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Coyote Blog, Year Two Archives, Volume Two / 1
Coyote Blog: The Second Year
Volume 2: April, 2006 to September, 2006
By Warren Meyer
2 / Warren Meyer
Copyright © Warren Meyer, 2005
Coyote Blog, Year Two Archives, Volume Two / 3
Table of Contents
Forward 5
April, 2006 6
Supreme Court Asleep 8
Immigration and the "Legality" Issue 9
Massachusetts Insurance Fiasco 11
Damages and Double Jeopardy 13
More on Massachusetts Health Insurance 14
My Worst Vendor Guess Who? 16
Limiting Free Speech Unifies Congress 18
The Peak Whale Theory 20
I'll Try Again Why The Trade Deficit is Not a Debt 22
Disturbing Trade News From China 29
May, 2006 33
My Immigration Reform Plan 34
Real Price Collusion Requires the Government 43
If it Passes, I'm Turning Off the Pumps 47
So Why Not Cuba? 54
Reconciling the Skilling Verdicts 63
Price Controls at Work 65
Are People Rational About Gas Prices? 66
The Connection Between Paul Ehrlich and Immigration Opponents 68
An Absurd Demand 71
June, 2006 75

The Obesity Obsession 77
Eminent Domain, But Without the Compensation 78
Statism Bites its Creators 79
July, 2006 85
Thoughts on Detentions 85
State of Arizona Channeling Enron 96
In Case You Thought Anti-Trust Was About Consumers 97
Estate Tax Confusion 98
Guilt or Innocence is Irrelevant, I Guess 103
A Skeptics Primer for "An Inconvenient Truth" 105
World's Largest Banana Republic 118
Answer: Wealth 119
August, 2006 120
Virtues of a Carbon Tax 120
Thoughts on Net Neutrality 121
I Have Government Derangement Syndrome 122
Thanks, China! 124
Katrina was Government Revealed 130
In Case You Thought Anti-Trust Was About Consumers, Part 2 132
Pre-Season College Football Rankings are the Most Important 140
Leaving Poverty in China 140
4 / Warren Meyer
More Zero Sum Economics (Sigh) 142
Progressives in Their Own Words 150
Immigration Opponents Depend on Bad Public Schools 152
Free Market Does Not Mean Pro-Business 160
Ignoring a Positive Cancer Test 161
The Skeptical Middle Ground on Warming 162
September, 2006 164
Free Speech, But Only If Its Bilateral 164

Urban Heat Islands 165
Wanted: Honesty of Purpose 167
You Can't Make Decisions for Yourself 168
Circumscribing the "War on Terror" 170
What are People Afraid Of? 173
Coyote's Law and 9/11 177
Get Wal-Mart Out of the Public Trough 179
Arizona Minimum Wage Ballot Initiative 180
Broken Window Fallacy, On Steroids 183
More Anti-Immigration Scare Stats 184
Sanction of the Victim 190
You've Never Had It So Bad 192
Anti-Trust is Anti-Consumer 196
Index to Articles 202
Coyote Blog, Year Two Archives, Volume Two / 5
Forward
This book is an archive of my blogging efforts at www.CoyoteBlog.com for the second year of the blog's
existence, a time period stretching from April, 2006 to September 2006.
A text record of a blog is by its nature very imperfect. The real advantage of blogging, beyond its
immediacy and low-cost reach, is the ability to link other online sources to extend or provide backup for a
particular article, called a “post”. Throughout this print record, you will see phrases that are underlined
like this. In the original electronic version, these were links where readers could click through to view
related material on other web sites. I have chosen to leave this underlining in this text version, as an aid to
understanding where richer content was available to the original online readership. Another important
point of style is that blog posts typically quote heavily from other sources as part of the commentary:
Rather than using quotation marks, most quotes are indented and printed in italics, like this.
In compiling this archive, I have chosen to remove many of the original posts. Most of these removed
posts were short posts whose main purpose was to point readers to other interesting content on the web,
and as such are nearly meaningless in a printed version.
I have done some cleanup of spelling and grammar, but readers of this printed version should recognize

that blogging is a real-time activity and readers generally do not expect publication quality prose. Along
these same lines, you will encounter a number of Internet abbreviations, including LOL (laughing out
Loud), OMG (Oh My God), and Fisk (to tear apart someone else's argument line by line). Readers online
would have been very familiar with these shortcuts. You may also note that a number of the articles have
sections at the end marked as “Update”. This is additional information added to the text after it was
originally posted, consistent with the dynamic and real-time nature of blogging.
Finally, given the sheer volume of material here and the near certainty that few people will be interested
enough to plow through it all, I have highlighted some of my favorite posts in the Table of Contents on the
previous page. The index at the back contains a full listing of all the articles included in this volume.
Warren Meyer
“Coyote”
January, 2008
6 / Warren Meyer
April, 2006
Force over Choice
Progressives often wrap themselves up in a lot of libertarian-sounding jargon. But when push comes to
shove, progressives are more comfortable with coercion than free association. James Taranto links this
piece in his Friday Best of the Web:
A longtime singer and guitarist with the Zucchini Brothers and a substitute teaching assistant
for Washington-Saratoga-Warren-Hamilton-Essex BOCES [school board], Powell has lived
frugally for years. He works about three days a week as a sub, earning about $70 a day, with no
benefits. From March to October, he rides his bike 20 miles to work when work is available
Part of that survival or so he thought included shopping at Wal-Mart to take advantage of
cheaper prices for himself, his partner and her two children. Then his discussions about Wal-
Mart with Sandra Carner-Shafran, a teaching assistant at BOCES and a member of the Board of
Directors of New York State United Teachers, started churning inside him. . . .
"I don't like what Wal-Mart stands for," Powell said, noting the mega-chain's scanty health
insurance for staffers. "Because of all those things they can lower the prices."
He and his partner agreed to go on food stamps for their family rather than shop at Wal-Mart
any longer.

Please observe the moral choice he made that is being applauded by those on the left: Rather than get low
cost food from Wal-mart, which generally* transacts with its suppliers, employers, and customers through
mutual self-interest and the consent of all parties in each transaction, he has decided it is MORE MORAL to
get his food expropriated from the American taxpayer without their consent. Lovely. By the way, it is
ironic that he is mad that Wal-mart employees accepts jobs with no health benefits when he in fact has
made the same choice himself.
More on what makes progressives tick here.
*The exception being that Wal-Mart does use the force of government via imminent domain to obtain land
where the free will of landowners would not cooperate and to get special tax credits from local
governments to get area citizenry to subsidize its business. If Mr. Powell were to protest these practices, I
would be all for it, but my guess is that he is not protesting government handouts to Walmart by signing
up for government handouts for himself.
Posted on April 1, 2006 at 09:16 AM
Politics Negates Belief
One of the advantages of not being a partisan of either the Democrats or Republicans is that I have more
flexibility to actually say what I believe, without worrying that something I am saying might actually give
Coyote Blog, Year Two Archives, Volume Two / 7
aid and comfort to my political enemies. I have always felt that it is really, really difficult and rare to
become actively political without sacrificing consistency in your deeply held beliefs, particularly since both
parties represent such an inconsistent hodge-podge of positions. The irony of this has been, at least until
the advent of blogging, that I could be smug about maintaining my philosophic virginity but I left myself
no avenue to make any impact with my strongly held beliefs.
Given this, I was therefore struck by this, from Cathy Young at Reason, writing about Yale's future Taliban
student:
One striking aspect of this controversy is the reaction from Yale's liberal community. Della
Sentilles, a Yale senior, recently wrote a piece for the Yale Herald denouncing such
manifestations of rampant misogyny at Yale as the shortage of tenured female professors and
poor childcare options. On her blog, a reader asked Sentilles about the presence at Yale of a
former spokesman for one of the world's most misogynistic regimes. Her reply: "As a white
American feminist, I do not feel comfortable making statements or judgments about other

cultures, especially statements that suggest one culture is more sexist and repressive than
another. American feminism is often linked to and manipulated by the state in order to further
its own imperialist ends."
It appears Ms. Sentilles, beyond having a lot of multi-cultural baggage, is terrified that if she actually
criticizes Afghanistan in any way, she is somehow giving aid and comfort to the Bush administration,
which feminists have declared enemy #1. The politics of US presidential elections, in this case, trump
criticizing a regime that treated women worse (by far) than the US has at any time in its history. Which of
course is one of the reasons* that women's groups in this country are sliding into irrelevance, putting their
support of a broad range of leftish causes above speaking out on what is essentially apartheid-for-women
in the Middle East (I say essentially, because women are actually far worse off in much of the Middle East
than blacks ever were in South Africa). Whereas a decade ago the left was marching in the street to better
the lot of blacks in South Africa, they are strangely mum on women in the Middle East.
As a result, I can lament the condition of women in the Middle East, acknowledge that Saddam was a
blight on humanity, but still oppose the war in Iraq as not worth the cost (when "cost" is defined broadly
enough to include not must money and men but also opportunity cost). I can adopt this position because I
am not required to put on the Republican happy face or Democratic America-always-sucks face.
* Another reason is that it may be time for women to declare victory.
Posted on April 1, 2006 at 10:44 PM
More Trouble Than I Thought at GM
Today's announcement that GM will sell 51% of their GMAC financing arm really brought home to me
how bad things are at GM. I haven't really followed the situation, but I had assumed that GM was facing
the same type demographic bomb as the airlines, fat and underfunded pensions and retiree health care
benefits promised when times were good and US auto makers didn't face much troubling competition.
Here is what I found interesting: GMAC is reported to make about $2.5 - 3 billion a year in profits. This
might tend to imply a value of at least $25 to $30 billion, which is confirmed by the fact that GM just sold
half for $14 billion. But GM as a whole has a market cap of just under twelve billion. This means that their
entire manufacturing business is valued in the market at roughtly -$16 Billion. Yes, negative sixteen
8 / Warren Meyer
billion. Another way to look at this is that if instead of selling GMAC yesterday, GM had instead sold all
of their automotive manufacturing, brands, designs, etc. to someone for $1, and became a pure financing

business, GM shareholders would be richer by $16 billion, the equivilent of raising the current stock price
from about $21 to about $49.
Posted on April 3, 2006 at 09:05 AM
Supreme Court Asleep
The Supreme Court refused to review the Padilla case:
The Supreme Court on Monday refused to hear the appeal of Jose Padilla, a U.S. citizen held in
a military jail for more than three years as an "enemy combatant." The Court, however,
declined to dismiss the case as moot, as the Bush Administration had urged. Only three Justices
voted to hear the case, according to the order and accompanying opinions. The case was Padilla
v. Hanft (05-533).
The decision was a victory for the Bush Administration in one significant sense: by not finding
the case to be moot, the Court leaves intact a sweeping Fourth Circuit Court decision
upholding the president's wartime power to seize an American inside the U.S. and detain him
or her as a terrorist enemy, without charges and for an extended period without a lawyer.
The Court, of course, took no position on whether that was the right result, since it denied
review. The Second Circuit Court, at an earlier stage of Padilla's own case, had ruled just the
opposite of the Fourth Circuit, denying the president's power to seize him in the U.S. and hold
him. That ruling, though, no longer stands as a precedent, since the Supreme Court earlier
shifted Padilla's case from the Second to the Fourth Circuit.
I don't even pretend to understand all the procedural stuff, but I find it amazing that the effective
suspension of habeas corpus, particularly when the "war" and "enemy" that is used as its justification is so
amorphous and open-ended, isn't something the Supreme Court would like to sink its teeth into.
Apparently, the Justices were reluctant to address the case since it has now been made "hypothetical" by
the transfer of status of Padilla from enemy combatant held incommunicado indefinitely to a more
mainstream justice track. However, this transfer occurred, as the appeals court pointed out angrily, in a
transparent effort by the Bush administration to avoid judicial review of indefinite detentions. Which
raises the possibility that the administration could hold hundreds of people in such detention,
systematically changing the status of any individual whose case comes for review, thereby avoiding review
of the program in total. As Ruth Bader Ginsburg wrote, "Nothing prevents the Executive from returning to
the road it earlier constructed and defended."

One wonders by this logic if the segregationist south could have indefinitely postponed Supreme Court
review via Brown vs. Board of Education just by letting individuals like Linda Brown individually into
white schools whenever their cases got to the Supreme Court.
And still I ask, as I did here, where the hell is Congress? I am sorry the Supreme Court failed to review this
but the Constitution created this group called the legislative branch that is supposed to have the power to
change the law. If law is unclear here, they could make it clear.
Posted on April 4, 2006 at 08:44 AM
Coyote Blog, Year Two Archives, Volume Two / 9
Immigration and the "Legality" Issue
I know some may be bored with my immigration posts, so if you are, that's cool, you can ignore the rest. I
have done something of late I normally don't do: I have tuned into conservative talk radio for bits and
pieces of time over the last several days to get the gist of their arguments to limit immigration. The main
arguments I have heard are:
1. Illegal immigrants are breaking the law
2. We should not reward law-breaking with amnesty. We need to round these folks up that are
breaking the law and teach them a lesson. Or put them in concentration camps if that were
logistically feasible
3. We don't like first generation Mexican immigrants carrying the Mexican flag in parades. (though
we love it when 4th generation Irish carry Irish flags in parades)
A recent commenter on my post defending open immigration, which is superseded by this pro-
immigration post I like better, had this related insight:
1. YOUARE ILLEGAL
2. YOU ARE ILLEGAL
3. YOU ARE ILLEGAL
4. YOU ARE ILLEGAL
5. YOU ARE ILLEGAL
6-10000000 YOU ARE ILLEGAL
DO I NEED TO WRITE THIS IN SPANISH SO THAT THE ILLEGALS CAN UNDERSTAND.
IF YOU CAN READ THIS THEN YOU DID PASS THE BASIC ENGLISH TEST THAT IS
RREQUIRED OF ALL LEAGAL MIGRANTS !!!

OH, BTW, I HAVE THE RIGHT TO SAY THIS, BECAUSE I AM LEGAL!!
It sure is comforting that us "leagal migrants" have to pass a basic English test, or we might come off as
idiots when we post comments online. But you get the gist. My first thought is that this is certainly a
circular argument. To answer my premise that "immigration should be legal for everyone" with the
statement that "it is illegal" certainly seems to miss the point (it kind of reminds me of the king of swamp
castle giving instructions to his guards in Monty Python and the Holy Grail) The marginally more
sophisticated statement that "it is illegal and making it legal would only reward lawbreakers" would seem
to preclude any future relaxation of any government regulation.
Many people writing on this topic today lapse into pragmatic arguments ala "well, how would we pick the
lettuce without them?" Frequent readers of this site will notice I seldom if ever resort to this type argument
(except perhaps when I argued that immigration might be a solution to the demographic bomb in medicare
and social security). My argument is simpler but I hear it discussed much less frequently: By what right
are these folks "illegal"?
What does it mean to be living in this country? Well, immigrants have to live somewhere, which
presupposes they rent or buy living space from me or one of my neighbors. Does the government have the
right to tell me who I can and can't transact with? Most conservatives would (rightly) say "no," except
what they really seem to mean is "no, as long as that person you are leasing a room to was born within
10 / Warren Meyer
some arbitrary lines on the map. The same argument goes for immigrants contracting their labor (ie
getting a job). Normally, most conservatives would (rightly again) say that the government can't tell you
who you can and can't hire. And by the way, note exactly what is being criminalized here - the illegal
activity these folks are guilty of is making a life for their family and looking for work. Do you really want
to go down the path of making these activities illegal? Or check out the comment again above. She/he
implies that immigrants without the proper government papers don't even have speech rights, rights that
even convicted felons have in this country.
By the way, I understand that voting and welfare type handouts complicate this and can't be given day 1 to
everyone who crosses the border I dealt in particular with the issue of New Deal social services killing
immigration here.
Our rights to association and commerce and free movement and speech flow from our humanity, not from
the government. As I wrote before:

Like the founders of this country, I believe that our individual rights exist by the very fact of
our existance as thinking human beings, and that these rights are not the gift of kings or
congressmen. Rights do not flow to us from government, but in fact governments are formed
by men as an artificial construct to help us protect those rights, and well-constructed
governments, like ours, are carefully limited in their powers to avoid stifling the rights we have
inherently as human beings.
Do you see where this is going? The individual rights we hold dear are our rights as human
beings, NOT as citizens. They flow from our very existence, not from our government. As
human beings, we have the right to assemble with whomever we want and to speak our
minds. We have the right to live free of force or physical coercion from other men. We have
the right to make mutually beneficial arrangements with other men, arrangements that might
involve exchanging goods, purchasing shelter, or paying another man an agreed upon rate for
his work. We have these rights and more in nature, and have therefore chosen to form
governments not to be the source of these rights (for they already existed in advance of
governments) but to provide protection of these rights against other men who might try to
violate these rights through force or fraud.
These rights of speech and assembly and commerce and property shouldn't, therefore, be
contingent on "citizenship". I should be able, equally, to contract for service from David in
New Jersey or Lars in Sweden. David or Lars, who are equally human beings, have the equal
right to buy my property, if we can agree to terms. If he wants to get away from cold winters
in Sweden, Lars can contract with a private airline to fly here, contract with another person to
rent an apartment or buy housing, contract with a third person to provide his services in
exchange for wages. But Lars can't do all these things today, and is excluded from these
transactions just because he was born over some geographic line? To say that Lars or any other
"foreign" resident has less of a right to engage in these decisions, behaviors, and transactions
than a person born in the US is to imply that the US government is somehow the source of the
right to pursue these activities, WHICH IT IS NOT.
Disclosure: A number of my great-grandparents were immigrants from Germany. When they came over,
most were poor, uneducated, unskilled and could not speak English. Several never learned to speak
English. Many came over and initially took agricultural jobs and other low-skilled work. Because the new

Coyote Blog, Year Two Archives, Volume Two / 11
country was intimidating to them, they tended to gather together in heavily German neighborhoods and
small towns. Now, of course, this description makes them totally different from most immigrants today
that we want to shut the door on because um, because, uh Help me out, because why?
PS - And please don't give me the "government's job is defend the borders" argument. Government's job is
to defend its people, which only occasionally in cases of direct attack involves defending the borders. I am
sick of the rhetorical trick of taking people like the "minutemen" and describing them as patriots defending
the border, when this nomenclature just serves to hide the fact that these folks are bravely stopping
unarmed human beings from seeking employment or reuniting with their families. And I will absolutely
guarantee that the borders will be easier to patrol against real criminals and terrorists sneaking in when the
background noise of millions of peaceful and non-threatening people are removed from the picture and
routed through legal border crossings.
Posted on April 5, 2006 at 12:12 AM
Massachusetts Insurance Fiasco
Insurance legislation passed in Massachusetts:
The bill requires that, as of July 1, 2007, all residents of the Commonwealth must obtain flood
insurance coverage, even if they don't live in a flood plain The purpose of this “Individual
Mandate” is to strengthen and stabilize the functioning of flood insurance risk pools by making
sure they include people outside of flood plains with no flood risk as well as people who know
they live in a flood plain.
What? We have to get insurance, even if we think there is no risk and the insurance is just wasted money?
Yes indeed, that is correct. Well, almost correct. I changed a few words. The actual wording of the bill,
sent to me by reader L Cole, mandates unwanted health insurance rather than unwanted flood insurance:
The bill requires that, as of July 1, 2007, all residents of the Commonwealth must obtain health
insurance coverage The purpose of this “Individual Mandate” is to strengthen and stabilize
the functioning of health insurance risk pools by making sure they include healthy people
(who, if not offered employer-sponsored and -paid insurance, are more likely to take the risk of
not having insurance) as well as people who know they need regular health care services.
More from Bloomberg.
For years I have criticized the argument which says that the problem with the health care system is that

there are too many uninsured people. My argument was always that there were many people who choose
to self-insure, and that the real "problem," if there is one, is how many people there are who need care but
can't get it (a much much smaller number that is never discussed). Just look at the attached bill - the
justification is that there are people uninsured, not that there are people unserved. Now we can see the
end result: Instead of fixing the actual problem, which is people who need care not getting it, they fix the
problem as it was discussed: they literally forced people to get health insurance, even if they don't want or
need it. Now some elected weenie can say "in Massachusetts, we have licked the problem of people
without health insurance." Reminds me of this Rush song.
Like many parallel bills proposed in other states, this one requires businesses to provide health insurance
or to pay into a state fund if they don't. But the bill also has this scary provision:
12 / Warren Meyer
The Free Rider surcharge will be imposed on employers who do not provide health insurance
and whose employees use free care. Imposition of the surcharge will be triggered when an
employee receives free care more than three times, or a company has five or more instances of
employees receiving free care in a year.
First, as an employer, why am I a free rider? It is not me that received any free services or care. My
employees medical problem is not my fault (or else it would be workers comp). If I hire someone that
takes advantage of government loans to send their kids to college, am I a free rider? If my employees
choose subsidized mass transportation over driving their own cars, am I a free rider?
Second, I sure hope all you poorer folks with health problems understand that it is now going to be really
hard to find a job in Massachusetts. No employer in their right mind is going to hire someone who may
trigger this liability. This provision would be a disaster for our company, since we tend to hire older
retired people (with lots of health problems) for seasonal work (for which it is impossible to structure a
health insurance plan). Fortunately, I guess, Massachusetts is one of the states our company red-lined
years ago as a place we will never do business, so this does not change our strategy much.
I have no idea what this will cost taxpayers and businesses in Mass., but I am positive it is substantially
more than the bill's sponsors have let on. And there is a lot of hand-waving going on by supporters who
insist that this bill will drive premium costs way down that strikes me as bullshit as well.
Update: This article in Business Week provides some insight into the 500,000 uninsured in Mass.
Supporters of the bill claim that 100,000 of these are poor people who qualify for Medicare but haven't

bothered to sign up. 200,000 are higher income folks who could afford insurance but choose not to buy it.
The other 200,000 are people they claim can't afford it, but surely even if they could, some portion would
choose not to buy it. So by the admission of the bill's supporters, at least 60% and probably more of the
uninsured are that way because they choose to be. Lets come up with a costly socialization of the medical
industry in order to force on people something they don't necessarily want or need.
Posted on April 5, 2006 at 12:54 PM
What 6th Amendment?
I have written several times on prosecutorial abuse, most recently in this post on the Justice Department's
current practice of forcing companies to waive attorney-client privilege and punishing companies that help
their employees seek legal council.
The WSJ($) editorializes about a recent division by Judge Lewis Kaplan in the KPMG trial.
Those steps were extraordinary in their attempt to pressure corporate executives: They include
waiving attorney-client privilege to give investigators access to internal documents and cutting
off accused employees from legal and other forms of support. In short, the Thompson memo
said that companies under investigation are expected to surrender any right against self-
incrimination and cut their accused employees adrift.
In one sense, the memo's guidelines are just that internal guidelines for prosecutors. But as a
practical matter, only a rare CEO will risk the death sentence that a corporate indictment
represents. So "cooperation" as defined by Justice is hardly optional. It was on this point that
Judge Kaplan took Assistant U.S. Attorney Justin Weddle to task last week. When Judge
Kaplan questioned the fairness of pressuring companies to throw their employees overboard,
Coyote Blog, Year Two Archives, Volume Two / 13
Mr. Weddle replied that companies are "free to say, 'We're not going to cooperate.'"
"That's lame," the judge retorted. He then asked Mr. Weddle "what legitimate purpose" was
served by insisting that companies cut their former employees off from legal support.
Companies under investigation, Judge Kaplan noted, ought to be free to decide whether to
support their employees or former employees without Justice's "thumb on the scale."
Mr. Weddle replied that paying the legal fees of former employees charged with crimes
amounted to protecting "wrongdoers." This prompted the judge to remind the young
prosecutor that the accused are still innocent until proven guilty. He also reminded Mr.

Weddle that the Constitution's Sixth Amendment guarantees the right to counsel. And for good
measure, if the government is confident in its case, it shouldn't be afraid to allow "wrongdoers"
access to an adequate defense.
Its good to see these practices starting to get some judicial scrutiny. There is unfortunately no real political
constituency in this country to get worked up about this kind of stuff. Left-leaning groups tend to be the
first to challenge police and prosecutorial abuses of power, but have little interest in doing so when the
target (ie corporations) is someone they have no ideological sympathy for. And right-leaning groups tend
to be strong law-and-order types that feel the need to go out of their way to be tough on recent corporate
transgressors to avoid the accusation that they are in bed politically with white collar criminals.

Posted on April 6, 2006 at 08:50 AM
Damages and Double Jeopardy
I saw the other day that Merck lost another Vioxx trial, with the jury awarding $4.5 million to a man who
had a heart attack after taking Vioxx. I won't get into my problems with this type of litigation today, but I
did in many other posts like this one (and this and this).
My question today revolves around the fact that this trial is now going into the punitive damages phase,
where the jury will decide if Merck owes more money as a punishment not narrowly for this man's heart
attack (for which they are paying $4.5 million) but more generally for Merck's actions in bringing the drug
to market at all.
Here's the problem: A jury in Texas already hit Merck with $259 million in punitive damages*. This
number was based on a lot of testimony about Merck's sales and profits from Vioxx, so it was presumably
aimed at punishing Merck for "errors" in their whole Vioxx program. So if that is the case, how can Merck
end up facing a jury again coming up with a separate punitive damage award for the same "crime"? Sure,
it makes sense that Merck can owe actual damages to individual claimants in trial after trial. But how can
they owe punitive damages for the whole Vioxx program over and over again? Aren't they being
punished over and over for the same misdeed, violating their Constitutional protection against double
jeopardy?
I'm not sure what the solution is. One approach, of course, would be to say that punitive damages can
only be awarded once, which would effectively mean they would go to the first plaintiff to win his case. I
am not sure this makes a lot of sense from a public policy point of view, but it would be highly entertaining

to watch tort lawyers knocking themselves over and maneuvering to be the first verdict, knowing that if
14 / Warren Meyer
they are first,they would get 30% of hundreds of millions of dollars but if they are second they get 30% of
much much less, since punitive damages are always far larger than actual damages.
*Under Texas law, this amount will likely be reduced, but it doesn't change the fact of double jeopardy
Posted on April 6, 2006 at 09:21 AM
More on Massachusetts Health Insurance
I loved this email received at Maggie's Farm:
What are you guys smoking over there? Here I am in Massachusetts, without health insurance,
and with a family of four, and all that has happened is on top of having to pay full freight for
my family's doctor bills, I get fined $1000.00 for the privelege.
I don't want your stinking welfare greenstamp department of motor vehicle government cheese
copay paperwork foodstamp prepaid doctor tax charity ward let a million flowers bloom
supervision of my family's medical situation, thank you very much.
Catastrophic medical insurance is currently illegal in Massachusetts. All they had to do is allow
me to purchase what I could get if I lived 50 miles west, which is REAL LIVE INSURANCE,
that is, they would pay if something unexpected, substantial, and expensive happened. And it
would cost me a couple hundred bucks a month. But no, I have to pay full freight for every
lamebrain thing that every knucklehead who has a job with benefits wants tax free, like gym
memberships and aromatherapy and acupuncture and reiki massage and "mental health," ie,
I'm a miserable failure as a human being and I want to talk to another miserable failure that
went to community college for psychology about it, at great expense. Oh, yes, let's not forget all
middle age men that need free blue pills because what a mean spirited thing it would be [if]
middle age men didn't wander the earth with extra free hardons.
And so "insurance" becomes paying in advance for others to get what they don't need or
deserve, to the point where "Insurance" costs 1200 a month and if something catastrophic did
happen, would bankrupt me anyway, because instead of paying $50 for an office visit for an
imaginary ailment, but having a real catastrophe paid for, the powers that be would prefer
paying $5 dollars copay for an office visit to their yogurt enema wellness healer, but have to
chip in 20% for cancer therapy, which would bankrupt anybody that has to worry about the

cost of health insurance in the first place.
ROFL. I too am a big believer in catastrophic health insurance. My home insurance does not cover broken
light bulbs and leaky plumbing. My car insurance does not cover air filters. Why does my health
insurance have to cover routine stuff? I pay for my own health care and this is exactly how my family
handles both dental and medical: We pay regular visits but have catastrophic coverage for major health
breakdowns.
Jeez, I wish I had written that email and could take credit for it. The blog does not reveal the emailer's
identity, but whoever you are you're welcome to guest blog here any time.
Update: About a year ago, my family of four was quoted about $650 a month for the type of full (not
Coyote Blog, Year Two Archives, Volume Two / 15
catastrophic) medical insurance that the state of Mass. is requiring. This is about $8000 a year. This strikes
me as by far the most expensive item that any US government has required its citizens to purchase, and
given the average GDP of most nations, may be the most expensive item any government in history has required
all of its citizens to purchase. Up to this point, many municipalities have shied away from requiring purchase
of $40 smoke detectors. The only thing that is even within an order of magnitude of this is perhaps car
insurance, but even car insurance is not required of every citizen, just the ones with cars (don't laugh, if car
insurance laws followed the same logic as this health insurance bill, not having a car would not be a legal
excuse for not having auto insurance.)
Update 2: I am sure I will get the response, "but the supporters promise that the bill will halve the cost of
private health insurance. Right. Here is a clue: Except for the reform plan in California pushed by Gov.
Arnold, every single state attempt to "reform" workers comp. has resulted in my premiums going up. I am
sure we are all holding our breath for the price drop in passenger rail service and first class mail.
This plan removes the last people from the market who are price sensitive shoppers of individual medical
services (i.e. those who pay expenses out of pocket rather than having them covered by medical
insurance). If you drive down the marginal cost to all consumers to the level of the copay from the much
higher true-cost of the procedure, then you are going to get a lot more use of all medical procedures.
Higher use = higher cost. Higher cost = higher premiums, even when spread over more people.
I am constantly stunned that this concept has to be explained to people. Let's consider a test that costs
$1000 to administer that can detect a very rare type of cancer that only occurs in 1 in 100,000 people. Well,
if they charged you anywhere near the $1000 cost, few people would choose to pay for a test to identify

something so low-risk. But if you could take the test for a $20 copay? Sure doc, let's do it! So the
insurance pool has to fork over $1000 for a procedure that you might only value at $20. Also see this post
for more along the same lines. And here too.
Posted on April 7, 2006 at 04:42 PM
Don't Fix Immigration, Fix the Welfare State
Brian Doherty of Reason observes:
The solution to the legal crisis immigration represents won't come through immigration law
itself, which again and again has proven itself useless at fully stemming the irresistible tides of
human desire for a better life. No matter how much money is spent or how the law is jiggered,
it is not immigration policy that has created unnecessary tears and strains in America's social
order. Rather, the welfare state is at the root of any legitimate claim that immigration (legal or
illegal) is an assault on the American nation. (There are plenty of illegitimate complaints, based
merely on distaste for the often-imaginary hell of running into Spanish-speaking people in day-
to-day life or seeing some flag not of your nation, but such complaints are not worthy of
consideration.)
The free market, as it usually does, has created a system of mutually satisfactory
interdependence, all of us serving each other and helping each other get what we want. The
welfare state, in all its manifestations from medical care to schooling to pure giveaways, creates
a negative sum game in which resources are forcibly redistributed making some a problem, or
a perceived potential problem, to others, and allowing demagogues to obsess over precious
16 / Warren Meyer
"public" resources scarfed up by the invading Other.
As long as that system is around to breed resentment and anger—as well as counter-
resentment and counter-anger such as that seen in the streets of L.A. of late—immigration will
continue as a political crisis, no matter how many repeat cycles of jiggering with immigration
law, or protesting it, we go through.
California's Proposition 187, attempting to limit the provision of government services to illegal
immigrants, was indeed, whatever the motives of its supporters, in spirit on the right track to a
world where any immigrant ought to be, and can be, welcome; one where they are pure
contributors at the same time to their own well-being and to everyone else's as well. It's the

only permanent and just solution to the immigration conundrum. But it involves a significant
reduction in federal power, money, and authority, rather than an expansion of it. Strangely, it's
a no-go in today's Washington.
I wrote a similar essay on how the New Deal changed our views on immigration.
Posted on April 8, 2006 at 08:15 AM
My Worst Vendor Guess Who?
Every small business probably has stories about vendors who are particularly difficult to work with. Let
me describe my most difficult and irritating vendor, someone who sells me products that we resell in our
stores:
• Most vendors try to set your retail price for you, but are seldom successful. Only in countries like
Germany that make retail discounting illegal are such attempts universally successful. However,
this one vendor is always successful at setting my retail price.
• Most vendors allow me a retail gross margin of at least 30-50% of sales to help me to make money
on the sale of their product. They like me to make money, since that gives me the incentive to sell
more of their product. However, this one particular vendor only allows me a 5% gross margin.
Ironically, this products is on of the most difficult and time-consuming for our stores to sell,
requiring ten minutes of sales time to gather all the necessary customer information and complete
the transaction. Every single one we sell is a dead loss to us.
• Every small business has some vendors it struggles with on credit terms. I usually have to fill out a
detailed credit application, and as the owner have to personally guarantee the company's payment
on the account. Sometimes vendors will require a few orders be consummated COD so we can
develop a history before they will go to a 30-day invoicing approach. However, this particular
vendor goes even further. I had to set up a dedicated bank account into which I deposit funds for
this vendors products every week. In addition, I had to obtain a $4000 bond to cover any non-
payment in the account, and I have to hold the bond as long as I want to do business with this
vendor in other words, there is no credit given for a long track record of performance on the
account.
• This particular vendor has an "in" with the State of Colorado, which protects it by allowing no other
competitive product to be sold in the state.
Give up? Well, most of you have probably guessed that this vendor is the government! Or specifically,

Coyote Blog, Year Two Archives, Volume Two / 17
the Colorado Department of Wildlife and the specific product discussed is fishing licenses. That is why
this particular vendor can get away with practices that no company that actually has to compete in the
market place would ever attempt, and, in a couple of cases, gets aways with practices that would be illegal
for a private company.
When I bought this company, we used to sell fishing licenses at many of our locations. I have pared this
down to only the bare minimum number of locations, like marinas, where customers absolutely expect me
to be able to sell them a license.
Posted on April 8, 2006 at 08:36 AM
Maybe It's Just Too Complicated
The US Congress is considering a federal licensing requirement for all paid tax preparers. Apparently,
even most paid preparers can't get the returns correct:
The senators heard from investigators at the Government Accountability Office, who found
mistakes in virtually every tax return filled out by commercial chain preparers. The
investigators said they looked at a tiny number of tax returns, and that their conclusions could
not be generalized to the rest of the tax preparation industry.
You know why? Because I would bet you that the same amount of scrutiny could find errors in every
single return submitted. There is just no way to get it all right. How about, you know, actually spending
some time in Congress making the return easy enough that individuals don't feel the need to seek out paid
preparers. Of course, the real reason for this initiative is that higher-dollar CPA firms and large accounting
firms would like Congress to sit on its low-price competition (note that only chain-type firms were
investigated). As Milton Freedman pointed out long ago about licensing:
The justification offered is always the same: to protect the consumer. However, the reason is
demonstrated by observing who lobbies at the state legislature for the imposition or
strengthening of licensure. The lobbyists are invariably representatives of the occupation in
question rather than of the customers. True enough, plumbers presumably know better than
anyone else what their customers need to be protected against. However, it is hard to regard
altruistic concern for their customers as the primary motive behind their determined efforts to
get legal power to decide who may be a plumber.
Of course, the last paragraph of the article demonstrates there is already a solution in place for poor tax

preparer service:
Had the IRS found these problems on real returns, many preparers would have been subject to
penalties for negligence and willful or reckless disregard of tax rules
So why is licensing needed at all?
Posted on April 11, 2006 at 09:14 AM
18 / Warren Meyer
Punish the Victims
In Florida, where there seems to be a substantial problem with people stealing property in the form of
shopping carts from local merchants, the government has a solution: Fine the victims.
In theory, stealing a shopping cart is punishable by up to 60 days in jail and a $500 fine. But
police rarely catch anyone in the act.
So local governments across the state are tackling the battle in other ways, typically requiring
stores to keep carts in the parking lot or pay a fine.
Hallandale Beach recently updated its laws requiring stores to create plans for keeping carts on
their property. Stores bigger than 35,000 square feet, about the size of many grocery stores, can
be required to install theft-prevention devices Installation costs $20,000 to $30,000, Miller
said
But retailers are fighting back. The way they see it, the rules are blaming the victim punishing
stores for other people's stealing.
Thanks to Bob Houk for the link.
Posted on April 11, 2006 at 09:46 PM
Limiting Free Speech Unifies Congress
Anyone who actually believed that McCain-Feingold was about cleaning up politics rather than just
protecting incumbent political jobs can now disabuse themselves of that notion. It has become clear that
election finance laws are pure Machiavellian politics, passed by those who think it will work to their
benefit (ie help them in the next election) and opposed by those who think they will be hurt by it. Principle
almost never plays a part any more.
On April 5, House Republicans voted to limit the speech of 527 groups, who up until now were exempt
from McCain-Feingold speech restrictions. Republicans generally supported the restrictions, despite years
of saying that money does not tarnish politics, because, well because Democrats were better last election

than Republicans at raising money via 527's. Democrats, who historically as a party have supported
campaign finance and speech restrictions and eagerly voted for McCain-Feingold, oppose the legislation
for no principled reason except that 527's are working for them. Democrats will therefore likely prevent
this bill from passing the Senate.
George Will has a nice column lambasting the Republican Congress:
If in November Republicans lose control of the House of Representatives, April 5 should be
remembered as the day they demonstrated that they earned defeat. Traducing the Constitution
and disgracing conservatism, they used their power for their only remaining purpose to cling
to power. Their vote to restrict freedom of speech came just as the GOP's conservative base is
coming to the conclusion that House Republicans are not worth working for in October or
venturing out to vote for in November.
Coyote Blog, Year Two Archives, Volume Two / 19
The "problem" Republicans addressed is that in 2004 Democrats were more successful than
Republicans in using so-called 527 organizations advocacy groups named after the tax code
provision governing them. In 2002 Congress passed the McCain-Feingold legislation banning
large "soft money" contributions for parties money for issue-advocacy and organizational
activities, not for candidates. In 2004, to the surprise of no sensible person and most McCain-
Feingold supporters, much of the money especially huge contributions from rich liberals
was diverted to 527s. So on April 5, House Republicans, easily jettisoning what little remains of
their ballast of belief in freedom and limited government, voted to severely limit the amounts
that can be given to 527s.
He captures a priceless quote that gets at the heart of why Congressional incumbents love these campaign
finance laws:
Candice Miller (R-Mich.) said that restricting 527s would combat "nauseating ugliness,
negativity and hyperpartisanship." Oh, so that is what the First Amendment means: Congress
shall make no law abridging freedom of speech unless speech annoys politicians.
Props, by the way, to my Representative John Shadegg for his no vote, as well as to my favorite
Congressman Jeff Flake, who voted no as well.
Posted on April 16, 2006 at 06:42 PM
I'll Take That Tinfoil Hat Now

I think it was George Carlin (?) who used to ask "Do you know what the worst thing is that can happen
when you smoke marijuana?" His answer was "Get sent to prison". The implication, which I have always
agreed with for most drug use, was that it is insane as a society to try to save someone from doing
something bad to himself by doing something worse to him.
I think of this whenever I get in a discussion about security responses to 9/11. The worst thing that can
happen to this country as a whole (as differentiated of course from the individual victims of 9/11) is to turn
the country into a police state to combat potential future terrorist actions. I personally would greatly
prefer to live with a 1 in 100,000 chance of being the victim of terrorism than find myself living in an
America that has abandoned its constitution. I wrote more on this topic here.
To this end, though I tend to be slow to believe these type of stories, this one (via Reason) about domestic
NSA wiretapping is pretty frightening:
AT&T provided National Security Agency eavesdroppers with full access to its customers'
phone calls, and shunted its customers' internet traffic to data-mining equipment installed in a
secret room in its San Francisco switching center, according to a former AT&T worker
cooperating in the Electronic Frontier Foundation's lawsuit against the company
The source is just one low-level guy, so this story is still pretty soft. I hope the investigation is allowed to
play out.
Posted on April 16, 2006 at 07:01 PM
20 / Warren Meyer
Great Example of Zero-Sum Thinking
In perhaps the best example I have seen since Paul Ehrlich of zero-sum thinking, junkscience.com links to
this article at the BBC:
A study by the New Economics Foundation (Nef) and the Open University says 16 April is the
day when the nation goes into "ecological debt" this year.
It warns if annual global consumption levels matched the UK's, it would take 3.1 Earths to meet
the demand.
How many times does this sort of stuff have to be wrong before it stops getting printed by "science writers"
in the media. Malthus made the same argument over a century ago, and Ehrlich has been making one bad
prediction after another along these lines since the late 60's The report relies on this concept:
The findings are based on the concept of "ecological footprints", a system of measuring how

much land and water a human population needs to produce the resources it consumes and
absorb the resulting waste.
Of course, no one mentions that this "ecological footprint" number has changed dramatically with
technology, not only in the last 200 years but even in the last 30. For example, total US Farm acreage has
fallen for the last fifty years, while agricultural production has grown between two and five times in the
same period. Its a stupid, meaningless analysis that says that if nothing else changed, and suddenly
consumption went up, there would be a crisis. It relies on the lack of imagination of both the authors (and
to an extent, the audience), arguing that since they can't think of any way to grow production any further,
it must not be possible. I can just picture these guys as prehistoric man sitting in a cave making the same
pronouncements of disaster for the species, all while their peers are busy outside playing with bone tools
under the big black monolith.
More on the zero-sum fallacy here.

Posted on April 17, 2006 at 02:05 PM
The Peak Whale Theory
After reading this article on the earth running out of resources, I discovered another article from the
archives of the Coyote Broadsheet, a predecessor of this blog written by one of my distant relatives, dated
April 17, 1870:
As the US Population reaches toward the astronomical total of 40 million persons, we are
reaching the limits of the number of people this earth can support. If one were to extrapolate
current population growth rates, this country in a hundred years could have over 250 million
people in it! Now of course, that figure is impossible - the farmland of this country couldn't
possibly support even half this number. But it is interesting to consider the environmental
consequences.
Coyote Blog, Year Two Archives, Volume Two / 21
Take the issue of transportation. Currently there are over 11 million horses in this country, the
feeding and care of which constitute a significant part of our economy. A population of 250
million would imply the need for nearly 70 million horses in this country, and this is even
before one considers the fact that "horse intensity", or the average number of horses per family,
has been increasing steadily over the last several decades. It is not unreasonable, therefore, to

assume that so many people might need 100 million horses to fulfill all their transportation
needs. There is just no way this admittedly bountiful nation could support 100 million horses.
The disposal of their manure alone would create an environmental problem of unprecedented
magnitude.
Or, take the case of illuminant. As the population grows, the demand for illuminant should
grow at least as quickly. However, whale catches and therefore whale oil supply has leveled
off of late, such that many are talking about the "peak whale" phenomena, which refers to the
theory that whale oil production may have already passed its peak. 250 million people would
use up the entire supply of the world's whales four or five times over, leaving none for poorer
nations of the world.
Too bad Julian Simon wasn't around to make a bet on whale oil prices.
Posted on April 18, 2006 at 08:56 AM
Employment Opportunities
The Phoenix-based Goldwater Institute is looking for a Director of Administration and a Director of
Development. If you have always wanted to convert your desire for small government into a paying job,
this might be your chance. From their web site:
The Goldwater Institute was founded in 1988 by a small group of entrepreneurial Arizonans
with the blessing of Sen. Barry Goldwater. Like our namesake, the Goldwater Institute board
and staff share a belief in the innate dignity of individual human beings, that America is a
nation that grew great through the initiative and ambition of regular men and women, and,
that while the legitimate functions of government are conducive to freedom, unrestrained
government has proved to be a chief instrument in history for thwarting individual liberty.
Through research and education, the Goldwater Institute works to broaden the parameters of
policy discussions to allow consideration of policies consistent with the founding principles of
free societies
With the legislature introducing thousands of new bills every year, it’s nearly impossible for
the average person to know when or where his liberties are threatened, much less do anything
about it. The Goldwater Institute works on behalf of Arizonans to keep watch on government
and to expand school choice, restore economic liberty, protect private property, and affirm
Arizona’s independence against unconstitutional federal encroachments.

Posted on April 18, 2006 at 09:58 AM
22 / Warren Meyer
Vioxx and Merck Lose Again
Vioxx went to 3 for 6 in jury verdicts today as Merck lost a case in Texas (WSJ $). Merck got hit with $7
million in damages plus $25 million in punitive damages, presumably since Merck was so clearly at fault
as to be considered to have acted recklessly. With that in mind, consider a couple of facts in the case: First,
the plaintiff
died of a heart attack after taking Vioxx for less than a month.
I know what you are thinking. How, after less than a month of use (and maybe as little as a week), could
any plaintiff prove their heart attack was from Vioxx? I mean, out of the thousands of people who took
Vioxx, some statistically were due for a heart attack even had they not taken the drug. Having one event
(the heart attack) follow another (Vioxx use) does not prove causation, after all. I guess the jury decided
that this guy was not at risk for a heart attack otherwise. Of course, they admitted that:
Mr. Garza, a Vietnam veteran who was 71 years old when he died in 2001, had a history of
smoking, had suffered a prior heart attack in 1981 and had quadruple bypass surgery in 1985.
But I'm sure that had no bearing on his heart attack. It must have been from the week of Vioxx. His
lawyers mitigated this by arguing:
he had a stress test shortly before his heart attack that showed he was in good health
Do you know how many men die of heart attacks within months of having a clean stress test? A lot.
The plaintiffs initially asked for a billion dollars, so I guess if only by comparison the verdict was
reasonable. I wrote more about the danger of making uninformed juries the arbiter of what risk trade-offs
we as individuals can take with our medications here and here and here. I questioned multiple punitive
damage awards for the same offense in the context of double jeopardy here.
Posted on April 21, 2006 at 08:22 PM
I'll Try Again Why The Trade Deficit is Not a Debt
After spending gobs of electrons on this post about the US trade deficit explaining why it is not a debt, and
is not even necessarily bad, I got a depressing number of comments and emails like this one:
The trade deficit is a debt. We cannot get the dollars back we have spendt unless we export to
get them back. It is called an external debt for a reason. It is called a current account debto for a
reason.

Aaaaargh. It is depressing that we can get such economic ignorance, particularly in a self-righteous way.
The crappy media coverage of these issues has people convinced that it just has to be this big old debt out
there someone is going to have to repay someday.
OK, I will try again. But in response to this specific post, it is only called "external debt" or "current
account debt" rather than "deficit" by really, really sloppy media people who have no idea what they are
talking about (unfortunately, there are a lot of these). And a deficit is not a debt, though it can sometimes
create a debt.
Coyote Blog, Year Two Archives, Volume Two / 23
I try to be very respectful of my readers. I never delete a comment, unless it is spam/bot stuff or in a few
cases where commenters have asked me to. So it is only with the deepest respect that I say the following:
Please do not bother to comment on this post if a) you do not understand the difference between the federal
government deficit and the trade deficit and/or b) you do not understand the difference between an account deficit and
a debt. Seriously. Just take my word for it that you need to educate yourself a bit first, and then feel free to
leap into the debate. (Update: This was a poor tone to adopt, see here).
First, A Thought Experiment
This is not meant to constitute proof, but for those who are concerned that the trade deficit is potentially
disastrous for our economy, I can only ask, When? Because we have been running a substantial trade
deficit as a nation for over a quarter of a century, and by all accounts, over that same time period, we have
had just about the strongest economy in the world. In fact, I would propose that the causation is more
likely just the reverse. Because we have had a strong economy, with extraordinary wealth creation, we
have taken some of that wealth and spent it on goods from other nations. And because we have the safest
nation in the world in which to invest, demand for our local investments tends to shift exchange rates in a
way that increase the trade deficit.
In the late 80's and early 90's, everyone was in a panic about Japan. We were running a massive trade
imbalance with Japan. They were going to buy all of our real estate. Their government was tipping the
scales in their own favor. They were purposefully depressing the yen to encourage exports. Blah, blah, etc,
etc. And you know what happened? They subsequently went into a decade and a half long recession they
are only just now climbing out of, and we had one of the strongest economies in history.
How do the Dollars Get Back?
With a couple of exceptions that don't really change our conclusions, dollars do follow a closed loop. In

other words, if we send them to China or India, they generally eventually come back. The question is
how. To understand this, it is first important to understand that the balance of trade deficit only measures
some monetary flows. In particular, it looks at the balance between manufactured goods traveling
between two countries. If the US has a $20 billion trade deficit with China, it means that they shipped $20
billion more of manufactured goods to us than we shipped back to them. It includes some but not all
services. It does not include goods or securities or investments purchased by foreigners that remain on US
soil.
To understand how the dollars come back from China in a closed loop is to, in a sense, ask the question of
what monetary flows are not included in the trade deficit. If we have a trade deficit with China, there are a
number of things it can do with its extra dollars:
1. It can do nothing with them - just hold them in a big pile
2. It can lend the money to people buying their products
3. It can buy certain US services
4. It can buy US goods, but not take them out of the US
5. It can buy US public and private securities and real estate
Lets look at each in turn
1. China can do nothing with them - just hold them in a big pile
Two words: In-Sane. By just holding them, they would effectively be sticking them in a mattress and
foregoing any interest or investment income. It's just not going to happen. And don't say, well they could
just put the dollars in a Chinese bank. Fine, but the only way the Chinese bank is going to pay interest on
24 / Warren Meyer
dollars in the bank is if they turn around and invest the dollars in dollar-denominated investments. One
way or the other, the money, if it does not buy anything else, will get invested, which we will deal with in
point 5.
I know there are paranoiacs that worry that the Chinese, despite the financial disincentives, will hold these
dollars anyway in a big vault or something out of spite. Gee, hurt me, hurt me. Holding our dollars in a
big mattress in Peking does nothing to hurt us. And dumping them all on the market simultaneously may
sound scary to conspiracy theorists, but in practice it would hurt them worse than it would hurt us, and
the pain would be relatively short-lived (just ask the Hunt brothers about this strategy).
2. China can lend the money to people buying their products

I suppose that for those who don't get the federal deficit and the trade deficit mixed up, this is what they
assume is happening, that Americans are borrowing from the Chinese to finance manufactured goods
purchases. The only problem is that it is not happening, at least to a greater extent than any normal
purchase-financing arrangements. Take corporations such as Wal-mart, a huge buyer of Chinese stuff. Is
Wal-Mart going into debt to buy Chinese stuff? No, and certainly not to the Chinese.
Well, are individual Americans going into debt to buy Chinese. Maybe, but the key point is that they are
not going into debt because what they are buying is Chinese. They are going into debt because Americans,
for whatever reason good or bad, are saving less and choosing to buy more on credit. This would be
happening if what they were buying was Chinese or American made. In other words, American
consumers may have debt, but that debt would exist even if we had no trade deficit with China. It is a
personal choice people are making that has no relation to the source of goods.
3. China can buy certain US services
Note that many US services are not included in the trade deficit calculations. If Chinese companies engage
McKinsey & Co. consultants in the US to figure out how to sell more stuff to Wal-mart, those payments for
services are probably bringing dollars back to the US from China, but aren't included in the trade
calculations. This really is just a subset of point four:
4. China can buy US goods, but not take them out of the US
Many, many of the dollars the Chinese end up with come back to us in this way. As did many of the
dollars the Japanese had in the eighties. If a Chinese company uses dollars not to buy US goods and take
them back to China, but buy them and consume them in the US, then this does not show up in the trade
numbers. Chinese and Japanese companies bring their US dollars to the US to build factories and
infrastructure. This is sometimes why it is said that the trade deficit is not a measure of differences in cash
flows, but of a difference in where goods are consumed.
If you flip the equation around, the Chinese have a wicked balance of stuff deficit. They are sending a lot
more manufactured goods to the US than they get back. I could argue that Chinese workers are getting
hosed, since they only get to enjoy a fraction of the goods they produce for themselves, since a large
portion of the product of their labor is sent overseas for others to enjoy. Hmmm, doesn't sound so bad that
way.
5. China can buy US public and private securities and real estate
Of course, what happens with a lot of the US dollars the Chinese find themselves with is that these dollars

get invested in US investment vehicles, from real estate to government bonds to private equities. There are
Coyote Blog, Year Two Archives, Volume Two / 25
several points that need to be made here:
a. Just Because Chinese invest in US Government Bonds does not make them or the balance of trade
responsible for this debt
As I intimated above, a lot of people get the US federal budget deficit confused with the trade deficit.
Making this confusion worse, the Chinese use a lot of the dollars they earn in trade to buy US Government
Bonds that help finance the federal budget deficit. Now, by buying a lot of government bonds, one might
argue that the Chinese lower interest rates and make government borrowing easier, thus making the
federal budget deficit worse since there is a ready source of debt financing.
While there may be a link here, it is tenuous at best. If the government was a private company, then its
borrowing level might rationally fluctuate up and down based on interest rates and capital availability.
But the US Government is not this rational. It runs a budget deficit primarily because legislators and
bureaucrats alike have the incentive to spend other people's money to protect their jobs and power base.
This happens equally at 3% interest rates and 9% interest rates. It happens equally if guys from Peking or
Omaha are buying government bonds. In fact, one could argue that Chinese reinvestment of their trade
dollars in US securities actually marginally reduces the government debt by reducing interest costs.
This same argument holds equally true for Chinese investments in private debt. Chinese dollars may
increase borrowing slightly, but only because the influx of their cash reduces borrowing costs.
b. Chinese Ownership of US Assets is GOOD
In the Japanese scare of the 1980's, everyone was freaked out that the Japanese were buying up American
assets and real estate. During that time, while I almost never play the race card, it was almost impossible
not to come to the conclusion that some racism had to be involved in this fear. America had welcomed, in
fact, had prospered, via foreign investment for years. For a century, the US has been the safest place for
foreigners to put their money,something we should be proud of A sign of strength, not weakness.
But suddenly, everything was different because the new buyers were Japanese. Note the following:
Despite the notoriety of Japanese investors, the British have the largest U.S. direct investment
holding—with the Dutch not far behind—as has been the case since colonial times. In 1990 the
United Kingdom held about 27 percent of foreign direct investment in the United States,
significantly greater than Japan's 21 percent. The European Economic Community (EC)

collectively holds about 57 percent. Moreover, according to research by Eric Rosengren,
between 1978 and 1987, Japanese investors acquired only 94 U.S. companies, putting them fifth
behind the British (640), Canadians (435), Germans (150), and French (113).
But no one was complaining about the British, Canadians, Germans, or French. Only the Japanese. I have
to come to the conclusion that there was some racism involved, with the same primal fears at work that
caused us to ship US citizens of Japanese decent off to concentration camps in WWII but we did not do the
same of citizens of German or Italian decent. And in this case, it could not have been security concerns.
Since 1945, Japan is one of the most pacifistic nations in the world- we probably face a bigger security
threat from Belgium than we do from Japan.
I get the same feeling today with the China panic that I did twenty years ago with Japan. Its a race and a
culture we don't understand well, so we get xenophobic. People lament that China is a real security threat,
and that certainly is true to an extent. But ask yourself this - Is China more or less of a threat to hurt us if
their economy, their financial prosperity, and most of their assets are tied to the US? Is China more or less