Wizer One-Liner #26

Attention Occupiers: Crony Socialism is not a solution.

Karl Marx and the false premise

Capitalism is not an 'ism.' It is closer to being the opposite of an 'ism,' because it is simply the freedom of ordinary people to make whatever economic transactions they can mutually agree to. -- Dr.Thomas Sowell

I have spent some time defending the notion of capitalism but have now discovered that it's a false premise. From now on, the question of "How do you defend capitalism", will be relegated to the wrong question heap. The real question is "how can you defend (or not defend) the free market?"

Here's an important distinction, put into play by Chris Whalen.

"Marx created the term 'capitalism'. It's a pejorative, insulting description that says all economic activity is a matter of greed," Whalen explains. "If you're any sort of libertarian. If you believe in American principles of democracy and free enterprise, just the fact we use the term 'capitalism' should insult you. We need new labels."

People are conditioned to blame "capitalists" for a lot of economic ills. To be sure, it's still the best descriptor for "Crony Capitalists", and many other such capitalists who are not of the free market variety. These would include Jeffrey Immelt, Warren Buffet, Ken Lay, and Bernie Madoff.

From now on, I am no longer a capitalist.

Pardon me, but..

It's not the kind of thing you really want to commemorate, is it? Every time our enemies see us wringing our hands over the missing towers, they can take deep satisfaction that we still feel the effects. Maybe, just maybe, we would have been better off clearing the space and putting up a Wendy's, a Starbucks, and a Walmart. That would have showed the bastards that they didnt leave a permanent dent in America.

I know one thing, the endless rehashing was irritating at best. This incessant decade-long weepathon is not something we want our enemies to count on every time they try to take us down, is it?

Productivity Growth is key

When I said 'Change we can believe in,' I didn't say, 'Change we can believe in tomorrow.' Not 'Change we can believe in next week.' We knew this was going to take time.  -- Barry Obama , Chicago Birthday Fundraiser

I ran out of gas. I... I had a flat tire. I didn't have enough money for cab fare. My tux didn't come back from the cleaners. An old friend came in from out of town. Someone stole my car. There was an earthquake. A terrible flood. Locusts! IT WASN'T MY FAULT, I SWEAR TO GOD! -- Jake Blues, to the Mystery Woman, The Blues Brothers Movie, 1980
 
Markets will rise and fall but no matter what some ratings agency might say, we're still America, and we always have been and always will be a triple-A country -- Barry Obama, first press conference 8/8/11 after the S&P downgrade on 8/5/11
"First Comes Denial" .  -- Elizabeth Kübler-Ross
 
I did, I promised a moratorium on Obama bashing. Sorry, It's just that it's hard to do a consequential blog these days without giving credit where credit is due. 
 
I am amazed that the Tea Party is assigned any blame whatsoever in all this. The 56 members of congress who pledged any allegance to the Tea Party were eventually cut out of the debt deal, and then when S & P downgrades the government for not cutting anything of consequence, all of a sudden it's the Tea Party's fault? Wow, talk about poor aim.
 
And the S&P? Finally the folks paid to watch it all call it like they see it, and both teams want to kill the umpire.
 
Meanwhile, the Bush-Obama depression continues unabated. QE3 will probably be launched today, which will boost the stock market, and tie up another trillion in capital. More support for Wall Street, at a time when it is Main Street that needs the help.
 
The answer is productivity growth, of course. We need everybody working. We need to create an environment where private investments are made, where people are free to work, and where companies are free to hire them. I believe we're not that far away, in economic proximity if you will, from a recovery. But we are far away politically. The additional headwinds applied by Obama make it all the harder, but it's evident that less federal spending is the one crucial thing that will free the capital and create the positive momentum Main Street needs. Yes, lower taxes, if applied correctly could work. And fewer employment regulations would help as well.
 
The Wizer's Plan for Productivity Growth?: A one year moratorium on the minimum wage.
 
Instead, we get speeches about taxing corporate jets and subsidizing electric cars. These are not big ideas. No one can rally around government interference in technology. This is policy by sound-bite. 
 
Finally, there is this Obama notion of a balanced approach. What in the world is balanced about increasing taxes on one percent of the citizenry? Seriously?
 
The most tragic and pathetic aspect of all this? That we feel powerless to improve the situation before November of 2012. Unbelievable. We have to do better.
 

Help me out with this

London Telegraph News item:

(...) Fears that a recovery in the world's biggest economy is running out of steam were heightened as official figures showed GDP in the US rising 1.3pc in the second quarter, against expectations of a 1.8pc rise. In a chastening statement the Commerce Department also downgraded first-quarter growth from an initial estimate of 1.9pc to just 0.4pc.

(...) The extent of the uncertainty hanging over the US economy was underlined as the head of the World Bank warned that politicians were courting "calamity" by not coming to an agreement ahead of a deadline on Tuesday next week. "To be blunt, to have a debt default in the United States would not only be a financial calamity but should be an embarrassment for every American," said Robert Zoellick.

Okay, so if I understand this correctly, our ecnomy is running out of steam, and the thing we are patently expected to do is raise the debt limit. I had to read that twice. I might be dense (or is it daft), or maybe the London Telegraph's version of The Queen's English is a little imprecise on this, but I don't quite see how raising the debt limit improves the GDP situation. In fact, by raising the debt limit, we will have yet more capital reallocated to government programs and less available for productive work.

Shouldn't everybody be calling on us to lower the debt limit? As Mark Thornton writes:

(...) reducing the debt ceiling would force the government to stop borrowing so much money from credit markets. This would leave significantly more credit available for the private sector. The shortage of capital is one of the most often cited reasons for the failure of the economy to recover.

Lowering the debt ceiling would force federal-government budget cutting on a large scale, and this would free up resources (labor, land, and capital) and force a cutback in the federal government's regulatory apparatus. This would put Americans back to work producing consumer-valued goods

It's clear that the current administration has positioned us between the proverbial rock and the hard place. The confidence in the economy depends on raising the limit. The future of the economy requires that we lower it. Both of these must happen. The "When" of when these triggers are pulled will be defining and historic. It is going to create many millionaires, and ruin many thousandaires. Paul Volcker might have been able to prescribe the right sequence, but the administration chased him away. No one left in the executive branch who knows what to do.

Even the big boys (outside of perhaps Soros and Immelt) don't know which road to take right now. There's no reason to be confident that the right levers will be pulled, or even in the right order. But when the newspapers (especially the ones in Europe) start to lecture us with the kind of conflicting advice we're getting, it's high time to tune them out.

Coffee Economics

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance. – Murray Rothbard

Let's have a moratorium on the subject of what you can buy if you didn't buy that cup of coffee this morning, shall we? I have now read my 3000th article and saw a 3000th TV clip regarding how I can save $3.95 a day by skipping a trip to Starbucks. Please. Don't do me that way. I know little things add up.

Sure, I can make better coffee at home, and often do. I can make cheaper coffee at home, too, and I do that every morning. But if I stroll into the coffee emporium, I have already made my decision. I'm not going to think about the $52,312 I could have had in the bank if I just didn't do this another 250 times a year.

Not all of economics can be boiled down to coffee, though you would think so reading some of these accounts.

At the risk of decaffienating my own point, I now do a real public service, and show what you can buy if Starbucks were money.

1 ounce of gold: approximately 531 Quad Grande Americanos

Going to ponder this a little while enjoying my morning cup.

Not Just Unconstitutional

Health care is too expensive, so the Clinton administration is putting Hillary in charge of making it cheaper. (This is what I always do when I want to spend less money — hire a lawyer from Yale.) If you think health care is expensive now, wait until you see what it costs when it's free. -- P.J. O'Rourke, Speech delivered May 6, 1993 for the opening of the Cato Institute's headquarters in Washington, D.C.

When I hear partisans in Washington talk about Obamacare, I hear things like, "too expensive", "problems with death panels", "need to roll back some of the provisions", and so forth. I hate debating the finer points of Obamacare, because to do so is to concede the validity of it.

Obamacare. Excuse me, but what article of the constitution covers this one? Seems to me we could have already dispensed with this insanity on simple constitutionality grounds. Like a B-class horror movie, where the weapon surely already exists to kill the beast, the monster won't die. Instead, we're trying to figure out how to save it. As with many other monstrous provisions of the administration, this one needs to be defeated dramatically and completely.

Aside from the non-constitutionality, which is reason enough, there are plenty of common sense reasons to dump this approach.

1) The cost to the US for all uncompensated care is estimated at 35-50 billion /year. Why do we need a 1.44 trillion dollar program to cover that? If it were simply about covering the medical providers for the shortfalls, we could pay for it out of petty cash. I could run that program with 25 people.

2)  Obamacare is a disproportional tax on the healthy. Why subsidize the unhealthy by forcing the healthy to pay for their care? If I don't have to pay for it, maybe I will take up smoking, carousing, and eating at McDonalds. This one really frosts me because on so many other issues, the government wants to engineer a result, like more ethanol, less food; or higher stock prices, lower wealth. Here, they want everyone to have average health, at the expense of the truly healthy.

3) Obamacare is a disproportional tax on the young. Young persons simply do not need a full measure of health insurance. We already tax the young to fund the social security and medicare administrations. They will be paying the 14.3mm debt until the end of time. Please, let my children go.

4) Obamacare eliminates choice. That is unAmerican on the face of it, isn't it? Senator John Sherman is surely rolling in his grave.

5) Obamacare eliminates incentives to stay healthy. When a health care recipient finds out what it really costs to keep him safe and healthy, he might try a little harder to stay that way. Instead, he probably won't see the bill.

Off the top of my head, there must be at least a couple dozen other reasons not to do this. If we would start every bill with the constitutional authority well defined as to why it has a right to exist as a bill, we could avoid lengthy debates (let alone lengthy blog posts). Again, it seems that we are trying to tame this beast, when by all points of reason, we should be killing it.

But let's talk about one of the reasons given for why Obamacare would make sense in any society. The high cost of health care. How did we get here? Andrew Foy sums it up really well here. At one time, people did their own relationships (personal and transactional) with their doctors. Service was provided like many others, and paid for in the same way.

Then, government muscled in on the business, and the rest was gobbled up by private insurance companies. Now (as can be quickly seen from the chart), we pay less of our own medical care than ever. That would seem to be a strong case for leaving it alone, but in that trend are the seeds of the system's destruction. By paying 10% of our health care costs, we have lost track of what it really costs to bandage up a foot, or diagnose a boil.

With big insurance, medicare, medicaid, and union negotiated co-pays, none of us has the slightest clue what health care really costs and why. Why anyone would think that that would change for the better by paying a bureacrat to stand in the way of the transaction is ludicrous.

So, now, the government wants to eliminate the last vestige of a free market. Only two outcomes are possible and both of them bad.

1) Health care costs skyrocket as a new layer of bureacracy settles in. 36 million people and the other 300 million who had insurance are now finding more reasons to seek free medical care. If its free, demand surely goes up, doesn't it? Doctor's offices are flling quickly, and 20% of the doctors are checking out of the system, because the pay no longer justifies the long hours.

2) Real health care drops to subsistence levels with people opting to get healthcare outside the system. to avoid the long lines and poor service. Overall health falls dramatically, and people are discouraged from getting the help they need.

Probably both.

In a few short years, people will be finding ways to opt out of government medical care. But they won't be able to opt out of the higher taxes that feed it. In that way it is the same exact problem as social security. An ineffective and expensive insurance program, that people will cease to rely on.

End it, don't mend it.

Follow the Money

Our civil rights have no dependence on our religious opinions, any more than our opinions in physics or geometry. -- Virginia Statute for Religious Freedom (1777), Thomas Jefferson

Follow the money is a term I have come to appreciate over the years, as a last resort it often explains the unexplained.

Take gay marriage for example. A lot of demagoguic energy is spent harping about gay marriage, but when it comes right down to it, there's no legal distinction to gay marriage that could not be achieved by civil contracts. I mean, people can enter into whatever contract they want with each other, and call it marriage if that's what they want to do. In fact, they have a lot more freedom to enter such a contract than non-gay people who have to get a license and find a preacher or a justice of the peace (not to mention the cake, the hall rental, and the dress)

So, what is the difference? Why would gay persons want to get married, when it is at face value a burdensome, ritualistic ceremony, signifying the traditions that so many gays badly want to have diminished if not eliminated.

I have no quarrel with whatever contract any two people want to enter into; whether marriage or the non-traditional equivalent. Go for it. I think 90-99% of people feel the same way. We're happy for you.

Oh, but simply letting people enter and exit relationships freely would not be sufficient. No, what the proponents of gay marriage want appears to be something else. This is where the money comes in. Proponents of gay marriage do not want marriage, so much as they want whatever perceived tax breaks and extended insurance coverage exist for traditional marriage .

So why didn't they say so? Insisting that this group or that  hates gays and wants to discriminate against them misses the point entirely. There are not enough gay haters out there to have any kind of influence on the matter. So, what we are really talking about is special interests for tax breaks and family insurance plans.

To me, the solution is simple. It appears necessary to eliminate all implied financial incentives. No tax breaks, no automatic coverage for spouses, none of that. Once that is done, we won't have to listen to any more demagoggery on the subject, and there won't be any a reason for people to enter a relationship other than their love for each other. Call it tough love. But let's stop calling each other bigots and hate-mongers over something as obvious as this money trail.

Soaking the Rich

The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.  -- Thomas Jefferson, 1816

Insanity, they say, is doing the same thing over and over again, and expecting a different result. This is why voting republican is insane. It is also why voting democrat is insane. Neither party has our best interests at heart (or even in mind) when they talk about limited government. When they talk limited government they are referring to limiting the other party from doing what they want to do. Meanwhile, all current politicians believe they have a better idea how to spend our money.  But do they have the first clue on how to raise it? Consider this chart:

Most politicians talk about raising and lowering the marginal tax rates like it is the magic dial that determines how much revenue is received. Many of us simply take it on faith that this is true. However, the dirty little secret is that no matter what the tax rates are, the revenue remains a straight percentage of GNP. How can this be?

At high marginal tax rates, the wealth is moved to outside the country, or is never created in the first place. It's a law of supply and demand. When you tax something, you get less of it. When people are taxed at a high rate, their capital is quickly invested where the tax rates are lower. People with capital do not free it up when rates are confiscatory. They wait. Patiently, quietly, and without reservation. This, in turn, causes GNP to fall.

The main idea should be to raise revenue. Since revenue (as a percent of GNP) is independent of tax rate, burdening the rich is an illogical and ineffective remedy  The only thing that will raise revenue is higher GNP. That requires an economy that achieves an increasing productivity jolt. Less government would work. Fewer regulations would work. Ways of unlocking higher productivity would work. Soaking the rich? That won't work.

Intersecting Hayek with Keynes: a brief confluence of thought

In general, the art of government consists in taking as much money as possible from one party of the citizens to give to the other. – Voltaire (1764).

Recently I had occasion to talk at length with another friend on the subject of economics and investment strategies. We started out on the very same page, agreeing that the government had badly screwed up the recent past, and that inflating the money supply was the only possible outcome as far as the eye could see. There was no argument that the range of possible investments had narrowed, and the further away we got from the US Dollar, the better off we were going to be.

So far, so good. Then my friend laid the foundation of the collapse at the feet of GWB (okay, sure), and thought Obama was doing the best he could to keep us out of the soup (Whu- what?) And that lack of government oversight under Bush caused this problem in the first place. ("lack of?")

As the conversation went along, it became clear that my friend had come from a different point on the scale to his present (correct) assessment of the future. A very intelligent fellow, who usually has a good handle on things that require study (like science and the arts).

Maynard (I'll call him --after John Maynard Keynes himself) is a dyed in the wool Keynesian, who believes that all useful economic theory was tied neatly into the bundle with Keynes. He believes in the veracity of the historical record as outlined by traditional economic texts. Among other things, Maynard believes that Hoover was an unrepentent  free market fundamentalist, and FDR did the best he could to keep us out of the soup.

Well, as John Adams said, facts are stubborn things, and it was necessary to inform Maynard that not only was Hoover not a free market anything, he was a government interventionist of the highest order. He believed in central planning and huge public works projects ---perhaps you've heard of one of them:  the Hoover Dam.

Fast forward now to 2011, you see Obama has inherited not only the interventionist and spendthrift legacies of Bush, but those of FDR, Truman, Eisenhower, JFK, LBJ, etc., all since the ruinous days of Herbert Hoover. And Obama has his own redistributionist agenda to advance too, don't forget.

Anyway, while resolving why Maynard and I both see the future exactly the same, I thought, well perhaps some clarity is coming to the average American, some kind of convergence of thought. Is this what Obama meant by bringing us all together? That the future holds for high inflation, high energy costs, much slower growth and a sustained deterioration of the currency. But Wait, Maynard believes that it is a good thing that all savings accounts and fixed pension accounts are going to be depleted. (Too much unused money out there anyway I suppose), and that it's our last best way to get the economy going. In other words, Maynard believes it is a valid function of the government to tamper with the money.

Well, after all that, maybe we don't see things the same at all. Maybe we just both see clearly what happens between now and January 2013. Total agreement is such a temporary thing.