For the sake of a less balkanized open internet, it is time to reinterpret the Tenth Amendment

A number of states have taken it upon themselves to either implement their own net neutrality rules or issue executive orders requiring that broadband access providers servicing their states follow practices that prohibit throttling of data from unaffiliated content providers; prohibit the blocking of access to content of a consumer’s choosing; prohibits content providers from gaining priority for their traffic over other content providers where they compensate the broadband access provider for the privilege; and requires broadband access providers make transparent the terms and conditions of service as part of transparent network management.

This is the type of behavior that would be expected from a sovereign state where they exercise complete jurisdiction over communications platforms within their geographical or legal physical boundaries. But where at issue is the transmission of data over a global network of interconnected computers, where traffic is sent and received from almost any point in the world, can approximately 21 separate states tell broadband access providers how best to manage this traffic contrary to what the nation’s lead agency responsible for regulating the communications network has required by rule?

What we now call States are the spawns of 13 original British colonies, organized territories, and unorganized territories. While the reasons for individual settlement ranged from the ability to practice certain religions freely to establishing trade and making returns on capital investment to pulling an individual out of poverty, sovereigns granted charters to colonies in return for global political and economic gains. Sovereigns expected colonial governors to manage a colonies human and natural resources in order to produce taxable goods and services. Taxes collected increased the wealth of the monarchy.

Lost in the transition from rule under a monarch to rule under a federal government is that only the nature and construct of the sovereign has changed. America abandoned rule by a single monarch to rule by a central national government with the very powers that the monarch possesses: the power to tax, borrow on future tax receipts, and regulate foreign and domestic trade and commerce. Much to the chagrin of states’ rights proponents and desperate advocates of net neutrality, America’s 50 states today occupy the same status of no sovereignty as possessed by the original 13 colonies. States are nothing but suped-up territories on steroids and have no jurisdiction to regulate an international communications network.

States’ rights advocates often direct their argument to the Tenth Amendment of the U.S. Constitution which reserves certain powers to the States. Specifically, the powers not delegated to the national government or prohibited by the Constitution to the States are reserved to the States. These powers are restricted by Article I, Section 10 of the Constitution which says the following:

“No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it’s inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Controul of the Congress.

No State shall, without the Consent of Congress, lay any duty of Tonnage, keep Troops, or Ships of War in time of Peace, enter into any Agreement or Compact with another State, or with a foreign Power, or engage in War, unless actually invaded, or in such imminent Danger as will not admit of delay.”

The plain reading of Article I, Section 10 leads me to conclude that States have no jurisdiction other than that granted to them by the national government and its agencies. If States had sovereignty, the Constitution would have been written in reverse, where the States granted limited responsibilities and specified limited powers to the central government. Unfortunately for net neutrality advocates, this is not the case.

Net neutrality is a data market issue. Specifically, the requirements of net neutrality place barriers to entry into data markets defined either by national and state borders or by the geographic areas served by a broadband access provider’s local network. While net neutrality advocates may argue that their goal is the non-discriminatory free flow of data over broadband networks, implementing state rules on how this flow is to be regulated is unconstitutional because this is a space, the regulation of commerce, that is occupied solely by Congress.

Progressives must recognize the irony, that the political argument of states’ rights, usually the narrative espoused by conservatives, is the very platform upon which progressives are launching their state attack on the Federal Communications Commission.

Congress could take the opportunity to reassert itself as the branch of government responsible for the regulation of commerce. Congress could via statute define net neutrality and clarify how traffic transported via broadband networks is to be regulated.

Unfortunately, partisanship is tainting the debate where Progressives in the U.S. Senate are more concerned about keeping net neutrality in play as an election issue in hopes that the Federal Communications Commission’s recent repeal of the 2015 open internet order can be a basis for attacking Republicans as a party not concerned with democracy on the internet.

Will net neutrality keep the FCC politicized and will investors pay for it?

Yesterday, Federal Communications Chairman Ajit Pai issued a statement regarding an investigation by the agency’s inspector general into last year’s claims that the Commission’s website was attacked during the comment period on the Commission’s net neutrality rules. Mr. Pai asserted that he was told by the Commission’s former chief information officer that external parties attempted to overload the Commission’s electronic comment portal with high traffic. It appears that the disruption to the comment system was not the result of third-party bad actors but the result of the system not being able to accommodate a high number of respondents attempting to comment at the same time. Mr. Pai went as far to say that allegations that he was aware that the former CIO’s comments were false or hid the true reasons for political reasons were incorrect.

Commissioner Jessica Rosenworcel was more pointed in her statement, stating that the inspector general’s findings were not a surprise; that the meltdown in the system was a reflection of how serious millions of citizens took the issue of net neutrality.

Commissioner Rosenworcel’s response, short and biting, was not surprising given the political polarization I have observed on the Commission going back to the beginning of the Tom Wheeler era. The debate over net neutrality has been the focal point for political rift, a debate that I find at odds with the Commission’s core mission which is to ensure the maintenance and availability of a universal communications network.

The debate has come down to two schools of thought. On the one hand is the comedian John Oliver view, where net neutrality rules are needed to ensure that the internet is “democratized”; that all voices can be heard and that consumers have access to the content that they choose without fear that their internet service provider is favoring its content over another provider’s content.

On the other hand, there is the original “internetwork” view of Professor Tim Wu who in his 2002 proposal for net neutrality focused on the negative externalities that could impact all networks if a broadband access provider where to extend otherwise legitimate local network management into the shared areas of the internet by discriminating against traffic coming from certain internet protocol addresses, TCP ports, or domain names.

Democracy as a narrative can lend itself to justifying invasiveness as is the case of the John Oliver model. This argument creates overreach by asserting that a broadband access provider must be transparent regarding how it manages its network. Professor Wu made clear in his proposal that a broadband access provider is expected to manage its local network in a manner that keeps it operational and efficient. It is at the internetwork level (Level 3 through Level 7 in open system interconnection parlance) that could get a broadband provider in trouble where the provider can program its network to block applications, IP addresses, or domain names.

Proponents of the Oliver School haven’t made the argument why broadband access providers could not make certain economic discrimination rules regarding bandwidth within a provider’s local network. They appear willing to avoid the initial slipping on the slope and appear willing to dive right in by allegedly protecting consumers by promoting rules that may require regulating internal aspects of local network management.

For the investor, the Oliver School can be expensive as a broadband provider, especially a smaller provider, faces the risk of having to litigate an increased number of consumer complaints about the amount of bandwidth they believe that are not receiving as a result of a perceived net neutrality slight.

For the local and state governments that are tasked with investigating consumer complaints, there cost of regulation will rise in order to address complaints regarding local network management when resources should be reserved for complaints regarding violations “on the edge.”

Investors should not expect the net neutrality debate to fade away anytime soon. The politics at he Commission may intensify once another Democratic commissioner is appointed to fill the seat left vacant by Mignon Clyburn. Should the Democratic Party win the U.S. House this fall, I expect the Progressive caucus to add to the “Democracy Under Attack” narrative the failure of the Commission to implement strong net neutrality rules thereby protecting freedom of expression and a “democratized” open internet.

A top down Virgin Islands economy cannot survive further into the 21st century

An area populated by roughly 105,000 people should not run its economy based on a model designed to hoard capital while generating returns to that capital in as many markets as possible. Given the reliance on government and tourism as its economy’s drivers, can the Virgin Islands of the United States afford to have a fraction of its community limit the distribution of capital and the opportunities that are spawned from capital deployment? In other words, where a small number of farmers control most of the seed, should they be allowed to only spread seed on a small portion of the land while most of the plot lays fallow? The answer is no.

I can understand the marginalization that a significant number of Virgin Islanders feel. My father moved from St. Kitts to the Virgin Islands in the early 1960s. He married my mother in St. Kitts in 1962 and I, their first born, came along the following year. He worked in the hotel industry which was booming at that period in large part to Fidel Castro taking Cuba offline as a tourist stop resulting in the Virgin Islands and Puerto Rico emerging as alternative vacation destinations. A large number of “down islanders” moved to the Virgin Islands during that period and while we added to the vibrancy of the economy, particularly in the tourist industry, we were always outsiders, having not being born in the territory.

That outsider status as immigrants of course spilled over into the other industry: government. Being non-citizens, my parents could only watch from the sidelines and cheer for a candidate that they thought represented their values. During the early 1960s through the late 1970s that candidate was Cyril E. King. So enamored with the late governor was my mother that she thought it a good idea that I share Governor King’s middle name. Quite a few parents shared that sentiment during that time as well.

But not only was there marginalization in terms of origin or employment by or representation in government, there was marginalization in terms of ownership in the private sector. Yes, locals owned small retail outlets, trade shops, small bars, and restaurants, but larger institutions such as the banks, hotels, and jewelry stores remained in the hands of American and European corporations. Corporations and banks represent not only non-ownership on the part of locals, but a flow of capital and income out of the territory. A community with a high level of poverty needs to see capital and income recycled through the local population, searching out and funding the opportunities that have laid dormant or unseen because current hoarders of capital are biased against local people, preferring to keep us marginalized.

What type of opportunities should re-cycled capital and income search out? They should seek out opportunities that create the ability for each household to have productive capacity within their own hands. Capital and income need to stay within the territory and provide households the ability to practice “decentralized home economics”; where a household can produce their own energy, network their own communications needs; and access alternative modes of logistics that not only transport citizens quickly to any destination, but brings goods, services, and information from distant points to the household. Instead of enjoying fewer economic benefits because they have been forced to live on the edge, households can maximize returns on their resources i.e. income and capital, by making the most from living on the edge.

Marginalization no longer has to be equated with poverty. It can now be, through the use of technology, be equated with wealth.

America’s Silly Politics and Pundit Clown Show Continues ….

Conservative pundits losing their minds not realizing that Mr Trump’s “poor performance” was a play on them. Idiots. Mr Trump is conducting a not very smooth triangulation. By saying that any alleged attack on the 2016 elections was the fault of both sides he throws the establishment wings of both parties off kilter.

Right now he has a “strong” economy (I say that lightly. While the metrics look good, America’s economy is on a downward spiral) and he has his base’s support, a base that giveth not two shits about the establishment on either side of the spectrum. He can piss off Lindsey Graham and Paul Ryan knowing that after all the criticism, their stock is tied to his. He can piss off Chuck Schumer and Nancy Pelosi in part because he enjoys bitch slapping them both.

Trump’s Helsinki summit was never designed to get anything of substance from Vlad the Impaler. The U.S. is 14 weeks from midterms and Mr Trump is more concerned about the optics of riding the middle between both sets of the political elite while keeping the base in play for 2020. Attacking the American electoral system is a non-issue for the Deplorables. Besides, if it was that important, Pelosi would have persuaded Mr Obama to push for some quasi wartime resolution against Russia versus issuing a bunch of meaningless pardons.

What Hillary Clinton realized but was too afraid and incompetent to put in her messaging was the economic threat to U.S. energy interests posed by Russia. America became a net exporter of oil during The Man from Kenya’s administration.

Unfortunately for the Democrats they had a candidate and a bunch of Democratic congressional members too inept to craft a winning message around what should have been a positive for the American if not global economy.

Everything burns and the circus, with Democratic and Republican clowns, continues.

Of Trade Wars and Hot Mess

As I listen to U.S. Senator Mike Rounds, Republican of South Dakota, discuss with Bloomberg Television U.S. trade action against Canada and Mexico as inappropriate because of their statuses as allies to the United States, I have to ask myself, if they are allies and given the increase in costs consumers face because of tariffs, why not remove tariffs from all items imported?

The reality is that trade is war, no matter a country’s cultural or political affinity with its neighbor. Tariffs are barriers to markets. Canada and Mexico, just like China, are telling the U.S. to stay out of their markets unless invited to deliver a particular set of services or products. There are no allies in trade.

So why is the term “ally” used during these discussions? Ally is a term used to keep the “pawns” i.e. the electorate on board with destructive policies; to make voters feel like they are a part of something bigger than themselves; that they are somehow a part of the decision making process.

In reality, the only “skin in the game” the electorate has is the skin, limbs, and lives they lose when a trade war becomes a live fire war

Democrats want to take over government but can’t make up their minds about governance

The Democrats are a flighty bunch. Since January 2017 they have been all over the place looking for a narrative that can gain traction with voters. So far, they have come up with the following:

1. Trump the Pussy Grabber is Not Fit for President
2. Trump the Russian Sympathizer is not Fit for President
3. Trump the Disloyal Friend to Canada is not Fit for President
4. Trump the Banger of Porn Stars is not Fit for President
5. Trump the Disruptor of Immigrant Latino Families is not Fit for President

So far, five major ones but the President’s first term is still young.
Do any of these issues have anything to do with how Mr. Trump is running the political economy? How does admitting on a video tape made in 2005 on the set of a soap opera that he approaches women like a boar translate in to his implementation of commerce policy?

Is Russia really an enemy of the United States? Granted Russia probably still is a little pissed 100 years after American troops known as the Polar Bear Expedition invaded northern Russia back in 1918 and the United States may be tired of Russia referring to Soviet Union soldiers passing themselves off as just technical “experts” in the Vietnam War, but forty-plus years since the Vietnam War was declared over, and no official hostilities recorded on either side, Democrats simply can’t convert the “Russia ain’t our friend and Trump talked to them” into any substantive narrative for the better informed.

While women on the Left may find Canada’s Boy Toy prime minister, Justin Trudeau, to be a hottie, does Mr. Trump’s trade disagreement with Mr. Trudeau over steel and timber imports amount to the president being a poor manager of foreign policy or economic affairs? Not at all. For example, under the North American Free Trade Agreement and section 301 of the Trade Act of 1974, the President has wide power to address unfair or discriminatory practices of a foreign country. Ally or not, if the President determines via an International Trade Commission or United States Trade Representative investigation of Canada, why should America’s friends in the Great White North get cut any slack versus its friends south of the border?

The Trump/Stormy Daniels narrative tells me that Mr. Trump is no saint. Did Mr. Trump, during the run up to the November 2016 elections, pay off Stormy Daniels to avoid the embarrassment of knocking boots with a porn star while married in 2006? I don’t know nor care. That’s a private marital problem and Democrats who are gung-ho for an impeachment should at least provide evidence where Mr. Trump denied otherwise unimportant, non-government related incidences to federal officials ala Bill Clinton in the Monica Lewinsky affair.

Lastly, there is Donald Trump the Disruptor of Latino Families. Mr. Trump implemented a policy, in development since December 2017, to separate children from parents who cross the United States-Mexico border without documentation. The Democrats argue that such acts are cruel and that such cruelty is not what America is about and is further evidence of Mr. Trump’s despicable character. But while Mr. Trump may be auditioning for Machiavellian of the Month, the Democrats never argue that his policy is illegal. By the Administration’s admission, the separation policy is designed to scare parents, to make them think twice about making the trek through central America and Mexico. For the majority of Trump supporters, Mr. Trump’s prosecutorial discretion and scare tactic in this case is on point.

So, what is really going on with the Democrats? Their scatter-brained approach to keeping the President in check is so unfocused and non-sticky that by the end of December they will need a fresh batch of heart-tugging, nonpolicy-based narratives to toss at the American electorate. I suspect the Democrats will spend 2019 ensuring that 2020 Democratic presidential hopefuls tie and spin these events.

It won’t work, because a more important event will take place during 2019: the slow down of the economy. Americans will spend more time worrying about how to feed their own children.

Netflix and the Invasion of the Honesty Snatchers

Soon the streets and meeting rooms of America will become a continuous scene from “Invasion of the Body Snatchers” where citizens will avoid punishment for an utterance by keeping quiet, fearing reprisals for making simple observations about the realities of American society.

Firing someone for making an observation about the use of words in their industry has now been equated with directing a word toward a specific person. Freedom of thought meets fascism clothed in alleged good intent and safety pins.

Citizenship is not property

Everyone’s citizenship i.e., license for occupancy, can be revoked. How you got your license determines the length of time it takes for revoking it. Having an occupancy license doesn’t provide you with much sway as to whether a license to occupy should be extended to another person. Nor does having a license provide you any basis of authority for commenting on the form of occupancy another occupant holds. The license is not exclusive.
 
In short, your license was issued to you by a stroke of luck and the stroke of a pen. It is not your property, this thing called citizenship. You didn’t earn it. It was given to you because like any tax and customs farm, a good farmer (politician, capitalist, economist) knows that the higher the population of occupants, the greater the amount of tax receipts and number of potential voters.
 
Hell. You haven’t even taken a few minutes, like any mature, self-actualized person would do, to ask yourself why should you need a license of occupancy i.e., citizenship, permanent residency, visa, etc., to live anywhere?

Some thoughts on how I model the economy

This is still a work in progress. The old saying is money makes the world go ‘round. Spoken from a consumerist view, the conclusion I can understand. You want to eat, sleep, and shit in relative peace and safety you need coin. Lately I have been taken a harder look at my role in this political-economic ecosystem. I have concluded that we are merely extraction points for tax and sales revenues with intravenous tubing going into one side of our bodies and coming out of the other.

This may sound cynical but I suspect most heads of households feel this way as they try to balance their budgets with increasing expenses.  Will I be able to send my son to college? Can I pay that medical bill?  Will I meet my mortgage?  The frustration stemming from increasing difficulty to obtain the basics is like a stroke, sneaking up on Americans.  In a credit-driven economy, that heart attack may be on the horizon.

Forty-five economists surveyed by the National Association for Business Economics today have a less rosy outlook on the 2018 economy versus three months ago. Although expected growth in gross domestic product is still positive at 2.8%, the forecast is down from a previous forecast of 2.9%.  Current trade policies, according to economists surveyed, will have a drag on future growth with 82% of economists expecting a recession by 2019.

As I discussed in an earlier blog post, data from the Federal Reserve and the International Monetary Fund are not holding out the sunniest expectations for the economy over the next two years.  Inflation is expected to peak at 2.8% in 2018 but fall to 2.4% and 2.0% in 2019 and 2020, respectively. The years 2021 and 2022 will see inflation at 1.9% climbing slightly to 2.0% in 2023.

Also constraining spending will be the rise in interest rates as the Federal Reserve exceeds its targeted 2% federal funds rate goal. America runs on credit and the more expensive is to purchase, the less of it Americans have to spend.  According to IMF data, the ten-year bond rate ended at 2.4% in 2017. The rate on a ten-year note sets the interest rates for lending in the United States. By the end of 2018, the rate on the ten year is expected to climb to 3.2%; in 2019, 3.7%; and in 2020, 3.8%.  The rate will then level off to 3.6% in 2021 and 2022; and hit 3.7% in 2023.

If the last decade is any indication of how well household incomes keep up with inflation, then many American households are in trouble. Average annual growth in household incomes for the lower (.70%); second (.64%); third (.29%), and fourth (.90%) quantile of household income are all growing at rates lower than expected inflation. The top quantile is seeing growth in annual income at a rate exceeding inflation (2.8%).

Many Americans would be upset with this scenario. Why can’t we get ahead? Why this gap in wealth and income? As I mentioned earlier, we are extraction points. We sit, along with natural resources, at the start point of a conveyor belt. At the other end of the conveyor belt is capital made up of coin and credit.  The conveyor belt is fueled or supported by a transportation, communications, and energy infrastructure. Riding on top of the belt are the components trade, government rules, markets, and money. They are to the conveyor belt as application programming interface is to a computer network; a go-between that enables work and income to be extracted from human resources and transported to the eventual owners of capital.

For example, human resources enter markets in order to sell labor or buy goods. Government rules determine the level of tax revenue that will be extracted from human resources.  The amount of money held by a human resource transmits information about that resources economic and financial value; her spending power.

Communications networks provide the conduits for transmitting information about a human resources value. Transportation networks move human resources to areas of employment where human resources convert natural and other resources into goods and services. Transportation networks also move the goods and services produced to end users. The facilities that create goods and services and the vehicles that transport goods and services run on various forms and sources of energy, including coal, nuclear, oil, electricity, solar, wind, and geothermal.

The top 20 percent occupy the capital side of the belt. Social justice warriors who argue the use of politics in order to close the gap between the top 20 percent and everyone else are making a losing argument. Politics is ineffective as a wealth and income gap closer because of the grasp that capital has on the conveyor belt. Central bankers and treasury ministers derive their influence and prestige from ensuring the conveyor belt (which we can also call a tax and payments system) operates at optimal to deliver returns (income) to the conveyor belt’s bond holders. Capital invests resources in lobbying, advocating, and the electoral process to ensure there are politicians in place that will make rules that do not impede the conveyor belt.

Those who are fed up with being extraction points want to stay off of the conveyor belt. We want to limit or eliminate our use of the communications, energy, and transportation networks that power the conveyor belt. Use of unlicensed spectrum to create our own networks; use of renewable energy sources in order to remain off grid; avoiding the purchase of vehicles in order to avoid the taxes and surveillance that are attached to them should be a goal.

I do not endorse living like a hermit (although I have no problem with prolonged peace and quiet), but we should pursue self-sustainability in order to minimize the consumerism that pulls us into unnecessary trade and market engagement.  We will free ourselves to accumulate more capital while starving the beast that created the imbalance in wealth and income in the first place.

Immigrants coming from the Caribbean and Latin America to the United States over the next two years should prepare for a rough patch thereafter.

The International Monetary Fund today released a report describing a robust 2017 and 2018 U.S. economy, but 2019 and 2020 may be brutal for Americans as the economy is expected to taper off during those two years.

First the good news. Growth in gross domestic product was 2.3% in 2017 and is expected to climb by 2.9% in 2018. In 2019, the United States will see a slight tapering off in GDP growth at a growth rate of 2.7%.

Now, the bad news.  By 2020, the next presidential election year, growth will fall off almost abysmally when Americans see a GDP growth rate of 1.9%. It won’t get better in 2021, 2022, or 2023 as the growth rate continues to decline with growth rates projected at 1.7%, 1.5%, and 1.4% respectively.

At first blush the unemployment rates may look good during those periods. For example, by the end of 2017, the unemployment rate was 4.1% which is considered an indicator of an economy at full employment. The numbers, at least on the surface get better. In 2018, unemployment is expected to be at 3.5%, under the historical full employment mark. The U.S. will continue to see low unemployment in 2019(3.5%), 2020(3.4%), 2021(3.5%), 2022(3.7%), and 2023(3.8%); all figures again reflecting full employment.

Now we have to reconcile the low unemployment rate with low GDP growth. I suspect that more members of the tail end of the Baby Boom will contemplate retirement and may opt for leaving the workforce. As more people leave the workforce, all other things remaining equal, the number treated as unemployed also falls. Also, as the population ages, people on fixed incomes will adjust their budgets to reflect their new spending realities. Reduced spending by Baby Boomers will contribute will contribute to the slowdown in growth.

Also constraining spending will be the rise in interest rates as the Federal Reserve exceeds its targeted 2% federal funds rate goal. America runs on credit and the more expensive is to purchase, the less of it Americans have to spend.  According to IMF data, the ten-year bond rate ended at 2.4% in 2017. The rate on a ten-year note sets the interest rates for lending in the United States. By the end of 2018, the rate on the ten year is expected to climb to 3.2%; in 2019, 3.7%; and in 2020, 3.8%.  The rate will then level off to 3.6% in 2021 and 2022; and hit 3.7% in 2023.

Inflation is expected to peak at 2.8% in 2018 but fall to 2.4% and 2.0% in 2019 and 2020, respectively. The years 2021 and 2022 will see inflation at 1.9% climbing slightly to 2.0% in 2023.

While the economy will be in a sluggish mode, immigrants should be mindful of the social mood. A lot of the animosity toward undocumented immigrants has been tossed at immigrants from Mexico and Central America. Today, media is honing in on the Trump administration’s preferred policy to separate parents attempting to enter the U.S. across its border with Mexico without visas from their children.  I suspect this treatment will be carried out at all points and ports of entry. But given the animosity hurled at immigrants during booming years of an American economy, the social fabric may be a bit worn and the welcome less warm during a sluggish one.