I’ll personally pay back the National Debt

With patriotic hearts, a friend and I have a deal for America. We are going out on a limb – we’re going to offer a solution to the country’s national debt problem, a problem estimated at approximately $18 trillion. We are going to deliver personal checks to the US Treasury in amounts that will total $18 trillion (we’re still negotiating the allocation between the two of us).

First: You’re welcome – glad we could help.

Second: We know what you’re thinking; “Guys, no way you have 18 trillion dollars. Maybe 2 or 3 trillion, but 18!?!?  Get real.” Well, we know that, and we also know that neither does the US Government have 14 trillion dollars. That’s why they OWE it, that’s why the nation is in debt by that amount. It’s not there, their check would bounce, just like ours would; so what’s the difference between the government’s check and ours?

Just one thing . . .  see, we’re math guys, and mathematically we have a chance of making our check good; the government . . . well, read on.

So let’s do a little math; it’s a little complicated, so read slowly. The two of us think we can create, say, $5.0 million of wealth every year, and we will commit all of that wealth to reduction of the national debt – that’s a 100% tax rate on our income, and we won’t even ask for any interest. In about 4.7 million years, give or take a few millennia, we’ll be old and tired, but we’ll have it paid off.

Alternatively (and now we need you to really concentrate – this will sound foreign at first) we can let the government pay it off, no help from us; we’ll keep our trillions. At its current rate of wealth creation, the US Government will pay back this debt in – more math, divide by n+1, carry the 3, and we get . . . .  NEVER. They’ll never pay it back, not one red Lincoln penny of it.

You see, your government – including the Congress, the White House, all of the executive agencies – creates exactly $0 in wealth each and every year. Government consumes money and it has the power to pay bills only by TAKING wealth from its citizens, the free men and women who create it.

That brings us to our more serious point, which we think is made clearer by the hypothetical offer above.

Unless paired with less spending, there is no such thing as a tax cut; there are only tax-deferrals. Every dollar of spending represents a tax and OUR COUNTRY IS taxed each year the amount which the government spends. How much we’ll pay now and how much we’ll pay later is decided by a government that arbitrarily sets tax rates and writes convoluted rules that sound “fair.” Every dollar the government spends must be matched by a dollar of taxation – either today or tomorrow or in 30 years, when our children should instead be toiling and sweating to pay for their own current consumption rather than paying back our debts. Any “tax-cut” for the middle class, for the billionaires, and for small business owners was no such thing. It is a deferred tax increase for you and your children.

Cutting spending – entitlements, discrerionary – all of it, is the only answer. Let free men and women dispose of their money without government incentives and direction.  536 people in Washington, DC are not smarter than 320 million Americans.

Give me Elmo or give me NASCAR: A profound Choice?

Not really . .  . Give me liberty or give me death.  That’s profound.

A few months ago, FoxNews reports on the [low] level of the debate on the National Debt.

See Link Here (Debate over Army funding of NASCAR sponsorship)

When the fight is over which unconstitutional government expenditure should be kept in place, it’s a power struggle akin to a food fight; it is not a political discussion.  Maybe the Army’s NASCAR sponsorship is constitutional – after all, raising an army is a power granted the federal government by the people.

That question is open to discussion.  But NPR, PBS, Sesame Street – not even a close call.  Other government spending programs that are not close calls would include Dept of Education, Dept of Energy, health care law, Medicaid, corn subsidies, grants to states to build bike paths . . .Debating spending on the merits, goodness or effectiveness of the program makes for an enormous government, because there is a constituency for everything – see mohair subsidy and Murtha Regional Airport.

On the other hand, debating spending and other government actions on constitutional grounds makes the argument finite, unemotional and, in the end, lititgable by the non-political branch, the judiciary.  Could be a plan.  I think that the US Constitution was meant to work that way.  That would take a completely new group of legislators, because the current Congress is full of men and women who think their job is to bring home the bacon.

Or, we can elect politicians who will keep debating whether we should have the government feed the hungry – – – and watch the definitions of ‘feed’ and ‘hungry’ morph until debates over providing for the common defense, giving heating oil to the poor or buying viagra for grandpa are virtually indistiguishable, and more and more and more money will be taken from ‘rich’ person A and given to every erectile dysfunctional man, I mean ‘hungry‘ person B for his viagra, I mean,  ‘food‘.

How’s that working out for us so far?  The choice is simple and stark.

(A) 1789 – A limited, constitutional, democratically-elected government that protects individual rights – and nothing more, or

(B) circa 1917, Russia – A fair tyranny that wants income equality and leads to totalitarianism – we’ve all seen the movie.

WE CAN DO BETTER, AMERICA.

Jack Nicholson, The Reverend Mr. Al Sharpton and Candy

On CafeHayek.com, Professor Don Boudreaux, tells us (Link Here) that the reverend Mr. Al Sharpton is raising a stink (yes, I realize that has a potentially double meaning and is redundant – as in, what else does he do?) regarding Walgreens’ failure to adequately serve poor neighborhoods.

Why does he stipulate that Walgreens is obligated to serve any customers?  They are free to put all of their stores on Park Avenue, if they like, yes?  Are there any Tiffany’s in the poor neighborhoods Mr. Sharpton is worried about, or any check cashing, pay-day loan operations Rodeo Drive?  What would Charlie Sheen do in a cash emergency and why isn’t someone looking out for him?

I frame it more seriously this way:  Walgreens’ total market capitalization of approximately $35 billion did not materialize from thin air, reverend Mr. Sharpton.  As the Professor Boudreaux points out via his list of things Walgreens chose to do to make pills and suppositories appear behind their counter (just next to $3.49 ethnic hair products, $1.59 paper towels and $1.29 candy bars, etc.) this kind of operation is the result of billions of independent, unique, untraceable decisions about the most effective uses of capital and labor.  That unimaginably complex process has resulted in a situation where, for $1.29 you get a Milky Way AND, implicit therein, you get the benefit of the trillions of dollars it took to deliver it there between the M&Ms and the Snickers.

HUH? you say, trillions?  Yes, trillions.  Add Walgreens market cap to that of Mars Candy, Pfizer, Merck (and every other company who has a product on offer in that store) and it’s AT LEAST multi-trillions of dollars.  The owners of Mars Candy, Inc can’t deploy only the miniscule fraction of their world-wide enterprise that made YOUR Milky Way, even though you are paying only for your tiny share of Mars Candy.  And the same goes for the companies offering the products you didn’t even purchase, because it is the unique combination of products services, and multiple locations that is the essence of Walgreens, the magic that makes Walgreens exist.  That’s the beauty of Walgreens (and 7-11, Kroger, Victoria’s Secret, Federal Express and  . . .)

When will you learn, reverend Mr. Sharpton, that stuff doesn’t happen because you have a camera and a microphone; stuff happens because, to paraphrase Milton Friedman, millions and millions of men and women, almost all of whom don’t even know of the existence of the rest, and many of whom would hate each other if they ever met face-to-face, in their own way, free of coercion, contributed to that Milky Way’s being there.  And it was there for you last Wednesday at 2:43 a.m., exactly when you wanted it there – for a mere $1.29.  And the cold pint of milk tasted great with it, too, didn’t it!

And, now you want the government to fine tune and improve on that model for you without disturbing its intricate and delicate balance?!  NO SIR!  Step away from the counter and put your hands in the air.

To borrow from A Few Good Men – “I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very freedom that I provide, and then questions the manner in which I provide it! I would rather you just said “Thank you,” and went on your way.  Otherwise, I suggest you pick up a weapon, and stand a post.”

Freedom, Milky Ways . . . same thing.  Mr. Sharpton, Walgreens doesn’t have time to explain how they put your Milky Way on that shelf.  They’d rather you just pay the $1.29, say ‘Thank You’ and go back on TV.  Otherwise, I suggest you go find a trillion dollars and make your own candy.

Freedom promises that you have the choice to buy your widgets or pharmaceuticals anywhere you like.  Freedom does not promise you that Walgreens will make them available to you, 24/7, at a price you can afford.

Let’s prevent crime by making up some new laws. Sure, that’s the answer. NOT.

In the Washington Post of December 6 (Link HERE) Katrina vanden Heuzel joins the chorus of pundits who:

(1) falsely accuse bankers, hedge fund managers and others of crimes,

(2) long for the days before “irresponsible de-regulation” (99% of them mention Glass-Steagal, the repeal of which I find very difficult to blame for the housing bubble or its collapse, but, HEY it sounds smart to mention a law by name),

(3) fail to mention one specific law or regulation the continuation or re-inactment of which would have or will prevent the next “crisis,”

(4) criticize GW Bush and everyone in his administration for using “tax-payer money to bail out” the banks,

(5) suggest that the solution to preventing more bad government decisions is (a) the enactment of a new and different set of laws and regulations that look nothing like the ones that were repealed, and (b) vesting unelected government officials with more power via those new laws and regulations.

Really?  The answer to the government over-stepping its bounds, having and mis-using too much power is  . . . give it ever more “regulatory” power to make banks and other institutions beg for permission before they do this or that?

I suppose that we’re meant to assume that the next Secretary of the Treasury will be more a pure-hearted, more honest man who will not have any friends or former colleagues in the hedge fund business (and will not have anyone on his staff who does).  That way, when one of those all-seeing, all-powerful, clairvoyant regulators spots “systemic risk” or some other such deviation from acceptable behavior that Dodd-Frank purports to have outlawed, no one will get a secret meeting or phone call.  We’re going to outlaw cronyism, damn it, because we’ll keep people with friends and acquaintances in high places from ever occupying an office of power – that’ll work!

Presto!  Outlaw breaking all the new laws and you’ve got perfection!  I’ve got another idea – let’s pass a new law that says murder is really, really bad; so bad that we’re going to start anticipating it (yeah, like in Minority Report with Tom Cruise) and that will have a huge effect on the number of murders, right?  That’s exactly what Dodd-Frank purports to do – the newly empowered regulators will have perfect vision into the future and will prevent any more icky stuff from happening.

Grow up Ms. vandan Heuvel.  If you know of crimes committed by bankers or hedge fund managers, report them immediately to the proper authorities so they can prosecute them under the laws as they existed pre-Dodd-Frank.  If you know not of any such illegalities, I beg you to stop implying that criminals are running free in the streets of mid-town Manhattan with the blessing of the Republican party.

And, with regard to your desire to prevent all the future bad deeds, I suggest that for one to think that the government can “regulate” out of the system all bad risk and the concomitant potential for failures and losses is naive; . . . no it’s dumb and evil.  The only way to accomplish such immunity from loss would be a complete take-over and shut-down of the financial markets – is that what you want?

It boggles the mind to contemplate the conceit necessary for one to believe that the government can imagine, predict, categorize and outlaw only the ‘bad’ versions of the innumerable ways capital is directed to productive uses.  Furthermore, beyond preventing fraud and theft, why should the government decide what is good or bad?

Bottom line:  What is the ideal regulatory regime for the capital markets?

Two laws:

1.  No Fraud – Check.

2.  No theft – Check.

And, since the state has the exclusive power to compel a party to honor any contract it enters of its own volition, the state must exercise that power (a) as necessary and (b) without regard to what the enforcer thinks the ‘fair’ outcome of the business transaction should have been.

Any other laws will give protection or otherwise give preference to one party over another, and the (unconstitutional) power to pass such preferential laws will lead to perversion and abuse of the law.  (See Frederic Bastiat, The Law  See in particular, the chapter Property and Plunder.)

Don’t change plunderers.  Stop the plundering.

Pink Ribbons, Health Care and Money

Who can argue with wanting the most affordable, high-quality health care for the most people? An abundant supply of a good thing is a desire that is unassailable by any one who wants to be a welcome participant in the public discourse. So, our challenge is to discover the best means of maximizing the supply of the unarguably good thing, right?

Debt Ceiling – Did that alarm-thingy go off again?

If you want to know how serious or knowledgable any of the politicians are about taxing and spending issues, just ask one of them “how large an increase in the debt ceiling do you recommend?”  If their answer is anything less than, say, $10 Trillion dollars (the amount the debt is expected to increase over the next 6-8 years) then that politician is merely pretending to be paying attention to the situation and actually has no sense of what is going on in the country they “govern” much less what are the consequences of his actions.

You’ll get an answer like “up to $17 Trillion” (up from $14.5T now) and you’ll know beyond doubt that they’re not serious, because that increase will last about a year, maybe two . . . and we’re right back where we started.

That’s really the point the Republicans are making (and not very well, by the way).  Unless we pair the increase to major reform in the budget process and serious spending cuts, we’re just kicking the can down the road and solving nothing – like pushing the snooze button on the alarm clock and rolling over for another few winks.

Wake up America – they’re toying with issues that can do irreparable harm to our country and the freedoms we seem to take for granted.  The politicians have no clue what they’re doing – seriously, they don’t – and the ‘media wing’ of the government is complicit, because they think the explosion might be good for ratings.

Regulation Revolution

Wall Street Journal is on the right trail.  Labor unions will win by regulation what they can’t get by democratic or other means of policy making that hinge on the merits of an argument.  (See Editorial here)

The democrats and their bosses/enablers (union leaders) know that regulatory control is their best, most effective weapon.  The GOP-controlled the House can’t stop actions taken and rules written by any of the innumerable commissions and agencies.  Parts of the Financial Regulatory Reform and Health Care Reform laws are going to be used against all of America’s businesses and individuals to revoke liberties and freedoms we thought were protected by the Bill of Rigths.

Those laws are littered with provisions that empower regulators to do whatever they deem to be “good” and “fair”. Put those laws together with BHO’s executive order of a few months ago (HERE) and you have an all-powerful government controlled exclusively by the unelected bureaucrats of the executive branch; and the legislature has rendered itself powerless to stop it.

Congress has passed laws that grant the POTUS enormous unchecked power.  Recent laws set “goals” and establish comissions with the authority to write rules (aka laws) to accomplish those ill-conceived goals. It’s plainly unconstitutional, but no one is watching.  Instead the focus is on who or what industry shall get the next tax credit or a grant or subsidy from Uncle Sam-ta Clause.  All the while Cass Sustein is busy, behind the fog, rewriting every regulation on the books and laughing at the food fight Paul Ryan and John Boehner are having with Harry Reid and Barack Obama.

Thank Goodness for Child Labor

IT’S CAPITALISM, STUPID, NOT CAPITOLISM

OR

A PERSONAL STORY ABOUT CHILD LABOR

Child Labor – we only outlawed it because we could, because capitalism improved productivity enough that we could let the kids go to school instead of making a living for their families.  It’s not like mom and dad were sitting at home living off their kids’ wages.  Everyone was working and conditions sucked.

The employers of those pitiful kids were driven by the profit motive.  That term is better stated as one’s desire to own the fruits of one’s labor and to have the freedom and the ability to dispose of that fruit as one sees fit.  That one word – Freedom – is the key.  If you try to eliminate the profit-motive, you are eliminating freedom, simple as that.

The profit motive, freedom, is the reason – and the only reason – we were able to write “child-labor” laws and let the kids spend the first 18-22 years of their lives being sponges instead of having to earn their way.

Can it really be true that it was a businessman’s “greed” and evil that made him hire children for $.10 per hour (or whatever it was) instead of hiring his mother or father for $5.00 to toil in his factory?  It was a necessity, it was the only way he could make a profit, and without a profit, the job wouldn’t have existed, the child and his family would starve.  Without the potential to make money, the businessman could not have borrowed or otherwise raised the money it took to build the factory to begin with.  It had to start somewhere.

Were there examples of “evil” and crooked businessmen who abused their power over a small portion of the labor force?  Of course there were.  But, be serious – if that practice were as widespread as we’re often led to believe, where were all the complicit, cruel parents, and why did they sit idly by?  The kids were working because the family needed them to, don’t you think?  If the vast majority of the businesses that employed child labor were the monsters we often see portrayed, and the families didn’t really need the extra money, wouldn’t the parents have let their kids stay home or at least do the work themselves?  The jobs were low-skill, low-pay jobs that enabled the factory owner to keep the factory open – and open the next one and the next one, increasing productivity and replacing, eventually, the kids with machines.  God bless those factory owners who fed families – including his own, by the way – while building a world in which the next generation of kids could spend their youth contemplating and protesting the evils of child labor, instead of shoveling manure out of the family barn.

Do you really think, for example, that a small businessman, a family farmer in Davenport, Iowa in 1905 worked his whole family from dawn ‘til dusk because he hated his only son, Frank E. Neal, Sr., or because he wanted to, God forbid, make a profit off of his own child?  No, we know he did it that way, because otherwise the family wouldn’t have had enough to eat – Frank, Sr. would have starved.

Because he didn’t starve, and since we live in a free country where innovation is driven by the profit motive, that farmer’s son later moved to Tennessee, became a letter carrier for the US Postal Service and sent his third son to Isaac Litton High School in Nashville.  That son then attended an insurance company’s training program, sold property and casualty insurance for several local and national agencies, and raised six children, four of whom make their living working for the independent insurance agency he founded in 1975.

Which of those two men – the farmer in Davenport or the businessman in Nashville – is an ogre, using the labor of his children to line his own pockets.  Neither.  My father, Frank E. Neal, Jr., is the same man as his grandfather and his father – just standing on their shoulders.  I’m grateful that my great-grandfather pushed my grandfather out of bed every morning to milk the cows and tend the crops.  If that’s abusing child labor, I’m all for abusing child labor.

Glenn Beck and Finance

Mr. Beck,

You contributed to the downfall of America on March 1 by perpetuating a couple of myths.

First, oil speculators CAN NOT force the price of oil up.  In every futures contract, there is a ‘long’ side and a ‘short’ side.  For a speculator to make money on the way up, someone has to lose money; for there to be a gain on the UP position, some third party will have speculated on the opposite movement, DOWN, and his loss is the first speculator’s gain.  So, unless there is a complicit, knowing loser on the other side of the trade, forcing the price up by speculation is impossible.  To say otherwise is to feed fear, the last thing we need.

Second, you spoke at some length about “bear-runs” – circumstances where companies’ stock prices were “forced” down by short sellers.  For starters, see above – there are two sides to every trade – some one else believed the opposite, that the share prices would be stable or rise.  In addition, the examples of Bear Strearns and Lehman are telling.  The problems in those two situations were not the short-sellers; the main problems were those companies’ business plans, plans which the short sellers believed would fail.  The short sellers invested their money such that they would profit if their assessment of the plans turned out to be accurate.

In the case of Bear, that problem was worsened by US Treasury Department intervention to (1) assume all of the liabilities of Bear Stearns and (2) sell the remaining assets for a price that didn’t take that $30 Billion white-wash into account.  JP Morgan stole the company with the government’s sanction, getting to keep the assets with the assurance that the contingent liabilities that were on Bear’s balance sheet would be paid by the government – nice work, if you can get it.

With Lehman, the government doomed Lehman when it said “we’re not saving Lehman.”  (I’m not suggesting the government should have ‘saved’ Lehman – the government should have never been involved in the matter.)  We will never know if Lehman could have made it out of their over-commitments to real estate, but they were never given the chance.  Instead government intervention and mark-to-market accounting forced them into insolvency.  Eventually, Lehman filed for bankruptcy and, notwithstanding all the predictions to the contrary, the world did not end.  The market deals with failure almost as well as it does success.  It cleanses the system of bad business plans, and government intervention to keep the market from finding the bottom, so it can bounce, prolongs the pain and moves the bottom DOWN further.

Much can and has been written – much of it wrong – about the financial crisis of 2008.  More populist, anti-Wall-Street-trader rhetoric will not help the country avoid future crises.  More regulations, more government and more mud throwing will all worsen the problem and lead to worse outcomes.  A more clear understanding of how markets function – including how they function to punish failure – will make for a less interventionist government and better outcomes.

Tax Cuts for the Rich!

The Tax System Explained In Beer – by unknown author.

Suppose that every day, ten men go out for beer & the bill for all ten comes to $100. 

If they paid their bill the way we pay our taxes, it would go something like this : 

The first four men (the poorest) would pay nothing. 
The fifth would pay $1 
The sixth would pay $3 
The seventh would pay $7 
The eighth would pay $12 
The ninth would pay $18 
The tenth man (the richest) would pay $59 

So, that’s what they decided to do. 

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. 

“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20”. Drinks for the ten men would now cost just $80. 

The group still wanted to pay their bill the way we pay our taxes. 

So the first four men were unaffected. They would still drink for free. But what about the other six men- the paying customers? 

How could they divide the $20 windfall so that everyone would get his fair share? 

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. 

So, the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay. 

And so the fifth man, like the first four, now paid nothing (100%saving). 

The sixth now paid $2 instead of $3 (33% saving). 

The seventh now paid $5 instead of $7 (28% saving). 

The eighth now paid $9 instead of $12 (25% saving). 

The ninth now paid $14 instead of $18 (22% saving). 

The tenth now paid $49 instead of $59 (16% saving). 

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings. 

“I only got a dollar out of the $20 saving,” declared the sixth man. 

He pointed to the tenth man, “but he got $10!” 

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!” 

“That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!” 

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!” 

The nine men surrounded the tenth and beat him up. 

The next night the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill! 

And that, boys and girls, journalists and government ministers, is how our tax system works. 

The people who already pay the highest taxes will naturally get the most benefit from a tax reduction.. 

Tax them too much, attack them for being wealthy, and they just may not show up anymore. 

In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier. 
  
_________
For those who understand, no explanation is needed. 
For those who do not understand, no explanation is possible.

 

Who is John Galt?