Archive for the ‘Economics’ Category

Regulate Something–Get Higher Prices

August 20, 2016

    Do not think about, write about or deal with  human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.

      Wherein we see that, in keeping with every thread of history, the more the government regulates and monopolizes an industry the higher the cost, some of it hidden, the scarcer the product and the worse the product. If politicians want to help us, they should stop trying to help us.

Why Luxury TVs Are Affordable when Basic Health Care Is Not
Richard N. Lorenc

Imagine this. You are feeling under the weather. You pull out your smartphone and click the Rx app. A nurse arrives in 20 minutes at your home. He gives you a blood test and recommends to the doctor that she prescribe a treatment. It is sent to the CVS down the street, which delivers it to your door in 20 minutes. The entire event costs $20.

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     What would the current cost be? 465?

Sounds nuts? Not so much. Not if health care were a competitive industry. As it is, medical care prices are up 105% in the last 20 years. This contrasts with the television industry, which is selling products that have fallen 96% in the same period.

Take a look at this chart assembled by AEI. It reveals two important points. First, there is no such thing as an aggregate price level, or, rather what we call the price level is a statistical fiction. Second, it shows that competitive industries offer goods and services that are falling in price due to market pressure. In contrast monopolized industries can extract ever higher rents from people based on restriction.

Consider each product or service shown. College is heavily subsidized, regulated, and exclusionary, and the costs are soaring. The textbook industry is hobbled by extreme copyright regulation, and can depend on captive buyers. Childcare is one of the most regulated industries in the country. Not just anyone can enter. Every aspect of childcare provision is controlled by the state.

On the other hand, software, wireless service, toys and and TVs (see: free trade) exist in relatively freer market settings. The price pressure is down.

It’s not that complicated, folks. If you want good services, good products, innovative ideas, and low prices, you need competitive markets. The more you control, the higher the prices and the worse the results.

<end>

    There you have it. The more the government is involved the worse everything gets, but, on the socialist positive side of the ledger, the cost is really high.

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Power Teaching: How to Find Someone to Teach Your Child when the Education System has Failed.
Cui Bono–Cherchez les Contingencies

Liberal Assumptions about Economics so wrong their Opposites are Correct

August 19, 2016

    Do not think about, write about or deal with  human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.

     Wherein we see the liberal myths of government intervention being a good thing, benefitting everyone. All the government has to do is intervene and everything will be betterJust more examples of government magic.

The new “free lunch” economics

by Tyler Cowen on August 19, 2016 at 3:58 am in Economics, History | Permalink

From Scott Sumner:

    …what’s happened since 2009 involves not just one, but at least five new types of voodoo:

    1. The claim that artificial attempts to force wages higher will boost employment, by boosting AD.

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   Just give everyone a raise and we’ll all be better off. This is one of the ridiculous beliefs that allows government to say giving government workers more money will make us all better off.

    2. The claim that extended unemployment benefits—paying people not to work—will lead to more employment, by boosting AD.

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     Just stick money in anywhere and we’ll all be better off.

    3. The claim that more government spending can actually reduce the budget deficit, by boosting AD and growth. Note that in the simple Keynesian model, even with no crowding out, monetary offset, etc., this is impossible.

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     Spend more money and get even more back.

    4. More aggregate demand will lead to higher productivity. In the old Keynesian model, more AD boosted growth by increasing employment, not productivity.

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  This is a doozy. If more government spending, then higher productivity. The more government spending, the lower productivity.

    5. Fiscal stimulus can boost AD when not at the zero bound, because . . . ?

<insert>

     More money available, more aggregate demand.

    In all five cases there is almost no theoretical or empirical support for the new voodoo claims, and lots of evidence against. There were 5 attempts to push wages higher in the 1930s, and all 5 failed to spur recovery. Job creation sped up when the extended UI benefits ended at the beginning of 2014, contrary to the prediction of Keynesians. The austerity of 2013 failed to slow growth, contrary to the predictions of Keynesians. Britain had perhaps the biggest budget deficits of any major economy during the Great Recession, job growth has been robust, and yet productivity is now actually lower than in the 4th quarter of 2007.

<snip>       

    These assumptions, being government assumptions are all wrong, yet form the basis of government intervention throughout the Western World.  No wonder we’re all getting poorer.

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Power Teaching: How to Find Someone to Teach Your Child when the Education System has Failed.”

Cui Bono–Cherchez les Contingencies

Innovation, not Politics Provides Improvement

July 13, 2016

Displaying

    Do not think about, write about or deal with  human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.

    Wherein we see that politics is at the periphery of the human story, not the center.

Politics Voting Innovation Capitalism Democracy Elections Regulation Uber Bitcoin
Think Outside the Ballot Box
Will Tippens

The plain truth is that your vote is worth next to nothing. In fact, in economic terms, your vote has a marginal value of zero under every circumstance other than an election being decided by one vote or fewer. The upshot is that, depending on the size of the election, the likelihood of your vote influencing the outcome ranges from highly improbable to worse than the odds of winning the lottery.

“But for those who have become restless with the predictable outcomes of politics, there is another outlet for hope and change: innovation.”

Most voters intuitively realize this, yet many continue investing all their hope for building a better world in the political process. Because government has long affected every facet of life, everyone has some interest in who is wielding political power, yet nobody has meaningful control over the system. Voters tacitly accept the outcome of a given election—in victory or defeat—and wait patiently for the cycle to repeat.

Inevitably, this hands-off process dissuades voters from engaging in any real-world problem solving, which is “crowded out” by the promises of political solutions. As a result, many voters only envision an improvement of conditions taking place at the stroke of a politician’s pen.

But for those who have become restless with the predictable outcomes of politics, there is another outlet for hope and change, a force that tears through the entangling vines of bureaucracy towards a better world: innovation.

Thanks to the technological revolution, the average human lives longer, freer, more peacefully, and enriched with more choice today than ever before. We live in a world in which each generation lives better than the preceding one, a world that would be unimaginable for those living in centuries—and even decades—past. As Ludwig von Mises noted in Human Action, “[t]he average American worker enjoys amenities for which Croesus, Crassus, the Medici, and Louis XIV would have envied him.”

Technology Solves Problems that Governments Can’t

Innovation eliminates traditional barriers, both those that naturally exist from technological limitation and those that are artificially imposed by political gatekeepers.

In the past two decades, technology has reduced transaction costs in every realm, from search and information costs (Google, Wikipedia), bargaining costs (Amazon, Ebay), feedback costs (Yelp, Angie’s List), and enforcement costs (Visa, PayPal).

The result is a flourishing of peer-to-peer exchange on a level never before seen. Anyone can self-publish a book, podcast, video, or submit causes for crowdfunding. Knowledge and information flow freely, like the advent of Gutenberg’s printing press on steroids. It has never been cheaper or easier to learn a skill or share skills with others, both for free and for profit. Airbnb allows individuals to safely rent their spare rooms or homes to strangers. Zilok allows individuals to rent anything from sewing machines to ladders for a daily rate. These “sharing economy” transactions often occur with assets that otherwise would be underutilized, enabling personal property to double as capital and opening up entry to nearly anyone.

But for the first time in history, innovation is also creating tools to solve problems traditionally confined to the realm of political solutions, injecting competition where only monopoly existed before. Apps like Peacekeeper and Cell 411 have the potential to enable individuals to form community security networks and decentralized proof-of-work ledgers, smart contracts have the potential to refine or replace crucial pieces of the state’s legal monopoly, and Bitcoin has the potential to wrest control of the money supply from central banks. Startup Cities and seasteading offer potential for overt competition to political control while sophisticated review systems and dynamic policing mechanisms instill trust without third party intermediaries.

From 3D printing to cryptography to the sharing economy, innovation empowers individuals like no other phenomenon.

Innovation Fosters Progress

“Unlike the political means, the market means has the ability to constantly adapt instead of merely following rigid rules and conventions.”

Most importantly, the network effect of peer-to-peer trade forms a positive feedback loop that reinforces interconnectedness and decentralization while furthering advancement in society as a whole. This means shared prosperity in the efficient provision of goods and services, a breakdown of geographical barriers, an increase in society’s capital stock, and an acceleration of the breakdown of monopolies—all of which improve the world in real, substantive ways.

Everyone wants to make the world a better place. But the medium through which we channel our efforts for change is of utmost importance, as time, attention, and resources are scarce. A fundamental difference between the political means and the market means is the latter’s ability to constantly adapt instead of merely following rigid rules and conventions. Bureaucracy is the squelching of creativity, of productivity, of change itself. The political process creates nothing, and only further entrenches the status quo.

When individuals and voluntary collectives are free to experiment on their own, to succeed and fail untethered from the 51%, they have the ability to produce new solutions altogether. The miracle of the market occurs in spite of, not because of, the hundreds of thousands of draconian laws promulgated by political gatekeepers.

Change Is in Reach

Of course, there is no denying the immense power wielded by those elected to office. If one’s ideal world entails more intervention into the lives of peaceful individuals, the state is their only vehicle. But for those who want to see what humanity can build voluntarily from the ground up, there is no substitute for innovation. It has never been easier for individuals to influence the world around them, whether through serving their fellow man directly through entrepreneurship or investing in disruptive technologies to outcompete the status quo.

For those who want to improve things: you don’t need to wait for the next election. It has never been easier to take an active role in building a better world both for yourself and others through the market. Familiarize yourself with and adopt disruptive technology, or participate directly through investment or entrepreneurship. If this sounds intimidating, remember that even savings—the foundation for all innovation—is itself a revolutionary act.

Even the simple act of recognizing and learning about the creative ability of innovation is an important step toward progress. Imagining better alternatives is important, but there is no substitute for actually seeing them put into practice. It’s one thing to understand the economic history of licensing laws, but quite another to experience an Uber ride for the first time. Innovation requires far more creativity and effort than voting—but then, that’s the point.

There is nothing wrong with voting per se. There are few personal costs of voting. But, besides its sheer futility, there is an opportunity cost for having the voter mindset—for every hour spent trying to keep up with the political circus, every dollar sent to a candidate, and every bit of energy expended worrying about whether a piece of legislation will pass, there is a trade-off for what could be done instead.

For those who truly want to contribute to change, think beyond the binary choices on a ballot. Humanity can build a better world. The proof is everywhere. And innovation, not legislation, is the means to get there.

<end>

    The most, and least, that politics can provide is a stable environment for fair economic activity.

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Power Teaching: How to Find Someone to Teach Your Child when the Education System has Failed.
Cui Bono–Cherchez les Contingencies

 

Making Things Worse—Government Must Do Something so why not the Wrong Thing?

June 3, 2016

Truman

    Do not think about, write about or deal with  human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.

    Wherein we see that there is no problem that the government cannot make worse.

Don’t Solve Problems. Stop Causing Them.
Or, Why I’m Not a Progressive
Scott Sumner

Given that I share the same utilitarian value system of many progressives, you might expect me to also be a progressive. If I had to provide a one sentence explanation of why I am not, I might use the title of this post.

When there is a crisis, progressives have a knee-jerk reaction to look for government solutions instead of:

    Looking for ways the government caused the crisis


    Considering whether the cure is worse than the disease

The latter might apply to the example of 9/11, which led to the TSA. I’ve read that air travel this summer will be a nightmare due to TSA incompetence. But we had to "do something" after 9/11, and hence chose to ignore overwhelming international evidence that private airport security is superior to government security.

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     Flowing from the general principle that “private” anything is better than “government” anything.

Another example might be the Enron bankruptcy, which led to a Sarbanes-Oxley monstrosity that causes far more damage than a dozen Enron scandals.

Today, I’d like to focus on the first case: how government creates problems and then progressives enact legislation that makes the problem even worse.

Between the two World Wars, the US experienced three major bouts of falling NGDP (1920-21, 1929-33) and 1937-38). The most severe case (by far) led to a major banking crisis in 1931-33, mostly involving small rural banks. (A similar 50% drop in NGDP today would completely destroy our banking system.) Since World War II, we’ve had two much less severe cases of plunging NGDP growth. Both were associated with severe banking problems and both led to expensive taxpayer bailouts.

There are lots of aspects of this picture that need to be examined, and we should always be skeptical of monocausal explanations. One important aspect is the history of American banking regulation. Restrictions on bank branching led to the creation of thousand of small independent banks in the US, as compared to about a dozen nationwide banks in Canada. The lack of diversification in the US banking system helps to explain why we’ve had many banking crises in the past 100 years, while Canada has not had any.

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    Good for us. I thought that Canada was inferior in almost all ways, but progressive governments in the U.S. are making problems worse by overregulation.

But that’s only part of the story. After the 1933 banking crisis, FDR and Congress proposed two very different solutions. FDR wanted reflation, and Congress wanted deposit insurance. In retrospect, reflation was the right solution, and the FDIC merely made the US banking system even more unstable. In my view, FDIC largely caused the banking crises of the 1980s, and 2008.

To understand the problem with FDIC, consider the incentives facing the Atlanta branch of a giant nationwide bank, such as Bank of America. They could roll the dice with some high risk, high reward loans to real estate developers, but if things went bad they would end up hurting Bank of America, including all the various branches around the country that were not involved in lending to Atlanta developers. In contrast, a small Atlanta bank that ran the same risks would off-load much of the downside risk onto FDIC (and hence ultimately onto the taxpayers). The moral hazard problem is much worse for small banks than big banks.

Now we can see the Canadian system actually had two distinct advantages. The big banks were more diversified, and they also had less incentive to take socially unproductive risks in lending to developers.

Many people think that the 2008 banking crisis was all about subprime mortgages. This is not true: the 2008 crisis was very similar to the 1980s crisis, as most bank failures were caused by reckless lending to real estate developers in Sunbelt states, as well as a few northern states such as Illinois.

Very few people realize how profoundly FDIC has distorted the political incentives in the US. Because the risk of lending to real estate developers has been partially offloaded to the federal taxpayers, states like Georgia have a powerful incentive to create a very pro-moral hazard financial system. Real estate development benefits almost everyone — construction companies and workers, realtors, appraisers, homebuyers, local banks, local governments, etc.

Think of the Sunbelt states like the PIIGS in the eurozone, and think of my state of Massachusetts as being like Germany. We have lots of high-saving affluent households, but not much population growth. FDIC allows reckless Georgia banks to attract these savings, at very low cost (which does not reflect that actual risk to society). Neil Wallace once said something to the effect that, due to moral hazard, any bank CEO who is not taking socially excessive risks is not acting in the interest of his shareholders.

I’ve been telling this story since the 1980s savings and loan crisis, but I haven’t had much success convincing anyone. Even I would admit that the 2008 crisis didn’t really look like a FDIC story, at least at first glance. It looked like a real estate "bubble" and lots of stupid borrowers and lenders, including the big banks.

But as more time went by, things came into clearer focus. Ultimately, the big banks paid off the TARP loans. Their losses were not offloaded to the taxpayers. In contrast, taxpayers had to spend over $100 billion bailing out the depositors of those high-risk smaller banks that had lent money to real state developers, just as they did in the 1980s. (By the way, FDIC fees are a tax on depositors of all banks, even banks in safe areas like Massachusetts. Some commenters wrongly think FDIC is some sort of private company, and the fees are not a tax. They are a tax on bank consumers.)

Tyler Cowen recently linked to a study by Charles Calomiris and Matthew Jaremski, which reaches similar conclusions:

    Economic theories posit that bank liability insurance is designed as serving the public interest by mitigating systemic risk in the banking system through liquidity risk reduction. Political theories see liability insurance as serving the private interests of banks, bank borrowers, and depositors, potentially at the expense of the public interest.

    Empirical evidence — both historical and contemporary — supports the private-interest approach as liability insurance generally has been associated with increases, rather than decreases, in systemic risk. Exceptions to this rule are rare, and reflect design features that prevent moral hazard and adverse selection.

    Prudential regulation of insured banks has generally not been a very effective tool in limiting the systemic risk increases associated with liability insurance. This likely reflects purposeful failures in regulation; if liability insurance is motivated by private interests, then there would be little point to removing the subsidies it creates through strict regulation. That same logic explains why more effective policies for addressing systemic risk are not employed in place of liability insurance.

    The politics of liability insurance also should not be construed narrowly to encompass only the vested interests of bankers. Indeed, in many countries, it has been installed as a pass-through subsidy targeted to particular classes of bank borrowers.

Here’s how government should react to disasters:

    First, do no harm.
    Look for regulations that contributed to the disaster and gradually dismantle them.
    Only add regulation when there is a strong theoretical presumption of market failure, due to problems such as monopoly or externalities.

The government did not follow any of those three rules in setting up FDIC, the TSA, Sarbanes-Oxley, Dodd-Frank, or numerous other responses to crises.

And now the government is responding to the inequality "crisis" with minimum wage laws and taxes on capital, instead of the more theoretically justified low wage subsidies and progressive consumption taxes. But even before doing those things, we should first eliminate government policies that create inequality, such as use of hedge funds by government pensions, or excessively generous intellectual property rights, or restrictions on entry into law and medicine, or 1,000 other regulations that increase inequality.

That’s why I’m not a progressive.

<end>

       If government can make a depression Great, they can do anything, as long as it’s negative.

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Power Teaching: How to Find Someone to Teach Your Child when the Education System has Failed.
Cui Bono–Cherchez les Contingencies

 

Andrew Mellon-Constraining Government Confiscation

May 7, 2016

   Do not think about, write about or deal with  human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.

    Wherein we see that the best the government can do in most situations is nothing, and much sooner.

Andrew Mellon: The Best Treasury Secretary in US History
His Greatest Contribution Was Allowing Others to Flourish
Lawrence W. Reed

Of the 76 men who have held the office of Secretary of the Treasury of the United States, my choice for the best of them would be Andrew Mellon.

I must admit up front that I have a fondness for Mellon for a personal reason. Like me, he was of Scots-Irish ancestry and grew up in Western Pennsylvania (he in Pittsburgh, I in Beaver Falls). But in my mind, what he stood for is what stands out.

From 1921 to 1932, Andrew William Mellon served Presidents Harding, Coolidge, and Hoover as Treasury secretary. Only two other individuals in American history held the office longer than his 10 years and 11 months. Mellon’s business prowess before that was legendary. With an uncanny ability to pick cutting-edge technologies and the right entrepreneurs to bet on, Mellon built a financial and industrial empire in steel, oil, shipbuilding, coal, coke, banking, and aluminum.

One of the giant firms he helped found was the Aluminum Company of America, or Alcoa. Mellon was already one of the three wealthiest men in America when Harding tapped him for the $12,000-a-year federal job at the age of 65. By the 1920s, he was the third-highest-income tax payer in the nation, behind only John D. Rockefeller and Henry Ford.

Arguably, Mellon’s greatest contribution to America was not the vast wealth he created or the vast wealth he gave away, but rather the vast wealth his fiscal policies allowed millions of other Americans to produce. Mellon’s riches did not insulate him from the real world; rather, they reinforced in his mind just how the real world works.

When Mellon came to Washington, the federal income tax hadn’t yet celebrated its tenth birthday, but the false prophets who had scoffed that it could ever get as high as 10 percent had already been shamed by events. The top marginal income tax bracket was 73 percent by 1921. Mellon noticed that confiscatory rates were putting scarce capital to flight as investors sought refuge abroad or in tax havens at home. In later years he would often point to John D. Rockefeller’s brother William, who had $44 million in tax-exempt bonds and only $7 million in Standard Oil when he died in 1923.

Mellon’s view of the deleterious effect of high tax rates was formed early in life. His grandfather left Ulster to escape a crushing tax burden, and Andrew’s father made sure his son understood that. In America the Mellon family practiced thrift and entrepreneurship.

Mellon was always a thoughtful, never an impulsive, fellow. If he didn’t have the facts, he didn’t jump to conclusions. He took his time, did his homework, and paid attention to detail. But once he made up his mind, he knew what he had to do and didn’t vacillate. What he lacked in oratorical skills, he more than made up for in intellect, in long hours of study, and in a quiet thoughtfulness that contemporaries recognized as admirable.

Arguing that taxes had to be slashed “to attract the large fortunes back into productive enterprise,” Mellon as Treasury secretary noted that “more revenue may often be obtained by lower rates.” Henry Ford, he pointed out, made more money by reducing the price of his cars from $3,000 to $380 and increasing his sales than he would have earned by keeping high the price and profit per car. He relentlessly pressed Congress to do the right thing, and by 1929 when it passed his sixth tax cut of the decade, the top rate had been lowered two-thirds, from 73 to 24 percent. Those in the lowest income bracket (earning under $4,000 annually) saw their rates fall by an even greater percentage — from 4 percent to 0.5 percent.

Mellon also worked to repeal the federal estate tax, but secured just half the loaf; Congress cut it from 40 to 20 percent. At his urging, the gift tax was abolished. So many exemptions were introduced or raised that, between 1921 and 1929, the number of Americans who paid federal income taxes fell by one million. Barely 2 percent paid any federal income tax at all by the end of the decade. The budget was in surplus year after year in the 1920s as revenues soared and the national debt tumbled by almost half.

Soak-the-rich class warriors cried foul anyway, and painted dire pictures of a hemorrhaging Treasury. But as Burton W. Folsom points out in The Myth of the Robber Barons, “the result for Mellon in government revenue was a startling triumph: the personal income tax receipts for 1929 were over $1 billion, in contrast to the $719 million raised in 1921, when tax rates were so much higher.” The economy grew by 59 percent in that period, America was awash in new inventions, and American wages became the envy of the world. In "Andrew Mellon: The Entrepreneur as Politician" (Freeman, December 2008), Folsom explains:

    Why not, Mellon argued, cut the top rate from 73 to 25 percent? In fact, why not chop all rates by the same proportion? That idea — which would be called the Mellon Plan — would not only encourage the rich to invest in the American economy, it might actually generate more revenue.

    “It seems difficult for some to understand,” he wrote, “that high rates of taxation do not necessarily mean large revenue to the Government, and that more revenue may often be obtained by lower rates.”

Mellon had to deal with class-warfare agitators who despised his policies at the Treasury. During the debate over the 1926 tax cuts, Senator George Norris of Nebraska charged that if the administration had its way, Mellon himself would reap “a larger personal reduction (in taxes) than the aggregate of practically all the taxpayers in the state of Nebraska.” Norris never mentioned the other side of the coin: Mellon was paying more in taxes than all the people of Nebraska combined.

An even bigger thorn in Mellon’s side was a fellow Republican, Senator James Couzens of Michigan. Couzens was a charlatan and a maverick who fought the tax-cutting, penny-pinching ways of the Harding and Coolidge administrations at almost every turn. He conducted witch-hunting investigations in an attempt to embarrass Coolidge and Mellon. He publicly charged that the Treasury Department was secretly giving refunds to rich, politically favored businessmen. (However, the senator was embarrassed when it became evident that the refunds were the result of clerical errors and Supreme Court decisions.)

Neither Norris nor Couzens, nor other congressional enemies, made much of a dent in the Treasury secretary’s program in the 1920s. Until President Hoover in 1930 began reversing his policies by jacking up tax rates, the great majority of what Mellon wanted he got, and very little of what he opposed ever passed.

To his further credit, Mellon exerted his influence to constrain the spending side of government. In 1928, total expenditures were actually a shade lower than they had been in 1923. Mellon slashed expenses and, according to historian Folsom, he eliminated an average of one Treasury staffer per day for every single day during the 1920s. The last significant redesign of American currency was Mellon’s doing in the 1920s; he even cut the size of our paper notes to save money.

As Mellon’s fiscal policies at the Treasury Department unleashed an explosion of productivity, investment, and innovation, the good times were being undermined down the street by unsustainable monetary policies at the Federal Reserve System. Artificially low interest rates, caused by the Fed’s inflation of money and credit from 1924 through 1928, added a dangerous froth to an otherwise healthy economy. When the Fed burst the bubble by raising interest rates starting in 1929, the boom gave way to the bust, made worse for a decade by tax and regulatory policies of two administrations. (See Great Myths of the Great Depression and "The 1932 Bait-and-Switch.")

President Herbert Hoover wrote in later years that Mellon advised him at the onset of the Depression to pursue policies that would

    liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate.… It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.

No corroborative evidence has ever surfaced to support Hoover’s claim. Hoover boasted that he didn’t follow the Treasury secretary’s advice but he should have. The fact is that the Depression only worsened under Hoover’s endless interventions (higher taxes, tariffs, and spending, along with bailouts and other failures that FDR would later build on and expand even more).

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   One of the ironies of the Great Depression is that the man the media and academia credit with ending the Great Depression was the one who prolonged it.

If Mellon indeed said what Hoover claimed, he was actually close to the truth. The sooner the economy could slough off the excesses and the unsustainable, artificial investments of the cheap-money boom, the sooner it could recover. When the Harding administration did just that in 1921, a sharp depression was over in a matter of months. (See James Grant’s superb book, The Forgotten Depression — 1921: The Crash That Cured Itself.)

Finding himself unpopular within the meddling Hoover administration, Mellon resigned his position as Treasury secretary in 1932 and then served one year as US ambassador to Great Britain.

In the mid-1930s, the Roosevelt administration went after Mellon with a frightening vengeance. The Justice Department empanelled a grand jury to look into his personal income taxes, but after intense investigation, it couldn’t even secure an indictment. Then at FDR’s direction, the government pursued a two-year civil action beginning in 1935. Known as the “Mellon Tax Trial,” it eventually exonerated Mellon of all charges. At the time, former IRS commissioner David Blair blasted the whole affair as “unwarranted abuse by high officials of the government.” It was one of many sorry episodes that exposed a nasty side of FDR that his idolaters rarely admit to.   

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    Like all liberals, FDR was so sure of his righteousness that any action was warranted no matter how petty and pointless.

Philanthropy was a big part of Andrew Mellon’s life. He gave away more of his own money than most likely any of his redistributionist political opponents ever gave of themselves. He donated more than $43 million to the University of Pittsburgh and millions more for the support of art and research. In 1937, he gifted his substantial art collection, along with another $10 million for construction, to establish the National Gallery of Art on the National Mall in Washington, DC.

Mellon’s generosity stands in stark contrast to Franklin Roosevelt’s insatiable money-grabbing. FDR had accomplished relatively little in private life before he became a politician and he received a monthly allowance from his mother for most of his presidency.

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   Allowance from his mother. That’s the template for most liberals, free money.

To score political points, FDR attacked rich people like Mellon for their “greed,” but the Tower of Greed was the White House itself, where the president was pushing for confiscatory tax rates in excess of 90 percent. By executive order, FDR once imposed a 100 percent income tax rate on all incomes over $25,000 but it was fortunately and quickly overturned by Congress. While Mellon was creating wealth and giving much of it away, the child-of-privilege Roosevelt was either stifling or swiping it, and squandering much of it for boondoggles, political patronage, and programs that generations later would yield destructive dependency and debt.

<insert>

       One hundred percent of income over $25,000. Excellent way to punish skill and effort.

Andrew Mellon was John Galt from Atlas Shrugged in every sense but one: though he endured shameless abuse for his success, he never disappeared to a hideaway in the Colorado Rockies. But you couldn’t blame him if he had, along with other productive Americans who were vilified by Roosevelt and his henchmen. H.L. Mencken was spot on when he wrote that the president was surrounded by “an astonishing rabble of impudent nobodies,” “a gang of half-educated pedagogues, non-constitutional lawyers, starry-eyed uplifters and other such sorry wizards.” The New Deal, Mencken opined, was a “political racket,” a “series of stupendous bogus miracles,” with its “constant appeals to class envy and hatred,” treating government as “a milchcow with 125 million teats” and marked by “frequent repudiations of categorical pledges.” And, I might add, it didn’t cure the Great Depression; it prolonged it by at least seven years.

Mellon died in 1937 at the age of 82. In 1955, to commemorate the 100th anniversary of his birth, the federal post office honored the vindicated Mellon by placing his image on the three-cent postage stamp.

What a contrast Mellon is to the current secretary of the Treasury, Jacob Lew, on virtually every front:

    Mellon proved himself in the private sector before he ever took a government position; Lew’s experience in the private sector is pitifully minimal.

    Mellon wanted to unleash American enterprise with lower tax rates; Lew wants to shackle it with higher rates.

    Mellon’s signature on US currency and elsewhere was readable and elegant; Lew’s autograph generated controversy when he was appointed, because it was nothing more than a series of sloppy squiggles you would expect from a three-year-old with a crayon (he later cleaned it up for placement on US currency).

Statist historians are prone to ignore or besmirch the achievements of Mellon (after all, he was one of those “rich” guys we’re supposed to dislike). Some have even wrongfully declared that his policies set the stage for the Great Depression. Andrew Mellon, however, is worthy of so much more than all but a few of his critics ever were. He was a successful “1 percenter” who did more for the other 99 percent than all those critics combined.

<end>

   Interesting history. Get more by asking for less. A man with integrity is a man to be admired—rich or poor.

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Power Teaching: How to Find Someone to Teach Your Child when the Education System has Failed.
Cui Bono–Cherchez les Contingencies

Libertarianism in Action: Private Property

December 6, 2015

guns-dont-kill-people

 

    Do not think about, write about or deal with  human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.

    Wherein we see that libertarianism principles are not for quiet contemplation, but actually work when put into practice.

    It one owns something, one is more likely to, a) take care of it, and b) get the most out of it.

Free Market Groups Putting Property Principles into Action
The right to property is making a comeback
Iain Murray

When I told a friend some years ago that I was going to be working in a think tank, he replied, “Huh. I always wondered who cleaned those out.”

Not a surprising reaction. Think tanks are often perceived as being removed from everyday realities. Yet sometimes think tanks can change people’s lives in significant ways.

At the Atlas Network’s Liberty Forum in New York, three think tanks from developing countries showed just how important their work is — not only developing ideas, but putting them in practice as well. All three organizations are working on the issue of property rights and land titling (which I wrote about in my previous column, “World’s Poor: We Want Capitalism). They are helping tenants become property owners, bringing wealth to some of the world’s poorest people as a result.

In South Africa, the Free Market Foundation (FMF) is helping to right the wrongs of the Apartheid era. When South Africa became a self-governing British Dominion in 1910, one of its first acts was the Native Lands Act of 1913, which sought to restrict native land ownership to reservations covering just 13 percent of the country.

White farmers, helped by government subsidies to buy machinery, evicted African sharecroppers. Lacking enough land to farm in the reservations, the evicted laborers sought work in towns. The Apartheid system forced them to live in townships, renting property from townships allocated along racial lines.

The FMF’s Khaya Lam (“My House”) project is working to end this injustice. The Foundation worked with sponsoring banks, entrepreneurs, and municipal authorities to identify registered tenants and convert their leaseholds into fully-fledged freeholds. The significance of holding a title deed is not lost on the new property owners. As FMF Director Eustace Davie wrote in April:

Matroos Ratole (97) … became a landowner in his own right for the first time in his life. A truly magnificent moment.

Julia Koloti (87) wept for joy as she received her title deed. Even hardened members of the media had tears in their eyes as they observed the presentation…

Ngwathe Mayor Ms Joey Mochela spoke about how the positive partnership with the FMF is bringing benefits to local residents and of the enthusiasm that this initiative is generating in the community. She told the recipients of title deeds that they were not receiving a gift, they were receiving a title deed to a property that was rightfully theirs.

In India, a similar process is happening in the forests, once again righting a colonial-era wrong. The British Raj nationalized the forests, making them property of the Crown. Upon independence, ownership of the forest passed to the new Indian government. Yet tribal peoples continue to work those lands as they had for centuries.

Now India’s Liberty Institute is working with those forest inhabitants to reestablish their long-lost ownership rights, under a law passed in 2006. However, unlike South Africa, the records of who has been using the land are much less comprehensive in India, which has made allocation difficult and a potential source of conflict.

Technology to the rescue! According to the law, you need to establish use of the land as of the end of 2005 to be granted title. The Liberty Institute has worked with villagers to use GPS devices (most villagers have smartphones, according to the Institute’s Barun Mitra) to plot their land ownership claims. Archival Google Earth maps are then used to validate those claims and to resolve disputes.

India had recognized a constitutional right to property in its initial constitution in 1950, but this was deleted by the socialist government in 1978. As Barun Mitra says:

The spread of land related protests, particularly by the poor, over the last two decades, and the growing intensity of such protests in the past decade, seems to indicate that the people may be beginning to realise the economic and political value underlying the idea of property rights.

If this is true, then not only property rights will find wider recognition, but democracy itself will emerge stronger, with citizens asserting their rights more forcefully.

Finally, in Honduras, the think tank Eleutera is tackling related problems. There, the problem is not so much a legacy of racism, or of a lack of records, but a kleptocratic governing class. Property records have been kept, but many have been stolen by government officials. Therefore, Eleutera is working to resolve disputes caused by this registry regime and replace it with a new technological system that solves the problem of lack of trust caused by rampant corruption.

The new system will be based on the blockchain, the distributed public ledger used to validate bitcoin transactions. As Guillermo Pena, Executive Director of Eleutera, notes in the Central American edition of Economic Freedom of the World 2015:

The blockchain platform is renowned for its resistance to manipulation, because it doesn’t depend on any one person or specific entity, and for being publicly accessible to everyone.

By solving the problem of trust, the new system can swiftly eliminate one of the largest sources of corruption in Honduras.

These three think tanks demonstrate that their activities go well beyond producing  quasi-academic white papers. Not only are they helping to unlock wealth, they are introducing reforms that make their countries more honest, more democratic, and yes, more equal.

Now if you’ll excuse me, I have some cleaning to do.

<end>

    ‘Tis said, in the area of collective farming in the Soviet Union, that wave of the socialist future which failed, that 30% of the food was produced on that 3% of the land under private stewardship. It’s a wonder what people can accomplish when working for themselves. It’s the change in incentives, as we know.

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Power Teaching: How to Find Someone to Teach Your Child when the Education System has Failed.
Cui Bono–Cherchez les Contingencies

First Colonies in the U.S. as an Economic Experiment

November 27, 2015

   The Elite, of course, always believe they know best. The paradox is, they never do. They’ll take care of us so long as we’re forced to take really good care of them.

    Do not think about, write about or deal with  human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.

    This pops up every American Thanksgiving in some guise. It’s illustrative because it shows the early beginning of white settlement was based on the communal model which always fails. It’s the incentives, you see.

Thanksgiving Is a Celebration of Free Enterprise
Judy Thommesen

[Every year at Thanksgiving-time I resurrect a column written by a fellow teacher, Kent Dillon, about the real reason we celebrate this holiday. It is a story no longer told in the textbooks because it is thoroughly unPC, and undermines the idea that government is the solver of all problems. We were teachers, as well as part of the crew, at The Flint School, a private, academic boarding school aboard two large sailing ships, and we used the world as a campus. Kent wrote this for the students’ parents 45 years ago, so they would know what their children were learning and experiencing.

Thanksgiving Day was a special day aboard the ships and we actively celebrated it as the birth of private property and the demise of collectivism. Our celebration wasn’t one of sleeping in or playing games with each other. We celebrated by working a specific task until completed, and then, when tired and hungry, we sat down to a huge feast of fresh cooked turkey, dressing, pumpkin pie, and shared camaraderie.

Even now in 2015, I can tell you that those Thanksgiving Day dinners of turkey, pies, and all the trimmings, after a day of meaningful labor, are still the tastiest I have ever eaten.

By Kent Dillon

The celebration of Thanksgiving is a celebration of plenty and appreciation of the abundance that has characterized the free enterprise, individualistic, capitalistic systems of the US. This why America grew into the most productive, highest standard of living area in the world. The Pilgrims had arrived in what is now Provincetown, Mass., on November 11, 1620, but it was late in December before they finally settled in Plymouth. In the words of Gov. Bradford,

    that which was most sad and lamentable was, that in 2 or 3 months time half of their company died, especially in January and February, being the depth of winter, and wanting houses and other comforts; being infected with the scurvy and other diseases, so as there died sometimes 2 or 3 of a day, in the aforesaid time; that of 100 and odd persons, scarce 50 remained.

They spent their first winter building houses so that they could move off the Mayflower and by March all settlers had left the ship.

Scurvy and fever had taken their toll, as by then 15 of 18 wives had died as well as 19 of 29 hired men and servants and half of the 30 sailors. When the Mayflower departed she left 23 children and 27 adults behind, but not one Pilgrim returned to England.

The Pilgrims had placed all their food and provisions in what they called the “common store” which was set up on the socialist principle of “From each according to his ability, to each according to his need.”

As spring came they began to farm and by October took in their first harvest which went to the common store. It was a time to be thankful for their very survival. They had spent 67 days on the Atlantic with 132 people aboard a ship that was 128 ft. long, and survived to establish themselves and reap a harvest.

In November of 1621 the ship Fortune arrived with more than 30 new settlers, mostly young men. They apparently brought “not so much as a bisket-cake” with them, thus providing another drain on the common store for the coming winter. The future looked bleak as food supplies ran out and the “planned socialist” community began to starve again. The common store was practiced for a second year. The harvest was poor in spite of the added manpower and the colonists starved in the ensuing winter dramatically demonstrating once again that collective ownership in a socialist economy was unworkable and could not keep them alive.

Richard Grant in The Incredible Bread Machine writes,

    The experience of the first Plymouth colony provides eloquent testimony to the unworkability of collective ownership of property. In his history of the Plymouth colony Governor Bradford described how the Pilgrims farmed the land in common, with the produce going into a common storehouse. For two years the Pilgrims faithfully practiced communal ownership of the means of production. And for two years nearly starved to death, rationed at times to “but a quarter of a pound of bread a day to each person.” Governor Bradford wrote that “famine must still ensue the next year also if not some way prevented.” He described how the colonists finally decided to introduce the institution of private property:

    “[The colonists] began to think how they might raise as much corn as they could, and obtain a better crop than they had done, that they might not still thus languish in misery. [In 1623] after much debate of things, the Gov. (with the advice of the chiefest amongst them) gave way that they should set down every man for his own … and to trust themselves … so assigned to every family a parcel of land. This had very good success; for it made all hands very industrious, so as much more corn was planted than otherwise would have been by any means the Gov. or any other could use, … and gave far better content. The women now went willingly into the field, and took their little-ones with them to set corn, which before would allege weakness, and inability; whom to have compelled would have been thought great tyranny and oppression.”

    Reflecting on the experience of the previous two years, Bradford goes on to describe the folly of communal ownership:

    “The experience that was had in this common course and condition, tried sundry years, and that amongst godly and sober men, may well evince the vanity of that conceit of Platos and other ancients, applauded by some of later times; — that the taking away of property, and bringing in community into a common wealth would make them happy and flourishing; as if they were wiser than God. For this community (so far as it was) was found to breed much confusion and discontent, and retard much employment that would have been to their benefit and comfort. For the young-men that were most able and fit for labor and service did repine that they should spend their time and strength to work for other men’s wives and children, without any recompense. The strong, or man of parts, had no more in division of victuals and cloths, than he that was weak and not able to do a quarter the other could; this was thought injustice…”

<insert>

   Late in the history of the Soviet Union, ‘tis said that 30% of the food was grown on the 3% of the land that the State allowed to private proprietors. Anyone who’s been a farmer knows that farming requires an incredible amount of labour at certain times and this labour cannot be provided by employees.

    The Colonists learned about “the wave of the future” the hard way. However, once having discovered the principle of private property, the results were dramatic. Bradford continues:

    “By this time harvest was come, and instead of famine, now God gave them plenty, and the face of things was changed, to the rejoicing of the hearts of many, for which they blessed God. And in the effect of their particular [private] planting was well seen, for all had, one way and other, pretty well to bring the year about, and some of the abler sort and more industrious had to spare, and sell to others.”

The Jamestown colony in Virginia had similar experiences as they started under the same rules:

     They were to own nothing.
     They were to receive only as much food and clothing as they needed.
     Everything that the men secured from trade or produced from the land had to go into the common storehouse.

Of the 104 men that started the Jamestown colony in 1607 only 38 survived the first year and even those had to be marched to the fields “to the beat of a drum” simply to grow food to keep them alive in the next year. Captain John Smith writes after the common store concept was abandoned:

    When our people were fed out of the common store, and labored jointly together, glad was he could slip from his labor, or slumber over his task he cared not how, nay, the most honest among them would hardly take so much true pains in a week, as now for themselves they will do in a day. … We reaped not so much corn from the labors of thirty, as now three or four do provide for themselves.

The Thanksgiving we celebrate is for the success of the Pilgrims after establishing property rights and free enterprise as that event laid the foundation for the growth of America.

Were our Pilgrim and Jamestown colony forefathers to wake up from the dead and look at the graduated taxation (from each according to his ability) and welfare programs (to each according to his need) we have today they might offer us a lesson in history by simply quoting Goethe, “Those who do not learn from the lessons of history are doomed to relive them.”

No longer do the textbooks mention the effects of the common store and the continued starvation until the system of free enterprise and private property was established. Don’t you wonder why the idea of the Great American Experiment is a forgotten concept? And why the writings of de Tocqueville are a “forgotten analysis” in today’s education? As Americana moves into the “planned socialist economy,” those who have moved our country in that direction have made sure that the early lessons of the “police state” force needed to maintain Jamestown’s social plan (Captain John Smith’s guns) and of the starvation and death that resulted from the lack of motivation inspired by the “common storehouse” have been eliminated from our children’s instruction.

Thanksgiving isn’t just a break from work, a time to stuff ourselves with turkey, dressing, and pumpkin pie, it is a time to remember the true significance of the holiday, and pass on the lessons from our forefathers to our children who won’t learn these lessons in school, and thus must learn them elsewhere.

<end>

  Farming cannot be done “to the beat of the drum.”

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Power Teaching: How to Find Someone to Teach Your Child when the Education System has Failed.
Cui Bono–Cherchez les Contingencies

Academics Against Capitalism—The System That Supports Them—Once Again

November 19, 2015

   Do not think about, write about or deal with  human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.

   Wherein we see academics criticizing that which they don’t understand and, certainly, have never experienced.

Peter Foster National Post
Nobel Phools

Akerlof and Shiller fit academic obsession with fundamental rottenness of Western capitalist society, and of the U.S. in particular

One wonders if Nobel economist Robert Shiller got down on all fours to establish that his cat’s food wasn’t really “gourmet.” If he did, it wouldn’t have demonstrated a much greater level of anti-market derangement than pervades the rest of his book Phishing for Phools, which he co-authored with another Nobel laureate, George Akerlof.

<insert>

    Some economists receiving the Nobel are good, some are just, well. academics who love  government in all its manifestations. Obama got the Nobel for Peace because the committee “wanted to support him.” not because of accomplishments.

Akerlof, who teaches at Georgetown, and Shiller, who lectures at Yale, are both obsessive students of “market failure.” They are here less economists than culture warriors. While they claim to appreciate the wonders of capitalism, they itch to prove that market society is fundamentally corrupt. This is obvious from the book’s title, which equates marketing with “phishing,” a term for Internet criminality.

The book might be taken as just another tedious example of lefty economists attempting to rationalize their deep-rooted hatreds, but Akerlof — who is married to U.S. Federal reserve head Janet yellen — was supported in writing it by the Canadian Institute for Advanced research, CIFAr, which in 2012 was pledged $25 million by the Harper government. Last week, Akerlof delivered an annual lecture, named for former bank of Canada Governor David Dodge, at CIFAr in Toronto. What were the Conservatives thinking? Less “advanced” research can hardly be imagined.

The authors are great fans of “behavioural economics,” which seeks to justify more government intervention on the basis that we don’t really know what’s good for us. but they do. Their colleague Richard Thaler, one of the founders of behavioural economics, thinks the typical human is like “Homer [Simpson] economicus,” and thus desperately needs a bureaucratic guardian angel on call 24/7. Akerlof and Shiller claim that people are more like monkeys (which have been observed to have primitive trading instincts). We thus have “monkeyon-our-shoulder” tastes, from which the Guardians need to save us. And our cats too. When Shiller tasted his cat’s food, “The advertised flavours that sound attractive to humans — turkey, tuna, duck, and lamb — did not seem to be there at all.” The authors also condemn Cinnabon — whose bake shops waft fatty and sugary aromas through airports, where consumer resistance is low.

In the wake of the Paris terrorist attacks, cat food labelling and Cinnabon marketing should surely come well down our list of concerns, except insofar as they point to an academic obsession with the fundamental rottenness of Western capitalist society, and of the U.S. in particular.

According to Phishing, we are exploited at every turn: when we join a health club; at birthdays, deaths and funerals; when we buy houses and cars; by big Pharma and big Phood; by tobacco and liquor companies; by Wall Street; by Facebook; by airlines’ exploitation of our desire for “elite” status. did you know that even that old song’s “Puppy in the window” was a devious enticement to spend?

Akerlof and Shiller claim to have cast-iron proof for their thesis. It’s all Adam Smith’s fault. His concept of the Invisible Hand has led to a “standard economics” that celebrates greed and ignores market manipulation; that preaches that markets are perfect and economic actors purely rational. “If business people behave in the purely selfish and self-serving way that economic theory assumes,” they write, “our free-market system tends to spawn manipulation and deception.”

But which business person derives his practices from economic theory?

What Akerlof and Shiller are actually condemning is human nature. moreover, once we abandon caveat emptor for “Let the government beware for us” we are on a slippery slope towards losing not just choice but freedom. Such concerns are dismissed by claiming that those who warn against the moral hazards involved in government “would also tell us to do away with fire departments, because there would then be no fires since people would be more careful.”

Adam Smith in fact never suggested that markets were, or could be, perfect. He wrote of “the higgling and bargaining of the market, according to that sort of rough equality which, though not exact, is sufficient for carrying on the business of common life.” He was also an avid student of human irrationality which, he noted, was infinitely more dangerous when it came to politics and religion than to shenanigans by tradesmen, of which he was well aware. He pointed out that the market controls such shenanigans, not least by rewarding a reputation for honesty, although the law is needed to protect us from fraudsters. Akerlof and Shiller’s answer to the value of reputation is to claim that it is accumulated so that it can be “mined” to cheat people.

They assert that the Invisible Hand’s validity depends on “Pareto Optimality” — where the market is in such perfect equilibrium that nobody can gain without somebody else losing. but this is an abstruse “proof” that has little to do with the real world. meanwhile Vilfredo Pareto noted — much more significantly — that it was impossible to convince socialists that they were wrong because their belief was religious.

Akerlof and Shiller write “There is a bias toward seeing what is in our interest; a bias against seeing what is against it.” but it never seems to occur to them that this might apply to politicians, bureaucrats and policy wonks, and that behavioural economics might be used as just another rationalization for intervention.

For example, the now-ritual claim that people “undersave” for retirement provides cover for the looting involved in Kathleen Wynne’s proposed new Ontario pension plan. A more fundamental flaw in regulation is seen in the monstrous corruption of the process involved in President Obama’s rejection of the Keystone XL pipeline. related to which, the authors make no mention of arguably the greatest regulatory phishing expedition in history, climate change, whose pretensions are shortly to be put on display again in the shadow of those terrible terrorist attacks.

Akerlof and Shiller instead reject regulatory self-interest. regulators are “heroes.” Those who point to regulatory dangers are said to want no regulation at all, and to hold a position analogous to one that would “imply that because spouses, children, and friends are often troublesome, we should never get married, never become parents, and have no friends.”

Free marketers want no fire stations, and now no families or friends either!

Ultimately, Akerlof and Shiller make themselves look like phools. Phishingthink is ultimately a glaring example of that psychological phenomenon known as “Looking at a doughnut and seeing only the hole.” meanwhile they make unconsciously hilarious references to examples of their “new” brand of nanny statism. When it comes to the sins of Cinnabon, for example, they note, “Of course, the information about calories is there, but it isn’t easy to find.” Perhaps Cinnabon should be forced to replace its name and logo with the simple word “death.”

<end>

    If an academic has an IQ above that of a doorknob and spends a year or two in a government bureaucracy, I find it difficult to believe they would still support government intervention in anything.

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Power Teaching: How to Find Someone to Teach Your Child when the Education System has Failed.”
Cui Bono–Cherchez les Contingencies

 

Capitalism—The Unknown Country

November 15, 2015

   This is a picture of a real leader. Discuss

The students at the University of Missouri, engaging in the “Revolution,” are using a code so perfect that no one understands it, not the outside world OR those using it. Perfect. I have no idea what they’re talking about and neither do they. Unbreakable.

    Do not think about, write about or deal with  human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.

Wherein we see the inevitable result of our educational system. Capitalism is pilloried and socialism praised in our government schools. Government workers praising government–I never. They make a nice living so the government will ensure everyone does.

Is the Public Turning against Capitalism?
Free markets are crucified for the sins of government
Marian L. Tupy

According to a recent YouGov poll, American’s have grown more skeptical of capitalism:

Out of 1,000 Americans polled, 55 percent believe that in a capitalistic system the rich get richer and the poor get poorer… Additionally, only 49 percent of Americans believe that free enterprise is better at lifting people out of poverty than the government.

The reality is at odds with public opinion, but the YouGov poll raises important questions about the future of the free market as we enter the election year.

First, as Gary Burtless of the Brookings Institution showed in a much-cited paper last year, after-tax income of American households in the bottom fifth of the income distribution rose by 49 percent between 1979 and 2010. That was much less than the rise in after-tax income of the top 1 percent, which grew by 202 percent. Yes, income inequality has increased, but that does not mean that the poor have gotten poorer.

Second, the government’s role in reducing poverty is as contentious as the poll suggests it is. Take the poverty data compiled by the 2015 Nobel Prize-winner in economics, Princeton University Professor Angus Deaton. As Deaton shows, much of the poverty reduction happened before President Lyndon Johnson’s introduction of the Great Society welfare programs in 1965. In 1965, 17.3 percent of Americans fell below the official poverty line. In 2011, 15 percent did so. This is not a great public policy accomplishment.

The international data is even more damning. According to the World Bank, global poverty is rapidly receding. By the end of 2015, the Bank estimates, “less than 10 percent of the world’s population will be living in extreme poverty.” Contrast that with 1980, when global absolute poverty rate was estimated at 50 percent.

As many scholars have pointed out, the fall in global poverty is primarily due to the rise of Asia in general and China in particular. And that rise is, unambiguously, a result of economic growth spurred by the abandonment of central-planning and integration of many Asian countries into the global economy. To give one example, following economic liberalization in China in 1978, real incomes rose thirteen-fold.

The rise of China has, incidentally, brought about a decline in global inequality, by narrowing the income gap between the West and the rest. But, I digress.

The YouGov poll also notes that only 30 percent of Americans think that “what is good for business is good for society generally” and “65 percent of Americans think that most of the world’s biggest businesses have taken unethical actions like dodging taxes.” According to the YouGov poll, “there is an almost universal belief that the world’s biggest businesses have cheated and polluted their way to success.”

<insert>

   Dodging taxes–who wouldn’t want to give more money to governments which are always ethical and efficient?

Now we are on to something, for it cannot be stressed often enough that defense of free market capitalism is not the same as defense of large corporations.

As the British writer Matt Ridley, who launched his new book at the Cato Institute on Wednesday, wrote,

I hold no brief for large corporations, whose inefficiencies, complacencies, and anti-competitive tendencies often drive me as crazy as the next man. Like Milton Friedman, I notice that "business corporations in general are not defenders of free enterprise. On the contrary, they are one of the chief sources of danger."

They are addicted to corporate welfare, they love regulations that erect barriers to entry to their small competitors, they yearn for monopoly and they grow flabby and inefficient with age.

In recent years, it has become de rigeur to describe the American economic system as “crony capitalism.” Yet, corporate welfare – subsidies, protective tariffs, bailouts, etc. – is not capitalism. As Professor Allan Meltzer once put it, “Capitalism without failure is like religion without sin. It doesn’t work.” The basic understanding of fairness as well as economic health of the nation demands that corporations compete on an even playing field and underperforming enterprises are allowed to fail.

To that effect, it makes no more sense to describe the contemporary American economic system as “crony capitalism” than to describe it as state interventionism or just good old-fashioned corporatism. As such, Sen. Bernie Sanders’ popularity, while understandable, is ultimately dangerous. An even heavier government intervention in the economy, which Sanders advocates, would almost certainly result in greater economic deformation. Anyone doubting me should consider the incestuous relationship between the social democratic government of Germany and German corporations, best exemplified by the Volkswagen emissions mega-scandal.

To question Sanders’ recipe for corporate welfare, however, is not to endorse the GOP. By reviving the Import-Export Bank, the Republicans in Congress have shown themselves to be as hypocritical as the current occupant of the Oval Office, who called for the ending of the Import-Export Bank when he ran for the Presidency in 2008. Both parties have shown themselves to be incapable of cutting the umbilical cord that ties them to their corporate friends.

There are no quick solutions to the problems of corporate welfare, but if there is to be hope, it must start with the understanding that the root cause of corporate welfare is not too little government, but too much.

<end>

   It’s so much easier to lobby the government for advantage than it is to out-compete. I don’t know what system we have now, but it sure isn’t capitalism.

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Power Teaching: How to Find Someone to Teach Your Child when the Education System has Failed.
Cui Bono–Cherchez les Contingencies

 

Profits—The Facts

November 13, 2015

Displaying

Liberals want to be your mother,  conservatives your father, socialists want to be both parents, and  libertarians believe you are an adult.

Every few years, western nations take an IQ test called a national election. Canada just failed.

    Do not think about, write about or deal with  human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.

    Wherein we see why profit is necessary and socialists are so mistaken, they’d have to work hard to be more mistaken.

5 Reasons Profit Is Good
It is the reward for creating value
Richard Turnbull

Profit is a funny word. It has come to mean exploitation. Why do we allow the Left to capture words like profit, or community, or compassion and redefine them into politically charged meanings far removed from what they really are? If we believe in a moral, popular capitalism, we need to reclaim key words for their true meaning. Let’s start with profit.

This is how the story goes: A company has profited at someone else’s expense. Since a company has profited at someone else’s expense, that person has been exploited. As a consequence, profit is immoral.

<insert>

     Liberals and socialists, having little experience in the real economy, believe commerce is a zero-sum game–someone profits at the expense of someone else. In reality, commerce must be win-win, each party must benefit else commerce stops.

It is time to challenge the assumptions that underlie that narrative. Profit is a deeply moral concept, since without profit we will suffer, not from exploitation, but from a misallocation of resources, a failure to provide the goods and services that the economy needs, the loss of tax revenue, a reduction in employment and the inability to provide for social need whether through the private sector or the public sector.

So then, here are 5 reasons underlying the morality of profit.

1. Profit is the reward for putting capital at risk

Profit is the surplus generated by individuals (or groups of individuals) putting capital at risk. It is the price of risk. Hence profit is also the reward for innovation and ideas – the reasons why capital is put at risk. Why does that matter? Without a reward for risk capital and innovation then we will not grow the economy, provide for the needs of people, or create the wealth necessary for well-being.

2. Profit proves that the economy is not a zero-sum game

Profit is not exploitation. Of course, exploitation is not a good thing and economic surplus may arise as a result of immoral behaviour; but that is a different story. The problem there is the exploitation, rather than the profit itself. Profit generally arises from transactions that benefit both parties. The Left love the idea that the economy is a zero-sum game. If one party makes a profit, that must be due to another making a corresponding loss – and moral outrage against capitalism ensues. Profit actually represents the creation of wealth from mutually beneficial transactions. Unless wealth is created there is no investment, no employment and no opportunity for social good.

3. Profit shows that entrepreneurs are welcome

Entrepreneurs are the lynchpin of an economy. They are the creators and innovators of new ideas which then attract the capital investment needed. If entrepreneurs are not welcome, then an economy will stagnate. Entrepreneurs needed to be attracted by the prospect of profit, so that they will bring their ideas to fruition for the mutual benefit of all. An entrepreneur is not there to be squeezed (or even exploited) but for the economic and social good of society.

4. Profit generates investment and employment

Another idea beloved of the Left is that once profit is generated it is simply removed from the economy into the hands of the already wealthy. However, beyond the rewards which are taken, without profit then there is no means of investment whether in capital goods or human capital; in other words, no profit, no new markets, no new production and no new employment; indeed to the contrary we are likely to see a reduction in both. Many business people see the provision of employment, not necessarily as the primary aim of a business, but one of the aims of the business enterprise.

5. Profit provides the means for social transformation in society

Perhaps this is more controversial. Maybe we are not interested in social transformation and merely in ‘individual satisfaction.’ If we take that position we damage the moral underpinning of the rationale for profit. I am passionate about not letting the Left claim the mandate for social welfare and the transformation of society. They have neither history (Wilberforce, Shaftesbury were Tories) nor economics on their side. Profit is a surplus. To argue that profit provides a basis for social transformation is not a statement that such transformation has to be (or can be) achieved by the state.

Certainly, government has a role to play and the generation of wealth and profit is a necessary preliminary to the establishment of a tax base (the question of what should be taxed and how much is a separate question). However, profit also allows individuals to act. Through distributing surplus through individuals in employment and investment, profit acts as a mechanism for the well-being of individuals and families. Similarly profit provides the means for philanthropy at every level from an individual contributing to a local charity to the larger-scale activities of the philanthropist.

Suddenly, profit doesn’t seem so bad after all.

There is a story to tell about profit and the good that profit does. We have a responsibility to articulate and tell that story. What we discover is not only that profit has a function and a purpose but that as a concept it is deeply moral.

Let’s not allow the Left to take profit captive.

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  Years ago, when communism was still the “end of history” according to academics, some Canadian dairy farmers visited a collective dairy farm in the Soviet Union. They arrived at 10 am and found the cows hadn’t been milked and were told they were milked the night before at 5 pm. It was obvious the animals were neglected. No one profited from efficiency, so little worked right and this was the Potemkin collective farm, there to show how communism operated. When individuals don’t benefit, little gets accomplished.

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Power Teaching: How to Find Someone to Teach Your Child when the Education System has Failed.
Cui Bono–Cherchez les Contingencies