Saturday, March 31, 2012

The Self-Destruction of the Libertarian Party

The American Libertarian Party is being destroyed in its ideology and philosophy. The moral philosophy of libertarianism was, until very recently, full-spectrum liberty. Libertarianism included full civil liberties, with no restriction on peaceful and honest human action. The libertarian economic policy was a pure free market, with no restriction or tax on acts that do not coercively harm others. The foreign policy was peaceful co-existence, defending the homeland while avoiding foreign interventions.

The core of government power and policy is taxation. Governments get funded by forcibly taking property from people. Since libertarians until recently believed in equal self-ownership, they regarded this taking as morally wrong. The slogan was "taxation is theft!" But what that really meant was appreciated only by the Georgist branch of the movement, the geo-libertarians who recognized that the provision of public goods by government generates higher land values, and that if the generated rentals are not paid back, that constitutes a subsidy. A pure free-market policy avoids subsidies, and thus requires that these rentals be paid back to society by landowners. So geo-libertarians recognized that "taxation is theft" applies to taxation in substance, not merely taxation in form, thus not to the repayment of value received.

But in 2012, American libertarians began committing ideological suicide. Today's libertarians have not been as well educated as those in previous times. They don't understand the moral philosophy of natural rights, and the economic effects of taxation. American libertarians today are embracing the violation of free trade, the subsidy to land values, and the quantum destruction of private enterprise that is entailed in a national sales tax.

Most libertarians are not anarchists. They are minarchists, favoring limited government. That implies a need for some revenue. Libertarians are aware of the moral and economic objections to the taxation of income, but they have rejected the source of public revenue that is compatible with self-ownership and a free market – public revenue from land rent. This rejection is described in the book by Harold Kyriazi, Libertarian Party at Sea on Land. American libertarians have even rejected the replacement of much of government by private communities financed from the rentals that they generate. No, the doctrine increasingly being embraced is domestic tariffs on trade.

There is a movement in the USA that advocates a national sales tax. Cleverly, they label this a "fair tax," although there is nothing just or fair about violating free trade. The explanation for the compulsion to tax goods requires a psychological analysis. I have no credentials in academic psychology, but it seems to me that the core American creed is not liberty, but a combination of Puritanism and land grabbing. If the core American creed were liberty, the USA would not have upheld chattel slavery, nor would it have imposed punitive taxation from the beginning.

Economic puritans believe that consumption is bad. They favor the mercantilist policy of promoting production and exports, while stifling consumption and imports. Economic puritans seek to shift taxation from production to consumption. Secondly, Americans from the beginning have profited from land grabbing, first from the Native American Indians, then from the Mexicans and the Spanish, and then indirectly by overthrowing governments such as that of Guatemala, which did not allow American-owned plantation and mining land grabs. Americans are greedy for stolen land because they know it offers one of the best avenues to becoming rich with other people's money.

Libertarians were once proudly counter-cultural, advocating the legalization of victimless acts, and opposing the welfare-state culture that has become a global religion. But now, US libertarians have succumbed to the core American cultural values, Puritanism and land grabbing. That is why libertarians have rejected explicit subsidies of money and price controls, but not the implicit and much greater subsidy to greater land values. Libertarians framed this policy as allodialism, the complete ownership of land and its rent by those who are "first claimants" by having title, ignoring the fact that imposed taxation pumps up that land value.

Having rejected public revenue from land rent, even from free-market private community rentals, libertarians have replaced liberty with economic Puritanism, the tax attack on consumption. The leading candidate for the Libertarian Party presidential nomination is promoting a national sales tax of 30 percent of the pre-tax price of goods. Endorsed by many state parties, he will surely be the Libertarian Party candidate. As taxation is the core issue, the American Libertarian Party will have been transformed into a national sales tax party. What was once the "Party of Principle" will have degenerated into the party of the ugly side of American culture, Puritanism and land grabbing.

Because the libertarian party is the public face of the libertarian movement, the implicit party slogan, "tax goods, not land" will infect the movement and philosophical base. Perhaps a million sales taxers will join the Libertarian Party, making it a permanent national sales tax party.

There are still some libertarians, especially geo-libertarians, who believe in pure economic freedom. Frustrated by a movement that is libertarian in name but no longer in substance, they may well join or form other parties such as Free Earth or a "Taxation is Theft" party. One can only hope that the attack on consumption by American pseudo-libertarians will not be copied by classical liberals in other countries.

Fortunately, Mason Gaffney has shown in his writing on "sales tax suicides" that governments such as that of pre-revolutionary Russia and France, which adopted high national sales taxes, committed economic and political suicide, and even puritan Americans will balk at the hardship and tax cheating that would be imposed by a high national sales tax on top of state sales taxes. Thus the American Libertarian Party is headed towards both philosophical and political ruin. It may well be that just as the term "liberal" became disassociated with liberty, the term "libertarian" will too become so corrupted by taxed trade that true liberty seekers will have to call themselves "classical libertarians" or free-earthers, and no longer just plain "libertarian."

Thursday, March 08, 2012

Gasoline Prices are a Policy Choice

The U.S. average price of gasoline has zoomed up 18 percent during the first two months of 2012. A rise that rapid is not caused by an increase in the demand for use. The increase is caused by speculators buying gasoline contracts. They expect higher prices because of possible oil disruptions in the Middle East, especially if there is a conflict with Iran.

Companies that use much gasoline have been able to hedge the prices of future purchases by buying futures contracts. Another way to hedge is with the U.S. Commodity Gasoline Fund, an exchange traded fund (ETF) with the trading name UGA. One buys shares of the fund just as one would buy shares of stock. If one expects the price of gasoline to fall, one can obtain a futures contract to sell gasoline, or else sell-short UGA.

The price of gasoline is a function of the price of oil, so one can go to the source of the price rise and buy shares of USO, the United States Oil Fund, also an ETF. Conversely or inversely, there are short ETFs such as DNO that have sell positions in energy contracts for those expecting a fall, or energy sellers that seek to hedge the current high price of oil to lock in the current prices.

Speculators can go long or short, long meaning owning contracts to buy, or equivalent ETFs, and short meaning contracts to sell, and short ETFs. Even if the rapid rise in oil prices is due to expectations rather than actual production costs and demand for current use, speculative prices can persist for many months. Hence even if one is confident that the prices will fall as fears ease, timing the market is an uncertain art.

The price of gasoline has become a big campaign issue. There are silly accusations that the recent restrictions on drilling in the Gulf of Mexico and delaying the construction of an oil pipeline from Canada have contributed to the oil price increase. The restriction of production and delivery are long-run issues unrelated to the current price rise. In fact, recent oil discoveries have resulting in substantial increases in US oil production.

What governments could do today to reduce the price of oil and gasoline would be to sell futures contracts in gasoline and oil. Most speculators who hold sell contracts do not have the actual commodity, and they sell the contracts before they expire for delivery. But the US government owns a huge pool of oil in its strategic reserve that would make US sales a hedging operation rather than a pure speculation.

Suppose the price of oil keeps rising despite U.S. government’s selling. If the price rises to $150 per barrel, the US government would be able to sell its reserve oil for $150 and liquidate its contracts, so it would be even. But if the price of oil falls, the US government would have a large profit from having shorted the market.

I’m not proposing or recommending that the US government sell oil futures contracts, just pointing out that if they wanted to, Congress and the President could bring down the price of oil and gasoline. Some critics have said that the federal government chiefs welcome a high price of gasoline in order to make “green” alternatives more profitable compared to fossil fuels. Whatever the motive, the high price of gasoline is a policy choice. There is no free market in oil, as the quantity of oil is manipulated by OPEC and influenced by government policies.

In the long run, demand for oil in the USA will fall as cheap natural gas replaces much of the oil consumption, and electric cars and fuel cells become more common. But for the present day, the high prices of oil and gasoline act as a tax to stifle the recovery. When folks spend more on gasoline, that leaves less money for other goods, and the reduction in demand results in less supply, less production, less employment.

If I were the president, I would sell futures contracts in gasoline. The price would swiftly fall, and the president would be a big hero. But this popularity could vanish as other issues become more prominent, so the most effective timing would be, say, two months before the November election. So don’t expect the government to act to reduce the price of gasoline any time soon.