It Is Dangerous to Be Right When the Government Is Wrong Read online

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  This Game Is Called “Was the Building Bombed or Rent Controlled?”

  Another way government intervenes in the right to contract freely is through rent control. Originally designed during World War II to provide housing to people of lower income in wartime and protect them from war-related housing shortages, rent control is a government-imposed price ceiling on the amount of money a landlord can charge in rent. Today it still exists, however, and is abused by many people who could afford to pay the real going rate for their rental property. Ed Koch, the cantankerous ex-Mayor of New York City, for example, in the early 1980s paid $441.49 for an apartment then worth about $1,200.00 per month.7

  In a free market, if the demand for rental apartments is greater than the supply, prices will rise to remove the shortage, by both bringing forth new supply from investors who will seek to take advantage of this new profit opportunity, and by reducing the amount demanded.

  When price controls are instituted, a shortage results. First, since the price ceiling is set below the market rate for rent, a shortage in the stock of low-income apartments naturally follows. The demand for rentals is then spilled over to the non-controlled sector, which normally consists of higher-priced apartments. This increase of demand, combined with increased fear by landlords to invest in new property since governments could impose rent control on those apartments as well, causes the rental prices of these non-regulated apartments to skyrocket. So, while prices in the controlled sector might be lower, the overall cost of renting will be much higher than the cost a free market would command.

  Second, with the increased uncertainty in the whole market, investors will pull their money out and search for greener pastures. Also, because of this decreased profit incentive, landlords will not reinvest in their properties for such things as ordinary maintenance, thus causing the property to deteriorate over time. This, surprisingly, is something all economists tend to agree on. Socialist economist Assar Lindbeck even stated, “In many cases rent control appears to be the most efficient technique presently known to destroy a city— except for bombing.”8

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  Setting the Precedent for Destruction

  Where did the federal government get the power to regulate all economic behavior? Wickard v. Filburn (1942) was the case that greatly increased the federal government’s power to regulate our lives. Roscoe Filburn, an Ohio farmer, produced wheat in excess of the amount allowed by the Agricultural Adjustment Act of 1938. He was not selling the wheat, or bartering with the wheat; he simply grew the wheat, on his own land, for his own personal consumption. Mrs. Filburn ground the wheat into flour and used the flour to bake bread for the Filburn family. The Roosevelt administration, drunk on New Deal socialism, effectively told Mr. Filburn to stop growing so much wheat for his family and told Mrs. Filburn to stop baking bread and cookies for their children. (FDR was in the period of his wretched life during which he was admiring and imitating his dictator friend, “Uncle” Joe Stalin.) There was no commercial activity and no interstate activity taking place with this wheat; so then, how could the federal government restrict the amount of wheat a person grows on his own land, for his own consumption?

  The Interstate Commerce Clause in the Constitution was designed to give Congress the power to regulate commerce between foreign nations, states, and with Native American tribes. The original meaning of the word regulate was “to keep regular.” Its sole purpose was to prevent states from creating tariffs to be used to the detriment of merchants in other states. When the feds sought to fine Filburn for growing and consuming too much wheat, the Supreme Court of the United States ruled that if farmers were allowed to grow any amount of wheat they wished, this in the aggregate would affect the price of wheat, which would affect interstate commerce, thus validating the Congress’s power to regulate interstate commerce. Of course, everyone knows that growing and consuming your own wheat that you grew in your backyard is not a commercial activity, takes place in one state, and has no measurable effect on interstate commerce. Somewhere Madison is fuming.

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  Congress has since abused this power to no end. Not only has the government regulated the remedies for defaulting on loans, not only has it regulated the amount of wheat grown in our backyards, it has regulated the number of hours per day bakers can spend turning that wheat into bread, and the wages they can be paid, and the temperatures of their ovens!

  The Gift that Keeps on Giving: The Community Reinvestment Act of 1977

  The government completely trampled the right to contract freely in the Community Reinvestment Act (CRA) of 1977. It essentially mandates that banks contract with less-than-desirable borrowers in an effort to increase home ownership across the nation. No mutual consent was required; rather, the government coerced private banks to abandon their traditional business practice, all in the name of political gain and extra votes.

  During the Carter administration, people accused mortgage lenders of racism because poor urban dwellers who were mostly black were being denied loans, while suburban whites were not. Seeking to reduce “discriminatory” credit practices against low-income neighborhoods (this practice is called redlining), Congress took this indictment as a green light to do anything— including interfering with private enterprise—to get more money into the hands of minorities to increase home ownership (this is not the job of the government, by the way).

  The Community Reinvestment Act made it legal for the government to twist the arms of private banks to make loans to “less-than-creditworthy borrowers,” thereby forcing private banks to associate with clients not of their choosing, but rather of the government’s choosing. To hold control over these lenders, Congress empowered a number of regulatory agencies to punish those banks that were not meeting the credit needs of “low-income, minority, and distressed neighborhoods.” The government’s threat to these lenders was real. Agencies like the Federal Reserve, the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation could examine banking institutions for CRA compliance (or non-compliance) and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions. Banks were bullied into loosening their standards and, as a result, made questionable loans to those who could not afford them.

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  Generally, banks make loans based on the personal variables of the borrowers, such as the size of the mortgage payment relative to income, credit history, and income verification, for example. But in the wake of the Community Reinvestment Act, the federal government informed banks that participation in “credit-counseling” programs was sufficient as proof of a low-income applicant’s ability to make mortgage payments. “Banks and lenders, forget about those other ‘silly’ factors—you know, like, the numbers. Trust us. We are the government.”

  A credit-counseling program? Seriously? What kind of proof is that!? Per the government’s extortion, banks were forced to make loans based on nonexistent credit standards. The quality of loans being handed out by private banks (because the government mandated it) was like candy at Halloween.

  Michael Lewis, in his book The Big Short, recounts the plight of an immigrant strawberry picker with an annual income of $14,000 who was given a loan for a $700,000 home. In what kind of world is this loan reasonable? The CRA was one of the many ways the government attempted to provide affordable housing to low-income people. Interestingly enough, after this government scheme caused the real estate bubble that wrecked the economy in September 2008, the solution it proposed was to prop up housing prices to extreme heights that were artificially bid up by speculators; in other words, the program designed to provide more affordable housing kicked many homeowners out of their houses, wrecked the economy, and attempted to solve the wreckage by keeping housing prices higher or at more unaffordable levels for poor people. The irony of government actions never ceases to amaze me.

  Through the passage of the Community Reinvestment Act of 197
7, the government chose to ignore a little fact: Businesses have the right to contract freely with individuals or companies with whom they freely choose to contract. That is their fundamental right.

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  Recklessness with Contract Rights

  Today, with the Chrysler bailout, we see the current establishment’s complete recklessness when it comes to the contract rights of Chrysler’s bondholders. The bondholders are secured creditors, which means by law they hold a higher ranking than shareholders or unsecured creditors in a reorganization or bankruptcy. Outrageously, though, the government—which has inserted itself into this private bankruptcy by virtue of its massive loans to Chrysler—completely ignored this ancient and uniformly applied rule and instead intimidated a federal bankruptcy court to award ownership shares to the United Auto Workers, and only what was left to the bondholders.

  When the bondholders tried to get a larger stake in Chrysler, President Obama publicly referred to them as “vultures,” and they eventually backed down. Since when are you a “vulture” just because you ask that the contract you signed be enforced, that the money you loaned out be paid back? And since when does the President interject himself into the fray when a lender wants a loan repaid? When contracts don’t mean anything.

  The government can be counted upon to interfere with any contractual relationship it hates or fears. Congress has wielded its interstate commerce power to create a federally mandated minimum wage. Minimum wage directly affects the poorest members of the economy, and while this is precisely the intention, the results happen to be completely contrary to these intentions; at least the intentions of the few good-hearted politicians. Many ignorant lawmakers assume that poor people will make more money simply because a law raises the lowest wage an employer can pay a poor person. However, since the poorest members of society tend also to be the least skilled members, if the minimum wage is set above the level of production that a poor person can achieve with his current skill set, then he will never get a job; and the higher the minimum wage, the higher the barrier poor people have to jump in order to gain employment.

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  If a person’s skill set is valued at five dollars an hour by an employer, this valuation will not change just because the government implements an eight-dollar minimum wage. What will happen is this person will not get the job; what employer will hire a worker who will actually generate a negative return? So, instead of a poor person having the opportunity to hone his skill set and learn the valuable lessons of hard work that would make him more employable while raising his value, feeling of accomplishment, and the wage he can command in the future, this poor person is rendered unemployable and forced to live a substandard life on the welfare dole because of government-mandated minimum wages. Since many poor teenagers do not possess adequate access to a decent education (as a result of the terrible public school system as discussed in chapter 11), they will suffer the most.

  These teens are at a severe disadvantage when they face competition from middle- and upper-class teenagers who have access to better educational systems and who are also able to present themselves better while on interviews. The main weapon a poor inner-city teenager would have in this situation would be the willingness to work for a lower wage; this way he could increase his chances of successfully competing against the middle- and upper-class teens for employment by giving prospective employers a cost-saving incentive. Once he gained employment, he could learn useful skills, demonstrate his true worth to the employer, learn how a certain business works, build a resume, and command a higher wage in the future. However, since government restricts the ability of an individual to choose how much his own labor is worth, he is forced to remain unemployed, never getting an opportunity to learn very important working skills. This is all, of course, supposedly in the greatest interest of the general welfare.

  Conclusion

  The Interstate Commerce Clause has become an extremely formidable weapon, one which Congress uses to assault our individual commercial liberties and steal our property every day. If Congress is allowed to use this power to regulate food that we grow in our own backyards and consume in our kitchens, there is no limit to its power. Every behavior can now be taxed and regulated by the federal government, and this is something that must be stopped. We have seen examples of how government restrictions and takings have destroyed houses, apartment complexes, businesses, as well as the entire American economy. We have seen how these same restrictions on private property made housing unaffordable for the poor and the middle class; we have seen restrictions cause extreme poverty amongst the most marginalized members of society. When will this end?

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  It is no wonder the American economy is no longer the strongest economy, with the most productive and innovative people in the world. America, just like Europe at the end of the two great world wars, has been left with limited factors of production and a ravaged economy. But, unlike Europe, America was not a casualty of war, and our factories were not bombed by enemy tanks and aircraft; Americans have had their productive capital taxed away, their costs of living increased, their education diminished, and their factories have been allowed to rust, become outdated, and waste away, all thanks to onerous government taxes and regulation; all thanks to government’s lack of respect for the inalienable right to own private property.

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  Chapter 3

  Names Will Never Hurt Me:

  The Freedom of Speech

  Approximately 1,160 miles separate Topeka, Kansas, from Westminster, Maryland. Fred Phelps, pastor of the Westboro Baptist Church in Topeka, Kansas, feels it is his duty to travel great distances to spread his congregation’s religious message: “That God’s promise of love and heaven for those who obey him in this life is counterbalanced by God’s wrath and hell for those who do not obey him.” In 2006, this duty brought him to Westminster, Maryland, to attend a funeral service at St. John’s Roman Catholic Church.

  The funeral was in honor of Lance Corporal Matthew Snyder, a U.S. Marine who died while stationed in Iraq. Funerals such as Corporal Snyder’s are prime opportunities for Phelps to spread his religious message, because he believes God is punishing the United States for “the sin of homosexuality” through a multitude of events, including soldiers’ deaths likes Snyder’s. However, Phelps’s protests do not end with him or his followers attending funeral services. They attend the funeral services while shouting at grieving family members and carrying signs with slogans such as, “Thank God for Dead Soldiers,” “Priests Rape Boys,” and “God Blew Up the Troops.”

  Is this form of speech the exercise of a natural right granted to us by virtue of being human? Is there a fundamental yearning to communicate ideas to others, even if those ideas are patently offensive and outrageous? More importantly, should it be? After all, legal Positivists might criticize any scheme of rights, such as the Natural Law, which protects the protesting activities of Fred Phelps. As we shall see, however, freedom of speech is a nearly absolute right which can only be curtailed in the direst of situations, namely, where speech will somehow infringe upon other natural rights, as might be the case with a criminal mastermind instructing his henchmen to kill others. As unpopular as Fred Phelps’s ideas might be, we cannot, and must not, conflate questions of unpopularity and offensiveness with natural rights. If we do, then we set a legal precedent for the suppression of unpopular groups, and the death of free thinking. As Noam Chomsky stated, “If we don’t believe in freedom of expression for people we despise, we don’t believe in it at all.”

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  “They Chose Liberty”

  The egregious and loathsome speech of Fred Phelps is a prime example of the speech the First Amendment protects. In drafting the First Amendment, the Founding Fathers intended to protect not only agreeable or non-provocative speech, but also speech against the status quo. Indeed, the American Revolutionary movement was itself an uprising against then existing power structures, making its literature the object of government
contempt. Justice William O. Douglas wrote, “The framers of the Constitution knew human nature as well as we do. They too had lived in dangerous days; they too knew the suffocating influence of orthodoxy and standardized thought. They weighed the compulsions for restrained speech and thought against the abuses of liberty. They chose liberty.”1

  By choosing liberty, the Founders sought to protect our most basic yearnings: Here, the yearning to think as we wish, and to communicate thoughts to others without the “chilling” effects of government regulation. To avoid repeating history and suffering the later abuses of a tyrannical government, the Founders, in enacting the First Amendment, secured our right to dissent, to speak out against those in power, and to participate in a public discourse. Thus, the right protects not only the speech itself, but every person’s ability to express ideas. If others do not agree with those ideas, then they are free to disregard them wholly. They may only seek government infringement of speech if it is somehow violating their own natural rights. No society could exist if there was a natural right not to be offended.

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  The First Amendment states in part, “Congress shall make no law . . . abridging the freedom of speech.” Singularly, this line recognizes the natural right to free expression and restrains the Congress from interfering with that right. It also acknowledges the fact that the right to free speech is a natural or fundamental right. That the Founders wrote “the freedom of speech” makes it clear that they viewed the right as pre-existing the government’s formation. Thus, the government can only curtail your right to free speech when you violate the Natural Law; otherwise, it has no authority to do so, and any regulation of the right is an illegitimate exercise of power. It should also be clear that the freedom to speak, unlike the freedom to swing one’s arms or shoot a gun, will be by its very nature almost never able to harm another. The possible window where speech can violate another’s natural rights, and thus be eligible for government regulation, is extraordinarily narrow.