Donald Trump will implement capital controls

Recently Donald Trump unveiled a plan to proscribe remittances sent to Mexico. See: http://abcnews.go.com/Politics/wireStory/report-trump-hell-fund-wall-cutting-remittances-38158595 Amazingly, remittances sent to Mexico were characterized by Trump as “de facto welfare”. Pursuant to the Trump calculus, money earned through productive work in the private sector is synonymous with welfare.

The purpose of Trump’s plan is to pressure the Mexican government into taxing its citizens in order to fund a border wall. In other words, Donald Trump wants to implement capital controls in order to get the Mexican government to pay for his cronies to build a border wall, which somehow isn’t considered to be welfare.

If Trump plans to impose capital controls in order to build a border wall, why believe a border wall wouldn’t be used to impose capital controls? With legislation like Foreign Account Tax Compliance Act that passed in 2010, why believe it would be used for anything other than trapping people and capital into the United States? Yet we are supposed to believe that Trump’s capital controls would be used only against immigrants and until the Mexican government ponies up the capital to build a border wall, at which time Trump will cease being a menace.

Supposedly, Trump’s plan will be limited to immigrants (somehow making it a good thing). Arbitrage has a funny way of holding lawless regimes in check. Desperate governments do desperate things, and if we can justify curtailing capital outflow to Mexico in one instance, then why not in every instance? By treating honestly earned money on the free market as “welfare” that the government can seize, this will discourage immigrants from performing honest and productive work. No matter where dollars earned flow, productive work is a benefit to the economy.

I didn’t have to read about Trump’s plan to know that Trump would impose capital controls. As I wrote back in 2010, immigration restrictionism taken to its logical conclusion is capital controls. See: http://libertyeconomics.com/my-problem-with-brian-sandoval-mike-montandon-and-governor-jim-gibbons/ The populist indictment of immigration is that immigrants “drive down wages.” Not true. This argument dovetails with arguments in favor of minimum wage law as an effort to fix wages. The welfare-warfare state drives down wages. The problem is not the immigration, but the welfare-warfare state. Furthermore, let’s take this argument to its logical conclusion: capital controls.

The government could inflict injury upon every employer of Mexican immigrants (legal or illegal). However, this would do absolutely nothing to create or save a job. If employing inexpensive labor at home is curtailed, this begets one of two possibilities: the job is destroyed altogether, or the employer flees the country altogether.

What next? Criminalize capital flight? Pursuant to the statutory case against hiring illegal immigrants, the de jure case for capital controls is already in place. If it’s illegal to hire an illegal immigrant at home, then why is it legal to do business with “undocumented” workers abroad? (In that case, one becomes the de facto employer of foreigners living abroad.) For the sake of logical consistency, outsourcing should be criminalized. All international trade and commerce should be criminalized. If the government should proscribe remittances, then why not proscribe Americans from traveling to Mexico and paying Mexican nationals for goods and services?

Let me remind you that if the government can trap capital in, it can trap people in. Try leaving the country without your capital. If immigrants aren’t permitted to send money to Mexico, then how can they be expected to leave the United States? This means that Trump has, almost paradoxically, devised a scheme to trap immigrants into the country. Coming to the United States will be akin to checking into a roach motel. Furthermore, remittances to Mexico would curtail emigration from Mexico. This means curtailing remittances to Mexico would encourage emigration from Mexico.

We are being told that protectionism and capital controls are used to protect us, to protect our jobs. In reality, capital controls are a makeshift effort to remedy capital outflow engendered by loose monetary policy. Capital naturally gravitates toward cheaper, higher-yield, more efficient economies. The only way to repatriate capital is for the central bank to stop inflating, force up interest rates, and return to sound money. If we pursued the right economic policies, people would voluntarily keep their money in the United States. If the government in Washington seeks to curtail capital flight, then stop fixing prices and stop using the central bank to suppress interest rates.

Not only will capital controls not work, capital controls will beget greater problems. If we reject the free market argument against capital controls today, then the resulting chaos will be met with demands for tighter controls tomorrow. Trump’s plan is to turn the United States into an open air prison. Trump’s plan will actually precipitate an exodus of capital.

How would I approach the matter of immigration? Let property rights prevail. If two people wish to engage in peaceful, voluntary and mutually beneficial exchange, whose right is it to interfere? That somebody is an “illegal alien” is a faux concept constructed by statutory law. Unlike politicians and bureaucrats, most Mexican immigrants hold real jobs. It’s time to legalize immigration. I say we deport politicians and bureaucrats instead.

A prediction on police body cameras

As if there’s no problem that can’t be fixed with a government program and money, President Obama is requesting funds to equip police officers with body cameras in order to curtail police brutality. If politicians in Washington told us they needed to fund a government program to make certain the sun rises in the morning, you could take it to the bank the sun will stop rising in the morning.

One reason I am opposed to President Obama’s idea is because the Constitution doesn’t permit the federal government to exert this kind of control over local LEOs. Even if funded and initiated entirely at the local level, I would disagree with the government usurping the role of private citizens.

Historically, government has been incapable of holding itself accountable. The video of Eric Garner’s murder demonstrates the inadequacy of cameras as a means to achieve accountability. Body cameras are not the end-all solution to a morality problem and could engender a false sense of security for the citizenry. I’m all for private citizens having the right to record police, and it’s they who need to hold government accountable. I also support the right of individual police officers to record themselves in order to defend against spurious accusations. But a government camera will hold police accountable to the government, not the people.

If the government’s track record is any indication, body cameras could worsen the problem of police brutality. To believe that body cameras, imposed on officers by a flawed system, will morph bad police officers into good ones rather than good ones into bad ones requires a certain amount of naivete.

Consider the case of Eric Garner. His murder was captured on video – the evidence is about as empirical as it can get. The murderer will not be held accountable. Contrast that case with the case of former police chief Willie Lovett. See: Supporting the police who enforce Sheldon Adelson’s racket. For doing the right thing, Lovett is going to jail.[1] The trend is not for the government to administer justice but to drive up its cost (i.e. drive up the cost of a “bribe” or protection). My rule is to look for the means to further that trend in every political plan.

How will body cameras impact officer discretion? Suppose an officer wants to be courteous by not enforcing an unjust statute – say, letting somebody off with a warning – will that officer be unable to deviate from policy? I believe it will be less likely that body cameras will be used to curtail brutality than to enforce compliance with prevailing policies, which will compel the use of unnecessary force.

I see the proposal for body cameras as the new front line in the battle for our civil liberties. If the plan for police officers proceeds, this will be merely the first step of an Orwellian scheme on steroids. Here’s my prediction: The program, if implemented, will only metastasize. Why not compel everybody to wear cameras? If people have nothing to hide, then why not? If we can place body cameras on police officers, why can’t we “help” veterans by compelling VA employees to wear them? (I would be opposed to such a scheme.) Why not compel all government employees to wear body cameras to ensure they are properly executing their duties? We will then have one huge government full of employees being held accountable by the government.

But then what do I know? Pursuant to the VA, everything I wrote above would no doubt be charted as the manifestation of extreme delusional thinking. Perhaps I can overcome this “delusional” thinking by getting with the program and calling for cameras on all government employees (jestingly). And then the government will be able to ensure VA employees comply with prescribing dangerous psychiatric drugs to veterans for having impermissible beliefs (e.g. believing the profit and loss test on the free market is the best way to ensure accountability to consumers).

[1] – Lovett’s “crime” (he had no victims) was functioning as a de facto tax collector independent of the regime, while Garner’s assailants were functioning as de jure tax collectors on behalf of the regime. From these two cases, one might conclude that violating policy to protect liberty without inflicting injury upon nobody is a greater “crime” than is needlessly taking a life if done in service to the state.

Supporting the police who enforce Sheldon Adelson’s racket

Recently, Senator Harry Reid criticized the Koch brothers for being motivated by the pursuit of wealth while defending his nexus with the billionaire casino mogul Sheldon Adelson. Senator Reid’s apologia of Sheldon Adelson is that Adelson is not motivated by the pursuit of wealth. Adelson doesn’t seek money. Money seeks Adelson. See: http://talkingpointsmemo.com/livewire/harry-reid-don-t-pick-on-sheldon-adelson

Let’s start with this axiom: there’s a distinction between what’s illegal and what’s criminal. In other words, just because something is illegal pursuant to statutory law doesn’t make it a criminal act. Just because something is legal doesn’t make it lawful or moral. In many instances, enforcing a statute is itself a criminal act. When the government does whatever it wants, that’s called lawlessness.

Gambling is not a criminal activity. If it were, then Sheldon Adelson has a lot of explaining to do. If something is a criminal activity, it shouldn’t be legal under any circumstances. The government ought not selectively grant permission to people to rape one another through a licensing scheme.

I’m not saying gambling is a good thing to engage in, but it shouldn’t be illegal. Gambling is legal in Nevada and on Indian reservations. Apparently, the former police chief of Savannah-Chatham, Georgia, agrees with me that it would be immoral to enforce anti-gambling statutes. For that, he is now being prosecuted. See: https://www.augustachronicle.com/story/news/2014/06/05/feds-indict-ex-savannah-police-chief/14409477007/

Former Savannah-Chatham Metro police chief Willie Lovett is being prosecuted for having taken payoffs from an “illegal” (i.e. non-government-accredited) gambling enterprise to not enforce anti-gambling statutes. He received money in exchange for protecting the enterprise from the LEO that he ran. Repealing anti-gambling statutes would remove the demand for the protection services sold by the former police chief.

Let’s establish another axiom: as Murray Rothbard saliently articulated, bribery isn’t inherently wrong. When an employer pays an employee to work, that employer is bribing the employee. If somebody pays a neighbor to mow their yard, that person is bribing the neighbor to mow their yard. If somebody pays somebody to murder somebody, that’s totally immoral and criminal and needs to be stopped. The consequential issue is not that a person paid somebody to do something. The consequential issue is what the person paid to have done.

In the case of Willie Lovett, his “transgression” was in not enforcing anti-gambling statutes. From a moral point of view, it would be wrong to jail people who voluntarily engage in a victimless activity. Unless somebody was forced to gamble against their will, it makes no sense to call gambling a crime. From an economic point of view, shutting down the gambling enterprise would not be in the interest of the local government. Instead, it would make more economic sense for the local government to leave the enterprise intact and collect taxes – kind of like what the former police chief was doing. Objectively, the former police chief is being prosecuted for behaving like a tax collector rather than a kidnapper.

Prosecuting Willie Lovett for doing the right thing by not enforcing unjust statutes against gambling makes sense only from the point of view of Nevada casinos. Objectively, Nevada casinos benefit by having the federal government wage a war on gambling in other jurisdictions. The real racketeering is the prosecution of Lovett, suppressing competition for casinos in other parts of the country.

Pursuant to Sheldon Adelson, statutes against online gambling have nothing to do with his own economic interests. Instead, online gambling exploits vulnerable people. To prevent that exploitation, people should travel to Las Vegas and visit one of his casinos. See: http://www.latimes.com/nation/la-na-adv-adelson-online-gambling-20140521-story.html#page=1

But then Adelson does say that he’s in favor of gambling. It’s just that online gambling he’s against. Then perhaps Adelson can use his political pull to help repeal anti-gambling statutes in Savannah-Chatham and then cover the legal defense of the former police chief. Or does he only support the police who enforce his racket?

Senator Dean Heller’s swing and a miss

Pursuant to a recent news article in the Las Vegas Sun, Senator Heller faults speculators on Wall Street – the in vogue practice – for rising oil prices, and consequently rising fuel prices. Heller’s remarks can be interpreted in one of two different ways. He’s scapegoating speculators for rising prices. Or he’s implying the subsidized speculator – speculators who have been beneficiaries of bailouts, objectively allowing risk-free trading and speculating. If it’s the latter, I fail to see how anybody could disagree. Do you want people getting bailed out with your money for bad decisions? But this transcends futures traders. Homebuyers made bad choices when they longed homes at pseudo prices with borrowed money. For the record, I sounded the alarm at that time. Meanwhile, the prudent savers were being priced out of the market.

I believe I know a thing or two about the futures market. I believe I also know a thing or two about economics. I’ve never gone into debt to buy a house nor a car, save a Mustang that I paid off over a decade ago. I stood on principle and refused to take anything from the taxpayer to go to school, while living well below the poverty line. Far from being rewarded, I’ve been penalized since only college graduates have the cognition to qualify for jobs that I don’t (e.g. as a legislative aide for economic policy).

Pursuant to conventional wisdom, I’m a speculator, rather than a hedger. It’s very misplaced to stigmatize speculators. Objectively, speculators are hedgers. Pursuant to prevailing orthodoxy, the distinction between the two is that a hedger enters the futures market to mitigate risk from assets already held, while the speculator is assuming new risk by entering the futures market. But it’s not that simple.

Suppose there’s a farmer who grows corn. For sake of illustration, he anticipates a crop size of 5000 bushels of corn. He wants to lock in the price of corn at, say, 615 cents per bushel (the present July 2012 contract price, which I’m long at 609 on the mini). He then takes a short position in the futures market that will offset his position in the cash, or spot, market.

When I went through my Series 3 course, I detected a flaw with prevailing orthodoxy when it comes to hedging. Prevailing orthodoxy says that farmer need not mind his business when placing futures trades. The futures trade is no different than wearing a life vest when out at sea. Since the short position in the futures market offsets that “risky” long position in the cash (i.e. spot) market, his position in the futures market is said to be a hedge. There’s a problem with that calculus. In an inflationary paradigm (i.e. the real world), the farmer’s true hedge is not his futures position, but his cash market position.

Saying that the farmer’s losses in the futures market will be offset by gains in the cash market is merely a different way of saying that his gains in the cash market will be offset by losses in the futures market. By taking a losing position in the futures market, the farmer…lost. To argue for indiscretion in the futures market is altogether chimerical. Rather than plagiarizing myself, I would refer the reader to a piece I wrote back in 2009: http://libertyeconomics.com/barrick-gold-corporation-lifts-hedge-gold-hits-1200/ Just to make clear, there are long hedge trades as well.

Now let’s consider the “evil” speculator. The speculator who trades, say, corn futures, but does not grow corn. Guys like me. I’m not wealthy. I’m far from wealthy. Due to horrible healthcare at the VA, where I was considered to be delusional for believing things like hypothyroidism is symptomatic, that couldn’t have possibly contributed towards landing a meaningful job. After all, I’m totally “delusional”. I could go blow all my money on partying and travel and booze and be broke, but I would rather not, although pursuant to prevailing orthodoxy that would stimulate the economy since the problem with the economy is savers. I would rather better myself so that I can help not only myself, but others. So how do I better myself without taking anything from the taxpayer? I’m compelled to do things like speculate, which everybody does in every transaction. The pizza shop owner is speculating that people will feed themselves with the pizza he’s selling.

I have dollars – not alot, but some. I’m long cash. Everywhere I look, I see prices rising. How do I keep up with rising prices if I don’t generate a return that equals or surpasses the rate of inflation? By choosing to trade, say, corn futures, I’m hedging myself against dollar destruction, which is the present policy of Washington. If I stay long cash, I will be a certain loser since the value of the dollar will continue to go down as long as people blame speculators. Eventually, I will be compelled to use up what little savings I have on living expenses.

All “liquidity” has to go somewhere. By being in the futures market, I’m not driving up prices in the spot market. Would Senator Heller rather I go out and buy physical bullion? Or stockpile cans of corn? Furthermore, speculators don’t just take long positions. There are speculative short positions. Is a short position just as dirty and sinful as a long position? What if I wanted to short corn at the market bid, thus helping drive down the price of corn?

In a futures trade, like every other transaction, every long position requires a short position. Every short position requires a long position. There can’t be a buyer without a seller nor a seller without a buyer. There can’t be hedgers without speculators. If speculators are removed from the futures market, this will necessarily remove hedgers. Which prompts the question: If hedgers are saints, how can speculators be sinners? Furthermore, for the speculator, every long position eventually becomes a short and every short position eventually becomes a long, since the speculator offsets the position.

It isn’t speculators that create inflation. Inflation is central bank policy. We can’t debase the currency, suppress interest rates, combat deflation, say that spending and consumption stimulate the economy, preach about the virtues of conservation, preach about the “twin evils” of both inflation and deflation, demand higher prices of just some things (e.g. equities and homes, making them unaffordable), inflate even more to subsidize low income and affordable housing because people can’t afford higher priced homes, but then blame “sinful” speculators on Wall Street because prices are rising. Hell no, Heller.

There’s something fundamentally wrong when present policy has been crafted to prevent housing prices from falling, while simultaneously blaming speculators for rising oil prices. Scapegoating speculators for rising prices is not only wrong, it justifies faux solutions that engender greater problems.

If Heller really cared about rising fuel prices, he would be preaching about the need for monetary tightening. Priced in real money (i.e. gold) fuel prices have fallen. Fuel prices have gone up only when priced in dollars, not gold. Heller needs to tell us what he means when he blames speculators for rising oil prices. Does he mean that speculating in the futures market causes rising prices? Or does he mean creating inflation to subsidize politically-connected speculators causes rising prices? Until he explains this one, I’m saying it’s time to draft Kim Kardashian for a senatorial race in Nevada.