Just what happens to the mind when the bank account crosses the billion dollar mark? Do all those dollars exert some kind of Big Government Tractor Beam that only the few can escape? Or is it just the logical conclusion of crony capitalism?
Let’s examine two of the most influential billionaires of our times, Warren Buffett and George Soros. One squanders opportunities to promote and enhance the system that made both of them rich, while the other actively seeks to destroy it. Continue reading »
“All politics is local”
- Thomas “Tip” O’Neill, Speaker of the U.S. House of Representatives from 1977-1987
Oh really? Increasingly, it seems like Washington didn’t get the memo.
In Arizona, an overwhelming majority of citizens have had their legislative directives overturned by a federal judge that towed the Obama administration’s political line. According to an April Rasmussen poll, 70% of Arizonans (but far fewer journalists) supported their law which would have permitted local police to seek immigration status documentation in their course of work. Note that having to provide your car registration to the police upon being pulled over for “reasonable cause” is already a widely accepted practice; being able to prove that you’re in this country legally doesn’t seem like a big stretch from there.
But this is just one of a number of increasingly high-profile interventions by the federal government into the affairs of an individual state. Continue reading »
Keynesian economics, that economic theory that is once again running the country, was shown to be a complete sham this past Tuesday by a fifth grade student in small Midwestern town during a routine math assignment. The student’s teacher and school principal were impressed enough to issue a press statement, excerpted below:
“I was working on my decimal and percentage multiplication
for homework”, the student said, “and I could hear my dad complaining about how his paycheck was smaller because of all the taxes they take out. He said his check was about 75% of what he earned. I asked him where the other 25% went and he said to the government, but that the government was spending a bunch of that money to stimulate the economy.”
“So I thought some more about that, and it occurred to me that they can’t simply take whatever they tax from my dad and spend it somewhere else, because some other moms and dads working for the government have to get paid, too. Of my dad’s taxes, I bet they can probably only spend maybe half of that on stuff they think will grow the economy. Continue reading »
I feel slighted. For years I’ve been going to my dentist, and not once has he come over to my house to buy anything. Likewise, my supermarket has never offered to purchase produce from my backyard garden. And the mechanic at the place where I get my car repaired has never had me repair one of his on my driveway.
I think I’m running a “trade deficit” with each of them. At least that’s what I’m led to believe by listening to people who claim we have large trade deficits with certain countries, like China.
“You nimwit!”, says the ghost of my tenth grade accounting teacher. “You’ve forgotten your T-Accounts! All year long we drew those things on the board, and this is the thanks I get?!”
Oh, yeah, the T-Accounts… What would the T-Accounts say about my “trade” with my dentist?
Photo by Ira Block
[This essay was originally entitled "Lessons from Grand Central Station", until several readers pointed out that the correct name is Grand Central Terminal. It was an error that I could not let stand. The permalink (URL) reflects the original title so as to not break existing references. -- Author/Admin]
Every weekday morning, trainloads of people are dumped into New York’s Grand Central Terminal and sent on their way. Thousands per hour traverse the huge main room as they make their way to their desired subway stations, taxi stands and exits in all directions. Arteries of traffic spontaneously form and disperse — you can join one that’s going in your general direction, get swept along its path and then step out at your stop. The human pathways will intersect each other with the precision of a champion marching band. Collisions between any two people amongst the throngs are rare, even amongst those who clearly don’t know where they’re going.
Photo by Ira Block
What’s most remarkable about the above is that no one manages this process. There are no human traffic cops in white gloves waving some people on and telling others to stop. There are no ropes herding commuters one way or another. There are no rules dictating which path you must take to get from point A to point B. The room manages itself, based on essentially one unwritten rule: common courtesy. That is to say, you can’t charge through the crowd like a running back, stiff arming people as you go. What might initially appear as chaos is instead a model of simplicity and efficiency.
Perhaps you also caught CNBC’s Erin Burnett and Mark Haines interviewing AFL-CIO President Richard Trumka last Thursday morning in front of the New York Stock Exchange, prior to a labor union rally near Wall Street later in the day. Talk about shock and awe!
Shock at the blatant hypocrisy. Awe at the depth and breadth of economic illiteracy. This was populist demagoguery at it’s finest, and one could write a book on the distortions, fallacies and misinformation in just this one seven minute interview. Let’s take a look at some highlights:
Haines: What do you want? What are you trying to prove or point out today?
Trumka: Well there’s three things that we want to say. These guys destroyed eleven million jobs. They wrecked the economy. They got bailout money. And they haven’t learned a lesson. So we want them to do three things. We want them to pay their fair share, to create the jobs that they destroyed. Two, we want them to stop fighting Wall Street reform, because they send a legion of lobbyists to D.C. to stop it from happening. Three, we want them to start lending to small and mid-size banks so they can create jobs.
Have we entered the Twilight Zone? Continue reading »
It seems like whenever a particular market has hurt a bunch of people, and we all know that’s happened lately with a lot of markets and a lot of people, the chorus rises up against that group that surely must have made things worse: speculators. But amidst the hysteria and hand-wringing, it’s instructive to calmly walk through the scenarios that speculators and their trading counterparties find themselves in as they go about their business.
Merriam-Webster defines “speculate” as:
1 a : to meditate on or ponder a subject : reflect b : to review something idly or casually and often inconclusively
2 : to assume a business risk in hope of gain; especially : to buy or sell in expectation of profiting from market fluctuations
So it seems that to be a speculator, you need to have a view on something. That’s generally the easy part, in that most people will express a view on just about anything. Whether it is “correct” is another matter entirely, as is the issue of who decides what “correct” is. But acting on those meditations and reflections results in the market itself: two people having different views on the value of some tradable thing, each being willing to swap ownership.
In June of 2008, Stephanie Simon wrote a great article entitled “The Greenest Show On Earth: Democrats Gear Up for Denver”. She described the trials and tribulations of the planners trying to implement Denver Mayor John Hickenlooper’s charge of making “the greenest convention in the history of the planet”. Here’s a short excerpt:
Consider the fanny packs.
The host committee for the Democratic National Convention wanted 15,000 fanny packs for volunteers. But they had to be made of organic cotton. By unionized labor. In the USA.
Official merchandiser Bob DeMasse scoured the country. His weary conclusion: “That just doesn’t exist.”
Seventeen months and one victorious Presidential election later, as the Democrats run all three rings of our government’s circus, it is clear that the folly and/or paralysis described in Simon’s article was merely a foreshadowing of things to come.
The fundamental problem facing the Democrats right now is that their understanding of how an economy works is flat-out wrong. It’s not like their policies will not work. They simply can not work, any more than Newton could will the apple to fall from the top of his head back onto the branch. Consider the following plans of action:
Economic “Stimulus”: Proclaim to know how to direct the resources of the economy in synergistic fashion, like some kind of nuclear fusion reactor creating more output than the inputs used. Continue to pursue a strategy that is based on class-warfare, envy and redistribution. Refuse to acknowledge that taking resources from one part of the economy via a political process, and handing them over to some other part of the economy, will not and can not produce a net positive. Recoil from the possibility that their very attempts to manage the economy are in fact the cause of the economic woes they now try to combat.
Cap & Trade: Propose a $200 billion dollar/year boondoggle to extract additional resources from the economy to be re-allocated to some supposedly wiser-purpose, all for a negligible change in the supposed villain, average global temperature. Maintain the overarching vision the that humans can control the climate of a planet. Support the silencing of dissenting points of view, and blame any dissenters that slip past the gates on Rush Limbaugh.
Card Check: Hammer home the belief that the economy can be made better off by eliminating workers’ rights to a private ballot as to whether or not they should form a union. (Whatever one thinks of unions, this simple fact about this proposal should make it DOA, but it remains a top legislative goal).
Health Care: Take an already over-regulated one sixth of our economy, call it a “market”, proclaim that markets don’t work, and seek to take it over instead. Hold up the structurally bankrupt programs of Social Security, Medicare and Medicaid as models to emulate. Vilify the insurance industry and proclaim the desire for competition, but do not allow the insurance companies to compete with each other across state lines. Make no mention of medical-malpractice and tort reform. Lastly and most importantly, do everything possible to hide the successes of Health Saving Accounts and similar freedom-based, patient-empowering programs.
Taxation: Stay on track to allow the Bush “tax cuts for the rich” to expire. Maintain the class-warfare required to support such policies. Ignore the fact that “the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined.“ Continue the path towards having 50% of wage earners pay no income taxes at all (standing at roughly 43% right now). Make no connection between high corporate tax rates and companies sending jobs overseas.
If you were an entrepreneur, or a business owner or manager with the ability to start large new initiatives, perhaps ones requiring large numbers of new employees, in the face of the above legislative uncertainty, would you dare proceed?
Hopefully as the Democrats keep themselves tied up in logical knots, they will succeed in passing nothing in the way of major additional economic legislation. Eventually, perhaps requiring several election cycles, the pursuit of such hamstringing policies will be dropped (or those enacted, repealed) and the true engines of growth will be unleashed. In the meantime, as the party of Biggest Government (yes, the Republicans have their sad recent history of being the party of Bigger Government), the Democrats can not do the right thing because doing so would require them to repudiate their very worldview. Solutions to our economic problems based on a worldview that an ever-expanding government can create a utopia-on-Earth are every bit like Bob DeMasse’s sought-after fanny packs. They just don’t exist.
Imagine one morning you wake up and learn that The United States is under attack from multiple fronts, our defenses overwhelmed by a previously inconceivable force. It’s not unlike 9/11, except on a much wider scale. Your plans for the day have just been changed.
Different scenario: You are woken out of bed by the carbon monoxide alarm in your house. You can’t see or smell anything wrong, but it’s not a false alarm and without it, you’d meet a sad fate.
In the first scenario, the threat is so obvious that the need for taking some kind of defensive action, perhaps even an offensive one, is equally obvious. Failure to do so could prove fatal. In the second scenario, the consequences of inaction are every bit the same, but the threat can not be easily seen. It has to be detected by other means.
The United States is currently engaged in a “hot” war with multiple fronts, thankfully not on our soil. Less thankfully, many of the citizens of Iraq and Afghanistan have woken up to the first scenario, and have been forced to act accordingly. And although no one wants the war to continue any longer than required, losing the war is not an option.
Yet on American soil, like the carbon monoxide threat that can not be readily seen, another war is now underway. It has many fronts, and the enemy force is organized, highly determined and well funded. It is also a war that we can not lose. This is the war on capitalism and free-markets.
In many respects, it is the more important war.
Consider first off that the terrorist forces that attacked U.S. soil in 1993 and 2001 recruit from regions of the world where poverty reigns. To a David with a highly questionable economic future, a chance at greatness via a terrorist act against Goliath begins to look more appealing. But the irony in what they are attacking is staggering. The economic system which defines America — “the land of opportunity” — is exactly the system that could be bringing these economically hopeless people out of their despair. The opposite is also true, as Steven Malanga has written, “free markets are rare in starving nations“.
To whatever extent America weakens its most differentiating characteristics, we reduce our opportunity to be an example in how to best lift the world’s inhabitants out of poverty and into peace.
With wealth and poverty being opposites, if we lament the latter, we must look to promote policies and practices that have demonstrated track records of creating the former. Likewise, free-markets and their resulting capitalism are inimical to war. They are the best peace-plan ever devised. It bears repeating: A truly free market between two trading partners makes both parties better off. Once this virtuous circle is in place, there is a greatly reduced incentive to go to war, as both parties are made worse off. Note that this precisely explains Russia’s reluctance to join in the chorus against Iran — they are huge trading partners.
Under a rising tide of concern over Obama’s push of our economy into a more socialist-leaning direction, we have George Soros greasing the skids, with the goal of de-emphasizing free-markets in matters of public policy. This will be no small effort either, with a hoped-for endowment of $200 million. This is more than the combined endowments of many of the more notable free-market organizations.
And the proverbial “carbon monoxide detectors” are going off with regard to the United States. Exhibit A is the value of the US dollar, which has been meandering downhill like a nice “blue” intermediate ski trail with black diamond sections becoming more frequently interspersed. Exhibit B is our exploding debt, which is finally catching more attention for what it is: blatant inter-generational theft.
What’s truly mind-boggling about the efforts of Soros and his wealthy followers is that they decry the very system in which they became wealthy, the system in which they expand their wealth, in classic “I’ve got mine, close the gate” fashion. Witness Michael Moore’s “Capitalism, A Love Story” — in some countries, attacking the native economic system with such a movie would get him killed.
This crowd simply doesn’t understand what free-markets and capitalism are. They think our economy, with its ever increasing regulations, corporate cronyism and government-as-backstop is a free market. Others have done a fantastic job at illustrating the ridiculous nature of such claims, very recently, Charlie Gasparino’s piece in the Wall Street Journal (expanded in his new book, “The Sellout“). Two other recent and noteworthy books, Thomas Woods’ “Meltdown” and Thomas Sowell’s “The Housing Boom And Bust” also make the methodical, crystal-clear case that big, interventionist government itself was the primary cause for our recent financial crisis.
None of this would matter if the anti-capitalists didn’t have the full mind and ear of the legislative and regulatory arms of the federal government right now. The damage that could be done in just one 2-year congressional term is incalculable. Ronald Reagan’s “shining city on a hill” runs the serious risk of tarnish.
In the opening example of a sudden “hot” war in our backyard, we would all literally leap to our feet and do anything and everything required to defeat the enemy. Yet surely and silently an enemy operates in our midst whose worldview can more easily lead to the “hot” war. When will we leap to our feet to defeat it once and for all?
Sometimes the truth hurts.
The economic understandings or misunderstandings of our members of government get reflected in our laws and regulations. And at the end of the day, it is the economic understandings or misunderstandings of our electorate that determine which individuals serve there. In this past election, in siren-song fashion, Barack Obama convinced a majority of voters to act on misunderstandings of how the economy works and became President.
The repercussions of such economic illiteracy are now being played out. First there was last February’s massive “stimulus” bill. Most recently there has been the take-no-prisoners battle to re-make the healthcare portion of our economy. “Cap and Trade” looms in the not too distant future. Obama remains determined to re-pay unions via passage of “Card Check”. Calls for a second stimulus are rising even as majority of the first one’s dollars have not been spent. The list goes on and on. Elections do indeed have consequences.
One of the most fundamental fallacies being followed by Washington these days is the belief that in the face of a slumping economy, government must “stimulate demand”. In the most basic of economic courses, the student is taught that “economic equilibrium” is achieved when demand equals supply, and that markets are always trying to move towards that state. Many in Congress, and the many voters that put and keep them there, seem to think that demand equaling supply falls under the “Which came first, the chicken or the egg?” category. They are sadly mistaken.
Who will defend the practice of “demanding” without first “supplying”? We supply so that we can demand — supply must come first. This truism renders any attempt to “stimulate demand” not just backwards, but practically immoral.
For example, who “demands” that they have gasoline for their car without first supplying their labor in some fashion in order to have money to pay for the gasoline? And is it truly the government’s function to provide that job that will then pay for the gasoline? If so, who supplies the government with that job that can then be dispensed? Should the government command someone to provide the job by force? We’re now only a couple steps away from slavery. Note also that any consumable, such as food, clothing, shelter, or even healthcare, substitutes nicely in this line of reasoning.
“Creating jobs” is not described in the Constitution as a function of government. Only a tortured interpretation of things like the “General Welfare” or “Commerce” clauses would begin to assign that role to government. The moment we look to government to create a job, we fall onto a slippery slope: Who decides what jobs to create? How are they funded? How do we evaluate job performance? As a nation we are now collectively bruised and battered from falling down this slope for several generations. It’s also worth noting that it is exactly when voters “demand” that the government “create jobs” using its redistributive techniques that we wind up with stimulus programs where the effective cost of those “created jobs” runs into the hundreds of thousands of dollars per job. Indeed, if the $787 million February stimulus, according to The White House, “creates or saves” 3.5 million jobs (ignoring for now how we’d actually measure that), that works out to nearly $225,000 per job.
What is fundamentally not understood amongst an apparent majority of voters is that entrepreneurs and their financiers, (often being one in the same), create jobs. They perform the vital discovery mechanism of demand assessment and supply a potential solution, risking their own resources to do so. It is a truly virtuous circle, in which the entrepreneurs who best understand the needs and desires of their customers – their demands — are rewarded most handsomely. Likewise, through the vital role of failure, bad assessors of demand are punished, and collectively we can all watch and learn what works and what doesn’t.
A critical point to realize about the above process is that no central orchestrator directs the entrepreneur as to what action to take. They might do exactly the wrong thing. They might also supply a solution for which there was no prior demand. Yet this is precisely how things like the personal computer or iPhone came about. There was no government program to initiate the demand of having a computer in one’s house, let alone in one’s pocket.
Unfortunately due to a general lack of understanding of this process, we’ve tolerated an increasingly hostile environment towards fostering supply, such as ever-escalating taxes, oppressive regulations and minimum wage laws that prevent employers from putting that first rung on the economic ladder closer to a reaching hand.
Getting back to the election, in the case of Barack Obama, another dynamic was also present: Many voters became further enamored with the historic possibility of electing the first black President. Yet with painful irony, these voters ignored Dr. Martin Luther ‘s historic plea to judge instead by the content of one’s character. Had the philosophies behind Obama’s economic agenda (a major part of his “character” in this case) been more widely understood, a majority of voters would have realized that much of what he wanted to do (and indeed is now trying to do) has been tried before and has failed. They simply would never have elected him because doing so would cause themselves great economic harm. And sadly, as prominent economists like Thomas Sowell have noted, it is exactly these failed economic policies that have disproportionately harmed blacks ever since FDR’s New Deal, accelerating through Johnson’s Great Society to today. Voters should have rejected these policies in the same way that they reject being told that 2+2=5. Fortunately our collective mathematical literacy has not yet caused us to re-write that fact (although Congress often makes valiant attempts).
Ironically, economic illiteracy also kept Obama’s opponent, John McCain, from being able to convincingly articulate an alternative to Obama’s vision of a bigger, more activist government. So perhaps it is fair to say that more economically literate voters had no horse in that race. But it’s also fair to say that an economically illiterate mainstream media fanned the flames in Obama’s favor, recklessly avoiding any kind of challenge to his audaciously hopeful plans. As the saying goes, “hope is not a strategy.”
So will 2010 be the year that voters snap out of it and send the likes of Nancy Pelosi, Barney Frank, Maxine Waters, Christopher Dodd and the rest of them packing? With incumbent reelection rates in the mid-90% range, it would be fair for Congress to think the voters have approved of their actions so far. To the voters we say, “we have met the enemy, and it is us.”
@CivilSocTrust
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