currency theory, the free market is supposedly represented by a flexible exchange rate against the opposite, the pegged rate now in place in China.
But as Steve Hanke of Johns Hopkins University writes opposite, the flexible-pegged dichotomy is a false one. In free market terms, the real currency divide is over whether a currency is freely convertible into other currencies. Unfortunately, the West's obsessive fixation on the Chinese peg and the calls for exchange-rate flexibility conveniently dodge the convertibility issues. The result is a self-serving policy push from the West that is aimed solely at getting the Chinese to do one thing -- raise the yuan-- that would reduce the competitiveness of Chinese goods. That's not opening the yuan to "market forces," as Mr. Obama said. Instead, re-pegging the yuan at a higher level would simply install a yuan value within a regime that denies the Chinese and others the freedom to convert yuan into other currencies, including dollars.
The real free market option, as outlined by Prof. Hanke, is to get China to adopt a true currency fix that would give the country the best of both worlds: a stable currency and convertibility. There is no economic mystery to this: Hong Kong has had a fixed currency for decades, set at HK$7.80 to the U.S. dollar, since 1983. It remains one of the most actively traded currencies in the world.
By aiming only at currency flexibility, Canada, the United States and Europe are forcing China to move to a crawling peg that maintains and even entrenches Communist government control over the economy and undermines the freedom of the Chinese people and others who are now forced to work with the yuan. When exports leave China, U.S. dollars flow into China and, due to the lack of exchange freedom, the U.S. dollars accumulate in the hands of state agencies. What China and the Chinese people need is foreign exchange freedom to do what they want with their yuan, making their own capital investments and trade decisions. That's where the market forces Mr. Obama talks about are missing.
Exchange flexibility may also do more damage to the Chinese and world economy. Over the last decade and more, China has benefited from currency stability, with the yuan pegged to the U.S. dollar. Robert Mundell, the Columbia University Nobel economist, says the peg, even with the lack of convertibility, made it possible for the Chinese economy to grow under stable conditions. "It's wrong," he said last week, "for the U.S. to force China to destabilize the [yuan]."
Even if the yuan were to climb slowly under a controlled peg, there is little reason to believe it would have any significant impact on made-in-China exports to the West, especially the United States. Much of the value of Chinese exports to the U.S. is built into the exports before they reach China for cheap assembly and processing. Manipulating the yuan to achieve trade purposes -- which is really what the United States is trying to do -- will not do anything to create jobs in the U.S., Canada or Europe. If the revaluation is severe enough, production would move from China to other countries.
The alternative to forcing currency instability on China, says Prof. Hanke, is to fix the yuan to the U.S. dollar Hong-King style, and remove the currency controls that prevent market forces from playing out within the Chinese economy. Chinese interest rates would move with U.S. interest rates and a convertible currency would bring market forces to bear on wages and prices within China under market conditions. Investments and currency moves would also follow markets rather than bureaucratic directives.
The risk to the West of a flexible Chinese currency is an even more unstable global system. Mr. Hanke said yesterday in an interview that if China were to follow the West's advice on currency flexibility and also allow convertibility, the result would not make protectionists happy. "If they floated with full convertibility, I think there's a pretty good chance the yuan would get weaker because there would be a helluva big outflow of funds." Chinese companies, citizens and investors -- sitting on a bottled up currency--would have a strong desire to diversify their portfolios outside China.
Whatever the market outcome might be in the wake of full convertibility, the West is currently playing a protectionist game with China and the yuan. It wants a higher yuan for self-serving reasons that have nothing to do with market forces. If the West wanted to maintain stability and release market forces, it would be pushing to fix the yuan under full convertibility.
Top Republican: Raise Social Security's retirement age to 70
Boehner, the top Republican lawmaker in the House, said raising the retirement age by five years, indexing benefits to the rate of inflation and means-testing benefits would make the massive entitlement program more solvent.
"We're all living a lot longer than anyone ever expected," Boehner said in a meeting with the editors of the Pittsburgh Tribune-Review. "And I think that raising the retirement age — going out 20 years, so you're not affecting anyone close to retirement — and eventually getting the retirement age to 70 is a step that needs to be taken."
The GOP leader said Social Security was the most important entitlement to reform, though he also pledged Republicans would bring legislation to the floor to repeal and replace the healthcare reforms passed earlier this year if the GOP wins back control of the House this fall.
But Boehner also floated several other reforms to Social Security, paired with raising the retirement age, to make it more solvent. Boehner said benefits should be tied to increases in the Consumer Price Index (CPI) instead of wage inflation, and he suggested reducing or eliminating benefits to Americans with a "substantial non-Social Security income" while retired.
"We just need to be honest with people," he said. "I'm not suggesting it's going to be easy, but I think if we did those three things, you'd pretty well solve the problem."
Republicans have made cutting spending and reforming entitlement programs a key part of their 2010 campaign message.
“The choice this year could not be clearer. While Democrats are fighting to create jobs and stand up for seniors, middle class families, and small businesses, Republicans are fighting for Wall Street and to bring back the same policies that caused the worst economic crisis since the Great Depression," said Ryan Rudominer, the national press secretary for House Democrats' campaign committee.
But Nooo. The President and his acolytes in the Congress are doubling down on a bad hand. They are redoubling their efforts to jam a government takeover of healthcare down the throats of the American people.
The president has come out with a retread health plan that is sloppily conceived—the Congressional Budget Office says the “plan” lacks so many details it can’t even estimate how much the thing will cost—and stealthily designed to pull the wool over the American people’s eyes.
The Congress is contemplating ways to sidestep and circumvent the regular legislative order to railroad Obama’s latest plan for a government takeover of healthcare through the Congress despite overwhelming opposition among the people—using a tricky legislative maneuver called reconciliation that restricts debate, limits amendments and runs roughshod over the rights of minorities.
This government is out of control, and rather than negotiationg with the president and congressional Democrats, as Republicans propose to do in Obama’s TV extravaganza Thursday, Republicans should be objecting, obstructing and delaying with every means at their disposal. Now is not the time for TV posturing and backroom negotiating; now is the time for the American people to vote on the fate of healthcare. It’s called an election.
President Obama is sticking his thumb in the eye of the American people—disrespecting them—by proposing a slipshod, ill-conceived heath proposal that takes the healthcare debate from the ludicrous to the preposterous. The president is acting out as a willful child who doesn’t know when to shut up, take his medicine and listen to his elders. Like delinquent children, the president and Democrats in the Congress recognize no higher authority than their own egos. We used to call that sinful; today it’s considered SOP—standard operating politics.
The American people have rejected every variant of a government takeover of healthcare the President and his fellow congressional liberals have come up with. But like a Night-of-the-Living-Dead zombie, ObamaCare just keeps on bearing down on Americans, especially senior citizens, intent on devouring them in the name of the greater good.
A recent Wall Street Journal analysis of the President’s warmed-over healthcare takeover proposal exposes the deceit and deception at its core:
Obama's new taxes will destroy any semblance of an economic recovery, and the damage these new taxes will do to Medicare and the rationing his healthcare takeover they pay for will usher in will put old people out in the cold and into an early grave.“This new ObamaCare bargain would for the first time apply the 2.9% Medicare payroll tax to "interest, dividends, annuities, royalties and rents," so-called passive income that we are told includes capital gains, though the latter wasn't explicitly mentioned in the proposal.”
This year, Social Security begins to pay out more than it takes in; the Raid on Social Security is complete; Social Security is in deficit; Congress has drained it dry.
NOW, the president wants to start a Raid on Medicare.
Medicare already is insolvent. It has an $89 trillion (with a “t”) unfunded liability, which is five times bigger than Social Security’s unfunded liability ($17.5 trillion). Obama wants to run a version of the same scam on Medicare that Congress and past presidents ran on Social Security, namely jack up the earmarked taxes, raid the revenues, leave behind paper IOUs in the Trust Fund and use Bernie Madoff accounting to make it appear this round-trip embezzlement actually strengthened the program’s finances.
President Obama wants to levy a stealth tax on work, saving and investment under the guise of "strengthening" Medicare. All the new revenue from Obama’s new taxes will show up on the books as new Medicare revenue, which will immediately be "borrowed" by the Treasury to help pay for the new healthcare takeover. Then, just as it did for 25 years with Social Security, the federal Treasury will paper over this embezzlement—there is no other word for it—with IOUs it writes to itself; pretending those IOUs represent Medicare assets that strengthen the program’s bottom line.
If the American people swallow this Kool-Aid, it will prove Abraham Lincoln wrong once and for all: politicians really can fool all the people all the time—or at least enough of them enough of the time to work their dastardly deeds without fear of reprisal.
The latest Obama proposal to takeover healthcare is his version of the Raid on Social Security, and it must be stopped before it gets off the ground. The simple fact is, President Obama intends to raid Medicare, not fix it. He plans to use Medicare as a cash cow to fund his grandiose government takeover of healthcare at the expense of old people. This attack on Medicare and America’s senior citizens is outrageous; it borders on the criminal; it certainly is immoral.
Seniors of the nation, rise up; throw off Obama's chains—chains we can live without—you have nothing to lose but your chains.
A real right for every American
If anyone is confused about the meaning of Monday's ruling on the Second Amendment by the U.S. Supreme Court, all he has to do is look at Tuesday's newspaper.
On the same morning the court ruled that every law-abiding American has a fundamental, individual right to own a gun, a maintenance man was walking by his apartment complex in Washington's Maryland suburbs. He spotted a man attacking an innocent woman and, as a caring citizen, intervened. That's when the criminal turned on the maintenance man, forced him at gunpoint into his apartment and fired at him. Fortunately, he missed. Even more fortunate, the maintenance man was able to retrieve his own firearm and return fire, fatally wounding the intruder.
One woman, interviewed later, called the man a hero. A law enforcement officer summed up the scene, saying, "The victim... had a weapon inside the home that he used to shoot the suspect. We believe that the victim had every right to defend himself."
By incorporating the Second Amendment to apply to state and local governments, the court affirmed what most Americans have long believed - that lawful citizens, wherever they live, have the fundamental right to own a firearm to protect themselves and their families. Second Amendment rights are as fundamental as those of the First Amendment and, as Justice Samuel A. Alito Jr. noted in the majority opinion of the court, "... a provision of the Bill of Rights that is fundamental from an American perspective applies equally to the federal government and the states."
It is a landmark decision. The Second Amendment right of every citizen is now a real part of American constitutional law.
But it must be more than a philosophical victory for individual rights. Supreme Court decisions must lead to actual consequences. Otherwise, the entire premise of American constitutional authority is rendered meaningless.
The court's decision must be real, practical and experienced by any and every law-abiding American who seeks to buy and own a firearm. The court cannot be ignored, and its ruling must provide relief to those who have been deprived of their Second Amendment freedom.
The constitutional freedom intended by the Founding Fathers and confirmed by the highest court in the land is realized only when law-abiding men and women can get up, go out and buy and own a firearm.
The National Rifle Association will work to ensure that this constitutional victory is not transformed into a practical defeat by activist judges, defiant city councils or cynical politicians who seek to reverse or nullify the court's decision through a blizzard of restrictions and regulations that render the Second Amendment inaccessible, unaffordable or otherwise impossible to experience in a practical way.
No regulation can be deemed "reasonable" if it prevents or restricts the ability of a lawful American citizen to experience a constitutional freedom.
Imagine being tested, or having to leap through a labyrinth of government red tape, just to exercise the constitutional right to attend church and worship... or, as once was the case, being forced to pay a poll tax or pass a literacy test before being allowed to exercise the right to vote.
These restrictions are no more "reasonable" than those that would prevent Americans from exercising their fundamental Second Amendment rights.
And every elected official who has sworn on the Bible to uphold and defend the United States Constitution must defend the Second Amendment as ardently as the rest of the Bill of Rights.
Every citizen has every right afforded under the Second Amendment. The court confirmed it, Americans agree with it, and it is a fundamental right that must be accessible to all law-abiding Americans, wherever they live.
Wayne LaPierre is executive vice president of the National Rifle Association.
Still waiting for that middle-class tax cut
Nothing but tax hikes on the horizon for rich and poor alike
To highlight the difference between the candidate's words and the president's actions, Americans for Tax Reform this week released an "Obama tax hike exemption card." The bearer of this card supposedly can present it to any authorities that try to collect on new taxes imposed under the Obama administration. The list of these taxes grows longer by the day.
A number of the levies can be found in the recently passed Obamacare legislation. Beginning Jan. 1, for example, the "medicine cabinet tax" kicks in to prohibit the use of pre-tax dollars for the purchase of over-the-counter medicines with health savings accounts, flexible spending accounts or health reimbursement accounts. Users of all sorts of medical devices from prosthetic limbs and pacemakers to bedpans can expect to pay more. Thousands of new Internal Revenue Service agents will be hired to enforce Obamacare's tax on individuals who fail to buy health insurance.
Other taxes are going to go up, but we will have to wait until the end of the year to see by how much. The president's fiscal 2011 budget assumes that many of the George W. Bush tax cuts will expire in December. According to the Tax Foundation, the median family of four saved $2,200 in taxes each year under those provisions. Administration proposals suggest that, at a minimum, dividends will be taxed as long-term capital gains, the death tax will return, and the 33 percent tax bracket will rise to 36 percent. Although it sounds at first like these changes might only hurt "the rich," they affect family businesses, farmers and others making less than $250,000.
Mr. Obama's other proposals clearly would affect everyone, regardless of income. The president's budget initially estimated that his cap-and-trade taxes on energy would generate $646 billion in revenue over the next 10 years. The impact on families would be around $3,100 per year, on average. Combine that with other ideas the administration is exploring, such as the possibility of imposing new taxes on sodas and sugary snacks in the name of reducing childhood obesity. "Obviously there is resistance on Capitol Hill to those kinds of sin taxes," Mr. Obama told Men's Health Magazine. "It is true, though, that if you wanted to make a big impact on people's health in this country, reducing things like soda consumption would be helpful."
While the tax-exemption card is being produced in jest, the administration's proposed taxes are very real and definitely not funny.
Kagan's kabuki theater
Senate hearings expose broken confirmation process
The most important question members of the Senate Judiciary Committee should ask Supreme Court nominee Elena Kagan is, "Who do you think you are kidding?"
The hearings process for high court nominees has become ritualized to the point that it is almost useless. Nominees are extensively coached to avoid voicing a real opinion. There is no intellectual give and take. Spontaneity is largely absent. Anyone who can reasonably keep his cool and regurgitate platitudes for a few hours can enjoy a lifetime appointment to the most important judicial body in the land.
Ms. Kagan is playing her expected role in the predictable manner. We saw the same kabuki dance during the hearings for Justice Sonia Sotomayor less than a year ago. When asked by the sympathetic Sen. Patrick J. Leahy, Vermont Democrat, if she agreed that "the Supreme Court decided in Heller that the personal right to bear arms is guaranteed by the Second Amendment of the Constitution against federal law restrictions," Ms. Sotomayor answered: "It is." Yet her answer to this obviously staged question was untruthful. On Monday, Justice Sotomayor joined the Supreme Court minority in saying that there is "nothing in the Second Amendment's text, history or underlying rationale that could warrant characterizing it as 'fundamental,' insofar as it seeks to protect the keeping and bearing of arms for private self-defense purposes." In other words, when she said the right to bear arms was guaranteed, she lied.
For her part, Ms. Kagan is equally dishonest when she says that she would approach her duty impartially. We know the intellectual milieu from which she has emerged. We know that her heart and mind are devoted to leftist causes and that she can be counted on to find rationales to further those aims in whatever cases come before the court.
During the Clinton years, she manipulated medical findings to support the argument for partial-birth abortion. As Harvard Law School Dean, she banned military recruiters from the school to support the radical homosexual agenda. She argued before the Supreme Court as solicitor general that laws that suppress the First Amendment are acceptable because "there has never been an enforcement action for books." Ms. Kagan is far from the mainstream of American culture, but completely within the radical intellectual current that threatens the future of the country.
When the president can nominate mediocre candidates for the high bench and expect the nominee to get through, it is proof that the confirmation process is broken. Ms. Kagan is a perfect example. She has no experience as a judge, a weak publication record, no evidence of being a leading legal scholar, and no reputation as a prominent intellectual. She does not deserve, and has not earned, such a high position of trust and authority. She certainly does not deserve the opportunity to have her offbeat opinions read into the law of the land.
Ms. Kagan is a symptom of the problems that many Americans see with the insular, exclusionary, elitist culture that dominates Washington, the academy and much of the media. Her nomination should be rejected, and the Senate should revise its procedures so that nominees are no longer allowed to disguise and distort - or even lie about - their true beliefs.
By Tony Blankley
There seems to be one thing on which everyone can agree. From archconservative pundits to archliberal White House staffers responsible for Solicitor General Elena Kagan's confirmation to the Supreme Court, all agree that the test is whether she is in the "mainstream of current legal thought."
But it would seem to me that such a standard only makes sense if you approve of where the mainstream currently is. For instance, left-wing statists - who believe in almost unlimited powers of government, who heartily approve of the Supreme Court's ruling in Kelo v. New London (which authorized a city to take non-blighted private property from its lawful owner and give it to someone else solely so the city can make more money), who believe that the Interstate Commerce Clause authorizes Congress to regulate every action or inaction of everyone living south of Canada and north of Mexico - would like all current and future court nominees to enjoy wading in the current mainstream.
But wouldn't it make sense for those of us who believe in original intent (and in this instance "us" would seem to include almost all Republican senators, based on their public statements) to support only nominees who hold to the standard of the mainstream of legal thought as of Sept. 17, 1787, when the writing of the Constitution was completed (or perhaps as of March 4, 1789, when the Constitution went into effect)?
After all, James Madison, who largely wrote the Constitution, obviously would be unqualified to interpret it today because it is a mathematical certainty that he would be appalled at the "mainstream of current legal thought."
For instance, consider a leering Democratic senator grilling Madison in 2010 on his views concerning the current mainstream theory of "a living Constitution," which requires that the Constitution be viewed in the context of today's events. Being an honest man, Madison would have to repeat what he said whilst he was alive: "Do not separate text from historical background. If you do, you will have perverted and subverted the Constitution, which can only end in a distorted, bastardized form of illegitimate government."
Oh dear, that puts Madison dangerously outside the current mainstream.
Or what if a sensible, moderate Republican senator were to inquire helpfully of Madison whether he sees any constitutional problem with Congress authorizing bureaucrats to promulgate hundreds of thousands of complex detailed requirements to enforce a universal health law. Again, citing his statements back in his living days, the honorable Madison would be compelled to testify: "It will be of little avail to the people that the laws are made by men of their own choice if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood."
The notional senator doubtless would turn to the cameras and say: "My, my, what a Neanderthal backwoodsman this Madison character is - so out of the current mainstream of legal thought. How in the world could our federal government provide all the current and future 'services and benefits' to the citizens, if such thinking were permitted on the Supreme Court?"
That notional question is, of course, at the heart of what is quickening the countless millions in the tea party movement. If the Supreme Court would follow the dictates of the Constitution, much of the vast deficit-creating, individual-freedom-crushing current laws of the land would be unconstitutional.
Thus, Republican senators need to understand that, notwithstanding all their fine statements over the years about looking for justices who believe in "original intent" and don't believe in "creating law from the bench" will be for naught when the tea partiers measure those Googled words against the senator's Googled vote for Ms. Kagan because she is in the "mainstream of current legal thought." Changing the mainstream of current legal thought is a big part of what the November election is about.
Not just tea partiers, either. According to Gallup's most recent poll in 2009, 59 percent of Democrats like the ideology of the Supreme Court, but 58 percent of Republicans are not satisfied with its current ideology. Just 9 percent of Democrats think the court is too liberal, while 49 percent of Republicans think it is too liberal.
So when a Republican senator considers the appropriate standard for judging Ms. Kagan's fitness for the high court, he should not be fooled by the responsible-sounding phrase "in the mainstream of current legal thought."
Rather, he or she should fall back on his own often-repeated original-intent, conservative standard and filibuster the brilliant Ms. Kagan's confirmation vote precisely because she is in the current mainstream - a location that has been deeply dredged by Franklin D. Roosevelt and his progeny for the past 75 years.
This November's voters look forward to the day when Madison once again would be found in the mainstream of current legal thought - as he was when he formed the original stream.
Lion's Den: Jihadi undercuts presidentBy DANIEL PIPES
The jaw-dropping court testimony by Faisal Shahzad, the would-be Times Square bomber, singlehandedly undermines Obama administration efforts to ignore the dangers of Islamism.
Shahzad’s statements stand out because jihadis, when facing legal charges, typically save their skin by pleading not guilty or plea bargaining.
Consider a few examples:
• Naveed Haq, who assaulted the Jewish federation building in Seattle, pleaded not guilty by reason of insanity.
• Lee Malvo, one of the Beltway Snipers, explained that “one reason for the shootings was that white people had tried to harm Louis Farrakhan.” His partner John Allen Muhammad claimed his innocence to the death chamber.
• Hasan Akbar killed two fellow American soldiers as they slept in a military compound, then told the court: “I want to apologize for the attack that occurred. I felt that my life was in jeopardy, and I had no other options. I also want to ask you for forgiveness.”
• Mohammed Taheri-azar, who tried to kill students on the University of North Carolina by running over them in a car, and issued a series of jihadi rants against the US, later experienced a change of heart, announced he was “very sorry” for the crimes and asked for release so he could “reestablish myself as a good, caring and productive member of society” in California.
THESE EFFORTS fit a broader pattern of Islamist mendacity; rarely does a jihadi stand on principle.
Zacarias Moussaoui, 9/11’s would-be 20th hijacker, came close: His court proceedings began with his refusing to enter a plea (which the presiding judge translated into “not guilty”) and then pleading guilty to all charges.
Shahzad, 30, acted in an exceptional manner during his appearance in a New York City federal court on June 21. His answers to Judge Miriam Goldman Cedarbaum’s many questions (“And where was the bomb?” “What did you do with the gun?”) offered a dizzying mix of deference and contempt.
On the one hand, he politely, calmly, patiently, fully and informatively described his actions. On the other, he in the same voice justified his attempt at cold-blooded mass murder.
The judge asked Shahzad after he announced an intent to plead guilty to all 10 counts of his indictment: “Why do you want to plead guilty?” A reasonable question given the near certainty that guilty pleas will keep him in jail for long years. He replied forthrightly: I want to plead guilty and I’m going to plead guilty 100 times forward because – until the hour the US pulls it forces from Iraq and Afghanistan and stops the drone strikes in Somalia and Yemen and in Pakistan and stops the occupation of Muslim lands and stops killing Muslims and stops reporting the Muslims to its government – we will be attacking [the] US, and I plead guilty to that.”
Shahzad insisted on portraying himself as replying to American actions: “I am part of the answer to the US terrorizing [of] the Muslim nations and the Muslim people, and on behalf of that, I’m avenging the attacks,” adding that “we Muslims are one community.”
Nor was that all; he flatly asserted that his goal had been to damage buildings and “injure people or kill people” because “one has to understand where I’m coming from, because... I consider myself a mujahid, a Muslim soldier.”
WHEN CEDARBAUM pointed out that pedestrians in Times Square during the early evening of May 1 were not attacking Muslims, Shahzad replied: “Well, the [American] people select the government. We consider them all the same.”
His comment reflects not just that American citizens are responsible for their democratically elected government, but also the Islamist view that, by definition, infidels cannot be innocent.
However abhorrent, this tirade does have the virtue of truthfulness. Shahzad’s willingness to express his Islamic purposes and spend long years in jail for them flies in the face of Obama administration efforts not to name Islamism as the enemy, preferring such lame formulations as “overseas contingency operations” and “man-caused disasters.”
Americans – as well as Westerners generally, all non- Muslims and anti-Islamist Muslims – should listen to the bald declaration by Faisal Shahzad and accept the painful fact that Islamist anger and aspirations truly do motivate their terrorist enemies.
The writer (www.DanielPipes.org) is director of the Middle East Forum and Taube distinguished visiting fellow at the Hoover Institution of Stanford University.
'Vapid'? 'Hollow'? Kagan nailed it
Few events in government are as consciously theatrical as a Supreme Court confirmation. The senators are grandly arrayed in the front of the room, lacking only togas to convey their sense of austere dignity.
The audience is huddled in the rear and between them is the nominee, sitting at a large desk — facing a motley crew of crouched photographers — alone, though carefully rehearsed.
Supreme Court nominee Elena Kagan, who years ago called such hearings “a vapid and hollow charade,” helped ensure they were exactly that this week.
She also once said of the hearings a “repetition of platitudes has replaced discussion of viewpoints,” and “such hearings serve little educative function, except perhaps to reinforce lessons of cynicism that citizens often glean from government.”
So what are we to make of her opening statement, which could have served as an entry for an American Legion high school essay contest?
“I will make no pledges this week other than this one,” Kagan said, “that if confirmed, I will remember and abide by all these lessons: I will listen hard, to every party before the court and to each of my colleagues. I will work hard. And I will do my best to consider every case impartially, modestly, with commitment to principle, and in accordance with law.”
Vapid? A repetition of platitudes? Naw.
And how about the senators who could have done some real fact-finding instead of reinforcing “lessons of cynicism”? They chose reinforcing cynicism.
Republican Jeff Sessions of Alabama danced around the ring with Kagan over military recruiting at Harvard (where students are apparently falling all over themselves to get into uniform), but in the end, he didn’t lay a glove on her, being reduced to saying her statements were “in variance with reality” without having really proved it.
Sessions was followed by grocery store heir Herb Kohl, Democrat of Wisconsin, whose first question was — and I am not making this up — “Please tell us why you want to serve on the Supreme Court and what excites you about the job.”
OK, show of hands: Did he come up with that himself or did his staff have to write it for him?
One was left wondering if the public would not be better served by forcing nominees to appear on “Meet the Press,” “Face the Nation” and “This Week” — or at the very least “Larry King Live” and “The View” — instead of going through the current process.
Would we really learn less? Could we possibly learn less?
Republican Orrin Hatch of Utah began his questioning by saying to Kagan, “You’re doing well” and then asked her to answer his questions “‘yes’ or ‘no’ to the extent you can.”
For the next half-hour, she answered not a single question “yes” or “no.”
After one extended exchange, Hatch said, “We have to have a little back and forth every once in a while; otherwise, this place would be as boring as hell.”
It was, anyway, though the bizarre rambling of lame-duck Democrat (sort of) Arlen Specter of Pennsylvania did have its moments, though nothing even close to the pubic-hair-on-the-Coke-can weirdness of the Clarence Thomas confirmation hearings in 1991.
According to a Los Angeles Times profile of Kagan, some of her former colleagues at Harvard Law School said she could be “warm, obsequious, charming, intimidating and sometimes temperamental.”
Kagan did not show most of those qualities to the senators (though she did make a funny remark about probably being in a Chinese restaurant on Christmas Day “like all Jews.”)
Instead, she chose the qualities she has rehearsed for weeks: cool, calm and safe.
Roger Simon is POLITICO’s chief political columnist.
By Dick Morris
It’s one thing to say that Obama’s administration showed ineptitude and mismanagement in its handling of the Gulf oil spill. It is quite another to grasp the situation up close, as I did during a recent visit to Alabama.
According to state disaster relief officials, Alabama conceived a plan — early on — to erect huge booms offshore to shield the approximately 200 miles of the state’s coastline from oil. Rather than install the relatively light and shallow booms in use elsewhere, the state (with assistance from the Coast Guard) canvassed the world and located enough huge, heavy booms — some weighing tons and seven meters high — to guard their coast.
But … no sooner were the booms in place than the Coast Guard, perhaps under pressure from the public comments of James Carville, uprooted them and moved them to guard the Louisiana coastline instead.
So Alabama decided on a backup plan. It would buy snare booms to catch the oil as it began to wash up on the beaches.
But … the Fish and Wildlife Administration vetoed the plan, saying it would endanger sea turtles that nest on the beaches.
So Alabama — ever resourceful — decided to hire 400 workers to patrol the beaches in person, scooping up oil that had washed ashore.
But … OSHA (the Occupational Safety and Health Administration) refused to allow them to work more than 20 minutes out of every hour and required an hourlong break after 40 minutes of work, so the cleanup proceeded at a very slow pace.
The short answer is that every agency — each with its own particular bureaucratic agenda — was able to veto each aspect of any plan to fight the spill, with the unintended consequence that nothing stopped the oil from destroying hundreds of miles of wetlands, habitats, beaches, fisheries and recreational facilities.
Where was the president? Why did he not intervene in these and countless other bureaucratic controversies to force a focus on the oil, not on the turtles and other incidental concerns?
According to Alabama Gov. Bob Riley, the administration’s “lack of ability has become transparent” in its handling of the oil spill. He notes that one stellar exception has been Obama aide Valerie Jarrett, without whom, he says, nothing whatever would have gotten done.
Eventually, the state stopped listening to federal agencies and just has gone ahead and given funds directly to the local folks fighting the spill rather than paying attention to the directives of the Unified Command. Apparently, there is a world of difference between the competence of the Coast Guard and the superb and efficient regular Navy and military.
Now the greatest crisis of all looms on the horizon as hurricanes sweep into the Gulf. Should one hit offshore, it will destroy all the booms that have been placed to stop the oil from reaching shore. And there are no more booms anywhere in the world, according to Alabama disaster relief officials. “There is no more inventory of booms anywhere on earth,” one told me in despair.
The political impact of this incompetence has only just begun to be felt. While administration operatives are flying high after a week in which the president’s ratings rebounded to 49 percent, per Rasmussen, after his firing of Gen. Stanley McChrystal, the oil is still gushing and the situation is about to worsen.
The obvious fact is that Obama has no executive experience, nor do any of his top advisers. Without a clear mandate from the top, needed efforts to salvage the situation are repeatedly stymied by well-meaning bureaucrats strictly following the letter of their agency policy and federal law. The result, ironically, of their determined efforts to protect the environment has been the greatest environmental disaster in history. But some turtles are OK!
Morris, a former political adviser to Sen. Trent Lott (R-Miss.) and President Bill Clinton, is the author of "Outrage." To get all of Dick Morris’s and Eileen McGann’s columns for free by email, go to
The $5 trillion rollover
Banks around the world must refinance more than $5 trillion of debts in the coming three years, a massive rollover that poses threats to financial stability and growth.
The need to replace these debts, which are medium and long term, will place pressure on bank profit spreads and in turn may either prompt deleveraging, where banks sell assets that they can no longer economically finance, or simply lead to a bout of credit rationing, where borrowers must pay more to borrow, thus crimping investment and economic growth.
For banks in the UK, according to the Bank of England Financial Stability Report, the refinancings amount to about $1.2 trillion by the end of 2012.
If banks in Britain raise funds at the same pace they have been this year, they will only collect half of their needs in time. This is even before the fact that the banks need desperately to turn some of their riskier short-term funding into more reliable funding with a longer maturity.
“If funding costs increase dramatically, which is perfectly possible in what could be pretty febrile market conditions, that will hit profitability (and the banks ability to raise capital organically) until they are able to re-price loans and facilities,” according to Richard Barwell, an economist at the Royal Bank of Scotland in London.
“And to the extent that banks are unwilling or unable to roll over funds that would trigger forced deleveraging. Both outcomes imply a sharp contraction in credit conditions for those within and outside financial markets, putting considerable downward pressure on activity and asset prices.”
Banks outside of Britain are perhaps doing marginally better in meeting their needs, but still face an uphill struggle.
U.S. banks have issued $230 billion of debts in the first five months of the year, about 60 percent of the rate they need to achieve over the three year period. Euro zone banks have issued $133 billion, or about 70 percent of their needed run rate.
One easy to see consequence is that, all things being equal, the cost for banks to issue debt should rise, as should competition among banks for consumer deposits. It is possible that a global desire to save more helps to blunt this effect, but even so the macroeconomic effect and the effect on asset prices will both be strongly downward.
BANKS WILL HAVE THEIR FUNDS
The track record of the past three years tells us one thing is likely: the banks will get their money, courtesy of government support if needed.
Unless there is a profound sovereign debt crisis, we can count on governments taking the needed steps to see that the banking system does not fall over for lack of funding. So, if liquidity or support schemes need to be extended or invented anew, they will be.
But a banking system that has not fallen over, while a precondition for strong economic growth, is not in and of it self sufficient to cause strong economic growth. Expensive funding and a rising term premium will stunt growth and they will impose a haircut on risk asset prices.
Viewed another way, however, higher funding costs for banks is really nothing other than the market demanding a different capital structure from banks.
It is not simply that a lot of money needs raising all at the same time, but rather that the people who have in the past supplied the money have a new appreciation of the risks in lending to banks, or should that simply be of the risks of lending.
The Financial Stability Report also looks at the costs and benefits of higher amounts of capital in banking. The benefits are straightforward: a reduced chance of systemic crises. Costs are thornier, but also quite high. The BOE used an assumption that for every 7 basis points of additional lending spread charged by banks should create a 0.1 percent permanent reduction of GDP. On their estimates upping capital in banking by one percent then equates to present value cost of about 4.0 percent of UK GDP.
This puts into perspective not just how challenging it will be to create growth going forward, but just how artificially growth during the boom was goosed by very loose and easy lending.
For the UK and for Europe, this will be happening at the same time that fiscal austerity programmes will be dampening growth.
Something has to give, and it will probably be monetary policy. Look for extraordinarily low rates for a very long time, and for new and bigger quantitative easing programmes.
The G-20 Power Grab Acceleratesby Gary North
The G-8 meeting (Friday and Saturday) and the G-20 meeting (Saturday and Sunday) that were held in Canada provided the world's major political leaders a forum to promise the usual grab-bag of goodies that governments are clearly incapable of providing: (1) economic growth, meaning no double-dip recession; (2) austerity spending programs that are politically sustainable; (3) reductions in deficit spending by 50%, no later than 2013; (4) a percentage increase in GDP to match any increase in debt by 2016. Yet few if any of the leaders who promised all this will be in office in 2016. There is no way that they can assure the public that they can deliver any of these benefits.
The Canadian government had to spend over $1 billion (Canadian) on these two events, most of which went for security. The media were filled with reports on firebombings by protesters over the weekend. What was absent was any clear picture of exactly what the protesters were protesting against. For all their activities, the protesters did not get out their message.
To understand the 27-page G-20 report, you must mentally travel back 45 years to a 1965 Sunday-edition political cartoon by Jules Feiffer. It was a series of panels. Above the crowd was a pair of feet in Texas-size cowboy boots.
Q. What do you see, Mr. President-of-all-the-People?
A. I see a land where love reigns. I see great farms and great cities. I see men at work, children at play, women at peace.
Q. What else do you see, Mr. President-of-all-the-People?
A. I see the end of divisiveness and contrariness. I see small men growing large and closed minds opening wide. I see a rich harvest of book-learning and the arts.
Q. Tell us more, Mr. President-of-all-the-People.
A. I see Black and White in final harmony. Rich and poor, young and old, big and little, small and large.
Q. But what of our enemies, Mr. President-of-all-the-People?
A. I see love entering their hearts, I see understanding and good will. I see peace, sound and strong, hewn out of the rock of give and take.
Q. Is there nothing more that you see, Mr. President-of-all-the-People?
A. I see a mandate for happiness. I see the determined faces of millions – fat and skinny, tall and short, bold and shy – crying out as one: "Onward to the Great Society!"
Q. And how will all this come about, Mr. President-of-all-the-People?
A. I shall wheel and deal.
This is my favorite political cartoon of all time. In a series of panels, Feiffer nailed the preposterous theology of political salvation. Lyndon Johnson was the incarnation of this theology – more so than any President in American history. In early 1965, this faith was shared by millions of Americans who had elected him the previous November. Now he would end poverty with the War on Poverty. Now he would end political injustice with the Civil Rights Act of 1965. Also, that tiny nation the voters had heard nothing about, South Vietnam, would remain a stronghold of the Western alliance.
Three years later, he announced that he would not stand for re-election. In January 1969, he departed from the political scene, never to be heard from again.
What the "The G-20 Toronto Summit Declaration" promises to deliver to the world is comparable to what the boots in the sky promised in 1965.
RABBITS OUT OF GOVERNMENT HATS
In the Preamble, we are told:
1. In Toronto, we held our first Summit of the G-20 in its new capacity as the premier forum for our international economic cooperation.
I take seriously this declaration – the only sentence in the declaration that I do take seriously. The G-20 is now the forum by which the Powers That Be will communicate the message of international economic cooperation. Twice a year, the public will be told whatever the decision-makers choose to reveal.
Who are the decision makers? On the G-20's site, we read:
The Group of Twenty (G-20) Finance Ministers and Central Bank Governors was established in 1999 to bring together systemically important industrialized and developing economies to discuss key issues in the global economy. The inaugural meeting of the G-20 took place in Berlin, on December 15–16, 1999, hosted by German and Canadian finance ministers.
This is an accurate presentation. The finance ministers and central bank governors run the G-20 show. The national heads of state show up for photo-ops and to deliver sound-bytes for the voters back home. The national position papers are prepared by bureaucrats. Then these are reconciled by a committee that tries to keep the various national politicians satisfied.
The declaration is a statement of goals, not a description of means. The goals are the equivalent of pronouncements from boots-in-the-sky. The means are not mentioned. Good will can somehow bring forth great results.
2. Building on our achievements in addressing the global economic crisis, we have agreed on the next steps we should take to ensure a full return to growth with quality jobs, to reform and strengthen financial systems, and to create strong, sustainable and balanced global growth.
The declaration praises the decisions of finance ministers and central bankers ever since late 2008. We are assured that the largest peacetime government deficits in history, when coupled with the most rapid expansion of central bank balance sheets and the lowest interest rates in history have restored private demand.
3. Our efforts to date have borne good results. Unprecedented and globally coordinated fiscal and monetary stimulus is playing a major role in helping to restore private demand and lending. We are taking strong steps toward increasing the stability and strength of our financial systems.
There is, of course, the nagging problem of America's commercial banks. They are not lending. They are contracting their loans. They are replacing loans with excess reserves held at the central bank. But never mind this. The important fact to remember, according to the declaration, is that massive deficits and massive monetary base expansion saved the day.
There must be more, we are assured. There will be more – much more. There must be black and white. There must be up and down. There must be narrow and wide.
4. . . . To sustain recovery, we need to follow through on delivering existing stimulus plans, while working to create the conditions for robust private demand. At the same time, recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, properly phased and growth-friendly plans to deliver fiscal sustainability, differentiated for and tailored to national circumstances. Those countries with serious fiscal challenges need to accelerate the pace of consolidation. This should be combined with efforts to rebalance global demand to help ensure global growth continues on a sustainable path. Further progress is also required on financial repair and reform to increase the transparency and strengthen the balance sheets of our financial institutions, and support credit availability and rapid growth, including in the real economy. We took new steps to build a better regulated and more resilient financial system that serves the needs of our citizens. There is also a pressing need to complete the reforms of the international financial institutions.
The remainder of the declaration outlines what must be done. It does not say how this can be done, only that it must be done and will be done. This includes the following:
Strong job growth (5)
Social protection for citizens (5)
Full accountability (6)
Increasing sustainable global growth (9)
Sound but flexible budgets (10)
Cutting future debt (10)
International planning ("adjustment") (10)
More infrastructure spending (10)
More savings in trade deficit nations (11)
More domestic demand for exporting nations (12)
Fewer moral hazards for banking (15)
International peer review of planning (16)
More international regulation of banking (18)
Higher capital requirements (18)
Effective supervision of banks (20)
Restructuring of financial institutions (21)
No more taxpayer bailouts of banks (21)
Transparent international assessment (22)
More IMF and development banks funding (23)
A more resilient monetary system (31)
More money for Haiti (32)
More food security (34)
More foreign aid ("Aid for Trade") (39, 45)
Rolling back government corruption (40)
A green recovery: sustainable global growth (41)
This is the beginning. We are only at page 9. There is lots more to come. In ANNEX I, we read about these.
Again, the finance ministers and central bankers have done a spectacular job.
As a result of the extraordinary and highly coordinated policy actions agreed to at the Washington, London and Pittsburgh G-20 Summits, the global economy is recovering faster than was expected. Our decisive and unprecedented actions over the past two years have limited the downturn and spurred recovery (1).
Then comes the call for what is essentially a new era of international central planning. It begins with coordinated meshing of national central plans.
We have completed the first stage of our Mutual Assessment Process. As we requested in Pittsburgh, G-20 Finance Ministers and Central Bank Governors, with the support of the IMF, World Bank, OECD, ILO and other international organisations, have assessed the collective consistency of our individual policy frameworks and global prospects under alternative policy scenarios (5).
They plan to do much better in the future. "If we act in a coordinated manner, all regions are better off, now and in the future" (8).
The deficits are too large. The document does not say this explicitly. Nor does it use the word "austerity" with respect to budgets. Instead, it uses the word "consolidation."
However, it is clear that consolidation will need to begin in advanced economies in 2011, and earlier for countries experiencing significant fiscal challenges at present (10).
The next meeting of the G-20 will be held in Seoul in November. By then, the foundation of the new planning system must be ready.
To facilitate this process, the second stage of our country-led, consultative mutual assessment will be conducted at the country and European level. Each G-20 member will identify the measures it is taking to implement the policies we have agreed upon today to ensure stronger, more sustainable and balanced growth. We ask our Finance Ministers and Central Bank Governors to elaborate on these measures and report on them when we next meet. We will continue to draw on the expertise of the IMF, World Bank, OECD, ILO and other international organisations, as necessary. These measures will form the basis of our comprehensive action plan that will be announced in the Seoul Summit (17).
Then comes ANNEX II. This section (pp. 15–21) goes into detail about the new system of banking regulation.
The financial crisis has imposed huge costs. This must not be allowed to happen again. The recent financial volatility has strengthened our resolve to work together to complete financial repair and reform. We need to build a more resilient financial system that serves the needs of our economies, reduces moral hazard, limits the build-up of systemic risk and supports strong and stable economic growth (1).
The push to international control over banking is now moving into high gear.
The G-20 has no available sanctions. The fiscal policies (deficits) are beyond any central agency's power. So are monetary policies. So are bank capital ratios. None of the G-20 nations has honored any of the earlier accords.
Yet the document calls for more coordinated policies. It calls for the creation of a new international order, yet without calling it this. ANNEX III devotes five pages to a promise that the IMF and other international governmental agencies will increase money for the Third World beggar nations. This means that lenders will pour billions more into these sink holes, all with government guarantees and taxpayer funds. There is no end in sight. The document ends with these words:
There is still an urgency to accelerate research and development to close agricultural productivity gaps, including through regional and South-South cooperation, amidst growing demands and mounting environmental stresses, particularly in Africa. The private sector will be critical in the development and deployment of innovative solutions that provide concrete results on the ground. We commit to exploring the potential of innovative, results-based mechanisms such as advance market commitments to harness the creativity and resources of the private sector in achieving breakthrough innovations in food security and agriculture development in poor countries. We will report on progress at the Seoul Summit (24).
The central bankers created the crisis of 2008. They are now telling us in no uncertain terms that they are the saviors of the system, and that their work has only just begun.
They talk a good line. The politicians showed up and did the dance of the marionettes. But what the G-20 is all about is the creation of a new international order. Our best hope is that they will not trust each other enough to pull off their plan. That has been true in the past. Let us hope that it will be true in the future. But let us not be naïve about what they are planning. They have posted the outline for everyone to see.
Defending the Slumlord
To many people, the slumlord — alias ghetto landlord and rent gouger — is proof that man can, while still alive, attain a satanic image. Recipient of vile curses, pincushion for needle-bearing tenants with a penchant for voodoo, perceived as exploiter of the downtrodden, the slumlord is surely one of the most hated figures of the day.
The indictment is manifold: he charges unconscionably high rents; he allows his buildings to fall into disrepair; his apartments are painted with cheap lead paint, which poisons babies, and he allows junkies, rapists, and drunks to harass the tenants. The falling plaster, the overflowing garbage, the omnipresent roaches, the leaky plumbing, the roof cave-ins and the fires, are all integral parts of the slumlord's domain. And the only creatures who thrive in his premises are the rats.
The indictment, highly charged though it is, is spurious. The owner of ghetto housing differs little from any other purveyor of low-cost merchandise. In fact, he is no different from any purveyor of any kind of merchandise. They all charge as much as they can.
First consider the purveyors of cheap, inferior, and secondhand merchandise as a class. One thing above all else stands out about merchandise they buy and sell: it is cheaply built, inferior in quality, or secondhand. A rational person would not expect high quality, exquisite workmanship, or superior new merchandise at bargain rate prices; he would not feel outraged and cheated if bargain rate merchandise proved to have only bargain rate qualities. Our expectations from margarine are not those of butter. We are satisfied with lesser qualities from a used car than from a new car. However, when it comes to housing, especially in the urban setting, people expect, even insist upon, quality housing at bargain prices.
But what of the claim that the slumlord overcharges for his decrepit housing? This is erroneous. Everyone tries to obtain the highest price possible for what he produces, and to pay the lowest price possible for what he buys. Landlords operate this way, as do workers, minority group members, socialists, babysitters, and communal farmers. Even widows and pensioners who save their money for an emergency try to get the highest interest rates possible for their savings.
According to the reasoning that finds slumlords contemptible, all these people must also be condemned. For they "exploit" the people to whom they sell or rent their services and capital in the same way when they try to obtain the highest return possible.
But, of course, they are not contemptible — at least not because of their desire to obtain as high a return as possible from their products and services. And neither are slumlords. Landlords of dilapidated houses are singled out for something that is almost a basic part of human nature — the desire to barter and trade and to get the best possible bargain.
The critics of the slumlord fail to distinguish between the desire to charge high prices, which everyone has, and the ability to do so, which not everyone has. Slumlords are distinct, not because they want to charge high prices, but because they can. The question that is therefore central to the issue — and that critics totally disregard — is why this is so.
What usually stops people from charging inordinately high prices is the competition that arises as soon as the price and profit margin of any given product or service begins to rise. If the price of Frisbees, for example, starts to rise, established manufacturers will expand production, new entrepreneurs will enter the industry, used Frisbees will perhaps be sold in secondhand markets, etc. All these activities tend to counter the original rise in price.
If the price of rental apartments suddenly began to rise because of a sudden housing shortage, similar forces would come into play. New housing would be built by established real estate owners and by new ones who would be drawn into the industry by the price rise. Old housing would tend to be renovated; basements and attics would be pressed into use. All these activities would tend to drive the price of housing down, and cure the housing shortage.
If landlords tried to raise the rents in the absence of a housing shortage, they would find it difficult to keep their apartments rented. For both old and new tenants would be tempted away by the relatively lower rents charged elsewhere.
Even if landlords banded together to raise rents, they would not be able to maintain the rise in the absence of a housing shortage. Such an attempt would be countered by new entrepreneurs, not party to the cartel agreement, who would rush in to meet the demand for lower priced housing. They would buy existing housing, and build new housing.
Tenants would, of course, flock to the noncartel housing. Those who remained in the high price buildings would tend to use less space, either by doubling up or by seeking less space than before. As this occurs it would become more difficult for the cartel landlords to keep their buildings fully rented.
Inevitably, the cartel would break up, as the landlords sought to find and keep tenants in the only way possible: by lowering rents. It is, therefore, specious to claim that landlords charge whatever they please. They charge whatever the market will bear, as does everyone else.
An additional reason for calling the claim unwarranted is that there is, at bottom, no really legitimate sense to the concept of overcharging. "Overcharging" can only mean "charging more than the buyer would like to pay." But since we would all really like to pay nothing for our dwelling space (or perhaps minus infinity, which would be equivalent to the landlord paying the tenant an infinite amount of money for living in his building), landlords who charge anything at all can be said to be overcharging. Everyone who sells at any price greater than zero can be said to be overcharging, because we would all like to pay nothing (or minus infinity) for what we buy.
Disregarding as spurious the claim that the slumlord overcharges, what of the vision of rats, garbage, falling plaster, etc.? Is the slumlord responsible for these conditions?
Although it is fashionable in the extreme to say "yes," this will not do. For the problem of slum housing is not really a problem of slums or of housing at all. It is a problem of poverty — a problem for which the landlord cannot be held responsible. And when it is not the result of poverty, it is not a social problem at all.
Slum housing with all its horrors is not a problem when the inhabitants are people who can afford higher quality housing, but prefer to live in slum housing because of the money they can save thereby.
Such a choice might not be a popular one, but other people's freely made choices that affect only them cannot be classified as a social problem. If that could be done, we would all be in danger of having our most deliberate choices, our most cherished tastes and desires characterized as "social problems" by people whose taste differs from ours.
Slum housing is a problem when the inhabitants live there of necessity — not wishing to remain there, but unable to afford anything better. Their situation is certainly distressing, but the fault does not lie with the landlord. On the contrary, he is providing a necessary service, given the poverty of the tenants.
For proof, consider a law prohibiting the existence of slums, and therefore of slumlords, without making provisions for the slum dwellers in any other way, such as providing decent housing for the poor or an adequate income to buy or rent good housing. The argument is that if the slumlord truly harms the slum dweller, then his elimination, with everything else unchanged, ought to increase the net well-being of the slum tenant.
But the law would not accomplish this. It would greatly harm not only the slumlords but the slum dwellers as well. If anything, it would harm the slum dwellers even more, for the slumlords would lose only one of perhaps many sources of income; the slum dwellers would lose their very homes.
They would be forced to rent more expensive dwelling space, with consequent decreases in the amount of money available for food, medicines, and other necessities. No. The problem is not the slumlord — it is poverty. Only if the slumlord were the cause of poverty could he be legitimately blamed for the evils of slum housing.
Why is it then, if he is no more guilty of underhandedness than other merchants, that the slumlord has been singled out for vilification? After all, those who sell used clothes to Bowery bums are not reviled, even though their wares are inferior, the prices high, and the purchasers poor and helpless. Instead of blaming the merchants, however, we seem to know where the blame lies — in the poverty and hopeless condition of the Bowery bum.
In like manner, people do not blame the owners of junkyards for the poor condition of their wares or the dire straits of their customers. People do not blame the owners of "day-old bakeries" for the staleness of the bread. They realize, instead, that were it not for junkyards and these bakeries, poor people would be in an even worse condition than they are now in.
Although the answer can only be speculative, it would seem that there is a positive relationship between the amount of governmental interference in an economic arena, and the abuse and invective heaped upon the businessmen serving that arena. There have been few laws interfering with the "day-old bakeries" or junkyards, but many in the housing area. The link between government involvement in the housing market and the plight of the slumlord's public image should, therefore, be pinpointed.
That there is strong and varied government involvement in the housing market cannot be denied. Scatter-site housing projects, "public" housing and urban renewal projects, and zoning ordinances and building codes, are just a few examples. Each of these has created more problems than it has solved. More housing has been destroyed than created, racial tensions have been exacerbated, and neighborhoods and community life have been shattered.
In each case, it seems that the spillover effects of bureaucratic red tape and bungling are visited upon the slumlord. He bears the blame for much of the overcrowding engendered by the urban renewal program. He is blamed for not keeping his buildings up to the standards set forth in unrealistic building codes that, if met, would radically worsen the situation of the slum dweller. Compelling "Cadillac housing" can only harm the inhabitants of "Volkswagen housing." It puts all housing out of the financial reach of the poor.
Perhaps the most critical link between the government and the disrepute in which the slumlord is held is the rent control law. For rent control legislation changes the usual profit incentives, which put the entrepreneur in the service of his customers, to incentives that make him the direct enemy of his tenant-customers.
Ordinarily the landlord (or any other businessman) earns money by serving the needs of his tenants. If he fails to meet these needs, the tenants will tend to move out. Vacant apartments mean, of course, a loss of income. Advertising, rental agents, repairs, painting, and other conditions involved in re-renting an apartment mean extra expenditures.
In addition, the landlord who fails to meet the needs of the tenants may have to charge lower rents than he otherwise could. As in other businesses, the customer is "always right," and the merchant ignores this dictum only at his own peril.
But with rent control, the incentive system is turned around. Here the landlord can earn the greatest return not by serving his tenants well, but by mistreating them, by malingering, by refusing to make repairs, by insulting them. When the rents are legally controlled at rates below their market value, the landlord earns the greatest return not by serving his tenants, but by getting rid of them. For then he can replace them with higher paying non-rent-controlled tenants.
If the incentive system is turned around under rent control, it is the self-selection process through which entry to the landlord "industry" is determined. The types of people attracted to an occupation are influenced by the type of work that must be done in the industry.
If the occupation calls (financially) for service to consumers, one type of landlord will be attracted. If the occupation calls (financially) for harassment of consumers, then quite a different type of landlord will be attracted. In other words, in many cases the reputation of the slumlord as cunning, avaricious, etc., might be well-deserved, but it is the rent control program in the first place that encourages people of this type to become landlords.
If the slumlord were prohibited from lording over slums, and if this prohibition were actively enforced, the welfare of the poor slum dweller would be immeasurably worsened, as we have seen. It is the prohibition of high rents by rent control and similar legislation that causes the deterioration of housing. It is the prohibition of low-quality housing by housing codes and the like that causes landlords to leave the field of housing.
The result is that tenants have fewer choices, and the choices they have are of low quality. If landlords cannot make as much profit in supplying housing to the poor as they can in other endeavors, they will leave the field. Attempts to lower rents and maintain high quality through prohibitions only lower profits and drive slumlords out of the field, leaving poor tenants immeasurably worse off.
It should be remembered that the basic cause of slums is not the slumlord, and that the worst "excesses" of the slumlord are due to governmental programs, especially rent control. The slumlord does make a positive contribution to society; without him, the economy would be worse off. That he continues in his thankless task, amidst all the abuse and vilification, can only be evidence of his basically heroic nature.