The famous quote from Ronnie Reagan.

Small Business Number One Problem Table1

Legislation, taxes, the bane of free enterprise.


Having transformed war, drones are getting ready to transform peace. A year ago Obama ordered the Federal Aviation Administration (FAA) to expedite the process of integrating “unmanned aerial vehicles,” as drones are primly referred to within the trade, into civilian airspace. Police departments will use them to study crime scenes. Farmers will use them to watch their fields. Builders will use them to survey construction sites. Hollywood will use them to make movies. Hobbyists will use them just because they feel like it. Drones are an enormously powerful, disruptive technology that rewrites rules wherever it goes. Now the drones are coming home to roost.

The State is extending one of its war machines into civilian, non-war, home based use against its own civilian population. Nice.

The U.S. government’s position is that it declines on national-security grounds to declassify the full legal justifications for its covert drone attacks; so far that position has withstood a legal challenge. But whatever their legal validity, the practical effectiveness of drone strikes is undermined by their tendency to outrage and radicalize populations against the U.S. As controversial as it is, there was heartwarming bipartisan agreement in last fall’s presidential election that American drone policy wasn’t going to be seriously discussed by either candidate. It’s possible that the elevation of Brennan to head of the CIA will bring about greater transparency and public accountability. Brennan has pushed for both. Critics of the drone program say his close involvement in the development of the current drone campaign doesn’t set a great precedent.

Bottom line: the U.S. seems to be struggling to adapt its 20th century moral code of warfare to the 21st century practice of sending flying robots into other countries to kill people. It appears that drones are evolving faster than Americans’ ability to understand how, legally and ethically, to use them.

Of course, what goes around, comes around. The technology will once it is in the public domain very easily and quickly be picked up by the ‘enemies’ who, will of course use the technology against US/UK civilian targets. Once the genie is out of the bottle, it becomes hard to put him back.

U.S. Customs and Border Protection has been using Predators to monitor the Mexican border since 2005. It currently fields a fleet of 10 and has put in for 14 more. Last fall, NASA used a Global Hawk to study Hurricane Nadine. But flying a drone for purposes other than recreation requires a certificate from the FAA, and those certificates are hard to come by. The government is working to correct that: last Valentine’s Day Obama signed the FAA Modernization and Reform Act, which among other things ordered the FAA to establish six drone-testing ranges, fast-track requests for permission to use drones and figure out a scheme for their integration into U.S. airspace by 2015.

Until actual legislation is passed, it won’t be completely clear what information the government can and cannot gather using drones. There are certainly precedents: the Supreme Court has ruled that the police can, under the Fourth Amendment, fly an airplane over your fenced backyard and check out whether you’re growing pot back there. It’s not a giant leap to imagine them flying a drone instead. But where does it stop? The framers didn’t anticipate technology that could hover for days, keeping an eye on exposed backyards and porches, that could work in networked swarms, see through walls with thermal imaging, recognize faces and gaits and track license plates. “If we have a bad guy named Waldo,” Singer says, “and we have to find Waldo somewhere in that city, we will naturally gather information about all the people around Waldo, not out of malice but just because that’s the way it is. What happens to that information? Who owns it? Who stores it? Who shares it? Big questions.”

I’m now involved in my third employment case. Would you believe another Security Co? The state of affairs with private security in NZ is parlous indeed. I am becoming quite familiar with the “Employment Relations Act 2000″.

From the comments section, I have Gregg, who has a number of issues with the free market.

Interesting, you would get rid of the government that prevents the excesses of the free market and ignore the religious constraints on greed so that the “free” market predators can pillage at will. There has never been a free market and never will be due to the very real existence of greed. Once the free marketers are unleashed, they will strive for total monopoly and destroy the very thing they once claimed to support, the “free” market. The free market is a myth ranking right up there with the Easter bunny.

So far you have disproved nothing and disproving one point does nothing to disprove any others! So pick one and we’ll see where it goes.

So, I get to choose. Very well. Let’s go with the “religious” argument first, as this is potentially the most contentious, and while I do not really seek to prove/disprove anything at this point, it is a good starting point.

There are only three real ways that the laws can either be discovered or created:

[i] From custom and tradition
[ii] From arbitrary ad hoc pronouncements from those who control the apparatus of the State
[iii] From reason and logic, deducing from axioms, the natural law.

It was Lord Acton who clearly the deep flaw in the Greek and their later followers conception of natural law political philosophy was to identify politics and morals, and then to place as the supreme moral agent – The State. This as you see is exactly Ritholtz’s position.

From Plato and Aristotle, the State’s proclaimed authority or supremacy was founded in their view that morality was undistinguished from religion and politics from morals, and in religion, politics and morality there was only one authority.

Acton saw that any philosophy of natural law would come into direct conflict with custom and positive law , this Acton urged was the essential attribute of classical liberalism. For Acton then, the individual, cognizant of natural law principals and morals, was in a strong position to analyse and criticise positive law and by direct association, the State.

After the fall of the Roman Empire, the Church emerged as the power that through religion, controlled the moral base of individuals, seeking to centralise that control to the Church via the Papacy. With the re-emergence of Kings, via Charlemagne, the Church retained its power, only really being challenged through Henry VIII many hundreds of years later.

Of course the modern State has assumed total power, sidelining the Church in the Western world and economies, which has broken the religious – moral – political nexus that existed prior to the monopoly of the State in assuming all moral authority.

The purpose of the Obama health care legislation was to increase insurance coverage. To have more individuals covered, and thus claim medical care, should they need it, under insurance. However, there are a number of price controls already in the pipeline, and some already implemented.

*Raising premiums. Currently, the legislation does not prohibit the raising of premiums, although the Obama administration have already tried to do so. It is probably just a matter of time.

The effect, will of course, to be reduce competition, as providers leave the business. No private business will set out to make a loss. Setting premium prices is fraught with assumptions and risk already, without adding further risk to the mix.

With reduced competition, or providers, will come less insurance, as adverse selection starts to play a part, and claims rise, which, again, requires a premium raise, which is not permitted, until eventually, you drive out all insurance altogether, which rather defeats the object.

Further, with huge government inflation driving costs other than the risk of insurance claims higher, how is it possible to pass on higher dollar cost benefits, for the same premium? Not that I am a huge fan of insurance companies, far from it, but legitimate cost increases driven by government inflation is unfortunately a legitimate reason for premium hikes.

First, take a squizzy at the price inflation of all things medical.

In 1910 the Flexner Report was published, and, thus was born the US version of the Medical monopoly. All competition to the “allopathic model” was at a stroke eliminated. All medical schools that taught “fringe” medicine lost their licences, and ceased. The result being that Osteopathy, Homeopathy, Chiropracty, Phytotherapy and numerous other competitive alternatives to allopathic medicine were forced into the fringes and exist as witch-doctor status practices. I’m not going to get too involved in writing about the inductive/deductive differences in research, and why the allopathic model has some serious issues, as I am not arguing that it has no value, only that when government decided to bestow monopoly protection to it, the supply of medical care was significantly reduced.

When competition is eliminated, and a virtual monopoly instigated, prices will remain higher than they would have been under the free competition market. Add to that the concept of medical/hospital insurance and you add a further variable to the restriction on prices falling lower.

If you buy a house and insure it against theft, fire and potentially a couple other hazards/perils [adjusting the premium] there is every possibility, and probability that the vast majority will never suffer any adverse outcomes, necessitating an insurance claim. With medical/hospital insurance, the probabilities swing the other way, everyone, at some point, will incur the necessity for some kind of medical consultation/treatment, and potentially chronic, ongoing treatment.

With this rising demand, due to demographic factors, the constricted supply, due to monopoly constraints on the market, prices will be forced higher, as will insurance premiums to allow the rising insurance costs to be met. Rising insurance premiums, if the price rises outrun wage/salary rises, will, at some point become un-affordable for a segment of the population.

If you have medical insurance, and you read through the “Policy wording” you will realise just how different the various medical insurance policies actually are. Some, really, are worthless, the benefits are low and limited, that is if you could even manage to claim through the exclusions. Others are better, and the benefits worth having, although they are still subject to onerous rules regarding eligibility etc.

It is this context in which the “Obamacare” debate is set, even before you start to examine the way in which the legislation was created by Congress, and totally reversed by the SCOTUS decision.

Obama has his Healthcare Law passed by SCOTUS.

In his landmark majority opinion Thursday, Chief Justice John Roberts ruled that U.S. citizens can be forced to pay a tax as a consequence of not buying health insurance.

The chief justice came to the conclusion that the mandate was constitutional as a tax after finding that it was not, in fact, a legal “command” to buy health insurance.
“Rather, it makes going without insurance just another thing the government taxes, like buying gasoline or earning income,” he wrote.

When I get some spare time, I’m going to read the 195 pages of the opinion. The Supreme Court, has once again arrogated the lawmaking power that should inhere with Congress. In the meantime, some Rousseau.

Barry Ritholtz has the answer to the riddle.

I refer of course to the debacle that is MF Global. How on earth could $633 million in customer accounts simply disappear?

As it turns out, quite legally.

The regulations governing these customer accounts are 25 plus years old, according to a few insiders I spoke with. They gave the firms an ability to hypothecate (lend) client money, so long as it was only used to legally purchase investment grade sovereign debt.

So that was what MF Global did.

As originally conceived, client monies were only supposed to purchase US Treasuries. However, so as to not offend trading partners (and other reasons), the regs were written so as to include any “investment grade sovereign” in the rules. Hence, AA rated European sovereign debt, despite the obvious fact that in 2011 they are obviously not the equivalent of US Treasuries, technically qualify. Whether this violates the obvious spirit and intent of the law will be for a judge to decide.


Starting to do the research on my next employment case under NZ ‘Employment Relations Act 2000′.



(1) For the purposes of section 103(1)(c), an employee is discriminated against in that employee’s employment if the employee’s employer or a representative of that employer, by reason directly or indirectly of any of the prohibited grounds of discrimination specified in section 105, or by reason directly or indirectly of that employee’s refusal to do work under section 28A of the Health and Safety in Employment Act 1992, or involvement in the activities of a union in terms of section 107,—

(a) refuses or omits to offer or afford to that employee the same terms of employment, conditions of work, fringe benefits, or opportunities for training, promotion, and transfer as are made available for other employees of the same or substantially similar qualifications, experience, or skills employed in the same or substantially similar circumstances; or

(b) dismisses that employee or subjects that employee to any detriment, in circumstances in which other employees employed by that employer on work of that description are not or would not be dismissed or subjected to such detriment; or

(c) retires that employee, or requires or causes that employee to retire or resign.

(2) For the purposes of this section, detriment includes anything that has a detrimental effect on the employee’s employment, job performance, or job satisfaction.

In this case the ‘detriment’ is the paying of a significantly lower wage, where the ‘experience, qualifications, performance of duties is equal to, or greater than, his colleagues.

The ‘Company’ response, which was not unexpected, essentially alleged that…

The Company reserves the right to determine wage rates for individual employees, where these rates can vary depending on relevant experience, NZQA qualifications, performance, and market conditions. The Company disagrees that these are ‘illegitimate’ reasons for individual wage rates.

The reasons were labeled ‘illegitimate’ as the conditions cited above, are more than fulfilled by my chappie, further, the condition of ‘market conditions’ is simply an ignorance of economics.

The company essentially believe that ‘market conditions’ equals ‘bargaining’ to establish the ‘wage rate’. This is, as I stated, illegitimate. The ‘price’ of any economic factor, in this case ‘labour’ whose ‘price’ are called ‘wages’ are established on the free market, not through bargaining, but through the ‘marginal value product’ that is then ‘discounted’. The correct discount rate is ‘the natural rate of interest’, which is usually taken as the ‘market rate of interest’. Immediately we can see a potential problem, that is, the market rate of interest is heavily manipulated, thus lowering it…the effect is to raise the wage rate. However, I digress slightly.

The Company is the holder of the ‘contract’ for the provision of services to a third party. My chappie is a sub-contractor, employed full-time, as are his 11 colleagues, by the Company. Nine of his colleagues are on $18/hour, the other three are on $13.50/hour. The immediate reaction being, if the contract pays the company enough to pay nine @ $18/hour, surely it pays enough that the three remaining wages can earn the same rate.

The answer is not so clear cut. The marginal value product = marginal physical product * marginal revenue. Thus, potentially, should the 10’th, 11’th and 12’th man produce less revenue, then economically, the company is ‘justified’ in paying a lower rate.

This however is not the case. The ‘contractor’ pays a fixed revenue stream, based on a total number of hours of service. Thus the 12 man crew is the minimum number of employees that can cover the full 168 hours service provision, allowing for time off, rest, etc. Thus employee #12 provides exactly the same marginal value product, thus the same wage should pertain.

We’ll be progressing this to the next stage.

Two historical documents that on superficial reading/analysis would seem to be consistent. One, the Magna Carta however possesses far greater insights with regard to ‘property rights’ than does the US Constitution, which provides the ‘legitimacy’ of coercion within the US. I will return with the ‘answer’ later in the week.

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