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.

Productivity in the Education Sector

 

“Education is the kindling of a flame, not the filling of a vessel”  -- Socrates

Walter Russell Mead put up a new blog post which is recommended reading. Although it is quite long, it lays some groundwork for what I think is an important set of circumstances soon to affect us all. Among the ideas it presents (and that I agree with) are:

1. There is an education bubble. Much like other organized labor bubbles (both public and private sector), this one is also about to pop.
2. Productivity has been the one thing that repeatedly saves our bacon when things get dicey, as in great recessions, for example.
3. Productivity in the education business will be a major change, in that the whole idea of teachers and classrooms may soon be widely seen as out of date. People will find more efficient ways to learn what they want to learn, and sheepskins will be replaced with achievement tests. Testing out of college, as it were will be the norm for the gifted.
4. That those who currently "deliver education" will first ask for subsidies on the old processes. Resistance to their calls will be branded as heartless; but the transformation will be eventually seen as real progress. 
5. Productivity will eventually infuse all of our information based institutions. Lawyers could be replaced by robo-lawyers in very short order. Productivity in the lawyerscape means faster and faster information processing to the point that a legal brief will be available at the push of a button. Why would this not be true of other services we currently rely on people to provide?

I personally was wondering, even worrying about where the next productivity growth was going to come from. I think Mr. Mead may have unlocked a large piece of it here.

Toward a more perfect union

Recently, a good friend sent me the following note:

There should be about a dozen lawmakers and their staffs. They would be elected by direct vote every two years. They would listen to private special interest groups alike the N.R.A., the Sierra Club, Boeing, Puritans of the former State of Mass., etc. They would be guided by a modernized version of the Constitution and campaign statements of "What Americanism means to me." In 25 words or less.


They would make and delete laws as needed, confirm Supreme Court Judges and declare war. The population or corporations would contribute to the special interest groups directly or not, depending on how important each issue was to them. Never directly to a lawmaker.


There would be no political States. An area could declare itself a "State" with a Governor embracing a certain quality of life such as, Greater New York City, Montana Countryside, or Rural Midwest. Everyone would have a "home" State.


They could spend time in another state, but they would have to pay a "Tourist tax" which could be negative. The States would receive a portion of tax dollars depending on how much they paid (about 70%). Only the Feds could collect taxes.


They would keep some for Fed projects and a baseline representation of all
citizens including illegal aliens who are here but do not contributive anything and have no State.

Some very good, very forward looking (I can't use the term progressive any more) ideas.
I like the idea of very few term-limited legislators, although I would suggest that the risks are great, because any 12 persons can more easily conspire to perpetuate the tyranny. On the other hand, managing this or any other useful constitution shouldn't require much more than 12 people.

When I revert to my natural anarchic state, I visualize utopia as no central government whatsoever. In a perfect wold, all governments are local. And if you don't like your local government, move. Odds are there's a better one within walking distance.

I recognize that there would be some confusion. For example, you'd have to pay a toll every 8-12 miles, but maybe some creative consolidator could manage that effectively, much like the Indiana and Illinois do with their toll pass system.

Also, when I go back to this 'no central government' construct, I recall that we had exactly that between 1776 and 1791. We had the commonwealth of Massachusetts, and the commonwealth of Virginia, and all the other governments that the people were perfectly happy with. Everybody knew the governor, or at least was free to go see him. Then, in 1791 the states signed up for whatever reason to a federal government, which many rightly felt they didn't really need. It was sold to these people on the basis that the entity's role was limited. Someone had to maintain the Atlantic police fleet. Since New York was mostly landlocked, and it wouldn't be right to have Delaware, Virginia, etc. foot the entire bill for protecting the coastal ship traffic. So, to provide for the defense was the one compelling reason to unify the states.

The only reason this new republic did not suffer immediate tissue rejection was because Thomas Jefferson and a few other early presidents were careful not to overstep their charter.

Then, starting a few decades later, states rights were subjugated to federal authority, and the rest, as they say, is (literally) history.

So if, as some of our "progressive friends" like to say, the constitution is a living document, we need to move on from the old ways. Okay, I say, let's try a new system where we assign all rights to the states, and let them decide piece by piece how much federal government we want to allow. How's that for progressive? Better yet, we could start at the municipal level, and decide from there what constitutes a state.

Something tells me that Hoosiers will be perfectly happy to stay Hoosiers, and even happier to not have to send their best politicians and 28% of their money to DC. They'd be happy to spend, say, their full share or more of the defense budget, but that money wouldn't have to go through the big government bureacracy. instead, their state would pay a fee to the public defense utility which would be responsible to its own shareholders and to its customers (the residents of that state) for protection. A lot like the electric company.

To those who are looking for the economies of scale where the federal government is responsible for collecting all the money. I think the closer the money is spent to where it is being earned, the better. It simply loses too much value in the round trip through Washington DC. The poor schlubs in Washington who are chartered to spend it have no clue what would have a positive impact on that local economy. Let the mayor spend it. Let the locals decide how much they want to be taxed, and let them see the results of what they bought.

Anyway, with the collusion that goes on now between the two big-government
parties, I see no real relief initiated at the federal government level. Until a state decides to secede, the federal government will continue to own us all, and in ever increasing ways. Maybe the Alamo in a more literal sense will be the last outpost of freedom.

What's the holdup?

The 112th Congress has been around for a week, yet we still have this problem. When are we going to see some action?

Taxes are not the problem

In the lame duck session of the 111th congress, a status quo extension of nominal tax cuts for two more years was hailed as a victory for the Republicans. After all, it's what the Republicans always seem to want. Taxes that are merely too high, instead of "OMG high".  Once again, both sides play us for suckers. For the average guy, it isn't the difference between the $10,000 he now pays and the $13,500 dollars he would have paid without the tax cut continuation. Sure, $300 a month would have brought the spending down considerably, and real jobs would have been lost in the process. But this is small potatos.

Small potatos, I say, because while they are delivering this flaming bag of manure they call a tax cut, they are taking action to devalue our currency by 3 times this amount, through collaboration with the Fed.  Why squeeze another 3 grand out of the citizen, when we can much more easily print 10 grand per taxpayer and hand it out like it was real money.

The income tax has not been the issue in some time. The issue is the big dose of inflation the country is about to suffer through. No sense in taxing just income, because they can tax everything you own just by making your dollars worth that much less.

So come ON. The issue is not income tax. It is the size and scope of government, and how much of our national resource is being reallocated to grow it. Whether taxes rise or fall matters far less than whether the government grows or shrinks. Don't fool yourself. It all gets paid for one way or another, and we need far less of it than we are buying right now. Far, far less. 

Dear Wizer #3: Afghanistan

Dear Wizer,

Afghanistan.

Signed,

Incredulous

Dear Incredulous, Your Wizer doesn't usually delve into foreign policy. The previous --oh--20 or so administrations have made such a mess of things that parsing it all out is not a practical goal. However, it does have a bearing on our reasonable expectation for personal safety, so I will say this about Afghanistan. This is a people whose biggest goal was getiing to the camel market before sundown. Now they see a bigger world. Where once their best weapons were scud missiles and box cutters, now there is a brave new world out there, with modern technology and cave making ordinance. Our administration wants them to be better organized now, with a central government, presumably so they can be coordinated in their contempt and ridicule of US citizens.

Whatever happened to leading by example? Why can't we just go about our business, and let the Aghanis and every other country on the planet organize in their own way? If we are a freedom loving people, we should love the Afghani's freedoms, and simply leave them alone. Theirs is a network of corruption that spans across the country. It's the way they prefer to work. We prefer to keep our corruptions in DC. Just because we don't like theirs it doesn't make me feel like I should go over there and play social engineer.

We go in there guns blazing like we're some sort of global SWAT team, and we wind up operating their friggin day care centers. Meanwhile, the ones who hate us have picked up a few new technologies to use against us. What WERE we thinking?

Dear Wizer #2: Bush Tax Cuts

Dear Wizer,

Bush Tax Cuts?

Signed,

Puzzled

Dear Puzzled, Yes, it can be confusing, because there is so much doublespeak involved. The "Bush Tax Cuts" refers to a set of tax reductions entered during the last recession that were designed to forestall the country from falling into a deeper recession. That action expires on January 1st.

The tax cuts were a way to kick a number of the cans down the road, because the dotcom bubble and 9/11 kind of swamped out the real economy there for a while. These cuts should have been made permanent, but for political reasons they were not. So now, there's all this confusion about whether we are talking cuts, hikes, and for who. So I'll try to break it down for you later in this article, but first a little history:

Way back in In 2008, the government sponsored mortgage industry failed due to lax lending standards and poor management. Then government sanctioned banks began to fail for the same reason, and then because nobody wanted to loan money to anyone (especially the riskiest of ventures), the government decided to own all the risk, including the shakiest of them all, the auto companies. Of course bigger stimuli are needed to keep all these plates spinning. So, we have big spending, and the propping up of Wall Street, DC, and Union HQs across the land.

Meanwhile, the real economy had not recovered from 2001, so the tax cuts' only function if there was one  was to allow the underlying problems to go another 6 years under the radar. We are now faced with a scenario where doing nothing will increase the average guy's taxes by $3000/ year. That's just to keep things steady.  Even the economically misinformed Keynesians and Socialists in and around the administration know this is a big problem. Take $3000 out of anyone's budget, and you will see what economic stagnation really means.

So now, there's this bill that the administration is concocting with the help of the senate, which is said to be bipartisan, and which will "extend the Bush Tax Cuts" another two years.

Here's the thing. It's not a good bill. You might hold the opinion that two opposing sides agreeing on something would make it a reasonable thing to do. The fallacy in that idea is that there are two opposing sides. Both of these sides want the wheels of big government to spin merrily along, and are simply praying that the economy will recover soon enough that they can take credit for having passed this stupid bill. Here's what it does:

1. Extends (by 13 months) a generous federal subsidy for persons wanting to avoid work.
2. Promises not to raise taxes for two years for people who actually do work, but requires them to subsidize this first group.
3. Provides Congressmen with 300 more pages of earmarks and set asides for the "good of the constituency".
4. Extends the misery that is New Orleans by continuing a now perpetual subsidy for not finding your own post-hurricane home (and countless other malappropriations)

In essence, our leaders are saying "We promise not to rob you in such a way that you can detect it".

Sadly, the only debate is not whether to kick the can down the road, but who's turn it is to get in the can. It's your turn, of course.

Dear Wizer #1: WikiLeaks

Dear Wizer,

WikiLeaks?

Signed,
Uncertain

Dear Uncertain: WikiLeaks is an operation looking for notoriety as a purveyor of secret documents. The documents are usually reports and memos detailing our country's low opinion of other country's bad habits.

The name WikiLeaks is poorly chosen because it means, literally "Quick Leaks". Most of the time, the leaks are very long in development, and not delivered quickly. In fact, last time I looked, the site was down.  In addition, I would think that WikiPedia would have some sort of trademark position on the name, but I digress.

It's not unusual for the president's administration to take issue with organizations wanting to tell the truth (cf: Obama vs. Fox News). Whether the truth was exposed illegally is probably without question (I don't doubt we have a lot of laws for hiding the truth). The laws must be followed. Still, The Wizer applauds truth in all its forms, and the internet is the best system yet for organizing and making truth available. So in many ways, WikiLeaks is necessary, and in many more, inevitable.

Is this bad?  Is what WikiLeaks is putting out "some serious bad JUJU"? Let's examine that. There are very good reasons to keep secrets from our enemies, especially the ones that are not already US Congressmen. Some of these secrets' exposure will cost lives. Certainly it's dangerous for the spooks in the field who have  had their cover blown. As part of the damage, we've likely had some very helpful information outposts now hopelessly compromised.

But there's a little explored upside, too. Now, with all our cards and some of theirs on the table, everybody knows what we are thinking. That hasn't happened since Reagan. It's a big-time reset button, and is probably about time we started dealing in true facts. Most of what we do outside of this country has little to do with the business of running our country.It deals instead with our country's meddling with other countries. Don't get me wrong, we need to keep an eye on things in Teheran, Hanoi, and, obviously  Marin County CA, but it's what we do with this intelligence that counts, and sometimes (perhaps most often) we do more damage than good. Like handing a bag of money to a dictator, or sliding a weapons contract under a door.

The truth doesn't necessarily change any policies. It will take votes (and a good many of those) to change things. But what the truth will do for us is shine a brighter light on our leadership as to how we are conducting our business with the rest of the world. I for one fea that less than a cloak and dagger organization with loose tethers to American reality.

I don't know what this guy (Assange) 's motivation is, and I don't think motive is relevant here. For all I know, he just wants to be rich, mysterious, and famous. He's got his 15 minutes already. For the most part, I didn't find any one piece of the information leaked as being all that interesting. So, the Saudis would like us to bomb Iran? big surprise there. The Yemeni want to provide cover for our ops? Sure, maybe one good movie can be made from that. In my view it's hardly important for anyone to understand Assange's goal, unless they intend to stop him. Is stopping the truth something we should endorse? No; but it's a losing battle in any case.

I do think Assange has done something of significance though: he broke through one of the false barriers to truth, and others will rush in to capitalize on it. Apparently there's a market for it (or there wouldn't be 100 news stories a day on the subject). Can Google-Leaks be far behind?

On the Wizer's Virtual Nightstand

"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs."
- Thomas Jefferson

In October, Mark Thornton addressed the LvMI, republished in this article that show just how far Ben Bernanke appears willing to go to shorten our path to hyper-inflation. I recommend everyone do the following:

1.   Start viewing the videos at inflation.us .
2.   If you haven't been keeping up with Glenn Beck on TV, read Broke
3.   Go to Jim Sinclair's Mineset and follow along regularly.
4.   Get the podcasts from Jim Puplava's Financial Sense Newshour
5.   Start an emergency food, water, and energy stockpile.
6.   Study up on residential farming, solar energy, and functional independence.

Your family is counting on it.