…and much like the USFS’ well-intended, historical fire-fighting policies; the Fed’s well-intended monetary distortions, ultimately result in a much larger crisis/disaster down the road. I agree!!! I have also noted that the business cycle is critical to a well-functioning credit cycle that tightens credit policies during the downturn. With an artificially Fed-smoothed economy that nearly always goes up, credit cycles don’t occur and credit inevitably becomes looser and looser, until you have a financial crisis like 2008.”, Mike Perry, former Chairman and CEO, IndyMac Bank

“All told, this wildfire season is on track to be one of the worst in U.S. history, thanks in part to climate change and drought. But scientists, policymakers and even the U.S. Forest Service–which leads the nation’s war on wildfires–increasingly acknowledge another, more controversial cause: the firefighting efforts themselves. Specifically, they say that long-standing demand for workers to snuff out all wildfires, even relatively small ones, has made America’s forests more flammable and fueled blazes like those ripping through Northern California. To understand why, it helps to know a bit about how nature protects itself from incineration. As branches and brush accumulate on the forest floor, they’re periodically burned off in natural fires often sparked by lightning. Unlike megablazes, these surface flames clear debris but typically don’t consume trees, which limits the fires’ size and spread. By snuffing out smaller-scale fires, we’re helping turn forests into tinderboxes….. But today, his (Smokey the Bear) motto could use an update: “Only you can prevent forest fires–if you’re willing to let some of them burn.””, “The Fires That Aren’t Worth Fighting”, Time Magazine, October 5, 2015

U.S. ENVIRONMENT

The Fires That Aren’t Worth Fighting

Sept. 24, 2015

Stuart Palley The Valley Fire in Northern California is one of many devastating wildfires to hit the U.S. this year.

By putting out small wildfires, we help create big ones

America is burning. This year alone, from Alaska to California, some 9 million acres have gone up in flames, destroying hundreds of homes and claiming at least 10 lives. All told, this wildfire season is on track to be one of the worst in U.S. history, thanks in part to climate change and drought.

But scientists, policymakers and even the U.S. Forest Service–which leads the nation’s war on wildfires–increasingly acknowledge another, more controversial cause: the firefighting efforts themselves. Specifically, they say that long-standing demand for workers to snuff out all wildfires, even relatively small ones, has made America’s forests more flammable and fueled blazes like those ripping through Northern California.

To understand why, it helps to know a bit about how nature protects itself from incineration. As branches and brush accumulate on the forest floor, they’re periodically burned off in natural fires often sparked by lightning. Unlike megablazes, these surface flames clear debris but typically don’t consume trees, which limits the fires’ size and spread. By snuffing out smaller-scale fires, we’re helping turn forests into tinderboxes.

Zero tolerance originated in the 1900s, when Congress established the USFS to protect the nation’s timber and water supply. Back then, the agency’s leaders worked to eliminate fire altogether. They were driven largely by congressional mandates and outcries from the general public, much of which was terrified by the prospect of another Big Blowup, the 1910 wildfire that scorched 3 million acres in Idaho, Montana and Washington, killing 85 people. One witness called it a “veritable red demon from hell.”

Demands for USFS protection are even greater today, at a time when masses of people are moving to the wilderness. Some 44 million houses–the equivalent of 1 in 3 U.S. homes–now sit in what’s known as the “wildland-urban interface,” meaning they’re at risk when blazes erupt. The USFS is obligated to protect lives and property, prompting one multimillion-dollar intervention after another. It’s a situation “tantamount to what would happen if hospitals only had emergency rooms,” says Tom Harbour, the USFS fire-management director.

But there are sparks of change. In 2009, the USFS shifted its policy to allow more surface fires to burn in remote forests, where there are no homes and few structures. This strategy reflects the lessons it learned from Yellowstone National Park, which successfully recovered from a 1988 blaze that was allowed to burn unabated (despite public concerns). In 2012, New Mexico’s Gila National Forest served as another test site for allowing surface fires when it tempered a potentially massive blaze because there wasn’t as much to burn. Those are the results the USFS wants more of, says Harbour, even if they mean more smaller-scale fires.

Beyond “let it burn” efforts, lawmakers have also introduced a bill that would enable the USFS to tap Federal Emergency Management Agency (FEMA) funds to fight major wildfires. (Managing and suppressing wildfires consumes 52% of the USFS budget, up from 16% in 1995.) The goal is to free hundreds of millions of dollars for prevention efforts–such as clearing brush and thinning overgrown forests near people’s homes–to add even more safeguards against megablazes.

But Congress can do only so much. After all, our tinderbox climate is getting worse: fire seasons are now an average of 78 days longer than they were in 1970, and twice as many acres burn today as did three decades ago. And some critics question whether the USFS can really overhaul almost a century of misguided policy. Meanwhile, Americans continue to move to fire-prone areas–the number of wildland-urban-interface homes grew 30% from 1990 to 2010–without taking their own preventive measures, such as fireproofing their homes. Convincing them to see the bigger picture will take a broader cultural shift.

It’s happened before. In the 1940s, the Advertising Council, driven by the scientific wisdom of the time, first used a cartoon bear named Smokey to coax generations of Americans to do more against the possibility of a megablaze. But today, his motto could use an update: “Only you can prevent forest fires–if you’re willing to let some of them burn.”
This appears in the October 05, 2015 issue of TIME.

…He wanted welfare policies to be, as he said, “a trampoline, not a trap.” But most of all, he demonstrated that he cared about the poor. Some 2016 candidates do, too. More should. Kemp thought that the GOP should, and could, once again be the “party of Lincoln.” Being pro-civil rights was only part of it…..But Kemp also shared Lincoln’s other big idea, that the essence of America was the “right to rise”—for everybody—through talent and effort. Neither Lincoln nor Kemp favored income redistribution, but they both thought government had a role in helping people climb the ladder.”, Morton Kondracke and Fred Barnes, “The Jack Kemp Model for Republicans”, The Wall Street Journal, September 28, 2015

Opinion

The Jack Kemp Model for Republicans

GOP candidates in 2016 would do well to echo his message of growth, prosperity and hope.

Rep. Jack Kemp at the Republican National Convention in Detroit in 1980. PHOTO: GETTY IMAGES

By Morton Kondracke And Fred Barnes

Jack Kemp never became president, but the country desperately needs a leader like him now. When Kemp died in 2009, two themes dominated tributes to his career as a star quarterback, congressman, cabinet secretary and candidate for vice president and president. Conservatives called him one of the most influential politicians of the 20th century who never made it to the White House. He was “among the most important Congressmen in U.S. history,” as a Wall Street Journal editorial put it. Liberals declared that the Republican Party needed, but didn’t have, a Kemp: a leader who cared about the poor, who wanted to make the GOP attractive to minorities and working-class voters, who never went negative and regularly worked across party lines.

Both evaluations were accurate. And both are relevant as the GOP struggles to find its 2016 presidential candidate. Republican voters—Democrats and independents, too—are looking for someone who, instead of raging at the status quo, will shake up Washington, make the economy grow again and restore hope in America’s future. A candidate working from the Kemp model could do all of that.

Kemp was a pivotal political leader because, as the foremost exponent of supply-side economics, he persuaded his party and later Ronald Reagan to adopt his tax-cut plan, known as “Kemp-Roth.” The top tax rate on individual income dropped in 1981 to 50% from 70%. Then Kemp helped pioneer tax reform, and the top rate fell in 1986 to 28%. Middle-income taxpayers enjoyed similar cuts.

After an era of “stagflation” and malaise in the 1970s, Reaganomics produced more than two decades of prosperity, restored American morale, undermined the Soviet empire and converted much of the world, for a time at least, to democratic capitalism. Kemp deserves a significant amount of credit.

Kemp first got into tax policy to help his suffering Rust Belt constituents in Buffalo, N.Y. He was all about economic growth, and believed in government policy to encourage work, savings, investment and productivity. Kemp insisted growth was the key to economic strength and national unity. Robust growth would help everyone rise—rich, middle class and poor. In a stagnant or contracting economy, he said, “politics becomes the art of pitting class against class: rich against poor, white against black, capital against labor, Sunbelt against Snowbelt, old against young.”

The present era resembles the miserable 1970s. Growth is glacial. Incomes are stagnant. The country’s mood is sour. Divisions are widening. In 1979 only 12% of Americans thought the nation was headed in the right direction. Now it’s around 30%. And politicians arepitting class against class: the “1%” against the “47%”; white workers against Mexican immigrants. The public is furious with Washington, and no wonder. Polarized Republicans and Democrats do nothing for them.

Jack Kemp shook things up—but with dramatic ideas about policy, not by pitting outsiders against insiders. The Republican establishment resented the gall of a backbencher’s butting into tax policy. Democrats hated tax-cutting, even though Kemp kept reminding them that President John F. Kennedy first proposed lowering the top rate to 70% from 90%. Special interests were furious when Kemp proposed reducing their tax breaks. He once wrote Reagan’s deficit-hawk budget director, David Stockman, demanding to know why Mr. Stockman wanted to raise taxes on working people and cut food stamps, Medicaid and Head Start, but keep subsidies and tax breaks in place for Boeing, Exxon and Gulf Oil.

What Republicans need today, following the Kemp model, is big ideas, not demagoguery. They ought to be debating the best way to restore growth, prosperity and hope—what voters care about most—not insulting one another over appearances and poll standings.

Some candidates are trying. Jeb Bush, Chris Christie and Marco Rubio have put forward interesting economic plans. Even Donald Trump says he will have a tax plan shortly. Mr. Bush’s tax reform initiative, with its top rate of 28%, is especially Kemp-like. Unlike Kemp, today’s Republicans can’t ignore deficits, debt and the need for entitlement reform, all drags on growth. But if they followed Kemp, they’d cut farm subsidies, ethanol requirements, sugar quotas, carried interest and other corporate welfare at the same time as they trim Social Security and Medicare benefits.

Kemp also shook things up for the reasons liberals extolled him. He infuriated Republicans when he opposed California’s anti-immigrant Proposition 187 in 1994, and he always favored, besides border control, a path to citizenship for illegal immigrants with clean records. He was the polar opposite of Donald Trump, while sharing Mr. Trump’s high energy. Kemp never disparaged opponents, even when they deserved it—as Bill Clinton did on political ethics in 1996, when Kemp ran for vice president and refused to be Bob Dole’s attack dog.

Many Republicans thought he was too fixated on the plight of the poor. What he advocated was a war on poverty by conservative means: education choice, and lower taxes and fewer regulations to attract investment to blighted neighborhoods. He wanted welfare policies to be, as he said, “a trampoline, not a trap.” But most of all, he demonstrated that he cared about the poor. Some 2016 candidates do, too. More should.

Kemp thought that the GOP should, and could, once again be the “party of Lincoln.” Being pro-civil rights was only part of it. It was famously said that Kemp, as a football player, had showered with more African-Americans than most Republicans had ever met. But Kemp also shared Lincoln’s other big idea, that the essence of America was the “right to rise”—for everybody—through talent and effort. Neither Lincoln nor Kemp favored income redistribution, but they both thought government had a role in helping people climb the ladder. Lincoln favored public investment in infrastructure and education. Kemp wanted lower tax rates.

The Republican Party and the country do need another Jack Kemp. The GOP debates and primaries ought to be about finding one.

Messrs. Kondracke and Barnes are co-authors of “Jack Kemp: The Bleeding Heart Conservative Who Changed America,” out on Tuesday from Sentinel.

…but rather view them as persons, seeing their faces and listening to their stories, trying to respond as best we can to their situation. To respond in a way which is always humane, just and fraternal.” The pope’s call to a common humanity is much-needed, but to our ears the most striking word in that passage is “north.” Here is the Latin American pope acknowledging that the migrants are moving north to the United States, not the other way around. This is the same United States that practices the capitalist economics the pope has excoriated on so many other occasions. There must be something moral to free-market economics if it creates so much opportunity that attracts so many of the world’s poor.”, “The Pope in Washington”, The Wall Street Journal Editorial Board, September 25, 2015

Opinion

The Pope in Washington

Was that an implicit endorsement of U.S. capitalism?

Pope Francis addresses a joint meeting of the U.S. Congress in the House Chamber of the U.S. Capitol on September 24, 2015 in Washington, DC. PHOTO: MARK WILSON/GETTY IMAGES

Pope Francis hasn’t been shy about plunging into American political debates this week, and in his historic speech to Congress Thursday he called for abolishing the death penalty, ending the arms trade, and doing more to welcome immigrants. The first two are Catholic positions that precede his papacy, while the third may have more immediate resonance amid America’s often angry immigration debate.

In the Americas “thousands of persons are led to travel north in search of a better life for themselves and for their loved ones, in search of greater opportunities,” the pope said. “Is this not what we want for our own children? We must not be taken aback by their numbers, but rather view them as persons, seeing their faces and listening to their stories, trying to respond as best we can to their situation. To respond in a way which is always humane, just and fraternal.”

The pope’s call to a common humanity is much-needed, but to our ears the most striking word in that passage is “north.” Here is the Latin American pope acknowledging that the migrants are moving north to the United States, not the other way around. This is the same United States that practices the capitalist economics the pope has excoriated on so many other occasions. There must be something moral to free-market economics if it creates so much opportunity that attracts so many of the world’s poor.

Alas, the pope missed a chance to warn Congress about the many current threats to religious liberty—even in America, which was founded by men and women fleeing religious persecution. But a day earlier Pope Francis did make a surprise, and politically notable, visit to the Little Sisters of the Poor. These are the nuns who serve the poorest among us and have sued the Obama Administration for requiring them to violate their religious principles under the abortion and contraception coverage rules of ObamaCare.

The case may be headed to the Supreme Court, and the pope’s visit was a clear and welcome statement of support for the beleaguered sisters. We can also hope that Pope Francis mentioned the case in private to President Obama at the White House.

…and by largely having a progressive/liberal-minded government bureaucracy and legal infrastructure (both public and private) arbitrarily determining how these vague rules are enforced, aren’t they effectively controlling the for-profit private sector and dictating and controlling more and more of the means of production? By way of example, isn’t this exactly what the Consumer Protection Financial Bureau (CFPB) is now doing? Isn’t the federal government, through the CFPB, forcing American citizens into certain types of loans, by preventing lenders from offering other types of loans? Also, it may just be me and my experiences, but it seems like I read all the time these days about some federal or state government bureaucracy alleging “criminal” corporate decisions, particularly with regard to ones that have turned out badly, with the benefit of 20/20 hindsight. I wonder if this all part of a plan by U.S. socialists and progressives to demagogue the for-profit sector and elevate the not-for-profit and government sectors? Their activities favor big, crony capitalist businesses, but are also going to slowly, but surely, destroy our entrepreneurial risk-taking cuIture and damage our economic growth potential. That’s why I love the recent fabulous WSJ OpEd by Jeb Bush below.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Opinion

How I’ll Slash the Regulation Tax

As president, I’ll repeal the coal ash rule, the clean water rule, net neutrality, and much more.

By Jeb Bush

To understand what is wrong with the regulatory culture of the U.S. under President Obama, consider this alarming statistic: Today, according to the World Bank—not exactly a right-wing think tank—the U.S. ranks 46th in the world in terms of ease of starting a business. That is unacceptable.

Think what the U.S. could be and the prosperity we could have if we rolled back the overregulation that keeps us from ranking in the top 10. It wouldn’t just be easier to start a business. It would also be easier to find a job, get lifesaving medicine, get a loan, and see a doctor or health professional. Costs and prices would go down. The U.S. economy, stalled in the worst economic expansion since World War II, would be unleashed. Regulatory reform alone could add more than three percentage points to U.S. GDP by 2025.

Since January 2009, the Obama administration has mired America’s free market in a flood of creativity-crushing and job-killing rules. This administration has issued rules targeting banks, farms, medical offices, hospitals, credit unions, insurers, tanning and nail salons, power plants, factories, federal contractors, cars, trucks and appliances. And in perhaps its most shocking display of regulatory overreach, it is regulating the Internet as a public utility, using a statute written in the 1930s.

If you’re wondering why it’s hard to get a mortgage, why no new banks are opening up, why your power bill will be going up, why your health insurance costs more, why we don’t build new highways, why you can’t get medicines that are available in Europe, Barack Obama’s rules are a big part of the story.

These rules create a moat around America’s wealthiest and well-connected. They can afford to comply and absorb the costs. The burden of meeting the new rules’ requirements falls heaviest on everyone else through higher prices. And if a business can’t pass on the cost of new rules to consumers, it just cuts wages or jobs.

The increased cost of new regulations, in time and money, has been phenomenal. According to the American Action Forum, since Mr. Obama took office, new regulations have resulted in an additional 443 million hours of paperwork each year for Americans. All told, according to the Competitive Enterprise Institute’s 2015 report on the federal regulatory state, regulations impose a $1.88 trillion silent tax on the U.S. economy each year—that’s nearly $15,000 per family. For every second of his presidency, Mr. Obama has added roughly $3,100 in regulatory burdens to the economy.

It’s time we did a better job regulating the regulators. My goal as president would be to find and retire the rules that are posing a major obstacle to people who want to get a job, start a business, move up the income ladder or do anything else that contributes to the prosperity of this nation. If elected president, I will use my executive authority to direct agencies to create one dollar of regulatory savings for each new dollar of regulatory cost they propose. We will eliminate and reform outdated and burdensome rules and, when necessary, work with Congress and the courts to overcome legal obstacles that stand in the way of sensible savings.

My administration will create a commission charged with reviewing regulations from the perspective of the regulated and shifting more power from Congress back to states. In my administration, every regulation, including those issued by so-called independent agencies such as the Consumer Finance Protection Bureau, will have to satisfy a rigorous White House review process, including a cost-benefit analysis. Regulations will be issued only if they address a major market or policy failure. Regulators will be directed to favor private and state-driven solutions unless it is clear that federal intervention is necessary and appropriate.

My administration will also supercharge infrastructure projects by restructuring the permitting process for roads, highways, bridges, ports, pipelines, wind farms and other vital infrastructure projects. Permitting decisions will be made within two years instead of 10. And I will sign legislation to prevent frivolous litigation from endlessly tying up federal infrastructure projects in court.

As early as possible, I promise to roll back many of the most reckless and damaging rules promulgated under President Obama. As president, I will repeal the Environmental Protection Agency’s new rule extending federal jurisdiction under the Clean Water Act over millions of acres of private land, its new regulation of carbon dioxide under the Clean Power Plan, and its new and costly coal-ash standards for power plants. I will also work to repeal the so-called net-neutrality rule forced on the Federal Communications Commission by the White House and the Department of Education’s “gainful employment” rule that punishes for-profit colleges. That’s for starters.

I will also work with Congress to repeal significant portions of the 2010 Dodd-Frank financial law, and we will reform the complex set of rules that perpetuate too-big-to-fail financial institutions. Later this fall, I will announce a detailed agenda to repeal and replace ObamaCare.

Regulation feeds into Washington’s revolving-door culture. Regulators spend years writing complex rules, then leave for the private sector to sell their inside knowledge to the highest bidder—usually a big, well-entrenched company. No wonder so many Americans are cynical about who Washington really works for.

Most important, as president, I will be guided by the faith that we are a nation of free men and women who are capable of achieving far more than liberals and regulators believe possible. Once we remove the burdens of overregulation, America will once again reclaim its reputation for inventiveness, energy and boundless opportunity.

Mr. Bush, a former governor of Florida, is a candidate for the Republican presidential nomination.

…Many recent court decisions should teach Americans that the court’s nine political appointees will rarely ride to the rescue of their constitutional rights.”, James Bovard, “Supreme Neglect of Liberty at the High Court”, Barrons, September 19, 2015

Editorial Commentary

Supreme Neglect of Liberty at the High Court

Author James Bovard writes how America’s highest court has turned a blind eye to fundamental rights.

By James Bovard

In its recent landmark decision on gay marriage, five Supreme Court justices proclaimed that “the Constitution promises liberty to all within its reach…to define and express their identity.”

While the court proudly created a new freedom, it continues to fail to safeguard freedoms that generations of Americans once enjoyed. Instead, the court perennially turns a blind eye to government agencies that cut vast swaths through the Bill of Rights.

As the court showed in numerous rulings this past term, the primary purpose of “law” nowadays is to provide an opening for presidents to do as they please. In a June decision, six justices saved Obamacare for a second time by effectively ruling that a federally run insurance exchange is close enough for government work to “an exchange established by the State.”

The court’s contortions were even greater in a fair-housing decision handed down the same day. The court sanctified the use of disparate-impact analysis for housing discrimination, thereby creating vast liability for local governments, insurers, and other businesses due to unintentional statistical discrepancies. Five justices sided with the Obama administration, ignoring the actual words of the 1968 Fair Housing Act and instead invoking the logic of previous court rulings on other subjects. As a result, any locality with a lower percentage of minorities than the national average could find itself a target of federal housing enforcers.

Political Shelter

Unfortunately, the court has long relied on verbal contortions to sanctify political power grabs. In 2005, in the Kelo v. City of New London decision, the Supreme Court declared that the “public use” requirement in the Takings clause of the Fifth Amendment really meant “public purpose.” Even cases in which the government seizes one person’s land to directly give it to another private citizen can meet this standard, according to the court—since anything that helps politicians presumably serves a public purpose.

It isn’t just landowners whom the court has put at the mercy of officialdom. In a series of rulings beginning in the 1990s, the court green-lighted a vast expansion of confiscation, even without criminal conviction, based on contorted ancient precedents. For instance, the court invoked an 1827 case involving the seizure of a Spanish pirate ship that had attacked U.S. ships to uphold the confiscation of an automobile jointly owned by a husband and wife, after the husband was caught with a hooker on the front seat. Hundreds of thousands of citizens have seen their cash, cars, or other property commandeered merely because a government agent suggested that it might have been linked to some illicit use.

The Fourth Amendment to the Bill of Rights says it protects Americans against unreasonable, warrantless searches and seizures of their property and papers. But the Supreme Court has swallowed one dubious pretext after another to sanctify government intrusions. It has continually defined privacy down, until government searches are almost never considered “unreasonable.”

Two years ago, the court rejected a challenge to the National Security Agency’s warrantless wiretaps because the plaintiffs couldn’t prove they had been spied on. (Ten years ago, the NSA was condemned in a Barron’s editorial, “Unwarranted Executive Power,” Dec. 26, 2005.) The court effectively ruled that, as long as NSA spying is kept secret, no likely victim could challenge it in court.

The National Security Agency’s victory was short-lived; a few months later, Edward Snowden’s leaks showed how it had become a giant vacuum cleaner that illicitly seized tens of millions of Americans’ e-mail and phone records and other personal data.

Defending Abuse

The court has turned a blind eye to most of the civil-liberties abuses that have occurred since 9/11. Millions of Americans have been outraged by the intrusions and arrogance of the Transportation Security Administration, but the court has refused to accept any case challenging the TSA’s compulsion of travelers to submit to its “whole-body scanners,” which take explicit photos that are so revealing that they disclose whether a male has been circumcised. The court has also done nothing to curb the Obama administration’s vendetta against journalists and whistle-blowers whose revelations embarrass federal policy makers. The court’s acquiescence makes it far easier for agencies to cover up outrageous conduct.

One case the court got right in June also illustrates the high cost of awaiting judicial deliverance. In 1949, the Agriculture Department set up a Raisin Administrative Committee, which, invoking the Agriculture Marketing Agreement Act of 1937, claimed the right to confiscate up to 47% of raisin farmer’s harvests to drive up raisin prices.

When the Supreme Court first heard this case in 2013, Justice Elena Kagan groused that the 1937 statute could be “the world’s most outdated law.” Two years later, the court finally ruled that confiscating farmers’ crops without compensation violated the Fifth Amendment. The Obama administration had defended raisin confiscations with the bizarre claim that the Takings clause of the Constitution protects only land, not other forms of property.

Dozens of farmers have filed challenges to the confiscations of crops of many kinds by Agriculture Department-empowered committees over the past half-century. While generations of farmers were plundered, the Supreme Court either never heard their cases or failed to clearly rebuff this classic example of bureaucratic tyranny. So the raisin case was a giant—though rare—step in the right direction.

Unreliable Guardians

The Founding Fathers never expected the Supreme Court to become a rubber stamp for Leviathan. But counting on the Supreme Court to defend your freedom is like trusting a politician to keep his campaign promises. Many recent court decisions should teach Americans that the court’s nine political appointees will rarely ride to the rescue of their constitutional rights.

JAMES BOVARD is the author of Attention Deficit Democracy, Lost Rights, and eight other books.

…When the members of the cartel turned out to be wrong about the risks in mortgage-backed securities, the result was catastrophic because the government had forced so many other firms to follow their advice…SEC Chair Mary Jo White should now get her agency all the way out of the business of deciding whose opinions about credit risk ought to be followed. Let markets decide whose opinions have value. It will make financial crises less likely.”, “Ending the Ratings Racket”, The Wall Street Journal Editorial Board, September 20, 2015

Opinion

Ending the Ratings Racket

Seven years after the financial crisis, the SEC enacts a critical reform.

U.S. Securities and Exchange Commission (SEC) Chairman Daniel Gallagher speaks at the Sandler O’Neill + Partners, L.P. Global Exchange and Brokerage Conference on June 3, 2015. PHOTO: MIKE SEGAR/REUTERS

America’s financial system is sturdier today thanks to some rare good news from a Washington regulator. Seven years after the financial crisis, the Securities and Exchange Commission has taken a big step toward ending a policy that helped cause the mess.

For decades before the crisis, SEC staff had recognized a small group of private credit-rating agencies—including Standard & Poor’s, Moody’s and Fitch—as official judges of risk. Federal regulators referred to these favored companies in their rules and even forced financial institutions to invest in paper rated highly by this anointed cartel.

When the members of the cartel turned out to be wrong about the risks in mortgage-backed securities, the result was catastrophic because the government had forced so many other firms to follow their advice.

The new rule enacted by the commission this week says that instead of simply holding assets rated highly by the cartel, the operators of money-market mutual funds must instead rely on their own analysis to select securities presenting minimal credit risk. Investors probably assume that’s what mutual fund companies do already, and many of them do. All of them should.

Kudos to SEC Commissioner Daniel Gallagher, who has the welcome habit of breaking Beltway decorum. In various public fora, Mr. Gallagher kept reminding his colleagues that this needed reform was being ignored while they went about drafting rules that had nothing to do with addressing the causes of the last crisis or preventing the next one.

This week’s reform leaves one SEC rule that still carries an endorsement of the ratings cartel—so-called Regulation M for securities offerings. SEC Chair Mary Jo White should now get her agency all the way out of the business of deciding whose opinions about credit risk ought to be followed. Let markets decide whose opinions have value. It will make financial crises less likely.

There’s also need for reform outside Washington. Too many state pension systems still show too much deference to the cartel. A rating expresses a point of view, not a guarantee.

…I wonder if this mispricing could be buried in the USPS’s multi-billion annual losses ($51.7 billion in losses since 2007)?”, Mike Perry

U.S. Postal Service Has Not Earned a Profit in Almost a Decade

The government-owned enterprise has lost $51.7 billion since 2007

AP

BY: Ali Meyer
September 22, 2015 1:03 pm

The United States Postal Service has lost $51.7 billion between 2007 and 2014 and has not earned a profit since 2006, according to a report from the Tax Foundation.

“There is no turnaround in sight,” states the report. “The Postal Service will almost certainly register another multibillion dollar loss in 2015; for the first two quarters of 2015, it suffered a net loss of $2.8 billion.”

In addition, the report finds that USPS has failed to make legally required payments to the U.S. Treasury and will default on its statutory obligations, which include the Postal Service Retiree Health Benefit Fund.

“Although the Postal Service has not yet received an explicit taxpayer bailout, it has failed to meet its legal obligations for several years in a row,” the report states. “The odds that a bailout will eventually become unavoidable increase as the sea of red ink continues rising.”

The Government Accountability Office (GAO) estimates that the Postal Service’s unfunded liabilities grew 62 percent from 2007 to 2013. The Tax Foundation says it is doubtful that the Postal Service will be able to meet its obligations.

The report says that if the enterprise had more operational flexibility, its losses would not be as large.

“While the Service does have greater operational discretion than many federal agencies, it has much less than a typical private-sector business because Congress often micromanages its actions,” the report says.

While Gallup found in 2014 that 72 percent of their respondents said USPS is doing a good job and only 8 percent regard its performance as poor, the report finds that there have been issues with service.

In 2014, delivery-time targets fell short seven out of eight times and in 2015, on-time delivery from January to March fell to 63.1 percent, down from 84.1 percent in the same quarter last year.

“USPS is in desperate need of reform,” said Curtis Kalin, a spokesman for the watchdog group Citizens Against Government Waste. “If the agency truly is to act as a business, it must do what failing businesses are routinely forced to do: right size its workforce and return to the basic services where it had peviously operated effectively. However, living up to its government-sponsored reputation, the opposite desire is taking hold at the agency.”

Ali Meyer
Ali Meyer is a staff writer with the Washington Free Beacon covering economic issues that expose government waste, fraud, and abuse. Prior to the Free Beacon, she was a multimedia reporter with CNSNews.com where her work appeared on outlets such as Drudge Report and Fox News. She also interned with the Heritage Foundation and Pacific Research Institute.

…Failing to honor and support those in our midst who are prepared to give their lives is a profound abdication of our obligation of citizenship. I look forward to a day when the word “patriotism” will be heard more frequently on this campus. I look forward to a continuation of close and strong relations between this university and our national defense effort, including crucially this university and the military. I look forward to a day when that support is unconditional and not based on a judgment about the policies that are being currently pursued.”, “Notable & Quotable: Lawrence Summers at Harvard”, The Wall Street Journal, September 23, 2015

Opinion

Notable & Quotable: Lawrence Summers at Harvard

‘If we do not support the military, we put at risk the traditions of freedom upon which our country depends.’

The ROTC returns to Harvard University, Sept. 20, 2011. PHOTO: BOSTON GLOBE VIA GETTY IMAGES

From remarks by Lawrence H. Summers, former president of Harvard University, on Sept. 18 to the Congressional Medal of Honor Society at Harvard:

I did not support the “Don’t Ask, Don’t Tell” policy regarding gays in the military, and believe it should have been repealed long before it was. I believe the invasion of Iraq was a grave mistake and that the United States’ participation in Vietnam was catastrophic. But none of those judgments led me, in any way, to back away from support for the military itself and for those who served in it. I do not believe that the support of this university, or any other university, for the military should be contingent on the political decisions of those who exert civilian control over it.

If we do not support the military, we put at risk the traditions of freedom upon which our country depends. So I am glad that we are in a current moment of rapport between the university and the military. But I have a continuing concern that that rapport is contingent and dependent on a current set of policy decisions of which members of this community approve. And I believe that that is fundamentally inconsistent with our obligations as an institutional citizen in a democracy.

I do not believe that it is for us to decide, as this university has in the recent past, that the military is not permitted to recruit on our campus. I do not believe that it is for us to decide, as this university has, that its resources cannot be extended on behalf of citizens who choose to participate in the military. I do not believe that it was moral or right, as was the case before I became president, that Harvard University students who participated in ROTC were precluded from listing their service in the college yearbook, because the college disapproved of the military’s policies as discriminatory.

What is the morality of our declining to fully support and cooperate with the national defense effort, that it enable us to sleep serene in our virtue at night while leaving others to defend us? If we do not like the policies of our country we have plenty of ways of seeking redress. Failing to honor and support those in our midst who are prepared to give their lives is a profound abdication of our obligation of citizenship.

I look forward to a day when the word “patriotism” will be heard more frequently on this campus. I look forward to a continuation of close and strong relations between this university and our national defense effort, including crucially this university and the military. I look forward to a day when that support is unconditional and not based on a judgment about the policies that are being currently pursued.

…However, Keynes was actually against the economic pain often caused by the strict gold-standard system that had governed international monetary exchange for two centuries leading up to World War I. That regime did an excellent job of maintaining price stability, but its automatic mechanism for correcting economic imbalances through domestic deflation and unemployment spikes flew in the face of Keynes’s vision for smoothing out booms and busts…..But for Keynes, gold itself—and the importance of sound money—was a different story. So was exchange-rate stability, which went out the window between the world wars as the major powers used competitive “beggar-thy-neighbor” devaluations that wreaked havoc on global trade and prosperity. Germany and France suffered currency collapses, Britain catastrophically overvalued sterling, and Franklin Roosevelt set the gold price of the dollar each morning from his bed, on at least one occasion based on his lucky number. The result was disastrous…..Keynes outlined his ideal postwar monetary system in December 1941, and his ideas bore fruit at the international conference in Bretton Woods, N.H., in 1944. He envisioned a system where exchange rates were fixed against each other (and gold), and the international community would deal with imbalances through a new clearing union. Only in extreme cases would there be a managed devaluation. Keynes also envisioned a common world currency he called bancor—literally “bank gold”—which would also be fixed against bullion and all other currencies and used to settle governmental balances…..Keynes and his contemporaries recognized that gold has been valued as a monetary metal for millennia in virtually every human civilization, and its universal appeal was why he wanted it as part of his system. “We do not take any action injurious to the position of gold,” he assured European allies in a speech in 1943 to rally support for his plan. “The world being what it is, it is likely the confidence gold gives can still play a useful part.”…. Were Keynes alive today, he would likely be arguing along with German Chancellor Angela Merkel for more monetary discipline and a return to a more balanced international system. No doubt, however, his neo-Keynesian acolytes would be dismissing his concerns as hopelessly outdated and reactionary…. If he (Keynes) took in today’s economic vista of near-zero interest rates and quantitative easing, it is clear that he would be buying gold hand over fist—regardless of what his disciples might think.”, Richard Hurowitz, “What Keynes Would Think of ‘Neo-Keynesians’”, The Wall Street Journal, September 21, 2015

Opinion

What Keynes Would Think of ‘Neo-Keynesians’

Unlike his acolytes, he understood the value of gold and the dangers of currency debasement.

John Maynard Keynes in 1941. PHOTO: BETTMANN/CORBIS

By Richard Hurowitz

As the Federal Reserve continues to struggle with when to place its foot ever so slightly on the brakes of a historic monetary expansion, I’m reminded of Richard Nixon’s words in 1971 when closing the gold window in the face of a run on the dollar. Of this dramatic repudiation of gold as a monetary metal Nixon famously declared, “I am now a Keynesian,” more often misquoted as “We are all Keynesians now.”

British economist John Maynard Keynes probably would have been horrified by this attribution. Nixon’s announcement was, after all, a coup de grâce delivered to Bretton Woods, the international monetary system of which Keynes was a principal architect. More important, he would never have thought desirable a world where currencies are backed by nothing more than a governmental promise to pay while the printing presses whirled unchecked.

Policy makers today wrap themselves in the legitimizing mantle of Keynes in much the way many politicians claim the legacy of Ronald Reagan. But while the idea of increased government spending to counteract the business cycle hails directly from Keynes, he would have considered quantitative easing’s frenzied asset buying beyond the pale and been puzzled that his theories are associated with aggressive currency debasement and a rabid hostility to gold.

Keynes’s supposed antagonism toward bullion arises from a misunderstanding of his famous statement in 1924 that the “gold standard is already a barbarous relic.” Many take this pithy remark to mean Keynes wanted to discard gold entirely from the international monetary framework. However, Keynes was actually against the economic pain often caused by the strict gold-standard system that had governed international monetary exchange for two centuries leading up to World War I. That regime did an excellent job of maintaining price stability, but its automatic mechanism for correcting economic imbalances through domestic deflation and unemployment spikes flew in the face of Keynes’s vision for smoothing out booms and busts.

But for Keynes, gold itself—and the importance of sound money—was a different story. So was exchange-rate stability, which went out the window between the world wars as the major powers used competitive “beggar-thy-neighbor” devaluations that wreaked havoc on global trade and prosperity. Germany and France suffered currency collapses, Britain catastrophically overvalued sterling, and Franklin Roosevelt set the gold price of the dollar each morning from his bed, on at least one occasion based on his lucky number. The result was disastrous.

Keynes outlined his ideal postwar monetary system in December 1941, and his ideas bore fruit at the international conference in Bretton Woods, N.H., in 1944. He envisioned a system where exchange rates were fixed against each other (and gold), and the international community would deal with imbalances through a new clearing union. Only in extreme cases would there be a managed devaluation. Keynes also envisioned a common world currency he called bancor—literally “bank gold”—which would also be fixed against bullion and all other currencies and used to settle governmental balances.

Keynes and his contemporaries recognized that gold has been valued as a monetary metal for millennia in virtually every human civilization, and its universal appeal was why he wanted it as part of his system. “We do not take any action injurious to the position of gold,” he assured European allies in a speech in 1943 to rally support for his plan. “The world being what it is, it is likely the confidence gold gives can still play a useful part.”

Keynes understood that sound money and stable exchange rates were necessary conditions for world prosperity and peace. Contrary to popular belief, he believed that in most cases currency devaluations were counterproductive, their benefits often outweighed by increased domestic costs and the undermining of sovereign credit. “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency,” Keynes observed in 1919. He consistently argued that a sound currency was critical to a functioning free economy. He understood that such a currency would ultimately create much greater wealth than the endless and vicious cycle of improvisational debasement we see playing out globally today.

Were Keynes alive today, he would likely be arguing along with German Chancellor Angela Merkel for more monetary discipline and a return to a more balanced international system. No doubt, however, his neo-Keynesian acolytes would be dismissing his concerns as hopelessly outdated and reactionary.

Keynes was an economic theorist, but he was also a clear-eyed market analyst, and a passionate and committed speculator for his own account and for Cambridge University. If he took in today’s economic vista of near-zero interest rates and quantitative easing, it is clear that he would be buying gold hand over fist—regardless of what his disciples might think.

Mr. Hurowitz is an investor and the publisher of the Octavian Report.

Opinion

A Lawsuit to Break the Gig Economy

Uber drivers claim they are legally employees, but that doesn’t reflect reality.

An Uber car in San Francisco. PHOTO: ROBERT GALBRAITH/REUTERS

By A.J. Kritikos

The crackdown on Uber continues in California, where the ride-sharing firm faces a lawsuit that could break the company’s peer-to-peer structure—and the rest of the “gig” economy.

Three Uber drivers have brought a class-action suit against the company, alleging violations of the California Labor Code and seeking monetary damages. Earlier this month a federal district court certified a class on two issues: whether Uber improperly withheld gratuities from its drivers, and whether drivers are legally employees of Uber, rather than independent contractors. This is a blow to Uber, since class-action suits normally fall apart at this stage.

The question of whether the drivers are Uber employees is the more serious, as it would trigger a number of workplace protections. Drivers would be eligible for overtime and reimbursement of work expenses. Yet determining whether someone is an employee or independent contractor is notoriously subjective.

In California law the primary question is whether the putative employer has the right to control the individual’s “work details.” The California Supreme Court has articulated 13 factors to guide lower courts, but a balancing test has not yielded consistent results. Uber has a number of factors on its side: Drivers typically provide their own cars, set their own schedules and are paid by the job, not by the hour. When they signed up as drivers, they expressly agreed to be independent contractors. But the plaintiffs have some factors on their side, too: In most cases Uber can fire drivers at will.

Uber should win on the merits. But the California Supreme Court has long held that someone who provides services for an employer is presumed to be an employee until shown otherwise. Shifting the burden of proof makes these cases much harder to delineate and helps plaintiffs’ lawyers secure settlements even when the claims are frivolous.

Legislators should fix this mess to avoid stifling the sharing economy. The relevant California Labor Code provisions date to 1937. The federal Fair Labor Standards Act (FLSA), which strengthened the dividing line between employees and independent contractors, was passed in 1938.

According to the U.S. Supreme Court, “the prime purpose” of the FLSA was “to aid the unprotected, unorganized and lowest paid of the nation’s working population; that is, those employees who lacked sufficient bargaining power to secure for themselves a minimum subsistence wage.” That clearly doesn’t hold here. For example, one of the plaintiffs in the Uber suit is a screenwriter by day and chauffeur by night.

Uber is not an overbearing employer using its bargaining power to impose poor terms on drivers. The market is relatively free: Drivers can come and go (including to competitors Lyft and SideCar), working when they want for as long as they want.

There’s a simple patch: Lawmakers should amend labor-protection statutes so that when a worker and company in the sharing economy agree in writing that they are forming an independent contractor-principal relationship, then courts must treat it as such. That would better reflect the realities of the sharing economy and free courts from the unenviable task of applying old precedents to 21st-century situations.

Exempting a category of workers from some protections is not new or radical. The California Labor Code and FLSA already exempt some types of workers, including certain computer professionals, lawyers and contracted salesmen.

Basic contract rules would still apply. The agreement to be an independent contractor could be deemed null if it was made under duress or the company misrepresented material aspects of the job. Perhaps an even better solution would be to allow any company and worker to expressly renounce some protections afforded by statute.

Reasonable people can agree that driving on the weekends for Uber, dropping off merchandise on occasion for Deliv, or conveying groceries on the side for Instacart does not make one an employee of those companies. The law should reflect that reality.

Mr. Kritikos, a former clerk for the U.S. Court of Appeals for the Third Circuit, is a lawyer in private practice.