Birthday Money Bomb for Robert Hurt

In this past Tuesday's Republican primary in Virginia's Fifth Congressional District, state Senator Robert Hurt became the GOP's nominee by winning more than 48 percent of the vote against a field of six rivals.

This means that Hurt goes on to face incumbent Representative Tom Perriello (D-Ivy) in the November general election.  Perriello, who was elected in 2008 by a margin of only 727 votes, has already raised at least $2 million to use in his campaign.  Both national parties have targeted the Fifth District as a "must win," so we can expect several million dollars will be poured into the race from both sides.

As it happens, state Senator Hurt will be celebrating his 41st birthday on Wednesday, June 16, just a few days from now.

Several Virginia bloggers are joining together to sponsor a "money bomb" for congressional candidate Robert Hurt during the 24 hours between 12:01 a.m. and 11:59 p.m. on June 16.  We are encouraging our readers to make a special birthday contribution to state Senator Hurt's campaign that day in whatever amounts they can.  (I like to make my initial contribution to any campaign in the amount of "$17.76," just a bit of symbolism that I hope the candidate takes to heart.)  Perhaps contributors can be creative with amounts of $41 (the candidate's new age) or $616 (the date:  6/16) or even $2010.

Here is the link to Robert Hurt's contributions page:  Donate to Robert Hurt.

For more information about the campaign, visit http://www.roberthurtforcongress.com/.  You can also read my Examiner.com interview with Senator Hurt here.  For those in the Charlottesville area, there will be a GOP Unity Rally with Hurt and the other primary candidates on Saturday, June 12, beginning at 9:00 a.m.

Remember, the Robert Hurt for Congress Money Bomb will take place during the 24 hours of Wednesday, June 16, 2010.  Be sure to wish the candidate a happy birthday that day.

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Charlottesville's 'Affordable Housing' Trap

The announcement that Charlottesville's City Council wants to increase the stock of so-called "affordable housing" by a significant fraction sent me back to look at one of my earliest blog posts.  Before revisiting that piece (which was the republication of an article I wrote in 1997, for what it's worth), let's look at this week's news.

Rachana Dixit wrote in the Daily Progress on February 1:

The City Council has agreed that Charlottesville’s affordable housing stock should increase to 15 percent of all city housing in the next 15 years.

“Housing is just as important as the other infrastructure we invest in in our community,” Councilor Holly Edwards said during the council’s meeting Monday.

Upping Charlottesville’s affordable housing percentage from 10 percent — the current amount, according to an affordable housing report completed by the city’s Housing Advisory Committee — to 15 percent would require the city to commit an average of $1.7 million each year until 2025, or a total of roughly $25.7 million. This would be needed to add and preserve 2,350 affordable housing units, the report states.

Now, take a look at what I wrote on December 23, 2004, but replace references to "Arlington" and "County Board" with "Charlottesville" and "City Council," and fast-forward dates from 1997 and 2047 to 2010 and 2060. (Just thinking of those upper-digit years sends shivers up one's spine.)

Moreover, Arlington suffers many of the same problems that communities across the United States do. Housing policy expert William Tucker explained in Reason magazine that "researchers estimate that zoning delays and building- code requirements add some $15,000 to $30,000 to the price a new home in many parts of the country. ‘Starter homes' -- simple, no-frills structures that first-time home buyers can afford -- are almost impossible to build in exclusive suburbs. Apartments are fought everywhere. . . . Then people wonder why we have an 'affordable housing problem.'"

We need to reframe the debate by removing the term "affordable housing" from our lexicon. "Affordable housing" is a weasel word that confuses more than it assists us in discussing housing policy. All housing is affordable to somebody. We should rather talk about low-income or moderate-income housing. That's the real issue.

Most low-income housing in Arlington was once owned or rented by middle- and upper-middle income residents. Colonial Village and Buckingham, for instance, were built almost 60 years ago to house well-paid New Deal bureaucrats who came to Washington from around the country and needed a place to live.

Over the past six decades, that housing has deteriorated and lost its value for upper-income people. It has therefore become available to lower-income groups. This scenario has been played out across the country. In cities like Philadelphia, Cleveland, Milwaukee, and Richmond, houses that were once mansions owned by rich people have been subdivided into apartments for low- income tenants.

County Board Member Eisenberg and others would like to see a greater emphasis placed on low-rent units today, so that 10 percent of the county's housing stock falls into that category. Can you imagine what low-rent units built for 1997 will look like in 50 years? They will decay so rapidly that by 2047, they will be -- as one homeowners' advocate so aptly put it -- "mere shells," inviting disintegration, grime, and crime. Such decay may happen even sooner.

The flexible and adaptable housing market provides better long-term prospects. Whenever a developer builds a rental unit for a middle- or upper- income tenant, he frees up a unit that tenant formerly occupied for a lower- income resident to move into. That resident's former apartment then becomes available for someone from an even lower income group.

When government intervention -- whether in the form of subsidies or rent control -- takes place, the housing cycle becomes disrupted. The supply of housing does not circulate fully or smoothly, driving prices up. This makes rents and mortgage payments higher for everyone.

Little has changed in the past five (or even 13) years that would make me amend what I wrote back then, except to state it more baldly:  "Affordable housing" by design has to be cheap or low-quality housing.  If it isn't, the builder has to lose money on it (in the absence of a transfer payment from taxpayers).  Government intrusion in the marketplace interrupts the circulation of housing that makes older units "affordable" (relatively less expensive) and brings new, higher-quality units onto the market.  It may seem paradoxical, but if we want "affordable" housing in the future, we should be building "unaffordable" housing today.

Even though Charlottesville is a small city and Arlington is about five times as large (and is an urban entity overlaid with -- or masquerading as -- a county-government structure), the problems and solutions remain the same.  The economic realities of the housing market apply across the board, whether we are talking about large cities or rural areas, suburbs or exurbs, Manhattan (Kansas) or Manhattan (Big Apple).

Mayor Dave Norris and his fellow council members are well-intentioned.  It is good to make home ownership available to as many people as possible, and also to prevent homelessness.  Intervening in the housing market through subsidies and regulation of housing providers, however, will do little more than shift the problem either from one taxpayer to another or from one jurisdiction to another.  After all, the housing market of the City of Charlottesville is not self-contained; it is integrated with the markets of Albemarle, Fluvanna, and Nelson counties, and other areas beyond the our metropolitan area are affected, as well.




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Two Thoughts on the Stimulus

From disparate directions of the economic debate come two thoughts on President Obama's proposed stimulus package. I thought this might be a useful follow-up to what I posted last Friday ("Short Term Gain, Long Term Pain").

First, veteran journalist Martin Walker, who now holds the title "editor emeritus" at United Press International, writes:

The stimulus plan that emerged from Speaker Nancy Pelosi and the House, without a single Republican vote in support, is not impressive, whether judged by its ability to create jobs or to invest money widely for the economy of the future. It does not even do a competent job of providing a quick fix for a consumaholic system that finds itself suddenly starved of cash.

The Senate compromise, which is expected to pass this week, is not much better. The largest single item remains the extension of Medicaid, which will be helpful for the surging numbers of unemployed but will not create many new jobs. Those it does create will be in the already swollen health sector. This is now set to consume 17 percent of GDP while producing worse life expectancy and infant mortality figures than other countries enjoy while spending less than 10 percent of GDP.

Second, from economist Arnold Kling, a member of the Mercatus Center's Financial Markets Working Group, writing in a "Tax & Budget Bulletin" for the Cato Institute:

The key to averting ... a depression, is to restore business profitability, especially in the nonfinancial sector. In a capitalist system, profits and losses are signals. Profits signal businesses to expand, and losses are a signal to contract. Profits have been collapsing, resulting in firms laying off workers and pursuing few new investments.

The Bureau of Economic Analysis reports that total wage and salary disbursements grew 2.8 percent in 2008 over 2007.3 Meanwhile, corporate profits were down 9 percent through the third quarter of 2008.4 Fourth quarter data were not available as of this writing, but Bureau of Labor Statistics data for the fourth quarter show that labor costs rose faster than productivity at a 12-percent annual rate, which implies a further plunge in profits.

The government can help restore profitability in the private sector by reducing business taxes. Cutting the payroll tax rate on employers would be particularly helpful. A 50-percent cut in this tax would amount to about a $230 billion annual savings. Such a cut would increase the deficit by much less than the current stimulus bill, while likely producing a larger boost to employment. In addition to helping restore profitability, it would reduce the cost of labor at the margin, giving businesses an incentive to hire workers. Also, it would take effect more quickly than the spending in the current stimulus bill.

There you have it -- cutting the payroll tax will have a greater measurable effect on creating employment than the Obama-Pelosi "stimulus" package. Why isn't Congress talking about doing what is effective rather than what feels good?

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Warren Coats Talks About the Bailout

The U.S. Senate has approved, by a vote of 74 to 25, a bailout bill. The House of Representatives voted down a similar bill on Monday by a narrow margin, and returns Thursday to consider another version (or versions).

Jake Tapper of ABC News reports:

The Senate tonight overwhelmingly passed the economic rescue package, or Wall Street bailout, as a way of forcing the House of Representatives to take a second vote on the bill, which it rejected in different form earlier this week. ...

Deliberations took place behind the scenes Wednesday, as senators added breaks and sweeteners to their version of the economic rescue plan. ...

The Senate modified the $700 billion financial rescue plan with a provision that gives the Treasury Department the authority to buy troubled mortgage securities.

The bill also now includes an extension of numerous tax breaks for research and development and renewable energy companies, as well as personal tax breaks for college tuition and disaster victims.

It proposes adjusting the Alternative Minimum Tax, so it doesn't hit more than 20 million middle class Americans in 2009.

In the run-up to the House vote earlier this week, economist Warren Coats published two commentaries on the proposed bailout -- one for the Cato Institute, one on his own blog.

In a September 26 article headlined "The D E F's of the Financial Markets Crisis" on Cato.org, Coats explains (citations omitted):

The background to our current financial problems is that the United States as a whole is over-leveraged. There is too much debt and too little saving. Efficient borrowing/lending can be very beneficial, but too little saving for the whole country and for individuals during their working years reduces productive investment and the income growth it produces and increases the economy's vulnerability to shocks. As a nation our net savings rate became negative in 2005 and remained near zero until this year. This has been possible because of high savings rates in the rest of the world and the ability of foreign governments, firms and individuals to invest large amounts of these savings in the United States. Foreigners were willing to invest in the United States (largely in government and private sector debt and to a much lesser extent in equity) for only modest yields because of their confidence in the safety of U.S. investments and they were able to do so because our (previously) overvalued currency (the so called "strong dollar") created a large current account deficit (excess of imports over exports) that foreign investments in the U.S. helped finance.

The inflow of foreign savings has kept interest rates low in the U.S. in recent years. This is a so-called "real" rather than a "monetary" phenomenon. During the period from December of 2001 until November of 2004 the Federal Reserve's overnight interest rate (fed funds rate) target was below 2% and the unusually low interest rates of this period are thought to have fed the housing price bubble. Many have claimed that these low rates were the result of excessively easy monetary policy, but this claim is somewhat contradicted by the evidence. During this period of low interest rates, the broad measure of the money supply (currency plus the public's deposits with banks-M2) grew on average at 6.2%, exactly the same average rate as between 1980 and now. During the shorter period between December 2002 and June 2004, when the fed funds rate was below 1.25%, M2 grew on average at 6.1% per year. However, when the fed funds rate was above 5% from November 1994 through March of 2001 the average growth rate of M2 was 6.4%. The Federal Reserve's adjustments in its interest rate target were largely stabilizing the growth in the money supply. A significantly higher fed funds rate during the 2002 to 2004 period would have resulted in much lower if not negative M2 growth. Interest rates were determined largely by the inflow of foreign saving. Nonetheless, interest rates were negative in real terms (less than the inflation rate) and contributed to market exuberance. A slower than trend M2 growth (and thus higher fed funds rate) might have been more appropriate. Furthermore, M2 began growing in March of 2004, and the Fed should have begun increasing its Fed funds target rate sooner than it did.

Coats, who spent more than 25 years at the International Monetary Fund and has helped some two dozen emerging economies build their banking and currency systems, concludes in his Cato article (citations omitted):

It is appropriate for the government to intervene to restore or preserve stable financial market if doing so saves taxpayers money in the long run. However, such interventions should be well-targeted and should minimize to the extent possible creating moral hazard incentives for financial institutions to take risks with taxpayers' money. We are rapidly reaching the point where the creditworthiness of the United States government itself is coming into question as a result of the growing list of unfunded commitments it has made.

Both private sector and government debt has skyrocketed in recent years. Credit market debt stood at $2.3 trillion in 1990, $6.4 trillion in 2000 and $12.9 trillion at the end of 2007. U.S. government debt (leaving aside state and municipal debt) was $3 trillion in 1990 (51% of total national output that year), $5.8 trillion in 2000 (59% of GDP), and $9.5 trillion (69% of GDP) at the end of June this year. Twenty-eight percent of it ($2.6 trillion) is foreign owned. The Treasury and Federal Reserve have just added a potential additional trillion dollars to this debt with their various rescue actions and proposals. Annual interest on this debt at the 3.8% currently paid for 10-year government bonds (while below the average interest on the debt) would be almost $400 billion or about 14% of the total federal budget. This seems quite manageable until the true deficit including the unfunded liabilities of Medicare/Medicaid and Social Security is calculated. According to Richard Fisher, President of the Federal Reserve Bank of Dallas, these are ten times the existing debt. Interest payments on the full true debt would exceed total federal tax revenue. Existing government spending promises simply cannot be met. Some mix of reductions in existing entitlements and increases in tax revenue will be required. Our goal should be to minimize the negative impact on economic growth of that mix in order to maximize the additional government revenue arising from a higher tax base.

In a piece on his own blog, called "The Big Bailout: What Next?," Coats -- who was once an assistant professor of economics at the University of Virginia -- writes about a similar financial markets situation in Sweden in the 1990s and how the Swedes addressed it. He concludes:

No convincing evidence has been presented that existing liquidity and bank resolution tools are not up to the job of seeing us through the adjustments to earlier excesses now underway. As long as that remains the case the Federal Reserve and FDIC should continue to rely on them. Should fresh evidence indicate otherwise, the authorities should turn first to increasing deposit insurance limits, establishing a mortgage insurance agency (to replace Fannie Mae and Freddie Mac), and only as a last resort the injection of tax payer financed capital into (and thus government take over of) financial institutions judged too big to fail.

Both pieces by Warren Coats are well worth reading in their entirety. Some of the economic jargon might make hard slogging, but he does a good job of putting the current situation in perspective.

Steve Forbes for Treasury Secretary

Regardless of who wins the presidential election on November 4 -- whether Bob Barr, John McCain, or Barack Obama -- when the new president takes office in January 2009, he could do much worse than to name magazine publisher Steve Forbes as his Secretary of the Treasury.

While the political world is full of Chicken Littles warning that our economy -- which is in a period of growth about equal to the average since World War II, and which sees unemployment at a level lower than the average since World War II -- is ready to collapse, Forbes offers a voice of sanity. His optimistic message about the economy has hardly changed at all since his presidential run in 1996, and for good reason: the U.S. economy has been, and continues to be, in good shape -- especially when compared to our trading partners in Europe and elsewhere around the world.

According to an article published in Thursday's Washington Times:

Publishing tycoon and former Republican presidential candidate Steve Forbes on Wednesday urged people to put the crisis on Wall Street in perspective, saying it "will quickly pass" so long as the Bush administration and financial regulators strengthen the dollar and enforce rules on the short-selling of securities.

"Put things in perspective: We will get over it," Mr. Forbes said in a speech hosted by the Ad Club of Metropolitan Washington on Wednesday morning. "But if we continue doing dumb things like make monetary mistakes, raise taxes, do crazy things on the regulatory side, you can get a real disaster on your hands."

Quoting extensively from Forbes' speech at the Ad Club, correspondent Kara Rowland reports:

"Long story short, in 2004 the Federal Reserve, then headed by Alan Greenspan, made a fatal miscalculation," he said. "They underestimated the U.S. economy. They printed a lot of money because they thought the economy needed it, and the engine flooded."

As a result, Mr. Forbes said, commodity prices shot up and the domestic economy became distorted. Housing prices were already going up, and the influx of money led people to build and buy more houses, lending standards eroded and a subprime-mortgage crisis erupted, he said.

"It just went berserk; a classic bubble, and thanks to high technology, global economy, securitization, it took on proportions it had never done before in history," he said. "So how did the Fed respond? Having gone on one drinking binge, it went on another: It cranked up the money press again."

The Treasury Department should have told regulators to "back off" at that time, but instead praised the move, said Mr. Forbes, who called the country's "weak-dollar policy" the "biggest mistake of the Bush administration."

"If cheapening your money was the way to wealth, then Zimbabwe and Argentina would own the world," he said.

Far from panicking -- which, unfortunately, is the attitude of both major-party presidential candidates, including the normally hands-off McCain as well as the central-planner Obama -- Forbes suggests we should look at the current situation more calmly and intelligently. Writes Rowland:

Moreover, recent losses may seem big, but people should put them in perspective, Mr. Forbes stressed.

"If you look at median net worth in the United States in the last 10 years, it's gone up over 30 percent," he said. "What's happened in recent years is unprecedented in human history; never before in so many parts of the world have so many people advanced economically as happened in recent years. Each year, 50 [million] to 70 million people around the world join the middle class."

The U.S. has weathered economic storms in the past and will make its way through the current crisis, he predicted, if the Fed redefines its mission as "focusing on a stable currency and dealing with panics." It should start to soak up some of the excess money it created and the Treasury Department should announce a strong-dollar policy, he said, adding that financial regulators should try to standardize "these exotic instruments" that have been created by Wall Street.

"Make the dollar stable. It's not that hard to do. Maybe I should write a book, 'Central Banking for Dummies,'" he joked.

In the meantime, Mr. Forbes said, investors should stay calm.

"This is precisely the time [you] don't give into your emotions. Your emotions are your enemy."

I wrote my first article about Steve Forbes for the Metro Herald back in September 1995, shortly after he announced his bid for the Republican presidential nomination. This is what it said:

Does Steve Forbes Have the Right Stuff?
Richard E. Sincere, Jr.

The Republican presidential horse race just got a thoroughbred entry -- a 25-to-1 shot with a $25 million purse. But can millionaire magazine owner Malcolm S. "Steve" Forbes, Jr., break away from the pack to win the race? Pundits are skeptical.

Forbes is the son of the late publisher Malcolm S. Forbes, a former correspondent and now the editor-in-chief of the magazine that bears his father's name. There are reports he plans to spend $25 million of his own money to win the Republican nomination and to go on to defeat President Bill Clinton in November 1996.

Announcing his candidacy formally at the National Press Club in Washington on September 22, Forbes described himself as fundamentally different from the rest of the GOP candidates. He said "their vision of what we can do is narrow, cramped, and constricted." He noted that all of them "have been in Washington, or in politics, or both, all of their adult lives. They haven't been at the center of the entrepreneurial economy. I have, both as a reporter traveling the world and as a businessman, running a company. That," he said, "has been my life."

Indeed, if vision is what elects candidates, Forbes stands head and shoulders above the rest. He has a consistent vision lacking in Bob Dole, for instance, who after 35 years in Washington is known best as a "compromiser" with no overarching political or economic philosophy. Forbes has a focus absent from Bob Dornan, whose public speeches ramble and roam with no coherent direction, except to attack gay and lesbian taxpayers. He has a certainty superior to Phil Gramm, who has lurched to the right in recent weeks to appease religious conservatives, who make him fidget nervously. Forbes has a coherence unseen in the campaign of Pat Buchanan, who calls for freedom except for immigrants, and international trade, and minorities, and political dissenters, and (pick a favorite category here).

Of course, vision alone does not elect candidates. Forbes may have a lot of money, and a clear message, but he doesn't have a lot of political operatives around the country. Like it or not, politics is still largely a game of machine-based politicians. Without the ability to call in his chits, Forbes is unlikely to build the support he needs among local activists who select delegates to the big show -- the Presidential Nominating Convention.

That aside, Forbes' message is compelling. He demands scrapping the current income tax code. "Don't fiddle with it. Junk it. Throw it out. Bury it." In its place, he calls for a "pro-growth, pro-family tax cut that lowers tax rates to 17 percent across the board." This flat tax would have exemptions that ensure that a family of four earning $36,000 or less will pay no taxes.

He really parts company with the Republicans in his firm, unmitigated support for term limits. In an article he wrote for the September 25, 1995, edition of Forbes (the magazine), the new presidential candidate noted correctly: "Public support for term limits remains unwaveringly strong, regardless of race, party, income, or gender. People agree with Thomas Jefferson, who said that the Constitution should have mandated the rotation of elected officeholders."

At his campaign kick-off, Forbes said:

"I want to change the culture of Washington by changing the rules of the game. And to change the rules of the game, you have to do two things: You have to take away the politicians' power to manipulate the tax code. . . . And you have to limit their terms."

In addressing "values," Forbes acknowledged a truth that the so-called Christian Right is unwilling to admit. The real reason for the breakdown of family values, and of families themselves, is the breakdown of the economy caused by the growing intrusiveness of government. By deregulating the economy, by cutting taxes, by offering parents the right to choose any school for their children, by focusing the energies of police and prosecutors in violent crimes, we can restore values to their proper place in our communities. Forbes is on the right track -- though his announcement speech lacks specifics. (That, of course, might be its attraction: By letting the other Republicans fight over the title of "most righteous," Forbes might win "most likely to succeed.")

Some say Steve Forbes is a stand-in for Jack Kemp in the 1996 presidential stakes. Some call him "Kemp Lite." Indeed, his campaign staff is made up of many former Kemp associates. Forbes, however, does not seem to be as squishy on welfare and regulatory issues as Kemp is. Kemp is a big-government Republican. Forbes, if his actions match his words, genuinely believes in shrinking the size and scope of government. We'll see.

Steve Forbes brings new interest and new experience into the Republican presidential race. Can he go the distance?

* * * * * * * * * * * * * * * * * * * * * * * * * *

Richard Sincere is author of The Politics of Sentiment: Churches and Foreign Investment in South Africa, and other works.

Comparing the quotations from my 1995 article and Kara Rowland's piece in yesterday's Washington Times, one can see that Steve Forbes has lost neither his idiosyncratically staccato speaking style nor his overarching vision of free-market economic policies.

Can we start a write-in campaign for "Steve Forbes for Treasury Secretary"?

Is a Return to the Gold Standard Desirable?

My friend, Warren Coats, who spent a career at the International Monetary Fund before retiring in 2003 (and who taught economics at the University of Virginia before joining the IMF) has posted an interesting and informative paper that he presented Thursday at FreedomFest in Las Vegas. (Las Vegas in July...... mmmmm! Actually, I wish I was there. The program looked intriguing and intellectually stimulating.)

Warren's paper is entitled "Should the U.S. adopt a Gold Standard?" and, while presenting the pros and cons of such a policy, his ultimate answer is "no."

His full paper is well worth reading, but I will just excerpt the conclusion here:

The United States should not adopt a gold standard. Such a regime would have prevented the Federal Reserve from supplying the additional liquidity the banking system suddenly demanded this past year as part of the subprime mortgage crisis.[11] Without the injection of the additional liquidity, there would probably have been a financial sector meltdown and recession of hug proportions. Had the U.S. had a gold standard, it would not have survived such a financial crisis.

The United States should adopt inflation targeting. The Federal Reserve act should be amended to establish price stability as the primary objective of monetary policy, freeing the Fed from its statutory requirement to “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”[12]

Funny how Warren presented this argument just two days before the big Ron Paul Revolution March on Washington, where many gold bugs will be in attendance. I've always been an agnostic on the gold standard, but when a libertarian thinker like Warren Coats suggests that going back to the gold standard is a poor policy choice, my agnosticism gives way to atheism.

Not that that will stand in my way of attending the rally on the west side of the Capitol tomorrow. The Revolution takes place under a big tent.

A Penny Saved Is a Nickel Earned

An interesting proposal circulating among economists suggests that the government should "rebase" the penny and make it worth five cents, and then eliminate the nickel.

The economists point to the fact that, because the price of the metals that go into pennies and nickels has risen so rapidly in recent years, the mint loses about $40 million each year making the coins.

Writing in the New York Times on February 1, University of Chicago economist Austan Goolsbee explains that initially, proclaiming that a penny is worth 5 cents "sounds impossible":

But our coins are just tokens the government gives a value to. We can say they are worth whatever we like... the United States did something similar in 1834, when it changed the gold-silver ratio and suddenly the half-eagle $5 coin was actually worth $5.625.

Pennies would then cost a little over 1 cent to make and would be worth a nickel, so the government would again be making a profit on money. We would have plenty of new Lincoln nickels so we could stop minting our current nickels at a heavy loss. The Jefferson nickels would stay in circulation, just as the old wheat pennies do now. Because metal in nickels is valuable, though, they would probably be melted down.

Rebasing pennies is printing money. But don’t get too worried about inflation. With about 140 billion pennies in circulation ($1.4 billion) — counting the ones in your couch and your kids’ piggy banks — this rebalance would make them worth $7 billion, adding about $5.6 billion to the money supply. For comparison, at the start of 2007 there was about $1.4 trillion in currency and money available for purchases, to say nothing of credit cards.

If this proposal takes shape and is eventually adopted, we may have to abandon some idiomatic expressions, though "a penny for your thoughts" might still work -- it's just that those thoughts will be worth an additional four cents.

Abolishing Cash: Fantasy or Nightmare?

I am in the middle of doing some home renovations, and it became necessary for me to move around some boxes and files from one room to another. As it happened, I came across a crumpled piece of paper, upon which was glued a newspaper article. It turned out to be an opinion article I wrote in early 1991, shortly after I joined the Libertarian Party and after my first campaign for public office.

Reading the article (which, eerily, appeared in the Charlottesville Daily Progress, years before I ever imagined living in Mr. Jefferson's town), I was struck by how relevant it is given current concerns about the USA PATRIOT Act, the Treasury Department's proposed "Know-Your-Customer" regulations, the government's heavy-handed anti-money-laundering activities, and a wide range of proposals to require uniform identification documents for all Americans.

I had completely forgotten writing this article, which had been prompted by an op-ed piece in the New York Times that was so offensive and frightening that it cried out for an immediate response. Although I do not mention the original piece by title in the article, thanks to Google, I was able to track it down as "Abolish Cash," by Harvey F. Wachsman, published on December 29, 1990. (Does that seem like a century ago rather than a decade and a half?)

I found an excerpt from Wachsman's article on a rather odd web site (but that's easier than paying to use the New York Times archives for such an ephemeral purpose). Here is a key passage:

If all the people who do business in cash were forced to report their incomes accurately — if the underground economy were forced to the surface — the Government could collect an additional $100 billion a year for the national treasury — without raising taxes. States and cities, many in serious financial trouble, would also benefit from collecting previously unpaid income and sales taxes.

How do we create a system to keep cash businesses honest? Eliminate cash. This may sound revolutionary, but the exchange of cash for electronic currency is already used in nearly all legitimate international business transactions...

Here's how it would work. The Government would change the color of the currency and require all old money to be exchanged at the Treasury.

Then, all the new currency would be returned by its owners to the bank of their choice...

We would offer a period of tax amnesty to encourage compliance, but as a practical matter compliance would be assured because after a certain date all currency would be worthless.

In place of the paper money, we would receive new cards — let's call them Americards — each biomechanically impregnated with the owner's hand and retina prints to insure virtually foolproof identification...

Fugitives would be easier to track down, legal judgments easier to enforce, illegal aliens simpler to spot, debtors unable to avoid their responsibilities by skipping town...

Some people might be concerned about possible abuses of civil liberties. But there would be a record of anyone who entered another's account — officials would be granted access only after electronic verification of their hand and retina prints. Civil and criminal penalties for theft of information would be devastatingly severe...

Then, in a paragraph that makes me smile because it both underscores its own intended meaning and simultaneously undermines it by showing how technology has advanced so unpredictably in the subsequent years, Wachsman writes:

Americard may seem like a drastic approach but its advent is inevitable. In the days of the telegraph and the pony express, who could have imagined that one day there would be a phone on every street corner in Manhattan?

(For my younger readers, I should explain that, years ago, most people were unable to carry their telephones with them. For their convenience, there were "pay phones" in public places that accepted coins in return for a few minutes of conversation. These have largely disappeared but they can be seen in museum exhibits and Superman movies.)

Here is my response to Harvey F. Wachsman, published in the Charlottesville Daily Progress on January 20, 1991:

Liberty imperiled by surveillance
By Richard E. Sincere Jr.

Great seer that he was, Benjamin Franklin must have had Harvey F. Wachsman in mind when he wrote: “They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.”

Wachsman, a neurosurgeon and lawyer, suggested in a recent New York Times article that the U.S. government forbid cash transactions of any kind for, among other reasons, catching tax cheats, stymieing muggers and making life more difficult for drug dealers. To do this, he proposes a central computer system that will track all transactions, from buying a hot dog to trading blue-chip stock.

In place of paper money, he writes, “we would receive new cards – let’s call them Americards – each biomechanically impregnated with the owner’s hand and retina prints to insure virtually foolproof identification.”

This is an intrusive assault on liberty and privacy that creates far more opportunities for state interference in the personal lives of citizens than any of the most draconian measures endured in pre-Gorbachev society. The potential for abuse, despite Wachsman’s lame assurances to “some people ... concerned about ... civil liberties” is limitless.

Wachsman tries to claim that there would be civil and criminal penalties for unauthorized use of information from “Americard” transactions. Such penalties already exist for those who delve into our personal lives today, but did that stop the harassment of Martin Luther King by J. Edgar Hoover? Did it stop the illegal use of Internal Revenue Service files by the Johnson and Nixon administrations in efforts to deal with political enemies? Does it stop the National Enquirer and other salacious tabloids from releasing intimate details about celebrities’ private lives?

Establishing a central computer bank with detailed information about the purchasing habits of every American simply would make easier the jobs of spies, gossip-mongers, and political tricksters.

Imagine: People will shy away from making embarrassing but essential purchases – such as hemorrhoid medicine or condoms – knowing that an accessible record of the transaction will be kept. Republicans who want to contribute to a Democrat’s campaign will demur for fear their colleagues will find out. Closeted homosexuals will be shut up even further, afraid to subscribe to a gay magazine or make a donation to an AIDS charity.

Wachsman brushes aside such objections to his fantasy by saying: “I’d like to ask every parent whose child walks to school through a gauntlet of drug dealers, everyone whose home has been robbed, whether they think their rights are jeopardized by a system that could solve all these problems?”

The gut reaction of many people will, alas, be that it does not harm them or deprive them of fundamental rights. Emotions run high on issues like this, clouding our judgment. Reasonable reflection on Wachsman’s proposal to abolish cash reveals that it is, in a word, chilling. It is undeserving of serious consideration.

Unfortunately, Wachsman’s views are symptomatic of so many in today’s society who fail to heed Ayn Rand’s observation in her novel, The Fountainhead, that “civilization is the progress toward a society of privacy. The savage’s whole existence is public, ruled by the laws of his tribe. Civilization is the process of setting man free from men.” Wachsman wants to step backward from civilization toward computerized savagery. His proposal, like those of many others who want to solve the deficit or solve the drug problem, sacrifices liberty for safety and subordinates personal freedom to tribal control.

Richard Sincere was recently the Libertarian candidate for the Virginia House of Delegates in Arlington’s 49th District. He is also an issues analyst and writer.

Take Mr. Jefferson to Best Buy

This story is a month old, but it just came to my attention today.

Reported in the Baltimore Sun on March 8 and on WorldNetDaily yesterday, this is either a tale of the ignorance of retail cashiers or of the hysteria of post-9/11 America. Or both. Most likely both.

The gist is this, from WorldNetDaily:

A man trying to pay a fee using $2 bills was arrested, handcuffed and taken to jail after clerks at a Best Buy store questioned the currency's legitimacy and called police.

Baltimore Sun columnist Michael Olesker provided a few more details when he broke the story last month. It seems that Best Buy customer Mike Bolesta was told that the installation fee for his son's new car stereo had been waived because of a mix-up at the store. But soon afterward, he was threatened with legal action if he did not pay the fee. A bit miffed, Bolesta decided to pay the whole invoice with two-dollar bills -- you know, the ones with Thomas Jefferson's portrait on the front and, in the Bicentennial version, an engraving of the signing of the Declaration of Independence on the back.

These bills might be rare in Baltimore, but in Charlottesville they are readily recognizable. Mr. Jefferson's home at Monticello routinely gives them out in change to the tourists who visit there.

Bolesta uses the $2 bills in his business. Olesker continues the story:

With his Capital City Student Tours, he arranges class trips for school kids around the country traveling to large East Coast cities, including Baltimore. He's been doing this for the last 18 years. He makes all the arrangements: hotels, meals, entertainment. And it's part of his schtick that, when Bolesta hands out meal money to students, he does it in $2 bills, which he picks up from his regular bank, Sun Trust.

"The kids don't see that many $2 bills, so they think this is the greatest thing in the world," Bolesta says. "They don't want to spend 'em. They want to save 'em. I've been doing this since I started the company. So I'm thinking, 'I'll stage my little comic protest. I'll pay the $114 with $2 bills.'"

At Best Buy, however, the Jefferson dollars might as well have been euros or rupees -- or Monopoly money. The staff thought they were fake, and brought in the feds to settle the matter.

Olesker continues:

He remembers the cashier marking each bill with a pen. Then other store personnel began to gather, a few of them asking, "Are these real?"

"Of course they are," Bolesta said. "They're legal tender."

A Best Buy manager refused comment last week. But, according to a Baltimore County police arrest report, suspicions were roused when an employee noticed some smearing of ink. So the cops were called in. One officer noticed the bills ran in sequential order.

* * *

Bolesta was then taken to the county police lockup in Cockeysville, where he sat handcuffed to a pole and in leg irons while the Secret Service was called in.

"At this point," he says, "I'm a mass murderer."

Finally, Secret Service agent Leigh Turner arrived, examined the bills and said they were legitimate, adding, according to the police report, "Sometimes ink on money can smear."

This will be important news to all concerned.

For Baltimore County police, said spokesman Bill Toohey, "It's a sign that we're all a little nervous in the post-9/11 world."

I like Best Buy. I've bought lots of electronic equipment there, and lots of DVDs and CDs. Despite the stupidity of their Baltimore branch, I expect I will continue to shop at Best Buy. (The new one here in Charlottesville is an amazing beacon of free enterprise, especially when you see it at night while traveling west on the 250 Bypass.)

Still, I think the next time I plan to buy something at Best Buy, I'm going to fill my wallet with two dollar bills and pay in cash.

I urge all Best Buy customers to do the same. Take Mr. Jefferson with you on your next trip.