Two Cheers (& More!) for Rand Paul!

With Rand Paul’s suspension of his campaign for the Republican presidential nomination comes an understandable deluge of autopsies, elegies, screw-yous, and snarky subtweets.

Yet I come not to bury the “libertarian-ish” Paul but to praise him. In five short years as a senator, he’s already elevated a host of issues that almost would have never seen the light of day. Assuming he keeps his Senate seat in the fall (as safe a bet as can be made in politics, which entails serious risk), he’s still at the start of a career that, along with other newish colleagues, may well transform not just the GOP but the country as a whole. Here’s hoping.

Among the good things that Paul has harped on (even and especially when it wasn’t popular):

  • Spending and debt issues. When Matt Welch and I first interviewed Paul shortly after he came to Washington in 2011, he was wearing a “red cent” lapel pin and was busy crafting balanced budgets and calling bullshit on the bipartisan willingness to deficit-spend us into oblivion. As Matt noted earlier today, he’s still on that beat even as the party leadership (and his presidential rivals) mostly talk about what they want to spend your future earnings on. And don’t be fooled: Debt and deficits are already getting worse than D.C. has been letting on. 
  • Civil liberties and state surveillance. Before there was Edward Snowden, there was Rand Paul’s filibuster calling out Barack Obama for pussyfooting around whether he believed there were any limits on what a president could do in the name of the War on Terror. Liberal Democrats who had rightly denounced expansive and occult readings of executive power during the George W. Bush years had mostly fallen silent upon the ascension to the throne of Barack Obama. Pro-war Republicans mostly held their tongues too. It was Paul who brought questions about the government’s and the president’s unwillingness to come clean or act constitutionally to the forefront of the public. Paul’s highly public act—which dominated Twitter as it happened—gave what was to come later the context we needed to understand just how FUBAR things had gotten.
  • Police abuse and criminal justice reform. Rand Paul was the first national politician (along with libertarian Republican Rep. Justin Amash) to call out the situation in Ferguson, Missouri as an example of bigger issues. Before Missouri’s own senator, Claire McCaskill, Hillary Clinton, or Barack Obama. What’s more, Paul’s discussion of the matter helped place law enforcement abuses in a legal, cultural, and historical context that helped non-minorities understand what abuse of power looks like. Along with his colleague Mike Lee of Utah, he continues to be the main Republican in the Senate to be pushing serious reform of a criminal justice system that has needed reform for generations.
  • Foreign policy and containment of radical Islam. Arguably the most-amazing Republican policy switcheroo is one that no one is openly talking about: Which of the GOP presidential candidates is calling for a no-holds-barred, boots-on-the-ground invasion of the Middle East these days? The answer is none (though all are dying to, as is Hillary Clinton). The person most responsible for anything resembling restraint in American foreign policy is Rand Paul. As a neophyte senator, he pushed back against what seemed at the time an unstoppable movement to bomb and eventuall invade Syria in 2013. Dubbed a “wacko bird” for arguing that the U.S. military should be used to defend the country rather than play beat cop to the world, he was the most vocal and consistent opponent of elective war in his own party. He also gave a thoughtful speech at the Heritage Foundation of all places that recovered the original meaning of Cold War “containment” as everyone and his grandpa were ready to start making sand glow green in countries we’d just pulled out of. He also is still calling for an actual declaration of war not just on ISIS but on Libya, where his caution proved sadly prophetic.
  • Recharging and remaking the GOP. It can’t be easy to have a famous father but Paul fils, like old Daddy Ron, is remaking the Republican Party in all sorts of ways. Ron Paul brought in tons of young people and folks who had never been interested in politics during his own presidential runs in 2008 and 2012. Seemingly alone among this years presidential contenders, Rand took seriously the party’s own official autopsy of Mitt Romney’s sad-sack effort to unseat Obama and has spent serious time reaching out to racial and ethnic minorities as well as all sorts of other people long ignored by the Party of Lincoln. “We’re going to win when we look like America,” he told a New Hampshire crowd in 2013. “We need to be white, we need to be brown, we need to be black, we need to be with tattoos, without tattoos, with pony tails, without pony tails, with beards, without.” As important, Paul is a mentor and inspiration to a younger generation of congressmen such as Justin Amash and Thomas Massie. Along with the always-underrated Mike Lee, Paul is one of the intellectual and strategic architects of a Republican Party that is serious about cutting the size, scope, and spending of the federal government.

Lord knows that from a Reason-style libertarian perspective, Rand Paul hasn’t been perfect, either as a presidential candidate or a senator. And while the list above isn’t exhaustive or complete, now is the time to take a moment and take the measure of what he’s accomplished and set into motion.

The “Libertarian Moment” that Paul has rightly been identified with has never been about electoral politics per se. In coining the term, Matt Welch and I have always emphasized that we were describing a culture characterized by “comfort with and demand for increasingly individualized and personalized options and experiences in every aspect of our lives.” Similarly, we stressed that politics is a “crippled, lagging indicator” of where America is headed, so you should expect it to be the last redoubt of top-down, centralized thinking and control to be remade by libertarian sensibilities. That Rand Paul has done as well as he has—and that we just witnessed two independents do so well in Iowa—is a sign that things are headed in the right direction, if never as fast as some of us might prefer.

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China Takes Aim At “Zombie Companies”, Says Soaring Job Losses Won’t Lead To Popular Revolt

Downside risks to China’s economy are “relatively big” National Development and Reform Commission Chairman Xu Shaoshi admitted on Wednesday, but that’s not going to stop Beijing from swearing that China is growing at a near 7% clip.

At a press briefing, Xu revealed China’s growth target for the year and for the first time since 1995, it’s a range rather than a set number. The economy will grow between 6.5% and 7% in 2016, Xu said in a tacit admission that things are indeed slowing down for the engine of global growth and trade.

“It’s impractical to have a growth target being a number,” Iris Pang, a Greater China economist at Natixis SA told Bloomberg. “A range is more practical [as] it gives more room for policy makers to exercise their creativity to boost the economy.”

Right. And everyone knows the good folks at the NBS are very good at “exercising their creativity” when it comes to publishing economic data.

More notable than the growth target (which really doesn’t matter because GDP prints out of China are figments of Xi’s imagination) were Xu’s comments on the country’s acute overcapacity problem, defaults, and social unrest.

One narrative we’ve been keen to build on since last summer’s dramatic selloff in Chinese equities is the idea that between the stock market bust (Chinese equities have seen two bear markets in the space of a year) and the fallout from the sharp deceleration of the economy, the country’s beleaguered masses might well just rise up and revolt.

That might have seemed like hyperbole 12 months ago, but not now.

Indeed it was just yesterday when bulletins began making the rounds on Chinese social media calling for those defrauded in the Ezubao ponzi to stage nationwide protests.

In short, the villagers are restless and once the economic malaise begins to cause massive job losses, things may well come to a boiling point. Or, as we put it late last month after Li Xinchuang, head of China Metallurgical Industry Planning and Research Institute told Xinhua that eliminating excess capacity in the steel industry will cost 400,000 jobs and could fuel “social instability”: “…the most important topic facing China is how it will respond to the imminent labor market crisis as millions of workers are laid off either voluntarily, or as a result of bankruptcies of their employers.”

One option is for the state to simply keep bailing everyone out thus forestalling China’s Minsky Moment which will finally come when insolvent producers…

…can no longer borrow more money to service their existing debt…

But China desperately needs to deleverage. The country has a staggering $28 trillion in debt.

Kicking the can by perpetuating a system that seeks to avoid defaults at all costs destroys creative destruction and limits the extent to which the market can purge misallocated capital. And make no mistake: if there’s anything China has a whole helluva lot of, it’s misallocated capital.

While discussing this year’s growth target, Xu said China was prepared to take steps towards eliminating excess industrial capacity and dealing with unprofitable “zombie companies.

Xu acknowledged that will mean rising joblessness. “Beijing’s attempts to curb overcapacity will increase unemployment in provinces with high output of steel and coal,” Reuters writes, recounting Xu’s comments at the briefing. “Job losses in provinces such as Shanxi, Heilongjiang and Hebei will rise.”

Xu didn’t say what the government planned to do to ameliorate the coming wave of job losses, but did say Beijing would not let joblessness plunge the country into social unrest. “Now the problems are worse than they were two years ago but the government has the ability to cope,” he insisted.

We shall see, in the weeks and months ahead, whether suddenly unemployed Chinese are in a forgiving mood when their “stability-obsessed” government begins the gradual and exceedingly painful process of unwinding one of the largest investment-driven industrial booms in the history of the world.


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If You Registered Your Drone with the FAA, Kiss Your Privacy Goodbye

drone guyAre you a law-abiding drone owner who registered your unmanned aerial vehicle with the federal government? Congratulations! Total strangers can now find your name, address, and lots of stuff about your fun toy in a totally public, searchable database!

Late last year, the Federal Aviation Administration (FAA) announced that virtually everyone who owns a drone (a drone’s a drone, no matter how small, it seems) would have to register their flying computers for $5 a pop with the federal government. The penalty for failing to register: civil fines of up to $27,500 and criminal penalties of up to $250,000 and imprisonment for three years. 

Reason‘s Scott Shackford has written about the failure of the FAA to actually convince most people to register their drones.

And thank goodness for that incompetence, since it will offset this latest revelation of incompetence: The 300,000 entries in the federal UAV registry are public, searchable, and downloadable, despite claims by the feds to the contrary, Engadget reports.

Go ahead, search vehicle registrations in your neighborhood right here on this handy official webpage!

This registry includes private planes as well, but scan for “UAVs under 55 lbs” to see drones that have been registered under the new law.

What’s more, as the think tank Heritage notes in a report released yesterday, the FAA registry fails to accomplish its stated goals of improving safety, providing accountability, and offering education to drone owners.

“It is clear that this regulatory response was rushed and arbitrary,” conclude authors Jason Snead and John-Michael Seibler, “but there is also a pernicious side effect to this purposeless regulation: Otherwise innocent people are now exposed to criminal liability for no valid purpose.”

Add to that list that innocent people have now had their privacy undermined as well.

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Critics Don’t Want To Admit Flint’s Water Crisis Is Due to Stimulus Plan Rather Than Austerity

Kristi Culpepper, a Kentucky government official who blogs about municipal bond issues and used the colorful twitter handle “Bond Girl” until a reporter exposed her identity, has written a five-page rebuttal of my recent coverage of Flint, Michigan’s water crisis. Polluted River

I reported that Flint’s lead poisoning is the result not of an austerity program pushed on the fiscally strapped city by an emergency manager appointed by Michigan Gov. Rick Snyder but of a stimulus program gone wrong. Various internal documents and an independent study commissioned by the state treasurer Andy Dillon had found that switching from the Detroit Water and Sewage Department (DWSD) to the new water system being developed by Karegnondi Water Authority (KWA) would likely cost Flint more not less.

Culpepper quotes a lengthy excerpt from my piece and concludes: “Maybe one sentence of all that is factually correct.” After such a serious accusation, one would expect Culpepper to actually point to the alleged factually inaccuracies. But she doesn’t. She simply knits a different narrative from the long and arduous history of the project that doesn’t have much to do with the immediate events preceding the decision to switch from DWSD. What’s more, she ignores that I’m not the only one using these documents to raise questions about why Flint made the decision to split. After my piece came out, The Detroit News also did a story using the same sources to raise questions about the cost effectiveness of the switch.

Setting that aside, Culpepper finds my “version of events…startling in its naïveté” because she claims:

  1. I ignore that DWSD and Detroit “did not play well” with its municipal customers and suburbs. “The local governments involved in the pipeline had been trying for years to negotiate lower rates with Detroit Water and Sewerage and Detroit had flatly refused. Detroit only began to discuss a modified rate structure in earnest once it became a done deal that they were going to lose their wholesale customer base and under pressure from the state.”
  2. Flint had every reason to be suspicious of DWSD because Detroit, which was itself in bankruptcy and under the supervision of a state-appointed emergency manager, was looking for ways to palm off the operational costs of the system to its suburban customers.
  3. I was insisting on the “stimulus” narrative because: “The players in charge at the state level in this story were so criminally indifferent to their duty to ensure public safety that there is no way to defend them at this point. So it is easier to cast them as wanting to create a ‘stimulus project’ for Flint, because then the governor isn’t worth defending as a conservative leader.”

I honestly don’t get what is being alleged here. The governor is not worth defending if he engaged in stimulus spending but is worth defending if he jeopardized public health? I can’t unpack the thought process here so I’m just not going to try.

4. Moving on, Culpepper takes pot shots at Reason’s infrastructure coverage in general, noting that instead of pretending that America’s infrastructure was in better shape than it is, we should make a “good libertarian argument regarding infrastructure” by arguing for “increased private investment rather than denying that much of America’s infrastructure is past its useful life.”

Talk about spinning a bizarre narrative! But to take her last point first, Reason has a history of calling for Public Private Partnerships in transportation and public infrastructure, so it doesn’t need any lectures about making “good libertarian arguments” about that. In fact, both Reason Foundation Vice President Adrian Moore and I, in the wake of Flint’s lead poisoning debacle, have made the case for privatizing water utilities to enhance not just efficiency but also accountability. That’s especially important given that victims of government abuse and neglect usually can’t actually sue public officials as they can private companies. (I have even called this a “crime”—so much for not criticizing public players who endanger public health!)

Her observation that Flint had every reason to be suspicious about DWSD’s offer because of DWSD’s previous bad behavior is true but irrelevant. I was on the editorial board of The Detroit News for nearly 10 years, from 1995 to 2005, and observed and wrote about the constant pissing match between DWSD and its suburban customers. As I acknowledged in my piece, DWSD has historically been a dysfunctional and corrupt entity whose difficulty in complying with federal water quality standards had landed it under federal court oversight for 35 years.

However, Sue McCormick, the director of DWSD when Flint’s contract renewal negotiations began, was appointed by the court as part of a consent agreement to cleanup DWSD’s management and return it to solvency. She was a technocrat, not a politician, and was not part of the corrupt Detroit establishment. She assumed office with the express purpose of mending fences with Detroit’s municipal customers. To that end, she wanted to leave no stone unturned to persuade Flint to renew its 30-year contract with DWSD instead of going with KWA. Her opening bid to Flint included not just cutting water rates in half but also giving Flint a seat on the board to safeguard against unwarranted future hikes. Indeed, she offered not only Flint such representation. She offered a seat on the board to the Great Lakes Water Authority, a consortium of many of DWSD’s South East Michigan suburban customers so that they could insulate themselves from future rate hikes.

However, according to DWSD’s then-spokesman Bill Johnson (full disclosure: he was my colleague on The Detroit News editorial board), she encountered a complete brick wall with Snyder-appointed Flint Emergency Manager Ed Kurtz and Genesee County Drain Commissioner Jeff Wright. Both made it abundantly clear that they had no desire to negotiate with her. They had their heart set on the new KWA pipeline servicing Flint and rejected her proposal within 24 hours of receiving it, declaring that the decision to break away from Detroit had already been made and “there would be no looking back.”

There is no doubt that part of the reason is that they simply couldn’t get past the bad blood with DWSD and trust that it wouldn’t pull some trick from its hat after McCormick left and jack its rates, as Culpepper suggests. But Culpepper is herself naïve if she thinks that that was all that was driving their decision. Local political leaders love expensive infrastructure projects because that gives them more authority to play kingmakers, hand out contracts, and consolidate their power base.

It also allows them to take credit for boosting jobs and growth—that is, to administer an economic stimulus.

Don’t believe me? Here’s a 2010 Michigan Live story about what Drain Commissioner Wright, the man who did more than anyone else to sell everyone from the governor on down on the KWA-Flint pipeline, was saying years ago to promote the project:

County officials may have uncovered the most effective selling point yet for building a new water pipeline to Lake Huron at a time of high unemployment: The promise of 1,000 good-paying jobs that will last more than three years.

County Drain Commissioner Jeff Wright has told the Board of Commissioners that building the pipeline won’t just save hundreds of millions of dollars water costs during the next three decades but has the potential to jumpstart what’s been a gloomy local economy with some of the highest unemployment rates in the state.

Wright said he expects 1,000 jobs to be created for more than three years as a result of the pipeline, including work for pipefitters, plumbers, surveyors and engineers, and he’s recommending that a new water authority require local workers get at least 75 percent of those new jobs.

“The bottom line is any contracts should require 75 percent of the workforce comes from here,” Wright told the county Board of Commissioners Tuesday. “If we build it, the majority are going to come from here.”

I have not been able to verify whether the contracts actually stipulated that the developers use local workforce, something that unions were ecstatic about as Michigan Live noted later in the same story. Either way, it is hard to argue that stimulus and jobs were no part of the political motivation driving this project.

One last thing: Culpepper claims that DWSD terminated its agreement with Flint after the city refused to renew its contract, leaving Flint no choice but to reopen the mothballed local water plant that relied on toxic Flint River water for two years before the new KWA pipeline became operational. But Johnson notes that this is not accurate. He maintains that Flint’s old contract had already expired at the time of the negotiations and Flint was obtaining water from DWSD without a contract. He claims McCormick actually sent Flint a letter asking if it wanted to discuss a short-term contract, just as she had done with other Genesee County communities that were also going to eventually switch to KWA. Those communities accepted. But Flint officials rejected the suggestion because they felt that they could reopen the Flint River plant and save money.

That turned out to be only one among many mistakes by government officials at every level, as I argued here.

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Is WalMart In Terminal Decline? This Chart Is One More Reason To Think So

We’ve spilled quite a bit of digital ink documenting WalMart’s trials and travails since the world’s largest retailer moved last year to implement an across-the-board wage hike for its lowest-paid employees.

That decision led directly to a series of unfortunate events including a move to squeeze extra savings out of suppliers and an effort to recoup the money spent on the wage hikes by – you guessed it – firing people, including dozens at the home office in Bentonville.

Things briefly calmed down after the retailer kitchen-sinked it on an October guidance cut which triggered the largest decline in the company’s stock price in 17 years, but it all took a further turn for the worst last month when WalMart announced it would be closing 269 stores and laying off some 16,000 people.

Accompanying that announcement was the revelation that WalMart would no longer be building two super centers in Washington DC, where officials responded angrily that the city had been “shafted.”

“As part of today’s action, the company will close 154 locations in the U.S., including the company’s 102 smallest format stores, Walmart Express, which had been in pilot since 2011,” the company said on January 15. “Walmart instead will focus on strengthening Supercenters, optimizing Neighborhood Markets, growing the e-commerce business and expanding Pickup services for customers.”

Right. “Growing the e-commerce business.” Because increasingly, shopping online is consumers’ preferred option.

In a testament to how the ground is shifting beneath the Bentonville behemoth’s feet when it comes to e-commerce, we bring you the following brief commentary and graphic from Wells Fargo, who shows that when it comes to retail sales growth in the US, WalMart is, well, damn near dead.

*  *  *

From Wells

Amazon’s share gains have continued to massively accelerate. We estimate Amazon captured more than 51% of all applicable retail growth dollars in the U.S. during Q4, an acceleration of more than 10pts from just last quarter. We now estimate Amazon captured 42% of all applicable retail growth dollars for all of 2015, nearly double the 22% it captured in 2014. Our calculations are based on our estimate for Amazon’s North America Gross Merchandise Volume (GMV) and the US Census estimates for retail sales in relevant retail categories (excluding motor vehicle dealers, gas stations and fuel, and food and beverage). Charts on P. 2 illustrate Amazon’s growth relative to retail and to Walmart, which we estimate will capture less than 7% of all applicable retail growth dollars in Q4, and approximately 9% of the growth in 2015 (note we use our estimate for Walmart’s U.S. sales in Q4 as the company has not yet reported).

*  *  *

As for what the future holds for Sam Walton’s brainchild, we looked into our crystal ball and saw the following:

On the bright side for WalMart stock holders, the equity may get a bid this year from a rotation out of growth and into value as global markets look set to remain mired in turmoil for the foreseeable future. 

 


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How Low Can The Bank Of Japan Cut Rates? Ask Gold

As we noted last night, in what was the second clear example of sheer desperation by the Bank of Japan, the central banker formerly known as Peter Pan for his on the record belief that “he should fly“, and as of this morning better known as Peter Panic, desperately tried to pull of his best “Draghi”, up to and even stealing the ECB’s trademark catch phrase, to wit:

  • KURODA: POSSIBLE TO CUT NEGATIVE RATE FURTHER IF NEEDED
  • KURODA: NO LIMIT TO MONETARY EASING MEASURES
  • KURODA: WILL EXPAND EASING IF NEEDED FOR PRICE TARGET
  • KURODA: BOJ TO KEEP LOOKING FOR INNOVATION IN MEASURES
  • KURODA: BOJ NEEDS TO DEVISE NEW TOOLS IF MEASURES INSUFFICIENT
  • KURODA: BOJ WILL DO WHATEVER IT CAN TO REACH PRICE TARGET

Which is probably why since Peter Panic’s statement last night, the Yen has soared (the USDJPY has plunged) by over 250 pips, with the market’s message to the BOJ quite clear: if there is no limit to the BOJ’s policy, then prove it.

But a question emerges: how far can the market push Kuroda, and just how negative can the BOJ (which ironically was just trying to talk back its NIRP via the latest 3am article in the Nikkei) go with negative rates.

For the answer we go to Nomura, which is likewise unsure, so instead it punts to a familiar “barbarous relic”: gold. This is what it said:

NIRP’s lower bound

 

If conditions remain inimical to attainment of the BOJ’s 2% inflation target, the BOJ may cut its IOER rate further below zero. In such an event, how low could the rate go?

 

Among European central banks that have already adopted NIRPs, the Swedish Riksbank, Swiss National Bank, National Bank of Denmark and ECB have cut their policy rates to -1.1%, -0.75%, -0.65% and -0.3%, respectively (we used mid-point rates for the central banks targeting an interest rate range). The ECB may ease again in March. Some expect it to cut its policy rate further. Based on European central banks’ negative policy rates, the BOJ seems to have the latitude to cut its IOER rate to -0.5% or thereabouts.

 

Theoretically, negative interest rates’ lower bound depends partly on the cost of holding cash in the form of physical currency. When people hold cash out of aversion to negative interest rates, they risk losses due to theft and the like. The cost of avoiding this risk could be a key determinant of negative interest rates’ lower bound, but it is hard to directly quantify. As a proxy for the cost of holding physical currency, we estimated the cost of storing gold based on gold futures prices. This cost has averaged an annualized 2.4% over the past 20 years, though it has varied widely over this timeframe.


While somewhat comical, coming from the most prominent Japanese bank (one whose stock got clobbered last night on a huge earnings miss sending its share price crashing the most in years) Kuroda is likely listening.

Which means that as the BOJ lowers ever lower, and it will, it will proceed to do so until it the only economic thing to do is to hold gold, which incidentally despite yielding 0%, will – relatively speaking – have a higher yield than both cash and most Japanese bonds: after all the 10Y is about to go negative.

So please bring it on central bankers: as you unleash more and more failed policies, all you are doing is confirming what we have said all along – as the “central planning committee to save the world” fails in its task, the only safe asset will be the one that has survived 5000 years of human, politician and central banker idiocy, with its value unscathed.

It will survive this period of particularly acute idiocy, as well.


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Did Cruz “Steal” Iowa? Trump, Carson Slam “Dirty… Disgraceful” Tricks

Donald Trump was surprised at how well Ted Cruz did in Iowa…

 

It appears he has a reason to be…

 

As The Hill reports, Donald Trump is accusing Republican presidential rival Ted Cruz of committing fraud ahead of Monday night’s Iowa caucuses, and he is calling for a “new election.”

“Based on the fraud committed by Senator Ted Cruz during the Iowa Caucus, either a new election should take place or Cruz results nullified,” Trump tweeted on Wednesday.

 

Cruz came under fire in the days leading up to the Iowa caucuses for distributing a misleading mailer that attempted to shame recipients into turning out to vote for the Texas senator.

 

Following his decisive win over the GOP field, Cruz was accused by fellow presidential candidate Ben Carson of spreading a false rumor that Carson was dropping out of the race in order to sabotage the retired neurosurgeon’s campaign.

 

Cruz later apologized… and thus admitted to the act.

At his first post-Iowa rally in Milford, N.H., Trump called Cruz “dirty,” adding “what he did to Ben Carson was a disgrace.”

Finally, with a huge 24 point lead over Cruz heading into New Hampshire, one wonder what “tricks” Ted will pull out of his bag this time…


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Why Rand Paul’s Exit Is Bad News for the Future of the Supreme Court

The suspension of Rand Paul’s 2016 presidential campaign is bad news when it comes to the crucial issues of constitutional law and the future of the U.S. Supreme Court. In stark contrast to his fellow GOP candidates, Paul repeatedly championed libertarian legal ideas and priorities, such as vigorous judicial enforcement of economic liberties and widespread judicial protection for the unenumerated right to privacy. Paul’s exist means that there’s no longer a major-party candidate challenging the reigning legal orthodoxies on both the left and the right.

Rand Paul first revealed his libertarian legal tendencies during his famous 13-hour Senate filibuster in March 2013, in which the Kentucky Republican invoked the Supreme Court’s 1905 decision in Lochner v. New York as a positive example of the judiciary rejecting majority rule and standing up for unenumerated individual rights. In Lochner, the Supreme Court struck down an economic regulation because it violated the right to liberty of contract protected by the 14th Amendment. “The powers given to the government are few and defined,” Paul declared from the Senate floor. “The freedoms left to you are many and undefined. And that’s important.” Paul’s riff on Lochner came as part of a larger discussion about getting the government to stop trampling on the Constitution.

Less than two years later, Paul went further, telling an audience of conservatives that the legal philosophy known as judicial restraint has been a dismal failure. As an alternative, Paul urged conservatives to support an “activist” Supreme Court that would aggressively police the other branches of government. “I’m a judicial activist when it comes to Lochner,” Paul declared. “I’m a judicial activist when it comes to the New Deal. But I’m also a judicial activist when it comes to Brown [v. Board of Education]. I think the [Supreme Court] was right to overturn state governments that were saying separate but equal is fine.” When governments “do wrong we should overturn them,” Paul said. “There is a role for the Supreme Court to mete out justice.”

Paul also used that speech as an opportunity to champion the right to privacy, a right that many top conservative legal theorists do not recognize, since the right itself is not spelled out in the text of the Constitution. But as Paul argued on a different occasion, “Your rights are many and infinite. Your rights are unenumerated and you do have a right to privacy.”

Such views have long been championed by libertarian lawyers, law professors, and activists, who maintain that conservative doctrines of judicial restraint and judicial deference have resulted in the scales of justice being tipped overwhelmingly in favor of big government.

Unfortunately for such libertarians, the remaining GOP contenders are not so attractive on legal issues.

Donald Trump, for example, is an outspoken advocate of eminent domain abuse who has repeatedly praised the Supreme Court’s 2005 decision in Kelo v. City of New London, a disastrous ruling that undermined property rights while empowering government officials and their crony capitalist allies.

Ted Cruz, meanwhile, stands in direct opposition to the libertarian legal movement on the central issue of economic liberties and the Constitution. For example, in July 2015 Cruz attacked the Supreme Court’s Lochner decision as a regrettable example of the Court’s “imperial tendencies” and “long descent into lawlessness.”

Unfortunately for Cruz, he undercut his own position in that speech by mangling the facts of Lochner, which he incorrectly described (while reading from a prepared text) as a case where “an activist Court struck down minimum wage laws” on behalf of an individual right “that has no basis in the language of the Constitution.” (Cruz’s opposition to Lochner also happens to be indistinguishable from Barack Obama’s negative view of the case.)

In reality, Lochner was not a minimum wage case at all; it was a maximum working hours case, plain and simple. What’s more, there is significant historical evidence showing that the individual right at issue in Lochner—liberty of contract—is deeply rooted in the text and history of the 14th Amendment.

With Rand Paul now gone from the 2016 race, the libertarian legal movement has lost its most promising potential ally in the White House. If any GOP candidate was likely to nominate libertarian-leaning judges and shake up the status quo, Rand Paul was it.

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The Remaining Presidential Candidates Mostly Suck on Criminal Justice Reform

Rand Paul is out, and with him the hope that criminal justice reform will be anything more than a signaling exercise (on both sides) in the 2016 presidential campaign.

Ted Cruz, whose campaign strategy has been to adopt whatever ideology fits the voting population he’s trying to woo on that particular day, has already abandoned much of his criminal justice reform positions in the quest to win social conservative votes. He’s flip-flopped on marijuana too—he now opposes the federal government cracking down on states that have legalized it. That may be one of the few criminal justice reform bright spots left in the Republican race.

John Kasich is the other. The Republican governor of Ohio has actually made progress in his state on criminal justice reform. A state police-community advisory panel that wasn’t just packed with political cronies came up with nearly two dozen recommendations, including limiting use of force policies and requiring the use of body cameras. Unfortunately, it’s part of his record that doesn’t often come up in conversations about the Republican race.

Most of the remaining candidates have spent almost no time substantively engaging issues of criminal justice reform. A year ago it looked like criminal justice reform would be an unavoidable topic in the 2016 elections. “There is an emerging consensus that the time for criminal justice reform has come,” Marco Rubio wrote in a book released by the Brennan Center that featured essays from many of the presidential candidateds. “A spirited conversation about how to go about that reform has begun.”

And now the conversation is over. The blame belongs to the candidates but also to voters. The presidential candidates who have succeeded in getting this far have largely done so by appealing to their bases’ emotions—class envy for Democrats and fear for Republicans.

Dr. Ben Carson has used his upbringing in inner city Detroit to call on “intensifying” the war on drugs. In a BET candidate forum, he said restoring respect between police and the communities they serve was important, and blamed police reform activists on “sowing division.” He did, at least, use the venue to oppose mandatory minimum sentencing laws.

“We need to take care of police officers because they take care of us,” Carson said, avoiding the issue of police unions like every other Republican who is usually skeptical of public unions in other contexts. “For those who don’t like police officers, I’d like you to think about what your life would be like if they weren’t around for 24 hours. It would be awful.” Carson doesn’t sound like someone who understands how the small government principle of having less laws would apply to the issue of police brutality.

Marco Rubio, now the closest thing the establishment has to a frontrunner, has promised to crack down on states that legalized marijuana. And while he’s said he knows people who have been racially profiled and found it “deeply disturbing,” he didn’t see a role for Congress in the debate about race and policing. So much for a conversation.

That betrays a poor grasp of the problems surrounding police brutality, and a too-eager willingness to ignore the role the federal government has played in militarizing local police over the last thirty years. Like Carson, Rubio also ignores the federal government’s role in propagating the idea of more laws and imposing more controls on people, controls that trickle down and are ultimately the driving forces of many of the most questionable interactions between police and residents.

As governor of Florida, Jeb Bush pushed a strict mandatory-minimum sentencing proposal that would require a mandatory sentence of 20 years if a gun was fired in the commission of certain felonies, and 25 to life if the use of that gun caused an injury or death. He supports more spending the war on drugs, and has argued narcotrafficking and “lawlessness” have hampered economic growth. But de-escalating the drug war and even legalizing marijuana would have profound positive effects on economic growth and would do more to end lawlessness than any amount of spending on the drug war ever could.

It’s important to remember the situation is not much better on the Democratic side. Sen. Bernie Sanders (I-Vt.) has hit most of the right notes on mass incarceration and criminal justice reform, but the union booster is highly unlikely to do anything to tackle the power of the police and corrections officer unions that profit off the prison-police-industrial complex and work to maintain that status quo. Instead he fetishizes the “problem” of private prisons, which account for just 7 percent of prison beds in the U.S. and can actually be incentivized, via the proper contracts, to reduce recidivism by, for example, getting paid less if their charges end up back in prison. Bernie Sanders says he wants socialism and that that’s no big deal because things like police departments are socialist institutions. Stated differently, state violence is socialism.

And Hillary Clinton is awful. Her husband didn’t apologize for the 1994 crime bill and its contributions to the ballooning prison population and the overpolicing of minority communities until last year, in that brief moment the political class thought voters might hold them accountable for the failures of the criminal justice system to protect constitutional rights. It never happened. Clinton’s supporters refuse to engage the Clintons’ position on criminal justice and how it exacerbated the problem of police violence. Instead, the 90s are written off as “ANOTHER GODDAMN WORLD ENTIRELY.”

That’s probably why Martin O’Malley, the former Baltimore mayor and Maryland governor, escaped the presidential race unscathed by his fundamental role in creating a law and order culture that systematically violated the constitutional rights of black people in Baltimore. That history should have made O’Malley a non-starter in the Democratic race. Instead, his lack of celebrity and inability to channel unbridled socialism was his downfall. In the meantime, the strongest Democratic candidate on criminal justice reform, Jim Webb, who was an advocate for criminal justice reform before that became the it issue of the moment, earned no traction. Instead, a comment pointing out that the right to defend yourself shouldn’t be limited to the rich, caused the left to throw a fit about him, and he dropped out shortly thereafter. It’s not a good sign for how engaged the base that insists it cares about criminal justice reform the most actually is.

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Is The Saudi’s Market Share Strategy Still Feasible?

Submitted by Michael McDonald via OilPrice.com,

Much of the rout in oil prices has been predicated upon the staying power of Saudi Arabia and other OPEC producers. As oil prices have continued to fall, virtually all of OPEC has been pumping oil as fast as possible to generate increased revenues at lower prices. That practice has helped to fuel the oil glut and led to a price that would have been unthinkably low just a couple of years ago. Oil markets have been largely assuming that OPEC producers could go on producing at these levels for years, but what if that’s not the case?

Take the strongest of the OPEC producers, Saudi Arabia for instance. Saudi Arabia has very low cost per barrel of production – much lower than any shale producer in the U.S. But as a country, Saudi Arabia also has other significant obligations that it has to meet and oil revenues are effectively its only way of meeting these obligations. The same principle holds true for all other OPEC producers, though most are in worse shape than the Saudis. With oil at these prices, all of OPEC is bleeding fast. The oil revenues that the Saudis and others are bringing in are simply not enough to meet their on-going obligations. As a result, Saudi Arabia and others have been forced to turn to their savings – foreign currency reserves.

Saudi Arabia started 2015 with roughly $720B in reserves. By August it was down to $650B. As of December, Saudi Arabia has around $620B in reserves. If oil averages $20 a barrel going forward for the next couple of years, Saudi Arabia will be broke by mid-2018 even after accounting for its recent budget cuts that trimmed internal spending. $30 a barrel oil buys the country about 6 months, tiding it over to early 2019. Libya, Iraq, and Nigeria are all in much worse shape, as of course is Venezuela.

Even before Saudi Arabia gets to the point of bankruptcy though, panic may begin to set in for OPEC. Saudi Arabia is the most stable member of OPEC, and other than its rival Iran, who is use to budgetary pressure, the rest of OPEC is largely bloated and ill-prepared for a long period of low oil prices.

Saudi Arabia will likely end 2016 with around $450B in reserves, and other OPEC members will be in much worse shape. With reserves that low, many OPEC members may be forced to turn to the bond markets. Unfortunately for OPEC, the interest rate environment around the world is starting to tighten and bond rates will likely be higher by the end of this year. Add to that the continuing uncertainty around oil prices, and some countries may find bond market access very difficult. Even the Saudis may find that their financial strain is causing concern among bond investors.

There is reason to think that the price of oil will remain subdued for a long time to come if the Saudis have anything to say about the matter. In particular, the Kingdom is concerned about the rest of the world switching to other forms of energy sources, and sees low oil prices as a way to delay the adoption of substitute forms of energy. It’s a wise long-term plan.

But even the Saudis don’t want to see oil prices this low, nor can they afford a prolonged period of oil prices below $50 a barrel. To say that oil is crucial to Saudi Arabia is an understatement; oil is to Saudi Arabia what gambling is to Las Vegas. The Saudi’s cannot withstand low oil prices forever, and if drastic changes don’t happen, then within two years, the world’s largest oil producer maybe facing very hard times.


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