Here we go again....

Well, we did it. Americans elected B Hussein to another term. While I am somewhat sickened by the thought of another four years of trying to navigate a socialist in the White House, maybe we had it coming. We are in a fiscal mess. $16T in debt. Unemployment at ~8% and the lowest percentage of Americans actually in the workforce in decades. Housing has not come back and inflation is on its way and it is really just a matter of time before the awful effects of this nasty condition inflict harm. All this is pretty bleak, but there is a bright spot. Americans only make difficult decisions when they have to, no later and no earlier. We have not hit rock bottom yet. We are still the best looking pig at the show. Better to be American than any place in Europe or South America. India is no threat. Their government is a bigger joke than our own. China is no threat. With GDP at $2500 per capita, they have years to go to be a threat to the US. Africa, they are 200 years or more behind with a growing Islamic tendency that will annihilate itself. What we can do is regress and that is exactly what I believe will happen. We will still be on top, but at a much lower standard of living. Kids will no longer surpass their parents' standard of living. Business investment and innovation will lag and the formation of capital stock will reverse course. Fortunately, B Hussein's policies will take us to rock bottom and much faster than those of Mitt Romney. Only then will Americans wake up and realize that 20% of the population cannot possibly care entirely for the other 80%. Only then will the unproductive realize they have killed the goose that laid the golden eggs. It is scary, but it was inevitable. It has happened in every prosperous society for 2500 years. When the masses realize they can plunder the public treasury, it is just a matter of time before the decay begins. I can only hope that we hit rock bottom soon so my kids have a chance at a future that is bright. Otherwise, they will spend their adulthood dealing with the effects of a government that has failed the people. It is sad to think, but I am not sure Romney would have been much better. A guy that spends 7 years running for president after serving as governor is really a career politician, not a businessman or big government reformer.

The Volt...

Very funny video...I do smell something?

Chevy Volt - Building a Better Tomorrow from Ben Howe on Vimeo.

New from the RNC. Hope for Change....

Makers vs Takers

An editorial from the WSJ today paints a very bleak picture for producing Americans. Government is now the biggest industry....

Makers vs Takers.

American Production

Some interesting articles on US Manufacturing prowess and our place in the the world. First:

Per Capita GDP US vs China.

Second:

WSJ Article.

Mark Perry has a great blog as well.

Governments and Unions

A must read:


Lew Rockwell

Money and Politics

Just a sample of political donations from the side that says corporations are buying politicians:

Based on SEC filings as of September 13, 2010, here are how several large union PACs are donating to political candidates:


International Brotherhood of Electrical Workers has donated $2,608,873 to political candidates. 98% of their donations have gone to Democrats.

Operating Engineers Union has donated $2,104,300 to political candidates. 89% of their donations have gone to Democrats.

American Federation of State/County/Municipal Employees has donated $1,914,500 to political candidates. 99% of their donations have done to Democrats.

Teamsters Union has donated $1,863,010 to political candidates. 98% of their donations have gone to Democrats.

American Federation of Teachers has donated $1,809,750 to political candidates. 100% of their donations have gone to Democrats.

Laborers Union has donated $1,807,500 to political candidates. 96% of their donations have gone to Democrats.

Machinists and Aerospace Workers Union has donated $1,726,500 to political candidates. 98% of their donations have gone to Democrats.

Carpenters & Joiners Union has donated $1,716,875 to political candidates. 84% of their donations have gone to Democrats.

National Air Traffic Controllers Association has donated $1,674,900 to political candidates. 83% have gone to Democrats.

State of the Union...

The state of events in Wisconsin are hopefully a turning point in American government. Johna Goldberg has an excellent column on why public sector unions are so bad for the tax payers of this country.

Even Roosevelt (the FDR variety) understood there was conflict of interest in public sector unions. While I am not a fan of labor unions, they have served a purpose over the years. However, the private sector unions could only go so far as to bankrupt a company. In the case of public sector unions, they can bankrupt states and that is a totally different matter.

I hope Wisconsin stays the course and doesn't cave like Indiana. We can only be so lucky as to replace B Hussein with someone who will be equally vigilant in DC post 2012.

Misallocation of Capital

The WSJ had a fabulous editorial yesterday that is a must read.

Here are some key points..

Less laudable is Mr. Immelt's habit of inviting government to be his business partner and promoter. In his 2008 letter to shareholders, the CEO declared that the financial crisis and election of Mr. Obama meant that the U.S. economy had been fundamentally "reset."

His key line: "The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner."

This is an invitation to the same kind of capital misallocation that led to the housing bubble. Mr. Immelt's particular goal is to promote policies and subsidies that aid green energy, in which GE is deeply invested. But if wind turbines are a good business, they will find a market on their own. If wind power turns out to be an uncompetitive bust, then the government will have misallocated hundreds of billions more dollars that could have found more productive uses.

and this...

Yet Tuesday night can't erase the fact that in his first two years Mr. Obama has overseen an historic expansion of government. He has increased federal spending to as much as 25% of the economy from a modern average between 20% and 21%. In terms of allocating resources, this means that 4% of annual economic output was suddenly taken out of private hands and put under government control.

and finally...

Government "investments"—Mr. Obama's favorite word last night—are by definition made for political purposes, rather than for their highest potential return. They are allocated by politics rather than by prices. In our view, that 4% of GDP a year could have contributed far more to economic recovery had it stayed in private hands.

Capital is a scarce resource. I put my bet on the private sector allocating it to the highest value rather by B Hussein and his cronies.

What's wrong with Social Security

From the US Government site:

Monthly Benefits

In 1950 all Social Security beneficiaries received a general "cost-of-living" increase--for the first time since benefits began in 1940. Ida May Fuller is seen here receiving her first increased benefit check on October 3, 1950.

Payment of monthly Social Security benefits began in January 1940, and were authorized not only for aged retired workers but for their aged wives or widows, children under age 18, and surviving aged parents. On January 31, 1940, the first monthly retirement check was issued to Ida May Fuller of Ludlow, Vermont, in the amount of $22.54. Miss Fuller, a Legal Secretary, retired in November 1939. She started collecting benefits in January 1940 at age 65 and lived to be 100 years old, dying in 1975. (Examining the first batch of checks) Ida May Fuller worked for three years under the Social Security program. The accumulated taxes on her salary during those three years was a total of $24.75. Her initial monthly check was $22.54. During her lifetime she collected a total of $22,888.92 in Social Security benefits.

I guess there is such thing as a free lunch....for a while.

Protectionist Questions

I read an old column by Prof. Boudreaux today that is worth posting. I am sure there is going to be something in the SOTUS address tonight where this will be valuable knowledge.

Ask the protectionist.

I especially like the following:

Many of you protectionists hyperventilate about America's alleged loss of manufacturing prowess. Are you aware that your worries on this front arise solely because you confuse manufacturing jobs with manufacturing output? Manufacturing jobs, as a percentage of all jobs in America, are indeed declining. And you hysterically interpret this fact as somehow proving that foreign producers are undermining America's economy.

But are you aware that America's manufacturing output today is near its all-time high? Are you aware also that America is by far the world's largest exporter of manufactured goods?

Are you aware that the reason manufacturing jobs are declining as a share of all jobs has far more to do with increased productivity of American industry -- that is, increased strength of American industry -- than it has to do with increased foreign trade? Manufacturing jobs are being lost to technology and improved efficiencies. Do you think that this trend is undesirable?

Getting Rich

Thomas Sowell has a brilliant column on the rich. There are plenty of people on the left that criminalize wealth without understanding where it originated.

New Heroes vs. Old.

Today, we tend to think of John D. Rockefeller as just one of those famous rich people. But Rockefeller didn't just "happen to have money." How he got rich is the real story-- and it is a story whose implications reach far beyond that one particular individual.

Before Rockefeller's innovations reduced the price of kerosene to a fraction of what it had once been, there wasn't a lot for poor people to do when nightfall came, other than go to bed. But the advent of cheap kerosene added hours of light and activity to each day for people with low or moderate incomes.

Econ 101 but so easily forgotten.

Social Security Hole

More Trade Is Good....For Everyone.

Good Top-Ten list on why trade is good....

Top Ten.

What's in a number part II.

What's a trillion look like?

See it here.

Now the government wants to move the debt ceiling past $14 Trillion? I think we have a problem....

What's in a number?

8000. We took on Obamacare for 8000 people.

See the story here.

Unbelievable. Nothing like politicians creating a problem....

Great Sowell Articles

Here are two great Thomas Sowell Columns:

Number One...

Number Two...

How To Reduce Unemployment.

This article posted today at Real Clear Markets offers some good advice for POTUS to consider. In addition to these 5 things, I can think of a few additional items to consider.

1. Drop the corporate income tax altogether. Business make investment choices based on after-tax returns. Increasing those returns will give more marginal investments an opportunity to generate a return and produce more income to tax. This also avoids the double-taxation of business profits and put equity and debt financing on equal ground. By giving equity financing the same status a debt financing it should reduce the need for companies to take on too much debt making our businesses more stable and strong. No corporate income tax would also free up monies that no longer have to be spent to hire tax attorneys and accountants that add no value to a business.

2. Cut government bureaucracy by 50%. The more government employees you have, the more busy-bodies there are to create rules and regulations. Reduce the number of people then slash the number regulations by 50%. Do we really need a regulation of bath room fixture height? In addition, there should not be multiple government agencies with oversight of the same issues. Take customs for instance. There are no fewer than 5 different agencies with their hand in the customs clearance process. This is absurd.

3. Every state should be a right-to-work state. The federal and state government should ban unionization of their workforce. Work rules where the people paying the salaries have little to no say in those rules is wrong. A collective bargaining agreement that is under the influence of politicians is not good for the tax payers. This government unionization drives up the cost of labor with no increase in productivity. That is not good for the economy.

4. Remove the minimum wage entirely. You cannot pay $7.25 for labor that is only producing $5 in value. Sorry that is a recipe for bankruptcy or unemployment.

I am sure there are many more ideas out there. In general, government needs to get out of the way and stop driving up the cost to hire workers.

Poor get richer too...

From another of my favorite blogs....

Living the good life

One can argue that the gap between rich and poor is growing. I tend to doubt this, but as Professor Perry points out, life is getting better for everyone.

Merry Christmas.

Health Care as a "Right"

This might be the best editorial on Health Care ever written:

From Cafe Hayek and Don Boudreaux

Could not be better said...

Big Business Evil?

Nicholas Taleb's new book sounds like a good read, but this short story on CNBC's website seems a little too harsh on the Big Businesses of the world. I know where he is coming from, but Big Business is good for our economy. For one, they hire lots of people. Two, they use capital very efficiently. Finally, they have scale and scope that allows them to develop better, cheaper products for us little consumers.

So why do people think Big Business is evil? My guess is that in several cases Big Business actually does do evil things. In almost every case that I can think of, this evil is in conjunction with the government. This might be in the form of some protective tariff forcing consumers to pay higher prices for lower quality goods or some how hamper a competitor. Evil might also be in the form of some special deal with a government agency where others had no chance to compete. Even worse, it might be a special bailout where losses were hoisted onto tax payers while the profits went to shareholders or company executives. No doubt these all are terrible outcomes of some Big Business activities.

However, there is no way Big Business can be evil unless it is aided by some sort of government influence. If market forces are allowed to work, unimpeded, the companies that fail to create value will fail. If you cannot compete with the import, you should go broke. If your capital is best spent on a lobbyist to get a special contract or provision to available to others, you should go broke. If you have sufficient influence in DC to subsidize losses and privatize profits, you should go broke.

We need to encourage and enable Big Business to get there in a free market not through collusion with Big Government. Our big corporations are a treasure, not a curse. Let's hope they can avoid the temptation of being evil.

US World Dominance

I have read several articles lately and one by Michael Elliott in Fortune Magazine I found particularly interesting. In the article he basically makes the point that the US is no longer as dominate, relatively speaking, as it was after WWII and that's okay.

I completely agree. A higher standard of living around the world is a great thing. The US does not need to produce 50% of the value in the world economy like it did in the 1940's. Producing 20% of a bigger pie is great for America and the rest of the world. It means more ingenuity, creativity and larger markets for products. Higher standard of living tends to limit population growth, conserve energy and clean up the environment. Of course there is a lot of work to bring the rest of the world up to the living standards of the US, but that would be a great thing, not something to fear.

Rising world prosperity would mean a smaller role for the US (think smaller fish in bigger pond), but that would probably due our hubris some good. There will most certainly be fear mongers out there that will claim this is a reason to be concerned. It's not. With a higher standard of living, nations will be less inclined to start wars as citizen will be more content with their political world. It also might mean the US will stop getting so involved in the affairs of others and we can focus on domestic problems.

In any event, everyone living longer with a better quality of life is something to embrace, not fear. I hope we can live with that...

Visual Statistics

Simply amazing...

The Things People Buy

I was watching several videos taken on Black Friday of people storming stores first thing in the wee hours to get their hands on the promotional items offer by many retailers. It never ceases to amaze me the efforts people go to in order to get the good deal.

After a few discussions with my father-in-law over the holidays it also ceases to amaze me what financial decisions people make in order to indulge in spending. One particular discussion was about the work my inlaws do at a food bank and a free clinic in northeast Oklahoma. One older gentlemen came into their free clinic one day to see a doctor. The man got to the clinic in a car that most people would not consider unsafe and that would make environmentalist keel over in disgust. As the man was talking to my father-in-law, he noticed that there was a new pack of cigarettes in this man's front pocket. So my father-in-law asked the man, "how do you afford your smoking habit?" To which the man replied, "you just learn to make choices and sacrifice."

Really? You make the choice to smoke over the choice to have regular medical care or safe (and maybe reliable) transportation? At $5/pack, I would imagine (based on the smell radiating from his clothing) that he drops a couple hundred dollars a month on Marlboros.

Unfortunately this is not single occurrence. My inlaws say they see the same choices being made when it comes many customer of the food bank. People showing up smelling of cigarettes, showing multiple tattoos and looking for free food for their multiple kids all while talking to someone on their cell phone.

For the life of me I do not understand how someone's economic priorities can be so screwed up. It really makes me think twice about charity this time of year. While I want to help the less fortunate, I don't want to contribute in any way to any one that believes Marlbors are more important than food, medical care and the basic needs of their family. By the way I do not consider Keystone Light, cable TV, internet, and cell phones basic life necessities. Call me crazy....

End of Life Care

I always DVR Frontline on PBS. It is a great program that tackles some very difficult issues. When I was going through my DVR yesterday, I nearly deleted the latest episode of Frontline as its title was "Facing Death." It would have been a huge mistake to miss this program and I encourage everyone to watch it (click on the link).

I have been through end-of-life struggles with two grandparents. It was particularly diffficult watching the decline of my grandfather who was always a larger than life figure for me. However, the way my grandfather wanted to die was perhaps the most noble thing he ever did for his family. He wanted to die at home with little modern medical interference. He only wanted the basic care that doctors, friends and family could offer and wait for the inevitable. Fortunately, the family agreed to carry out his wishes and let him conclude his amazing life the way he wanted to, at home with the people that loved him.

As for the program on Frontline, it was interesting to contrast the experience with my grandfather with those of the four families chronicled. In some cases I agreed with the actions of the families, in others I was stunned at what families did and wanted done. I guess these decisions are what make people different, but life is about living. Life is not hooked up to a respirator for a year with no consciousness.

Aside from the ethical dilemma of these decisions, I think the program failed to navigate the thorny issue of end-of-life costs. I can completely understand keeping someone on a ventilation machine for a few days until affairs can be worked out when all hope is gone. However, a year in ICU with a ventilator? That really just seems cruel to me and against the laws of nature.

Anyone that thinks remotely about economics would realize that the cost/benefit analysis in many of these situations is simple and very easy to interpret. If the family of the 87 year-old woman would have been asked to pick up a portion of the cost of this care I am confident they would have removed the tube many months earlier. There was no financial cost to them to prolong the life of their loved one. When people perceive there are no costs associated with their decisions, they will over consume. In this case they over consumed precious, and costly, medical care that was completely unnecessary for quality of life.

My position on the above does not mean I endorse death panels. End-of-life decisions need to be made by individuals and family members, not bureaucrats. It does mean these issues need to be understood and discussed openly and, in most cases, clearly documented. There also needs to be economic consequences for these decisions. Can the rich prolong their lives longer than the less fortunate? Yes it does, but it does not mean they are living.

Watch the program and DVR Frontline.

Sacrifices

I found this story about Alan Simpson to be very interesting. In it, he calls out Seniors for being greedy. I don't think it is just seniors that are being greedy, but everyone that has their hand in the government cookie jar. That includes State Governments, Unions (public sector and private sector), Green Energy, Big Agriculture, Small Agriculture, Defense, Health Care, and many many more.

So what is it going to take in the way of sacrifices for the US to find its fiscal way? I'm not entirely sure. However, I am willing to make sacrifice as I undoubtedly benefit from many government programs (defense, transportation, education, etc.). To be fair (whatever that means) I am willing to make sacrifices if the government is willing to makes changes. If the government would adopt the changes being recommended by the National Commission on Fiscal Responsibility and Reform, I am willing to give up what they recommend and maybe a little more.

The sacrifices that I am willing concede include raising the age in which I can collect social security to 69, dropping the mortgage interest reduction, and cutting the child credit. In fact, I am willing to forgo my entire social security check if the government would stop collecting the piece of Social Security Tax they collect directly from me. They can keep what they have already collected (over $190K) and they can continue to draw the piece my employer pays on my behalf (which is part of my total compensation by the way).

I give the chances of the NCFRR recommendations being implemented at close to 0%. Why? Because special interests will not make sacrifices. The government has created this cruel dependency over the last 100 years and people won't, and in some cases can't, go into rehab to get over this addiction. This addiction is powerful as the demonstrations in Greece, Ireland, Britain and France clearly indicate. There will be lies and misinformation, scare tactics and intimidation every time someone's handout is eliminated.

Politicians have neither the will or desire to stand up and do what is right to save this country. They only have the incentive to get re-elected, not do the prudent fiscal tasks to improve our situation. Term limits will help, but the political incentive system is unfortunately the down side of democracy. When more than 50% of eligible voters have the incentive to keep the gravy train running, there is not much that can be done to save the Republic.

It is all rather depressing, and hopefully I am wrong and the American people will awake from their funk.

Understanding Economics

I like to read a paper from my home town on line. Every so often, I like to read the LTTEs or Opinions. Here is one that I had to comment on in the Pratt Tribune. My response to letter is at the bottom, but also here:

To the Editor:

It is unfortunate there is such a misunderstanding about basic economics as this Letter to the Editor shows. It is important to first understand some facts.

US manufacturing output has grown every decade since the beginning of the 1900s. Today Americans produce more output while using less inputs than ever before. This means this country is very productive. It is this productivity that is often confused with reduced output. The confusion is the result of fewer people actually being employed in traditional heavy industry that leads people to believe there is less output. That is wrong. Fewer workers in heavy industry means we can have more people working in services, engineering, and medical care that help improve the quality of our lives as well.

Anyone that has traveled outside the US knows that US Dollars are essentially useless in most countries. The beautiful thing about international trade is we Americans get to give our trading partners pieces of green paper in exchange for goods that make our lives better. So why do our trading partners bother to give us goods in exchange for 6 inch strips of paper? Because they need those dollars to buy our goods because if you want to trade in this country you need dollars. For extra dollars that these entities have, they can put them in a vault and wait to buy more goods, or they can take those dollars and invest them in this country. That is exactly what that Chinese (and many others) are doing today when they buy US Treasuries and help finance our Government's spending addiction.

Free trade is what makes our lives better. In fact, I believe it was the free trade between States that helped create our prosperity. I like getting fresh fruit in the winter months from Chile, eating bananas and drinking coffee from Central America, and having cheap electronics from Asia. Limiting our trade means goods will be more expensive driving our standard of living lower, not higher.

So the question is how can we continue to increase our standard living and give our children a better life? Government cannot great prosperity. That has been proven time and again (think China during the time of Mao or the experiment of Communism in the USSR). Government can only created the environment where prosperity is allowed to blossom.

There are five simple things that government can do to create the necessary environment for prosperity.

1. Secure private property rights
2. Secure Rule of Law
3. Allow for spontaneous order without unnecessary regulations
4. Allow entrepreneurs to enjoy profits and endure losses without interference
5. Secure free speech and promote knowledge exchange

Isolating ourselves from the rest of the world through embargoes, tariffs, and other protectionist measures will only make matters worse for future generations, not to mention make the world less secure. After all, who wants to be at war with a good trading partner (known as killing the goose the lays the golden eggs).

I know it is easy to get caught up in politics and rhetoric. However, politicians rarely give service to good economics so let's make them accountable.

Excuse me...That's my &*$# your touching....

I absolutely love the American revolt around the new TSA procedures involving full-body scans and pat-downs. This says more about the political climate of America today than the Tea Party movement.

I have to say that I am stealing come material from Cafe Hayek, but this change in not about providing 100% assurance that no one is killed by a terrorist with an airplane. As Russ says, if that was the case then the government would just ban flying.

Airlines have a lot to lose if people do not feel safe on airplanes. They have the financial incentive to find the right balance of security and discretion. Too much security and people will pick another airline. To little discretion and people won't feel safe and pick another airline. The TSA is trying to impose more bureaucracy on an agency that is already bloated and ineffective (how about those puffer machines any one...millions down the drain) with no idea whatsoever about the costs they impose (just look at your tickets taxes the next time you fly).

American should revolt and push back on these new procedures. They are an infringement on privacy and liberty. If people don't feel safe, they won't fly. If airlines can't provide the right level of safety, people won't fly. The current TSA policies are not market based. These ideas are big-brother based where a few do-gooders are imposing their own ideas of safety on the public.

It won't stop here. The bigger government gets, the more do-gooders will impose there will on the public. Before long, people won't have their own choices to make, the do-gooders in DC will be doing that for you. There will also be times when do-gooders conflict with other do-gooders as more and more people want to impose there will on you. How about one part of the Dept of Ag giving away cheese (who doesn't what to help the down trodden Dairy Farmer) while another dept, within the Dept of Ag, decries the fat content that Americans consume (who wants to have all these obese Americans).

There is no doubt in my mind that all these d0-gooders want to make America a better place (at least what is better in their mind). Better for me is to let me (and others) choose what airline has the balance of safety I want. Better for me is to let me decide what I want my America to look like. Chances are that is a much different vision America than that of many other folks. That's what makes America great and that my friends is what Liberty looks like.

Rich vs Poor

I usually read Frank Rich's work in the New York Times every week. As a result I usually get frustrated that a writer with as much influence as this man can write materials like this that are just plain nonsense. His Op-Ed this week is no different, but slightly more irritating.

The first thing that hits me about this column, which is primarily about income inequality, is that the author makes no case for why differences in income are bad. He just frames up the issue that there are people that are have nots and other people that are haves. What exactly is wrong with this?

Mr. Rich wants higher taxes on the rich. Is it not enough that the top 10% of income earners pay 68% of the income tax in this country? Even worse, 47% of people pay nothing or get money back at tax time.

From the column...

the superrich who have gotten spectacularly richer over the last four decades while their fellow citizens either treaded water or lost ground. The top 1 percent of American earners took in 23.5 percent of the nation’s pretax income in 2007 — up from less than 9 percent in 1976.

Why did the top 1% of earners get 23.5% of the nation's income? Did they steal it? Did they cheat someone out of it in a game of poker? No, they got wealthy because the created value for people that bought their products and services. Bill Gates became a multi-billionaire because his software allowed millions of people to create even more wealth using his products.

I also have to argue that non-superrich lost ground. Relative to the top 1% maybe they did lose ground by comparing relative incomes by class (most like not the same people), but does that mean their standard of living fell? I doubt it. My guess is that most people in the bottom 20% of incomes enjoy a much higher standard of living today than people in the same economic class 40 years ago. I would bet that they enjoy things like color TV, cable, cell phones, microwave ovens, computers and many other things that only the superrich/rich had access to 40 years ago.

It is easy for newspapers to write articles that get the middle class fired up and play on the jealous attitudes of people that feel victimized. While this might be good for newspaper sales, it just makes it more apparent that people are more uninformed than ever about facts and have no basic understanding of economics. This is the real crisis, not income inequality.

Games Politicians Play

From Cato