The World According to Nick
Politics, News, Photography, and Triathlons... What don't I talk about?
Thursday, September 08, 2011
Is Fraud Required to Make Social Security a Ponzi Scheme?

There has been renewed debate, after some comments leading up to last night's Republican Debate, as to whether or not Social Security is a Ponzi Scheme. When defending Social Security against this particular claim, it's supporters generally include a list of attributes of a Ponzi Scheme, and how Social Security doesn't meet the criteria. But before we get too much into this, what exactly is a Ponzi Scheme? Here is one good definition I found:

A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors.

Fairly straight forward. It is a scheme in which no real investment occurs, but instead money is paid to early entrants by later entrants into the scheme. As long as money keeps getting paid into the system by later entrants, then the scheme continues paying the earlier entrants. Now, so far, I think that Social Security meets this definition. No real investment actually occurs in this scheme. While some people may consider "Treasury Bonds" to be an investment, all you're actually doing is funding government operations on the promise of later payments from future taxpayers, who also have to buy into Social Security. So those general tax revenues to pay off the Treasury Bonds, combined with the Social Security taxes paid by current workers, pay for the benefits of past workers.

The one thing that many people argue make Social Security differ from a Ponzi Scheme is the notion of fraud. It is argued, correctly, that Social Security is not fraudulent, because regular public reports are made regarding all these income sources and payments. However, is fraud a necessary attribute of a Ponzi Scheme? The real question is, why is fraud one of the attributes of a Ponzi Scheme?

The answer lies in the fact that a Ponzi Scheme is voluntary. People voluntarily invest their money into the scheme, because they believe it is a real investment with a good rate of return. The fraud is only necessary to fool people into buying it. In fact, once the reality of the scheme is discovered by investors, and they stop paying in, the scheme collapses. This idea begs the question... is there an alternate way to get people to invest into a Ponzi Scheme that doesn't require fraud?  The answer is yes, and is how Social Security operates. Also unlike a typical Ponzi Scheme, Social Security is not voluntary. This is why fraud is not a necessary component to the system, because there is no choice but to invest.

To truly answer the question as to whether Social Security is or isn't a Ponzi Scheme, one merely needs to ask what would happen if Social Security stopped being mandatory, and instead was a voluntary system. With all the information known about how Social Security operates, would people continue to voluntarily pay into the system? More importantly, if people stopped paying into the system, would it collapse? The answer to the latter question is a resounding yes, and the answer to the former is probably.

In fact, when possible solutions to Social Security's solvency are discussed, one of the popular options is to raise the Social Security tax. A normal Ponzi Scheme operator would never be able to get away with this once the scheme began it's downfall. Only a system where payment was not voluntary could say that current entrants must pay more to keep the early investors solvent. A normal voluntary Ponzi Scheme would collapse. The Social Security Ponzi Scheme on the other hand merely forces the current "investors" to pay more.

And that is why Social Security is a Ponzi Scheme even without an element of fraud.

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Friday, August 05, 2011
We Do Run Our Criminal Justice System Like We Run Our Elections

Roland Melnick, over at Badger Blogger, wonders what would happen if we ran our criminal justice system like our elections operate. His assertion, using Sandy Pasch as an example, is that we let people running for office get away with lying and cheating, even if those lies get them elected. He then goes on to compare this to the "exclusionary rule" in the criminal justice system, and argues about how terrible it would be in our criminal justice system if we let the police get away with lying and cheating, and still let the evidence into court, and convict criminals. He asks why we can't hold our elections to the same standards that we hold in the justice system? I'm assuming that he would like to see election candidates "excluded" from running if caught in some act of election related misbehavior.

The problem with his assertion is that the "exclusionary rule", while in existence in theory, doesn't exist in practice, and so the criminal justice system already works just like he says our elections currently do. In theory, the exclusionary rule is supposed to be a check on police abuse. If the police don't get a warrant for a search, or perform some other act where evidence is illegally obtained, it is supposed to be suppressed during a trial. And of course, most people actually believe this happens. After all, you see motions to suppress succeed all the time... on television shows like Law & Order. If only real life were actually like television.

The reality is that the exclusionary rule has taken a beating over time, and that so many exceptions exist to the exclusionary rule, that it might as well not exist anymore to give false hope to defendants who have suffered at the hands of abusive police tactics. One district judge described it this way:

The district judge stated that the granting of motions to suppress was 'almost as rare as hen's teeth. I think I have done two in ten years and none in federal court.'

This was an especially sad note:

In a major metropolitan public defender's office, if you win a suppression motion, someone in the office will bring cake.  It's that big of a deal.

One major exception to the exclusionary rule is the good faith exception, described this way:

There are numerous exceptions to the exclusionary rule.  There's the good faith exception to the exclusionary rule.  Under the good faith exception, when an officer makes a mistake of law or fact, the evidence won't be excluded. The good faith exception has become so dominant that it's more accurate to say we have an exclusionary exception to the good faith rule.

And then came the Supreme Court's terrible decision in Herring vs. United States. In that case, they decided that evidence can't be thrown out when it was due to "isolated negligence". In fact, Antonin Scalia has said that the exclusionary rule doesn't need to exist any more because the police have shown "new professionalism" in the last 20 years that makes it unnecessary because they can police themselves. Of course, the idea that the police can police themselves is as laughable as the idea of an honest politician. There is the always present "blue wall of silence", and also the fact that police enjoy qualified immunity from being sued while performing their duties.

This isn't to say that all police are bad people... in fact for most police officers the exact opposite is true. But the police also are human beings that respond to incentives. When there is pressure on police to make a bust, and they know they can get away with cutting corners, they will. And the fact that the courts don't provide a much needed check on that abuse has been very costly to our criminal justice system. The result is that the police can, and often do, cut corners around your rights while performing investigations.

The fact that our election system behaves the same way is no surprise. After all, the same incentives still apply... and people who benefit from cutting corners in elections also make the rules for elections.

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Thursday, August 04, 2011
Irony in Violent Rhetoric

Monday was a very momentous occasion in Congress. Not only was a debt ceiling compromise bill passed (which didn't actually cut the budget at all, despite what you've heard), but it marked the return of Representative Gabby Giffords. This was her first vote after being shot in the head, and enduring a long, painful recovery process.

Most of us probably still remember the news of Gifford's shooting, and the great debates which took place afterwards concerning the "violent rhetoric" which lead up to the shooting. There were the debates over what words were appropriate... and some people even tried to pass bills outlawing the use of targets in ads and political speech. Democrats all around the country blamed Republicans and their violent language for her shooting. The violent rhetoric, we were told, had to be eliminated before anyone else was hurt.

So you'll understand the irony I see in the fact that so much violent rhetoric is now being thrown in the direction of the Tea Party (and other Republicans) regarding the Debt Ceiling vote... the very first vote Gabby Giffords made after she was shot. They've been called terrorists, Hezbollah, suicide bombers, Satanic... and probably worse, if that's possible. They say that the memories of voters is short, and apparently the memory of politicians is even shorter.

"What happened to civility in politics?", they all cried. The reality, of course, is that it never existed in the first place:

Despite the fact that we've been calling politicians the most horrible things, and wishing upon them the most horrible pains, since the inception of this country... people will always claim that they've been virtuous, and the other side is the one with the problem. So let this serve as a reminder to all. Even on the day that Gabby Giffords returned to the House floor to vote... people couldn't put their violent rhetoric aside.

CATO has more on this re-emergence of violent speak.

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Tuesday, June 07, 2011
Should We Care About Weiner's Wiener?

So by now, you've probably heard. Weiner did in fact take pictures of his wiener and send them out on Twitter. He wasn't hacked... he was just stupid. Really stupid. Should we care? You might be surprised by my answer, but I think we should care... a lot.

In the past I've generally been pretty hard on Republicans who have issues keeping it in their pants, especially when it's with other men. After all, if they want to use the power of government to restrict people's ability to marry who they want, and want to demonize people's sexual choices when running for office, then I think their extra-marital affairs are fair game. But what about someone like Weiner? Democrats generally don't demonize people's bedroom behavior, so doesn't he deserve a pass? Had you asked me a couple years ago, I would have probably said yes, but no longer.  In fact, I think no member of government should have their private lives free from public scrutiny, whether Republican or Democrat.

In the last several years, we've seen an incredible increase in the amount of intrusion the government makes into our lives. Most of it is done with the belief that those who are elected into office know better than we do how our lives should be run. From how our finances work, to our insurance, how much salt and fat we eat, smoking, child care... the list is almost endless. So as we put more and more responsibility for our lives in the hands of those who govern, doesn't that give us a right to know whether they are actually... responsible? And let's face it, putting pictures of your junk on Twitter is not something a responsible adult does... it's something a stupid teenager does. Do I really want a teenager running my life?

How many other stupid teenagers are there in government? Frankly, I want to know. Members of government (both elected and employees) should be required to give open access to both their personal and work emails, Facebook, bank accounts, etc. to anyone who wants it.  After all, with the recent renewal of the Patriot Act (by Autopen I might add), the government has almost unlimited access to our personal bank records, email, etc. with no need for a warrant. So why should we allow people to have that kind of awesome power without having to prove themselves worthy? Some might argue that winning an election is enough... but clearly... if Sarah Palin can be elected to be the chief executive of a state, and someone like Rep. Weiner can win an election in New York, then elections just aren't cutting it.

If those in government want this kind of awesome control over our lives, then they must prove themselves worthy. You want more and more of my money? You want more and more control over my life? Then you better have a spotless record, and make impeccable decisions in every aspect of your life, both public and private, and be willing to prove it on an ongoing basis.

Now I'm sure there are those who would argue that if we had that kind of scrutiny of our public officials, then nobody would be willing to serve in government. Frankly, I see that as a feature, not a bug. It's high time that members of government felt what it was like to be under the microscope. After all, right now they think they don't even have to go through a TSA checkpoint to fly on a plane. 

Maybe if we made the expectation of no-privacy known, those in power would rethink their current attitudes. And if they don't, then at least we can all look forward to a few more laughs as we pry into the private lives of some stupid teenagers... or at least adults that are acting like teenagers.

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Tuesday, March 15, 2011
Well Played Sir

Tim Cullen, one of the 14 Democrats who fled the state to avoid voting on the Budget Repair Bill has put forward a new Constitutional Amendment:

A Democratic state senator wants to make it impossible for senators in the future to block legislative action by leaving the state.
Cullen said his proposal for a constitutional amendment would simply eliminate the requirement currently in the state constitution that three-fifths of state senators be present for the body to vote on certain fiscal bills, including those that contain spending items.

This is a brilliant tactical move. It's a way of publicly saying "We're sorry, and we promise we'll never do it again" while at the same time forcing the hands of Republicans. As we all know, both Republicans and Democrats love to use procedural gimmicks. Just look at the Filabuster in the United States Senate. When Republicans are in charge, and Democrats use it, then Republicans complain about how the Democrats are stopping the will of the majority. But when the shoe is on the other foot, then the roles exactly reverse and Republicans talk about the proud history of the Filabuster.

Of course, Wisconsin has no concept of the Filabuster. But Democrats invented a new one... the quorum call. I'm sure some Republicans were thinking to themselves... "Why didn't I think of that?!" And now that the Democrats opened the can of worms... they're scared to death that in the future when they have the Senate majority back, it might be used against them.

But, by putting forward this amendment now, Democrats are putting the Republicans in a pretty tough position. If they vote for the Amendment, then they are letting the Democrats be the only ones to play with a shiny new toy. But if Republicans don't vote for this, then they have no credibility when they complain about how the Democrats fled the state before.

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Tuesday, March 08, 2011
Is This What Democracy Looks Like?

If you've watched video of, or been to the Madison protests as I have (three weekends in a row now), you've certainly heard the phrase yelled "This Is What Democracy Looks Like!" Democracy, it seems, has a definition as loose as the term "activist judge". It means whatever we want it to mean at the moment to help our particular political cause along. Of course, the right to protest, or as the Framers called it "peaceably assemble" and the right to "petition the Government for a redress of grievances" are both guaranteed in the Constitution. And as I've mentioned before, both sides have taken freedoms with how far they are willing to stretch the definition of "peaceably".

But do protest and Democracy go hand in hand? There are arguments to be made on both sides of this issue, but it's important to remember how Democracy actually works. Democracy can be defined in many ways, with concepts such as "government by the people" and "one person, one vote"... it also has the notion of "majority rule". But as with any system where the majority has ultimate power, the rights and freedoms of a minority group can be trampled. And so ultimately, it is important to define what the majority can rule.

In the last several decades especially, both Republicans and Democrats have gone to great lengths to increase the scope of what the majority can rule at all levels of government. From attempting to control the types of foods that we eat, to the health insurance we can buy, to how we save for our retirement. Our government has turned away from a Democratic government, to one of Rule by Committee. In a truly Democratic government, the scope of the government is constrained to those issues that truly affect all people. Government should not control what I eat, because my food choices do not affect yours. Where I choose to invest my money does not change how you can or should invest your money. Government's job is not to create a cookie cutter society where all people are made to choose the same things, because we are all different people, with different goals, values and needs. Attempting to create "one size fits all" laws simply does not work, because nobody likes clothes that don't fit.

And so, it shouldn't surprise us that these protests have come about. The Tea Party protests over ObamaCare were simply a response to the overreach of the Democratic (party) majority trying to create a cookie cutter law that the minority didn't want. They saw their rights being infringed, and they protested that. And now we have another minority group (public sector unions) protesting what they see as the revocation of a basic right... the right to collectively bargain.

Of course, collective bargaining as a right is a tricky one. As a general principle, I believe that people have the right to form a union and attempt to bargain collectively. This is tied to Freedom of Association. And just like people can form corporations, or other groups where there are shared values and goals, people ought to have the right to form unions. But bargaining and contracts are a two way street. And the reality is that unions only have the large amount of power that they do now because laws exist which force employers to bargain with them. And while I think its fine for unions to form... it is not a right to force other people to bargain with you. And that is essentially what we have now.

Public sector unions are even worse, because the consequences to bad contracts are essentially non-existent to both sides, as Shikha Dalmia explains:

The reason, explained Orin Kramer, the chairman of the New Jersey Investment Council, in The New York Times, is that the government can use accounting methods and make assumptions about investment returns that private companies are simply not permitted. This diminishes its reserve requirements, freeing it to make lavish promises now and postpone the budgetary consequences into the future. Public unions go along with this subterfuge—something that private unions wouldn't do - because they count on the government’s taxation powers to keep refilling the trough.
But the problem is that the government eventually either runs out of other people's money or it becomes politically untenable to keep raiding their pockets or both. And, at that point, the massive powers it had deployed against taxpayers get redirected towards thwarting those with claims against the government.

In the case of private sector unions, everyone benefits from transparency... especially the unions. If a company promises all sorts of thing that ultimately can't be paid for, the company goes into bankruptcy, and the union risks the benefits they bargained for (unless you're talking about GM). In the case of public sector unions, transparency is actually penalized, because the people doing the bargaining aren't ultimately paying the bills... the taxpayers are.  And when money is tight, lawmakers often times redirect money away from pension contributions to other things so they can keep taxes down, and services constant, even though they are running a structural deficit. This creates a system where the two parties at the table benefit from gaming the system, because they ultimately don't pay the bills, and are able to increase the benefit structure. When that bill ultimately comes due however, as we're seeing in many states, including Wisconsin, the choices become very stark. Hike taxes, cut benefits, or bankruptcy.

Now, at the point in time when that choice must be made, the taxpayers are suddenly brought into the loop. Having been kept in the dark regarding how we got into that situation in the first place, it's no wonder that there is some shock, confusion, and anger. You have one side demanding that they keep the benefits they've become accustomed to, and you have the other side wondering why their bill is suddenly so large. In the case of private sector unions, if the cost becomes too great, than the company suffers, and people stop buying products and services from that company. In this way, there are external forces which keep both sides in check.

In the case of public sector unions however, there is no choice regarding whether or not to pay taxes. In this way, there is no opportunity for people who disagree with the cost of services to stop using and paying for those services. And so what starts out looking like an attempt by a minority group to simply protect their rights is really an attempt to force people to pay for something they may or may not want. Thus you have people saying that Wisconsin is in fact not broke, because we can simply increase taxes to cover the increased cost of benefits. That's like saying that a college student can never go broke because they can always go to mom and dad for more money to help out. At a certain point in time, mom and dad say no.

It's ironic too. Public sector union members often times say that they "sacrifice pay for increased benefits and job security". But they do so in a deal with the government, where everyone is supposed to have a say in how that government is run. When suddenly that government (of the people) decides they don't want that deal any more, Democracy is suddenly about their own protectionism, and not about what the elected majority want any more. But that is the chance you take when you work for a government that is ultimately controlled by the people. As they say, live by the sword, die by the sword.

The reason why we have these protests is that we've forgotten what Democracy is in fact supposed to look like. A small government which only attempts to legislate the small number of things where there is true common cause. When we attempt to make Democracy look like something else, a government made to benefit one group at the expense of another, nobody benefits, and you are left with our current chaos.

This isn't what Democracy is supposed to look like.

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Friday, February 25, 2011
The Koch Brothers Aren't Conservative

One of the more interesting things to come out of the Koch Brother's episode with Scott Walker is everyone's description of the Koch Brothers.  Both Democrats and Republicans keep talking about the Koch brothers, and most often describe them as being "conservative" philanthropists. I hate to break it to both sides, but the Koch brothers aren't Conservative... they're Libertarian.

It's an important distinction that both sides should pay attention too, because Democrats certainly shouldn't vilify them, and Republicans shouldn't be taking so much credit as if they're cut from the same cloth. As has been noted in several web sites, the Koch brothers are major donors to different Libertarian think tanks including the CATO Institute and the Reason Foundation (which publishes Reason Magazine) and the Institute for Justice.

Among the various "conservative" causes that CATO and Reason support are:

  • Ending the Drug War
  • Legalizing the Gay Marriage
  • Cutting Defense Spending

More specifically, they both joined with George Soros (*gasp*), and donated millions of dollars to the ACLU for the specific purpose of defeating the Patriot Act. Talk about Conservative right? And all those are definitely things that Liberals would hate supporting huh?

But hey, maybe the Koch brothers are only fans of the "conservative" parts of those organizations... except of course for the fact that David Koch was on the Libertarian Party Ticket in 1980 as the Vice Presidential Candidate.

So to those Liberals who vilify the Koch brothers for what they support, why don't you want to legalize Gay Marriage, end the Drug War or roll back the Patriot Act? And to those Conservatives who are so willing to turn a blind eye to their support for those same causes which you obviously disagree with... why are you so willing throw away your core beliefs for money? Do you give them a kiss after they leave their money on the pillow for you?

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Thursday, January 27, 2011
State of the Union Address - Summary

So now that the alcohol has metabolized, and I've had a chance to really digest what was said (and I'm not as busy), I figured it would be worth providing some final thoughts to the State of the Union which I live blogged two nights ago. What struck me early on was how little substance there was. I know it seems like most State of the Union addresses always contain more flowery language than substance, but this one seemed to be even more devoid of specifics.

Obama did a nice job recognizing the Republican achievement of the election, as well as highlighting the fact that tax cuts actually were passed as part of the stimulus. In effect, he tried to make himself look Conservative. In fact, one of the surprises from the speech (in my opinion) wasn't what he talked about, but rather what he didn't talk about... gun control. After what happened to Rep. Giffords, it would have been easy to make that a central point in the speech, but he never even mentioned it. Later on in the speech, Obama also surprised me by barely mentioning immigration reform. No proposal, no grand ideas... merely a promise that we must do something and that it will be difficult. Well... duh.

One of the things that is very typical of State of the Unions is the propensity of Presidents to very quickly state one thing, and then propose a program or solution that will do the exact opposite. State of the Unions tend to beg for opposites. In this case, it was Obama talking about the need to "win the future", when all he could do was talk about the past. He did this not only by invoking the memory of Sputnik, but with his stories of times long one by when people might start working at a company out of high school and continue on at that same company until retirement. And while that is rarely the case any more, he actually showed no reason why this change was bad. In fact, from my own personal experience, I think we're better off as a society when this happens as infrequently as it now does. Companies are more free to shed dead weight without guilt, and people are required to keep their skills honed. Of course, he immediately transitioned to the bogeyman of China and India, because after all, those countries run manufacturing like we used to and look how much they export! We must catch up! But Obama's view on trade is incredibly short sited. A "trade deficit" is not a bad thing, if it allows you to buy certain things cheaper than you can build then so that you can allocate those savings in other things. And that's precisely what we do.

Another place where he swung wildly from ideal to the opposite reality was in his view of innovation. He said "None of us can predict with certainty what the next big industry will be or where the new jobs will come from." And yet, almost immediately he lists the industries that he wants to not only stop giving subsidies too (which is fine by me), but also all the new industries that he wants to subsidize. And yet it begs the simple question... If we can't know what next big industry will be successful, how can the government choose to subsidize and choose one? Of course, Obama touted the government's minor involvement in the start of the internet, and with GPS, but I believe incorrectly tries to take credit for the micro chip, which was developed by Texas Instruments and Bell Labs... no government help needed. The light bulb? Television? Telephones? Even his beloved railroad. Entire industries cropped up without the government so much as planting a seed.

His commitments to higher education also show a basic misunderstanding of the cost and benefits of a college degree. The more money which the government has pumped into colleges and universities, the more expensive it has become. Government money doesn't reduce the cost of the education... its merely treated as icing on the cake for Universities. Government wants to give everyone an extra few grand for college? The colleges will simply bump up the prices by a few extra grand. How handy. And where does it lead us? More graduates with Journalism degrees, Women's Studies degrees and the ever valuable degree in Art History. The Chinese won't stand a chance.

Most troubling was Obama's continuation of the tradition of Presidential ignorance in the responsibilities of the Federal government in primary and secondary education. Presidents, with greater frequency and power, have made it seem as if they controlled the curriculum of our students, and paid our teachers, instead of our States and local School Districts. The only thing the Federal government can do is tax us locally, launder the money through the Dept. of Education, and then blackmail states into changing requirements to get their own damn money back. Why? Because nowhere in the Constitution does it actually say that the Federal government can control education.

As if all these false promises weren't enough so far, he then adds to the pile by promising reforms to regulations that hurt businesses. He then goes on to list all the supposedly good regulations that shouldn't be touched, that hurt businesses greatly, from the newest banking regulations (which have caused massive increases to fees for consumers) and ObamaCare which will increase health care costs, and creates great uncertainty for business which makes them afraid to invest. And of course, let's not forget his meaningless promise to cut spending, much of which is actually just a promise to reduce the size of an increase, not actually decrease spending. And let's not forget, we have to reform Social Security, but do it in such a way that nobody will lose anything. Yeah... good luck with that. I'd like a pony while you're at it.

At the end of the night, we were left with a lot of platitudes, and no real ideas... and certainly nothing controversial. Maybe that was the goal the entire time, but it just seemed flat. Megan McArdle says that it reminded her of a speech given by the CEO of a dying company. And if you're looking for more specific rebuttals of the ideas that Obama put forth, CATO put together this fantastic video:

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Tuesday, January 25, 2011
State of the Union Address - Live Blogged!

I normally haven't done this, but for some reason I feel the need to blog the State of the Union address... so I'll be doing that live, with a beer in my hand. As I said on Twitter earlier, I would prefer it if the President delivered the State of the Union in the form of a letter (a proud tradition started by Thomas Jefferson and continued for about 100 years). Jefferson believed that giving the State of the Union in a speech to Congress resembled the British practice of the Monarch's Speech from the Throne. So, with all that said, please stop back at this post around 8PM Central, and watch my commentary fly by! You won't be sorry... well... maybe you will be.

Update: I'll also be live blogging the responses by Paul Ryan and Michele Bachmann. For some background on my views regarding Paul Ryan, check out my previous posts about him (Hint - I don't really like him).

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Tuesday, December 14, 2010
Is Health Insurance Like Car Insurance?

In case you hadn't heard yet, a Federal District Court has ruled the mandate portion of ObamaCare is unconstitutional. This of course brings up a lot of interesting questions. First of all, other district courts have ruled the law to be constitutional, and other cases still haven't made their way through the system, so this will almost certainly end up in the Supreme Court. And in response, many people are pulling out their old favorite... comparing compulsory health insurance to compulsory auto insurance. After all, most states require drivers to carry auto insurance, so why can't the Federal Government require people to buy health insurance?

I'm going to skip past the most obvious difference... one is a state regulation, while another is a Federal Regulation which ought to be constrained by the Commerce Clause. Instead, I'm going to concentrate on the fact that compulsory health insurance is completely different than compulsory auto insurance. The key to this argument is understanding who the insurance is meant to protect.

States which require drivers to carry auto insurance require that they have some minimum level of liability insurance (usually a combination of bodily injury and property damage liability). What that means is that if you cause an accident with your car, the insurance that you are required to purchase will pay the other person's hospital bills, as well as pay to repair any damage to their car or other property (if you were to hit a house for instance). What that insurance won't do is pay for your hospital bills or damage to your car. In other words, the state requires that if you are going to drive, then you have to have insurance to pay for any direct damage you may cause to another person during the operation of your automobile.

Now then, some people will then come forward and recall that when they bought a new car, they were required to show proof of a comprehensive insurance policy. But it's important to note two things. First of all, that is not mandated by the state. It's mandated by your loan company as a condition of getting an auto loan. Secondly, it's not intended to protect you. It's intended to protect the loan company.

In the case of an auto loan, your car is the collateral for the loan. If you fail to make your loan payments, then the loan company can repossess your car, and attempt to sell it in order to recuperate the money. The loan company is naturally afraid that if you were to total your car, then you'd simply walk away from the loan, and they'd have nothing of any value to repossess and sell. They require you to have a comprehensive auto insurance plan so that they can get paid if you destroy your loan collateral. Most banks have similar requirements to carry home owners insurance as a condition of home loan for the exact same reason. If your house is destroyed in a fire, they want to make sure that you won't walk away from the mortgage and leave them with nothing to sell. Furthermore, once you have paid off your loan, you are free to drop the comprehensive insurance plan, even if you aren't selling the car.

So how is the ObamaCare mandate different? ObamaCare requires that you buy health insurance, to protect yourself. Some people will argue of course that by not carrying health insurance, you have an indirect influence on health care because you might go to an emergency room and not pay after. They have no proof that you will directly do that. You might decide to pay for x-rays and a cast for your broken arm with cash.

With car insurance mandates, there is a direct liability, and damages that you directly cause. In the case of health insurance, there is a Rube Goldberg argument that you're not carrying health insurance might cause some other prices to go up depending on all sorts of bowling balls rolling down hills, turning on fans, and dominoes falling in the right order. Auto insurance mandates force you to protect other people who you might directly harm. The ObamaCare mandate is meant to force you to protect yourself. This is why it is such a fundamental blow to individual liberty.

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Thursday, December 02, 2010
Do We Have a Right to Free Movement?

For those who have been following me on Twitter, you know that I think the Transportation Security Administration is a complete waste. They are ineffective agency, who is abusing their power, and not only violating our dignity, but our Constitutional Rights. In fact, I am so upset by what they do, and how they do it, that I can't say I even respect anyone who works for the agency. If you choose to work there knowing what they do to people, then you deserve all the derision that travelers dump on you daily. There are actually people who suggest that we "thank" members of the TSA for groping us and taking pictures of our naked bodies. I suppose they also "thank" employees of the IRS for auditing them too.

There has been a lot of commentary regarding the TSA and their ineffective and unwarranted searches of people in a lot of places. Certainly Bruce Schneier and his roundup is well worth a read, not only for commentary, but also great explanations of why everything the TSA is completely worthless. More importantly is this great analysis of why the current search regime is unconstitutional. Many of those who argue for the TSA claim that "flying is a privilege", and therefore, if you don't like the searches, you just shouldn't fly. The problem with this theory is that the government is ensuring that no matter how you choose to travel, you must either be licensed, or you must submit to a search.

One could argue that if you don't want to be searched, then you can take a bus or a train. But as this video demonstrates, the TSA is now beginning to do searches at intermodal stations that serve intra-city buses and trains (video via The Agitator):

One important thing to note about this report is that they are doing more than simply searching for explosives, or other devices that could cause harm to people on the bus or the train. They said they were searching for people carrying unusual amounts of cash, or other contraband as well as checking identification to ensure you are legally in this country (papers please). In other words, they are using the fear of terrorism to get around the basic 4th Amendment protections against illegal search and seizure. They don't want to bother with probable cause, and instead just want to search everyone and see who is breaking the law. This is precisely what the 4th Amendment was designed to prevent.

I'm sure there are then people who would argue that traveling on a bus or train is a privilege, and not a right, and that you should simply drive. The problem with this is that in order to drive, you must be licensed by the government to do so. Even if you are licensed by the government to travel, you might still be searched by the TSA according to this news report:

Local law enforcement and federal agents conducted a checkpoint operation Tuesday afternoon in Douglas County, the Federal Air Marshal Service told the AJC.

"This is a live operation intent on deterring would-be terrorists or criminal activity," Nelson Minerly, spokesman for the federal agency, told the AJC.

The operation created a big distraction to motorists heading eastbound on I-20 in rush hour, and many motorists let the AJC and the WSB traffic center hear about it.

But the operation, which also involves the Transportation Security Administration, is top-secret before it happens, Minerly said.

"We don’t advertise when they're going to happen or when they're going to be," Minerly said.

Mostly trucks were being checked, Minerly said. Shortly before 6 p.m., nothing had been recovered in the operation, he said.

"There's no specific threat," Jon Allen, regional spokesman for the TSA, told the AJC.

It's a little unclear whether any passenger vehicles were also checked, but note that they were looking for terrorists or criminal activity. This is certainly a violation of the 4th Amendment, and as The Agitator points out, has already been ruled unconstitutional under Indianapolis v. Edmond, not that this stops the federal government. This is no longer about protecting us from terrorism. This is about a naked power grab, and how the government wants to simply search everyone, at any time, for any reason.

The question that I pose in the title of this post, "Do we have a right to free movement?", is an important one. If we believe that free movement is a constitutionally protected right, then the government cannot demand that we give up other constitutional rights in order to exercise it. For instance, you cannot be forced to give up your right to free speech in order to exercise your right to vote. All rights sit on equal footing, and you don't have to be forced to choose among them. Moreover, the government cannot place an undue burden on citizens who try to exercise that right. By forcing citizens to submit to searches no matter what mode of travel they choose, the government is essentially forcing those who wish to be free of unreasonable search and seizure to hike long distances by foot.

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Monday, October 04, 2010
Republicans Think Voters Are Too Stupid to Understand What They'll Do

At least, that's the argument that Patrick McIlheran makes in this blog post regarding why Republicans aren't talking about Paul Ryan's "Roadmap to America's Future"... and he seems to be OK with it. It's Republican Strategery, or something:

Don't sell the 434-point plan, argues Fred Barnes in Weekly Standard about Republican strategy in the upcoming elections. Sell the conservative candidates and reliable conservatism.

Barnes points out that this worked for New Jersey Gov. Chris Christie. His spending and tax cuts are popular in practice, but he didn't detail them before the election – so that Dems couldn't use them as specters. "Instead," Barnes writes, "he concentrated on Democratic governor Jon Corzine as the main issue - and won," by promising to be a better alternative.

John Boehner is all over this strategy as well. When asked what Republicans would cut when voted in, he said:

Let's not get to the potential solutions. When you start down that path, you just invite all kinds of problems.

In other words... point out how bad it is to have the White House and Congress controlled by one party, and how bad of a job they're doing, and promise to be different. Hmmm... where have I heard that before? Is this Republican "Hope and Change"? And remember, don't be specific about the changes that you'll make. Just promise to be better, and more conservative, just like you were in the first six years of the Bush Administration... when Republicans increased the size of the Federal Government to levels never before seen, increasing both the deficit and debt to record levels?  You'll forgive me if I'm not impressed by this bold plan for the election. You'll certainly forgive me for not calling Republicans "reliable" in their conservatism. We've been down this road before, and we didn't like who we got. That's why Republicans got booted out four years ago.

The whole argument about Democrats using "specifics" as a specter is even stranger to me. Have you not paid attention to the Tea Party? Patrick must, because he blogs about them quite often. Tea Partiers are demanding specifics! They're even going after long time Republicans because they aren't being small government enough, and aren't talking about specific changes. To suggest that voters will be scared away by these specifics is a claim that voters are too stupid to understand the implications of cuts in government. Republicans are now channeling Nancy Pelosi when she said during the Obama Care debate that "We need to pass the health care bill to find out what's in it."  Republicans are now saying to voters that you have to vote for them to find out what bills they'll pass. But the problem with that concept is that voters no longer trust Republicans to do what they promise. We are demanding specifics, because that's the only way they can be held accountable for their actions... or inactions.

Even Newt Gingrich, the "family values" Speaker who can't stay faithful to a wife to save his life, who loves bashing Democrats on their fiscal non-restraint can't bring himself to mention specifics:

Gingrich offered up this weak sauce: "I would start and I'd go through this budget pretty dramatically and I would eliminate a great deal of federal bureaucracy. I would reform unemployment compensation. I would reform workman's comp at the state level. I would have a very pro-jobs, very pro-savings, very pro-take-home-pay policy."

You may recall candidate Barack Obama's pledge to go through his budgets "line by line" to eliminate wasteful programs and enact a "net spending cut" while also lowering taxes of the middle classes and "reforming" various programs in ways that would magically reduce the deficit. We have seen how that movie played out.

The interview got worse. "Would you make cuts in Social Security and Medicare?" Lauer asked.

Gingrich: "No, no."

All of this seems to circle around the Republicans latest "Pledge to America", and speculation that Paul Ryan, author of the Roadmap to America's Future, was left out of it's drafting. I've blogged about my feelings regarding Paul Ryan many times, so I won't rehash them here. Ryan is now saying that he is playing a key role behind the scenes... almost like he's an Ace up the Republican sleeve. The leadership is promising, he claims, to honestly take this up after they're elected. And yet, the Pledge to America (downgraded from an actual Contract like last time because voters foolishly thought Contracts were legally binding) contains nothing of the Roadmap. In reality, it merely promises to rollback spending to the levels that existed before Democrats were voted in. You remember, don't you?  Those are the levels that were double what they had been before George W. Bush took office... which was when they got booted out the last time for spending too much.

And do you remember how Republicans cried over Obama Care, and how large the actual bill was? They claimed that with a document so large, people couldn't understand it. After all, the Constitution is small and succinct, and look at how successful it is! But when it came to their own Pledge to America, they created a 48 page when two pages would have worked just as well:

When you consider the title pages, table of contents, and other virtually blank pages, only half of the Pledge to America is devoted to text, which is set with big margins and lots of space between the lines. Since the text is repetitive and consists largely of rhetorical flourishes, the actual substance probably could have been boiled down to a single two-sided sheet. Think of it as a metaphor for the federal budget - or for Republican promises of fiscal restraint.

But at the end of the day, we're left with a single question. Are Republicans avoiding specifics now because they are simply hoping to ride a wave of voter anger into office, with no intention of following through? Or are they doing like they've always done and avoided specifics, but this time with the intent of doing what they've never done before, and actually attacking the size and scope of federal government? Albert Einstein once said that the definition of insanity is doing the same thing over and over again and expecting different results. And with that, I say that any voter would be insane to vote for a Republican who doesn't make concrete promises, and expects them to make concrete changes.

Republicans are now asking that we trust them to do the "right thing". How stupid do they think we are?

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Tuesday, September 28, 2010
Obama the Tyrant

There was a time in my youth (a relative phrase) when I threw around certain words for casually than I do... tyranny, dictatorship, etc. to describe things I disagreed with. I rarely if ever do anymore. One reason I stopped is because I came to the realization several years ago it doesn't actually change anyone's mind. Words have meaning... and when you use the wrong word to describe something, they simply ignore what you say. Screaming tyranny and dictatorship is the equivalent of a band turning up the volume and playing louder when they're out of tune.

The second reason I stopped is because I also came to the realization that both of the current parties... well... suck... hard. They have mastered this very simple trick, where every couple of years they simply trade places in the majority, by playing off of people's fears regarding certain social issues, call each other out on certain economic issues, and then don't really change anything once they have power. Republicans scream for smaller government, and yet when they had the opportunity during the first 6 years of the Bush Administration, they increased Federal spending by record amounts (only to be later trumped by the Democrats).

Did that make Bush a tyrant? Or Obama? Put plainly... no. Liars and thieves? Yes. As Radley Balko pointed out though, this does make Obama a Tyrant (emphasis in the original):

At this point, I didn't believe it was possible, but the Obama administration has just reached an all-new low in its abysmal civil liberties record.  In response to the lawsuit filed by Anwar Awlaki's father asking a court to enjoin the President from assassinating his son, a U.S. citizen, without any due process, the administration late last night, according to The Washington Post, filed a brief asking the court to dismiss the lawsuit without hearing the merits of the claims.  That's not surprising:  both the Bush and Obama administrations have repeatedly insisted that their secret conduct is legal but nonetheless urge courts not to even rule on its legality.  But what's most notable here is that one of the arguments the Obama DOJ raises to demand dismissal of this lawsuit is "state secrets":  in other words, not only does the President have the right to sentence Americans to death with no due process or charges of any kind, but his decisions as to who will be killed and why he wants them dead are "state secrets," and thus no court may adjudicate their legality.

Balko goes even further:

You can't even make the weak argument that the executive at least has to claim this power in the course of protecting national security. Because it doesn't matter. Obama is arguing that he has the right to keep everything about these executions secret - including the reasons they were ordered - merely by uttering the magic phrase "state secrets." In other words, that this power would only arise under a national security context is deemed irrelevant by the fact that not only is Obama claiming the president's word on what qualifies as "national security" is final, he's claiming the power in such a way that there's no audience to whom he would ever need to make that connection.

Obama has already cited "state secrets" in several Bush era cases regarding wiretapping and torture, even though he specifically campaigned on stopping those extreme measures. Now he's going one further, saying he has the unilateral right to kill an American with no review or recourse.

What is sad here is that Republicans, in their zeal to remove Bill Clinton from office for cheating on his wife, have turned impeachment into a game. This is why impeachment exists. Ordering the assassination of an American citizen, without due process of law, certainly should qualify as a high crime worthy of impeachment. The even sadder realization is that Democrats would never suggest such a thing, because that would mean turning on their own. Republicans would also never suggest such a thing, because they yearn to have that exact same dictatorial power once they return to the Oval Office.

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Monday, September 27, 2010
Social Security Is Not Insurance

So last week, I attempted to explain how comparing Social Security to a Ponzi Scheme isn't that far off. One of the bloggers who doesn't like the comparison is Jay Bullock, who calls myself, and others out. He says that we're wrong, because Social Security is just like your auto insurance policy... and you don't think insurance is a Ponzi Scheme do you?

Every six months, I send a big chunk of dough to American Family to insure my car. That money doesn't go into a safe with my name on it. Instead, that money goes into 1) a set of investments designed to increase AmFam's long-term financial stability and 2) the settlement payouts of other clients found to be at fault. Someday, I will (sadly, not too long ago, I did) need AmFam to pay for an accident myself. When that happens, the payout will come from the immediate cashflow of the company--the premiums their other customers are paying at that moment.

The only problem is... Social Security is not insurance. Insurance is a risk pooling system which depends on many people paying into the pool and never drawing out of the pool so that others can pay less into the pool than they draw out. In other words, it's a way of hedging your bet that you'll never get into an accident. If you don't buy insurance, and your car gets wrecked, then you're out a ton of money to replace it. If you do buy insurance, and you never get into an accident, then you've actually lost money on the deal. But by paying a small amount (relative to the value of your car) every 6 months, you can hedge on the bet that you'll never get into an accident, and also allow you so budget for that bet over time.

Put simply, when you buy insurance, you're hoping that something doesn't happen, but if it does, you're protected. People actually want to be on the losing end of insurance payments because it means you've never gotten into an accident... or if you have... the cost of paying repairs was still less than what you've paid in during a lifetime of paying premiums. There are very few people out there who deliberately crash their cars and total them, just so that they can get "their money's worth" out of their car insurance. And of course, those who do destroy their cars deliberately to collect insurance are prosecuted for insurance fraud.

In the world of car insurance, actuaries are constantly looking at statistics and demographics in order to determine how much to charge individual members of the pool, based on how many people they figure to pay out that year. But the system depends... and this is a key point... on more people paying in than paying out.  If everyone demanded that they "get their full money's worth out of their insurance" than insurance would cease to exist. As a small aside, this is essentially the problem that "Universal Health Insurance" has, which is why it is also not insurance, as I've argued before.

So my question is... do people hope they never turn 65? Is that the "unexpected event" that we're hedging against? Of course not. This is why Social Security is not insurance either, but rather an entitlement. You pay into the program a given amount on the expectation that you'll get a payout. Moreover, while your payout formula is somewhat based on your earnings while you worked, it is not directly tied into the amount you paid in. In fact, not only does your actual lifespan make a difference, whether you are married or not makes a huge difference. The Urban Institute compiled statistics on net benefits paid (the amount received over a lifetime minus FICA taxes taken in) and found that being married could lead to a $300,000 net benefit increase in payout! This of course has nothing to do with how long you'd live (as most people would assume in a "Social Security is Insurance" argument), but simply because they payment system has been rigged to favor those who get married. As another small aside, this is another good reason why banning Homosexual Marriage creates a conflict under the "Equal Protection Under the Law" clause of the 14th Amendment... above and beyond the fact that homosexual survivors aren't due spousal benefits under Social Security either.

Ironically, Jay ends his post by saying:

For this, I defer to erstwhile Republican Charlie Crist, who makes a salient point: "There are other ways we can help fund it, by creating a pathway to citizenship. [...I]f we have those 11 to 14 million people productively participating in the American economy and paying the payroll taxes that would be attended to it, that would help Social Security." There is a labor force in this country willing and waiting to contribute to our financial health--and Nick's financial future--but the same forces scaring the pants off of you about the safety of Social Security are also busy scaring you about the Brown Menace because, you know, that too makes a good election issue. What's good for the country is bad for electoral fortunes.

It's ironic, because this is the exact same sort of thing you hear from people who run Ponzi and Pyramid Schemes. In a typical Pyramid Scheme, some of your earnings are paid to whoever recruited you, and also whoever recruited that person.  But of course, you then get some of your recruits earnings... so new recruits into the scheme are encouraged to enroll even more people. The higher you are in the pyramid, the more levels of earning you get... which makes the base of the pyramid a very lonely and poor place. Jay is essentially acting in the role of a Pyramid Scheme manager by saying that those of us who are currently at the bottom of the pyramid, unsure of how we'll get any money, should go out and recruit new members into the scheme so we can get paid! But remember, it's just insurance!

Democrats, and Social Security Administrators, simply blame this "pyramid like structure" on the nature of demographics in a "pay as you go" system. But of course, the demographic trends of the Baby Boom generation have long been known. While one can argue that this changes the negative moral implications of creating this particular Ponzi Scheme, it doesn't change the Scheme itself, or its future implications on payment over time.

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Thursday, September 23, 2010
Fact Checking the Fact Checkers

So unlike some of my conservative blogger friends, who have started something called "PolitiCrap"*, I generally approve of the PolitiFact series that the Journal has going. Are they always right on? Of course not. The problem with so many political ads today is that they take small things out of context, and blow them to their extremes so they can make the biggest impact in the 30 seconds allowed by most commercials.  While some people would argue that a 30 second ad forces politicians to do that in order to make proper use of the time... I don't believe that is an excuse.

While PolitiFact doesn't always get it right on the money, they do a fairly good job of adding the proper context to everyone's statements, and given a more well rounded version of events. Besides, when you see Liberal blogs cheering PolitiFact checks on the Conservative Candidates, but complaining about the checks on their guys... and the exact opposite from the other side... you know they've got to be pretty close.

With that said, I would like to take issue with the PolitiFact check on Ron Johnson's "Ponzi Scheme" claim regarding Social Security. PolitiFact rates it as "Barely True". While PolitiFact finds that the pay as you go nature of Social Security, whereby current workers pay for the Social Security outlays of today's retired people is true, and is similar to a Ponzi Scheme, they claim that because "there is no secret to how Social Security is run", it must not be a Ponzi Scheme:

"The important difference and the fundamental difference is that there is no secret to how Social Security is run," said Zuckoff, who researched the question for a 2009 article in Fortune Magazine. "No one is being misled, no one is taking the money and running, which are fundamental aspects of a true Ponzi schemes."

They also made the claim that because Social Security has been in continuous operation since 1935, while the original Ponzi Scheme by Charles Ponzi lasted only 200 days means that it's a bad comparison.  After all, if it were truly a Ponzi Scheme... it would have collapsed by now, right? Wrong.  The fundamental difference between Social Security, and most privately run Ponzi Schemes is deception.  This much is true.  But PolitiFact refuses to dig deeper into the issue.

Classic Ponzi Schemes require deception, because if everyone in the scheme knew how it worked, they would bolt and it would collapse... or never get started in the first place. In fact, the reason why Ponzi Schemes collapse in such a short time is because eventually the word leaks out, or a payment is missed, and the house of cards collapses. That's the nature of privately run Ponzi Schemes. People choose to invest because of the promised returns, and then once they find out that they won't get them, they choose to leave... often times after losing significant money, but cutting their losses.

My question to PolitiFact is... where is the choice with Social Security? Yes, Social Security doesn't deceive anyone... everyone does in fact know how it works... or at least should. But Social Security has one advantage that no privately run Ponzi Scheme has... there is no choice in whether or not you participate.  I belong to an entire generation of people who truly believe that we will not get anything from Social Security. I am planning my retirement on the idea that Social Security will not pay me one red cent. I have to. I know exactly how Social Security operates, and I can also see demographics and how population is changing. There simply won't be enough people to pay me once I rise to the top of the pyramid.

In a privately run Ponzi Scheme, I would have bolted by now. Actually, I would have never joined in the first place. But with Social Security, the government forces me to invest. There is no deception needed, because there is no reason to deceive. If I don't pay Social Security, the government can throw me in jail. That's not a reason to suggest that Social Security isn't a Ponzi Scheme... that only explains why this particular Ponzi Scheme hasn't collapsed... yet.

PolitiFact goes on further to say:

Unlike a Ponzi, Social Security is obligated to pay benefits, a commitment the shysters who run Ponzi schemes do not share. As for those IOUs, the government is required to make good on the money borrowed from the fund -- and to pay it back with interest.

The question is... how is that going to be done? As we all know, there is no trust fund. There are only IOU's which the government has given itself, because they've already spent the money. That means that future benefits have to paid for in one of two ways... increased Social Security taxes on workers for the benefit of those on top of the pyramid who have retired (just like a Ponzi Scheme), or increased borrowing which will have to paid for by the next generation (just like a Ponzi Scheme).  Rick Esenberg explains this very well:

People like Jay who defend the system like to say that the government won't or can't default on those bonds. It certainly can. Congress could repudiate the bonds, although it likely won't. The problem - the one that Jay elides by saying that the trust fund "can pay" out benefits for a number of years - is what it would take to pay those benefits.

The trust fund can't just write a check. It must redeem those bonds, i.e., call in the government's IOU to itself. The government can't just write a check to honor the bonds because it doesn't have the money. It must either raise taxes or borrow more money. To the extent that this cannot be done, benefits must be reduced. Thus taxpayers who have paid "extra" as "we went" really have nothing to draw on. They must either forego benefits or impose even higher taxes on younger people. That sounds an awful lot like a Ponzi scheme.

So really, the only thing that makes Social Security different from a classic Ponzi Scheme is that the manager of this particular scheme has more resources, and more guns, than Bernie Madoff. That doesn't make it less of a Ponzi Scheme, nor any more moral.  That only makes it last longer.

* For the record, while Charlie Sykes apparently asked many Conservative bloggers to partner with him in his PolitiCrap effort, I was not asked. And had I been asked, I would have declined.

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