Economics Crash Course

By Kit

Note: Sorry I have not been posting things recently, I've been busy with exams and now that I'm done I hope to post things a tad more regularly.

As I've begin reading about economics on my own time the one thing that has struck me is largely how simple are the basic tenants of economics. Yes, the application of them is complex but the core is quite easy to understand.

For example, such things as Law of Supply and Demand, Prices, and Knowledge Problem, etcetera are surprisingly easy to understand, provided they are explained well.

And the best video I've seen that covers many of the basic aspects of economics is this magnificent video produced by Learn Liberty:

Let's see what it explains:

Knowledge Problem: There is no way for the railroad engineer to know everything he needs to know about what materials work best for the country.
Law of Supply and Demand: As supply of something goes up the cost to buy it goes down, i.e. it gets cheaper. Therefore the railroad engineer will more likely buy those materials that are the cheapest.
Prices: The way he knows the cost is the price attached to it.

Ta-da!

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Idiocy Repeated Is Still Idiocy

Stop me if you heard this before, but Hillary just said, “Don’t let anybody tell you it’s corporations and businesses [sic] create jobs.” I guess she got a hold of Obama’s “you didn’t make that” playbook. Morons.

Before we take Hillary’s idiocy apart, consider the following facts: there are 140 million jobs in the US. Of those, 120 million were created by private sector firms. The other 20 million are government jobs, which only exist because of funding obtained from taxing the other 120 million employees and the businesses that employ them.

Businesses in the United States invented almost everything you touch or use every single day. Sometimes, the government got the ball rolling, like with the internet, but their invention languished until the public got involved when private firms realized they could make a buck improving the internet. Even things the government “built,” like the nation’s highways, were actually built by private contractors. Heck, there were more private contractors making sure the military could function in Iraq and Afghanistan than there were soldiers.

So at best, Hillary’s statement is backwards: “Don’t let anyone tell you the government is capable of creating jobs.” But she didn’t say that because she’s an idiot. Instead, she said the same moronic thing Obama did. She said that the only people who can create jobs are the ones who actually create jobs without the help/aid of the private sector. She forgot (or ignored the fact) that the private sector is the group that responds to consumers, which is the primary reason for jobs to exist. She forgot (or ignored the fact) that without being able to skim private sector money, there would be no government. Even the communists depended on taxes taken from capitalists to keep their sclerotic system running.

Hillary went further too. First, she wrongly equated business with “trickle-down economics.” The two are not the same. Moreover, she said of “trick-down economics” that “That has been tried and failed. It has failed rather spectacularly.” Again, she’s ignorant at best. Reagan’s economy was the best the US has had in a hundred years. Her own husband presided over a second great economic period which also was based on the same trickle-down economics she now claims “failed rather spectacularly.” In fact, all of our best economic periods have involved the principles of “trickle-down economics,” and our worst have been the result of liberal economic meddling away from these so-called trickle-down principles. Obama and Carter are the worst for a reason: their passion for big government... LBJ didn’t send us into a generational economic malaise by accident, it was his passion for big government. FDR never did manage to dig us out of depression without all of our competitors literally being put to ruins; his efforts to force the economy out of depression with big government failed year after year.

Hillary either doesn't know this or is intentionally ignoring it. Either way, she's an idiot.

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Moron Alert: David Haslett

Wow. CNBC gets some a-hole guest, but nobody tops this guy David Haslett, who was on last week. Haslett is the author of a book called “Capitalism with Morality,” and he’s advocating a cap on inheritance. Check out this load of monkey poo!

Here is Haslett’s point. We’re in the middle of the largest wealth transfer in human history as a bunch of stinking rich old people die off and leave hundreds of trillions to their kids. This is bad because being rich causes people to lose their inventive to work hard. So it would be better for those poor dears if we took away some of that inheritance so they don’t have “too much.” Then the government can use that money to make the country more equal!

Yay!! Communism!!

● How Much Is Enough: Like all thieving leftists, Haslett tries very hard to avoid being pinned down on exactly what he is advocating. This became clear once they tried to get him to tell them where he would place the cap. Haslett at first shrugged his shoulders and acted cagey, saying it wasn’t up to him. He then said it would be up to the Congress, though clearly we can’t trust the current Congress. The interesting moment finally came a few discussion points later when he floated the idea, as an aside, that a cap at $100,000 would ensure that everyone still had an incentive to work.

$100,000

Yes, $100,000.

Think about that. Haslett tries to sell his idea by complaining about the evil rich having too much... and then he sets the cap at $100,000. Haslett tells us that his big concern is people losing their incentive to work... and then he sets the cap at $100,000.

At $100,000 you couldn’t even pass on half of the median house. So who gets whacked here? The rich or all those middle class people who want to pass on their homes and their cars and what little money they’ve saved to their kids? This is a “RAPE EVERYONE” plan. This is communism using a meaningless $100,000 figure rather than a $0 figure.

It’s no wonder he tried to avoid answering this question.

● It Won’t Work Anyway: Even if we accept Haslett’s stupid idea, it still won’t work. The rich, i.e. the people who hold 70% of the nation’s assets, will simply transfer them out of the country, where they can pass them under Swiss law or Cayman law. In effect, Haslett will leave this country as barren as a Walmart after a riot. Smart thinking jerk.

As for the assets that can’t be yanked out of the country, those can be put into corporations that do not die and then the corporations can be inherited overseas. And if you want to get your kids some easy cash, just employ them and pay them that way.

In the end, the only people who will pay this tax are middle class people who have no way to avoid it. And in doing so, Haslett will effectively destroy the American middle class and will recreate the 14th Century, where the ultra-rich live a privileged multinational life and everyone else is poor and unable to own property.

That means they have no incentive to earn or save. Their incentive will be to live off the government... a government with no income because all the rich people fled.

This is so typical of liberals. They come up with these broad-brush overly-simple solutions without having the slightest clue how their plan will affect people. This jerkoff claims he wants to reduce inequality, but his plan is not only guaranteed to increase inequality, it will increase it to a level not seen since the age of divine despots. He doesn’t even realize that he can’t reach the people covets with his stupid plan. All he’ll do is drive US wealth overseas.

You’d think they would have learned something from their failure in the Soviet Union, but I guess all they learned was to hide their true goals.

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"Out-of-work Americans"

Here we go again. Do you remember when we debunked the 47% of Americans pay no taxes claim? SSDD. Drudge reported that 92,594,000 Americans “are not working!” This is a record apparently and the implication is that most of the country has gone onto welfare. That’s utterly false.

Here’s the thing... there are 310,000,000 Americans. Of those, about 84,630,000 million are under 20, meaning they are likely unemployed because they are children or students. Another 39,680,000 are over the age of 65 and should likely be retired. Combining those two groups gives you 124,310,000 million people who aren’t expected to work. Suddenly, the claim that 92,594,000 million Americans aren’t working doesn’t sound so bad, does it? Indeed, these numbers tell us that at least 31,716,000 people who probably shouldn’t be working are working.

So is the Drudge number meaningful? Nope. It’s meaningless because it’s too broad in that it doesn’t factor out those who won’t be working under any circumstances (like a 5 year old) and then it implies something that is false from the overall magnitude of the number: “Lots of people aren’t working!” Well yeah, but they aren’t expected to work, so what’s the problem? In any stable modern economy, about one of three persons will not be working because they are too, young, too old, or something else. In our case, the figure is a little less at 30%. So that's not really bad. In fact, the only way to reduce this number would be to put children to work or to go all Logan’s Run on your elders, and even our fringers can't be expecting that. Well, ok, but no one else would suggest such a thing.

So don't worry about this silly 94 million number.

Now, that’s not to say that the job market is very good. It’s not. According to official statistics, 9.8 million people are unemployed, another 7.5 million are underemployed in “forced” part-time jobs, and 783,000 workers have simply given up. That’s 18 million Americans who could be more productive if the economy was better. That's 18 million people who could be buying homes, buying consumer goods, paying taxes, and not draining benefits. That’s the real number to worry about, not this fake 92 million number. That’s the number that needs to be fixed... and Obama has no plan to fix it.


Unrelated Aside: As an aside, the headlines this weekend screamed about the Baby Boomers become "the roommate generation." Good grief. Reading three sentences into the article finds that the number of cohabiters aged 50 or older is 130,000 households... about 260,000 people. How many people are over 50? Not totally sure, honestly, but there are almost 40 million over 65. So the number is probably around 50 million. In any event, 260,000 out of 40 million people works out to... carry the one... 0.65%. Would you say that the actions of 0.65% of a group make them representative of that group? Apparently, our knee-jerk journalistic community does. "The roommate generation" indeed.

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De-paranoia-ing: China's GNP

Let’s do some de-paranoia-ing. I’m not sure if that’s a word, but it should be... de-paranoia-ing: To point out some obvious things the fearmongers kept hidden so they could scare people. Today's edition involves this ridiculous idea that China has overtaken our economy. Top of the World, Mong! Let's debunk.

Ok, riddle me this, when is 9.7 trillion larger than 16 trillion? Answer: When you want to scare people. You may have heard this weekend that China has "finally" overtaken the US in terms of GNP. Apparently, we’re all second class now... put a fork in us, we’re done. The problem is, this is a false claim. The US economy produces GNP of $16 trillion per year right now. The Chinese economy produces GNP of $9.7 trillion. See the problem? 9.7 is not greater than 16! So how can they claim that China’s economy is miraculously bigger than ours? By adding a fudge factor to China’s economy to convert the real $9.7 trillion figure into an imaginary $16+ trillion figure.

Sadly for them, this approach is ridiculous.

The fudge factor in question involves what they are claiming is an adjustment for the difference in cost of labor between the two countries. In other words, since Chinese labor is cheaper, China can buy more of it for the same amount of money. Thus, even though our GNP is bigger, we can’t buy as much stuff as the Chinese for it. Ergo, our economy is actually smaller.

Here’s the thing though, the $9.7 trillion v. $16 trillion already accounts for the difference in labor costs. And what the people advocating the fudge factor are ignoring is productivity. Consider this: a Chinese employee may demand a smaller wage, but that is because their labor isn’t as valuable as American labor. The principles of international trade assure us of this or ALL the jobs in the US would flee to China. Instead, only the lowest level American jobs left for China and that stopped about a decade ago as China became too expensive compared to America for more to leave.

Let me see if I can make this more clear. Between an American high school grad and a Chinese laborer, the Chinese laborer will be much cheaper to employ if I’m looking for someone to dig a ditch. It is this assumption which these “experts” are using to claim that China has this advantage which requires us to double their GNP because China can afford so many more ditch diggers than we can. Said differently, China can employ about two laborers to dig a ditch for the same price we would pay to an American. Ergo, China’s economy is really twice as strong as it appears because they get twice the bang for the buck that we do.

The problem is, that's wrong. This formula may work if you're purely talking about basic physical labor, but it definitely does not work once you move beyond that and the reason is productivity. Take the example of an engineer. A Chinese engineer may be paid two times less than an American engineer, but the American engineer is capable of turning out 10 times more and better work than the Chinese engineer. If that weren’t true, then engineering jobs would be racing to China, but they aren’t. The only jobs racing to China are unskilled labor jobs, and even those are now leaving China.

What this means is that when you look at building something, it actually takes 10 Chinese engineers to produce the same product as the American does. That may only cost 5 times more because of the cost of labor, but it still costs more. This is what the "China are beating us" advocates are missing. They are just looking at the wage difference without factoring in productivity. In fact, I could flip their argument around by ignoring price and looking only at productivity and then declare that our economy should be doubled in size and China's considered even smaller. But that wouldn't be right either because I would be ignoring the price difference.

So how do we compare price and productivity? Well, it turns out we already know the difference. The difference is captured in the exchange rate which gives us the GNP measures of $16 trillion v. $9.7 trillion.

Think about it. Our GNP and China’s GNP represent the value both countries were able to produce in the last year given the cost of labor, the cost of regulations and real estate and other inputs, and the offset for productivity. That’s what these numbers are: the total value each economy is capable of producing. And as productivity or costs change, the exchange rate fluctuates to reflect the lost value to the economy and the $16 and $9.7 trillion figures will shift accordingly. Trying to impose a half-assed adjustment on top of that only doubles up on a single adjustment that has already been factored in by the laws of economics. Hence, this idea is of adjusting China's GNP is simply false.

Moreover, the method they are advocating completely ignores the fact that the official exchange rate is what these countries will pay to buy foreign goods or services and what they will be paid to export their own. Thus, even if we accept that there is some logic to the idea of the fudge factor for local products (there isn’t), the fudge factor still needs to be ignored for anything the country does that involves other countries. In other words, even if costs are cheaper in China, that doesn’t get them a discount when they import an Audi nor does it get them a bonus when they export a television set. About 60% of China's economy is direct exports or imports, so you tell me if the advocates are right to dismiss this idea?

And on that point, consider this. To compare GNP from two countries, the only meaningful way to do it is to ask yourself what it would cost for some third party country to buy up everything they produced that year; to figure out what an arms-length buyer would spend to buy each. That gets you an objective value which you can then use to compare the two. That's the only way to make a straight up comparison, because it wipes out subjective valuations that may exist within a country but nowhere else. If you don't do that, then you aren't comparing anything real... it's like comparing the value of two family photos, which may be priceless to each family, but meaningless to everyone else. The exchange rates do this automatically. That's why you use them to make the comparison.

Finally, to prove to you just how silly this idea is of using this fudge factor, consider this: if we consider their argument valid, then the American economy would be better off if we closed all of our schools and disallowed anyone from working in an industry where they could demand a higher salary than anyone else off the street, i.e. if we converted all of our labor to unskilled labor. Then wages would crash and we would have the same “advantage” China has. Does that pass the sniff test? It shouldn’t. No one anywhere in the world thinks that degrading their workforce is a good idea. Hence, there is obviously something fundamentally wrong with the idea.

What this is, is an attempt to scaremonger you. They want you to believe that China is somehow better than we are, even though their GNP is stuck at about half of ours. Some Chinese miracle.

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Too Big To Play Fair

The Federal Reserve just published a study which found that “too-big-to-fail” banks have an unfair advantage over other banks because of the threat they pose to the economy. They even posited some possible solutions. Unfortunately, they keep missing the real solution.

According to a series of papers issued by the Fed, the biggest banks benefit from lower funding and operating costs. “Funding costs” means what it costs them to borrow money, and as the papers found, it costs these banks less than other banks... about 0.31 percent less. That may not sound like much until you realize that (1) it is a statistically significant result (meaning there is statistical proof of favoritism), and (2) when you are talking about hundreds of billions of dollars, 0.31 percent can be huge.

Where this difference comes from is access to cheap taxpayer money and these companies being seen as less risky by other banks because the government will cover their debts. This is bad for our economy because it means these banks have learned to use the threat of their own failure to cop discounts. It also, according to the study, lets these banks take on much bigger risks than their peers, such as foreclosures, because they know the government will bail them out if they fail. That means they get to take unsafe risks on the basis that they get the profits if they are right and we take the losses if they are wrong.

As a not-coincidental aside, an industry group did what industry groups always do: they put out a counter study which found no difference between the too-big-to-fail banks and everyone else. Sure, uh huh, whatever. That's why only fools and talk radio believe industry anymore.

Unfortunately, the too-big-to-fail situation still exists. In fact, if anything, the problem has gotten larger as these huge banks continued to grow and absorb other banks. By now, both left and right are lamenting the fact that these companies are even more dangerous than before. That should be good for getting something done, but it hasn’t so far. What’s more, the regulators who have been put in charge of fixing this seem to be headed down the wrong paths. For one thing, they’ve ruled out breaking up these giant banks – the only true solution to “too-big-to-fail.” Instead, they’ve pointed to new rules requiring reduced leverage, holding more assets that can be sold quickly, and making less risky trades, but those changes are minor. They are also considering require these firms to contribute to a fund to cover future bailouts, which we know can never hold enough money for a true crisis. The FDIC also now has the power to seize a failing firm, replace the management and wipe out the shareholders, with the creditors becoming the shareholders. The problem with that, however, is that it doesn’t really discourage bad behavior because all the risk remains with the government.

Ultimately, the only way to solve “too big to fail” is to make each of these firms “too small to notice.” The fact these firms can use the threat of their own failures to get better treatment should itself send up red flags.

Sadly, the times they aren’t a changin’.

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Dutch Disease In The US? No

I came across a fascinating theory this week to explain why countries that are rich in natural resources tend to remain poor. This theory was actually first developed in 1977 and came to be known as "the Dutch disease." What brought this up the other day was that a leftist asserted it could happen to us because of all the drilling we are doing. Naturally, I don't buy it. Let’s discuss.

The theory I stumbled upon is really pretty fascinating and surprisingly obvious once you hear it. It goes like this: when countries start exporting natural resources like oil, gas and copper, other businesses in that country find themselves becoming less and less competitive. Why? Well, because the cash brought into the country from the sale of the commodities causes the value of the country's currency to soar. This means that goods produced in that country will now become more expensive relative to goods produced in other countries. Indeed, what the oil/copper/etc. wealth has done is put the country’s businesses and local labor at a serious disadvantage to the rest of the world and that will slowly strangle the rest of their economy, even though the country appears normal from the outside.

This is “the Dutch disease,” which is a term coined in 1977 for the relationship between the discovery of a large natural gas field in the Netherlands in 1959 and the subsequent decline of their manufacturing sector. As noted in 1977, this was seen as being the result of the Netherlands becoming less competitive because their currency became stronger compared to other nations because of the export of gas.

This is interesting on several levels. First, it explains why places like Russia are moving backwards economically despite the wealth they are taking in from all the oil, gas and minerals they are sitting upon. It also explains why so many third world countries have such problems, because they always try to sell their resources first to boost the rest of their economies, but in the process are hamstringing the rest of their businesses.

This also puts the lie to the left’s argument that these countries are poor because capitalists have exploited them. Between the 1960s and the 1990s, the left screamed about Western capitalists exploiting third world countries. The argument went that the capitalists would go into a third world country and pay far less than market value for the resources, thereby leaving these countries poor and without their resources. Believe it not, this wasn't hard for most people to believe, given that colonization seemed to be about exploiting these countries and that these countries always ended up remaining poor. This theory however, says that's not true. This theory tells us that the problem isn't insidious behavior, it's simple economics.

As an aside, the right had the perfect response to the left for decades. The right countered that it was corrupt governments and bad business cultures that squandered the wealth. The right also smartly pointed out that while the left whined that placing factories in these countries was exploitative because they didn’t pay western wages, the workers were typically thrilled to be making way more than other local jobs paid. Those are arguments the left never could beat.

Anyways, this argument came up vis-à-vis the US the other day. With the US now producing more oil and gas than Saudi Arabia, is there a danger of this happening here? The article I read felt it would happen here. I don't buy it though. And the reason I don't buy it is twofold. First, oil and gas are only a tiny fraction of our economy from an export perspective. Thus, they cannot cause the dollar to appreciate enough to trigger this effect. By comparison, the countries who have been hit hardest by this reality tend to be the ones whose only industry is exporting resources. More importantly, we aren’t exporting our oil and gas, we are using it. That means it's going to make everything in our economy cheaper. That will actually cause the inverse of the Dutch Disease effect with American businesses and labor becoming more competitive... not less. Said differently, this should spark an economy wide boom as energy gets cheaper for everyone. It is an interesting theory though.

Thoughts? Any other applications you can think of?

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Who Needs Jobs Anyway?

Suppose I told you of an economic plan that would add $600 billion every year to the world economy, $200 billion of which would come directly into the US economy. In 10 year speak, that’s more than $2 trillion into the US economy... about 2.5 times the amount of the Obama stimulus, and this money would grow out of the economy rather than being borrowed so it could be pumped in. Sounds like something anyone would jump on, right? Yeah, good luck with that.

The agreement in question is the “Transatlantic Trade and Investment Partnership,” a sort of free trade agreement with Japan which would open up the service sector of both countries to free trade as well as doing some things for agriculture.

The Japanese want it. America wants it. Even Team Obama want it... probably because they need to start producing jobs unless he wants to be known as The Unemployment President. So why isn’t it happening?

Well, Obama has never made trade agreements a priority. In fact, like all the import parts of his job, they bore him. But now he’s working diligently (or at least his people are), and they’ve come up with several deals or potential deals. Several of these are estimated to be at least as valuable as the TTIP.

BUT there is a problem. Harry Reid and Nancy Pelosi (the new darling of the fringe... think about that for a moment), don’t want any stinkin’ trade agreements. And to keep that from happening, Reid has denied Obama “fast-track” authority to negotiate these deals. The fast-track authority lets the President submit these treaties to the Congress in a yes/no fashion with no amendments. Without that authority, no one will sign on the dotted line with us because they would be making all kinds of politically unpopular compromises only to have us say, “Gee, that’s great, now we need to run this through Congress and see what the retard from Arkansas wants to add.” Only a fool would negotiate with anyone who doesn’t have the authority to stand behind their promises.

So because of Harry Reid, several billion dollars that could be added to the economy are missing. Of course, this is nothing new. The Democrats have always been protectionist because their party is about protecting inefficiency rather than fixing it. Heck, with things like Obamacare they’ve even crossed over into the business of actively promoting inefficiency.

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Smoke and Mirrrors

One of the things that has troubled me throughout the past couple years is the seeming mixed messages from the economic indicators. Everything I see tells me that the economy stinks. Yet, there are some indicators that seem to be going the other way. Well, I figured out what is going on. Let's discuss.

● Unemployment: Let's start with the obvious one, which is unemployment. There just aren't many jobs out there right now. Nevertheless, we keep hearing that the unemployment number is falling slowly and isn't really that far out of line with most recessions. But here's the thing. The unemployment number can be massaged very easily and one of the ways they do it is to drop off the people who have given up looking for work. There are about three million of those and if you factor them back in, then unemployment rises from 6% to 11%. It goes even higher if you factor in underemployment, which is when people are forced to work at jobs below their level of qualification. Count those people and we're looking at around 16% of the workforce being in employment distress.

● Corporate Profits: Consumers are weak. Unemployment is high. So how in the world can corporate profits be up? Hmm. This was quite a poser. The stock market has been flying high on the basis that corporate America is doing great because their earnings and profits are at record levels. But the real economy suggests this can't be. What explains this? In a word: buybacks. Companies have been buying back their stock. The result is fewer shares to spread the profits over. Thus, even though actual profits are flat or lower, the company's balance sheets report higher and higher earnings/profits per share.

● Housing Recovery: For some time, we've heard that housing prices have stabilized and have been soaring. How can this be? Well, it turns out that a handful of companies decide that housing was a good investment. They basically assumed that either housing would recover or that someone would bail out the housing market, so they went out and bought more than a billion dollars worth of homes. They originally targeted the hardest hit areas like Phoenix, Vegas and California. When they ran out of homes to buy, they moved to other areas like Atlanta, Charlotte and Chicago.

What this did was place a floor under the market generally, because market numbers are an average across the country, and it caused the housing market in the cities where they went to rise basically by as much as they invested. In other words, they bailed out the places they went, and the result caused the average price of homes to appear to stabilize or even rise a bit. But there's a problem. No one else is playing this game. In effect, they've entered a poker game with themselves. And now they want out. First, they stopped buying more, which brought a "surprise" reduction in home sales in December -- with the markets in which they stopped buying being hit the hardest, e.g. prices fell 17% in Phoenix from a year ago. Now they plan to sell off their properties, which didn't rise as expected in value, over the course of the next 5-6 years. This will send the market back down in those cities right back to where it was in 2008. This is (1) why "the housing market" has been going up, nationally speaking, (2) why the housing market actually was only going up in some cities, (3) why it has suddenly stalled, and (4) why it's in danger of collapsing again.

● Inflation: Finally, everyone tells us that there is no inflation. Even government figures estimate inflation close to 0%. Yet, everyone seems to sense that inflation is out there and running wild. What's going on? Well, the obvious answer is that government inflation figures exclude the things that suffer from inflation. Specifically, government estimates exclude food and fuel... the two areas where inflation is occurring most rapidly. Further, the inflation has been hidden in many ways. One prime example involves reducing the amount of product in the containers. Product after product has been cutting the amount in each package by 10-20% and then increasing the price by 3-5%. This records as 5% inflation even though it's actually 25%. Other companies have done things like eliminate coupons, add service charges, eliminate things like free shipping, and substitute inferior quality parts. Amazon increased the amount you need to buy to get free shipping.

In instances like Obamacare, the Democrats and their fellow travelers in the media are picking false points of comparison. For example, rather than compare the cost of insurance from 2010 before the Obamacare mandates started to kick in, they compare today's rates to insurance from 2013, which already includes most of the additional costs added by Obamacare. Moreover, they make it impossible to do a direct comparison because the new policies include things the older ones didn't. It's like forcing a Honda owner to buy a Cadillac and then claiming that because the new car is better you can't compare how much more this cost the consumer.

This is what is going on. The economy isn't in doomsday mode, but unemployment is very high, corporate profits are falling (and the stock market should be), there is no housing recovery, and inflation is out of control. The above is how all of that is being hidden from you.

Thoughts?

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Obama's Economic Legacy

Obama’s popularity is below Bush’s popularity at this point in his presidency. I’ll bet you didn’t know that. Why didn’t you know it? For the same reason you aren’t hearing casualty counts in Afghanistan or how gas prices are so high or that people can’t find work... because the MSM doesn’t talk about it. But it’s true. Anyway, I read an interesting article about Obama’s economic failure.

The article started with the usual liberal routine of blaming Bush for Obama’s failure, crediting Obama with “steering us through” the Great Recession, and then assuring us that this time the economy really is finally working and growing and everything is going fine. Pro forma bullshill from the left. What interested me was that it then lamented the fact that despite all of that, Obama’s economic legacy is going to be crappy. Aww.

According to the Commerce Department, the economy grew at 3.2% in the final quarter of 2013. They are hoping for 4.1% growth through the summer. Yet, even if these numbers hold up, Obama’s numbers won’t be anywhere near as good as Clinton’s numbers or Bush W’s numbers... and forget Reagan’s numbers! Consider these:

● Up to now over the first five years of his presidency, the Obamaconomy has grown by an anemic 1.8%. Over Clinton’s first five years, the economy grew 3.6%. Bush’s first five years saw 2.5%.

● Disposable income, i.e. what you can spend after taking care of your needs, rose a pathetic 0.6% annually under Obama. Clinton and Bush both saw 2% growth each year.

● Unemployment is currently at a five year best at 6.7% (more on this in a moment). Obama's worst was 10.09% and he spent most of his term in the 9% range. By comparison, unemployment under Bush and Clinton was 4.7% at this point, and the worst Bush ever got was 6.5% in one month. In other words, Obama has yet to achieve a best that is better than Bush’s worst and he spent most of his time with an unemployment rate that is about 1.5 times the worst Bush ever had.

But hey, Wall Street doubled under Obama.

Indeed, let me point out this too. Obama is talking about income inequality, which is a much stronger issue than conservatives want to believe (we need to capture and define this issue), but income inequality has spiked under his reign to the worst since the 1920s. Black unemployment has been at or near all-time highs. Youth unemployment has been at or near all time highs. Etc.

And then there’s this...

While Obama is touting his amazing 6.7% unemployment rate... a rate that is still worse than the worst the evil Bush ever achieved, the primary reason this number has been falling is that people are dropping out of the workforce rather than getting jobs. According to the Bureau of Labor Statistics, if you count the people who gave up looking and thus get excluded from the official unemployment figures, the true unemployment number would be more than 11%.

Nice.

There’s Obama’s legacy: twice as crappy as Bush.

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Minimum Wage Daze

If there's one issue on which liberals are almost always bound to get some public traction, it's an argument for raising the minimum wage. Even in my reddish neck of the woods, clear majorities support it at the polls. So it would be foolish for me to crap all over the idea of a minimum wage...but of course I'll do it anyway.

If you've followed the news lately, this issue has come up once again, as a number of states have raised their wage levels. One community around Seattle, in fact, now requires at least $15/hour pay from every business. And Democrats are only too happy to take this nationwide, demanding a hike in the federal minimum wage to $10.10 per hour. And of course there were all those protests recently by the fast-food workers, for whom, apparently, only making $7.25 an hour is the equivalent of having to stand in line at a soup kitchen. Sigh.

The minimum wage has always annoyed me, for mathematical and philosophical reasons. Firstly, having taken an economics course or two, I've been struck ever since by the public's ignorance that labor, like all commodities, follows the law of supply and demand: If you raise the price of it, buyers will demand less of it. In other words, the minimum wage tends to lead to higher unemployment. Proving this with economic data is tricky, because there are always so many factors at play, but consider this. States which have (or had) no minimum wage laws, such as Switzerland or Hong Kong, have historically had very low unemployment rates--around two to four percent. On the other end, there are the large European countries (France, Germany, the U.K.), which are famous for generous workers' benefits and chronic double-digit unemployment. These examples don't show causation, but they do suggest a very strong correlation between high minimum wage requirements and high unemployment.

Also, let's not overlook the fact that relatively, a very small number of people only earn minimum wage. The most recent numbers from the Bureau of Labor Statistics peg the number at less than 1.6 million out of a workforce of about 75 million, or barely two percent of the whole. And as is always the case, this small number is skewed toward the youth--the 16-19 age bracket alone makes up over 30 percent of that number. This makes the above argument even more compelling; a bunch of the people "suffering" from minimum wage are just teenagers in entry-level positions they'll quickly move out of anyway. Indeed, one could easily make the argument that an increase in the wage levels will make upward mobility more difficult, keeping employees at a lower average income during their career than they would have otherwise.

But hey. Let's throw all that out. Because no matter what, some liberal will inevitably come up with a case of some single mother with three or four kids who has to work two jobs, at night, has to eat off the Dollar Menu at McDonald's, and can't even afford a First-Aid kit, because the minimum wage is so terrible. Shouldn't we do something to help her? (By "something," of course, I'm referring to government aid, because that's what liberals are referring to. Private charity and other forms of voluntarism aren't at issue here.)

This is purely my observation, but it seems that all of our rational, statistical analyses don't really move people. It's not that the numbers are wrong, but the knee-jerk reaction seems to be "Well, at least the Democrats are trying to do something to help! Why do you have to be such naysayers?" The mindset on injustices and other social problems seems to be that anything, even a bad attempt at a fix, is better than the status quo. And that's a difficulty conservatives have not yet mastered.

The problem, in this as in so many other cases, lies with the failure to recognize that suffering is a part of human life. And it's not just liberals who have this problem; if it were, measures like this wouldn't be so widely popular. I don't think most people would disagree with the statement that mankind is not perfectable save by God (though I can think of a few who would), but in practice, we've all fallen into the trap of thinking that whenever some social ill raises its head, it must be legislated out of existence. Which is to say, in matters like the minimum wage we can see liberalism completely on display--the technocratic urge to tinker with society until everyone is fat and happy.

It's not good politics, and I'm not suggesting we make it our banner or something, but conservatives need to embrace the fact of suffering. Or rather, to embrace the notion that some forms of suffering are better than a random proposed panacea, which probably won't work anyway. And besides, in this case it's fairly certain that for a lot of people, a minimum wage of $10 or $12 will make things worse instead of better.

Conservatives shouldn't be falling into the trap of showing they want government to care about the right people, on this or other issues--especially when "showing you care" means throwing around lots of taxpayer money. Rather, they should focus on creating the conditions that will minimize these social ills as much as possible, while keeping it in mind that they will always be with us. That's why the minimum wage debate is so misguided.

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The Pope’s Apostolic Confusica

I like a lot of what the new Pope has done. In particular, he’s done a lot to push the Church back to its actual mission of spreading religion and away from being about money and politics. Interestingly, he’s done all of that with only a change in tone too, and without a change in doctrine. His latest issue is a little more troubling however... perhaps.

Last week, Pope Fancis issued an 84-page document called an apostolic exhortation. Think of it as his platform. This seems to be a document aimed at pissing off both sides. For example, he did say that the Church needs to bring more women into decision-making positions with the Church, but he affirmed the Church’s opposition to female priests. In fact, he said it “is not a question open to discussion.” He also affirmed the Church’s opposition to abortion. Both of those will upset progressives.

Pissing off the other side, he wrote what I want to talk about today. Specifically, he wrote about capitalism and poverty and what he said is problematic. Before I tell you my problems with it, however, let me explain what I think he really meant substantively, because when you strip out the ideology, what he says actually makes a lot of sense. Observe:

The Pope’s main concern was about extreme inequality. And you know, I can’t disagree with him. My problem with extreme inequality is that it takes away the stake people feel in society and they start to support radical ideas because they have nothing to lose and everything to gain by upending the system. That is why, historically, extreme inequality has led to bloodshed, revolution and typically some form of communism. And in fact, the Pope does note that “unequal distribution of wealth inevitably leads to violence.” So he is being practical in his discussion, i.e. he’s not just saying “it’s not fair.”

And don’t think this isn’t a problem in the US. For decades in the US, any poor person could work their way up to the middle class simply by learning their job, working hard, and staying out of trouble. Those who aspired to more could go further through education or imitative. You could literally go from the assembly line to the boardroom over the course of your life if you proved your merit. Further, the majority of the people who were wealthy earned it by providing some product or service that people needed. They were compensated by the free market and we saw them as heroes for their achievements: they made the world better. The keys were this: (1) wealth was generally earned, (2) political power had little to do with the earning of wealth, and (3) you could work your way up the ladder to each level.

Over the past few decades this has changed. For one thing, the wealthy today rarely earn their wealth through the private market. Instead, they enter the worlds of law or finance, and their wealth comes from the misuse of the legal system to force their way into transactions. In other words, they actually “earn” their wealth by setting up toll booths to clog the free market system, and what they earn is stripped away from companies and people who could otherwise use it invent new products and employ more people. Moreover, their pay does not come from free market mechanisms, it comes from monopoly pricing. Thus, today’s rich make a hell of a lot more money than the rich in the past and they are “earning” it without providing anything useful to society... to the contrary, they are hindering society. Thus, they have gone from heroes to villains.

But this still wouldn’t be a problem if things were going well at the bottom... but they’re not. As I outline in my book, middle class and poor incomes have been sinking badly since the 1970s, even as rich incomes soared (incomes are more unequal today, in the age of Obama, than they’ve been at any time since the age of the Robber Barons). Moreover, it’s becoming increasingly difficult to move up the ladders and to stay on the level you are at. Unlike the past, if you learn your job, work hard and stay out of trouble these days, nothing is guaranteed anymore. Now you need an education, or you will find the ceiling is very low. But even getting an education guarantees you nothing but debt.

The result of this is a poor class who see welfare as their better option and feels entitled because they feel they have gotten screwed by society. You have a middle class that is struggling, which is increasingly turning to “eat the rich” policies, who are also starting to rely on benefits, who see the stock market as fixed, and who see the government becoming a tool for wealth generation on the backs of the middle class who are expected to pick up the tab. That hasn’t led to violence yet in America, but it is the sort of thing that has led to violence elsewhere, and it is the sort of thing which leads people to start supporting destructive policies like increases in welfare for their own class... or worse.

This is why I agree with the Pope’s concerns and why I think conservatives need to start trying to address this issue.

So what is problematic? Well, the Pope’s rhetoric is the problem. He wraps this message in some very anti-capitalist statements. For example, he called capitalism “brutal” and “a new tyranny,” and he complained about “rampant consumerism.” Grr.

First, he’s wrong about consumerism. Consumerism is the ultimate in democracy in action. Consumerism is how billions of humans express their opinions to the businesses and governments around them. It is how we the people reward the good guys who make our lives better and cause the bad guys to fail by ignoring them and their goods. And anything we can do to give consumers more power and more choice, the better. What I think the Pope is really upset about is “materialism,” which is a very different thing. That’s about people choosing stuff over people. He should not be confusing that with consumerism.

Secondly, he’s wrong about “capitalism.” Capitalism is the only way to lift people out of poverty. So attacking “capitalism” is foolish and counter-productive. And again, I think he’s misspoken. I think what he’s really talking about is cronyism, which is obvious from his calls for the reformation of the financial systems.

So the problem is this. Either the Pope simply misused his words or spoken poorly, or he means his rhetoric and is saying something much bigger than what appears to be the substance he intended. If that’s the case, then he’s a fool. If he only misspoke, then that’s fine, except that as someone with this powerful of a bully pulpit, he needs to take more care to speak clearly. His choice of words will wrongly feed statists everywhere. Moreover, for someone whose goal has been to get the Church back to its mission of spreading religion, it’s rather foolish to delve into economic ideology. Further, he offers no solutions by way of guidance. All he says is that unfettered capitalism is bad, but a welfare state is not the answer. So what does he want? It’s not clear.

I get the sense that what he’s talking about is equality of opportunity. He talks about striving to provide work, healthcare and education to all citizens. Those really are the inputs to people living productive lives. In fact, I would suggest that conservatives need a platform that is strong on each of those points: creating jobs and opportunity, improving education, and finding ways to make healthcare cheap and universally available. I also get the sense he’s actually talking about things conservatives should like, and if we could discuss this with him, we would probably find we agree. Indeed, notice that at no point does he call for minimum wages or guaranteed incomes, he never says the government has a duty to hand out these things, and he specifically disdains the welfare mentality.

So ultimately, we probably should be embracing this... BUT his attacks on consumerism and capitalism make it very, very hard to embrace his statement. By saying these things, he has given aid and comfort to people who favor redistribution. He has muddied what he said with sufficient contradictions that it is not possible to know precisely what he wants, which makes it hard to say, “Sure, I agree.” And he has wrongly attacked the very tools it will take to make his goals possible. Frustrating.

Thoughts?

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The American Dream Isn’t Dead

It is again fashionable to claim that America is finished. Every generation does this. In the 1930s, we couldn’t compete with the fascists and their snazzy uniforms. In the 1960s, we lacked the cohesiveness of Soviet society. In the 1970s, the Arabs owned us. In the 1980s, it was the Japanese. In the 1990s, it was the BRICs who would run the world... or that economic powerhouse the Eurozone (bum bum buuuuum!). In the 2000s, it’s been China. Boogey oogey oogey.

Never happened, never will.

How can I say that? Because America is different. Americans are exceptional. What makes us exceptional? Americans believe in the power of the individual to change the world. No one else believes that. And what that causes is millions of Americans to set about changing the world themselves.

Americans are constantly in motion compared to other people. Americans are problem solvers. They see something they think they can do better and they do it. The rest of the world waits for the authorities to fix the problem. We invent, we build, we rebuild, we tinker, we take risks. And in the end, we make the world better.

So what brings this up? Well, I ran across an interesting statistics the other day that I think highlights this perfectly. The statistic in question showed that 80% of American’s wealthiest business owners ($3 million or more) are self-made and 78% got their wealth through a business they created as compared to investment or salary. That is incredible if you think about it.

Indeed, contrary to the view of the left (or the goings on in feudal lands like Europe or Japan) that means that the people who get rich in America do so based on their own initiative rather than being handed money from a long dead relative. In other words, our rich are rich because they did something to make the world better. They are the direct result of what happens in America when you have a great idea and you take a risk to make that happen.

And how many millionaires are we talking about? Well, it’s actually harder to estimate than you would think, but people estimate that there are about 11 million millionaires worldwide with about 60% living in the US. The rest are spread out (in order) in Japan, Germany, China, Britain, France, Canada, etc.

The US has more millionaires per capita than other countries too. We have an estimated 0.6% of our population in that group, compared to 0.4% in Europe and around 0.1% everywhere else.

Add this to the fact that there are 24.7 million small businesses who create around 70% of all new jobs in the US, and what you get is a picture of the continuing vibrancy of the American spirit. In other words, Americans continue to write their own destinies... accidents of birth are not destiny in this country.

And it’s actually the younger people who are leading this.

Generation X and Y millionaires earned their money faster than older generations and they’ve proven to be more generous. According to Fidelity, which studied the issue, Gen X and Gen Y millionaires give around $54,000 a year to charity, whereas baby boomers donate only $12,000. 82% of Xers and Yers also volunteer or serve on boards of charities... only 49% of boomers do that. Again, these are people who don’t just hoard money, they put it to work to make things better. That’s a great sign for the future.

Look, our economy has some problems: overregulation, government interference, a tax scheme that hurts innovation and creates a disincentive to work or invest, a welfare system that creates a disincentive to work, and some crony issues that seem to rig certain parts of the economy to favor those with influence. But America is, was and always will be bigger than that. America remains a place where you can achieve the American dream if you’re willing to try to achieve it.

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How Our Welfare System Discourages Work

There was a fascinating article in The Economist the other day about how our benefits system works to keep people stuck on welfare. Specifically, it cuts off benefits at such a quick rate that only a fool would take a job. Let’s discuss.

The Economist began by acknowledging the massive success of welfare reform in 1996. The Republican-led Congress, with grudging agreement from Clinton, put limits on cash benefits and tightened the requirement for able-bodied claimants to seek work. The Democrats screamed that poor people would end up starving in the streets... never happened. Instead, the result was “impressive,” according to The Economist: people receiving cash benefits fell sharply from 12.3 million people to 4.1 million people and employment skyrocketed among single mothers. Everyone was better off.

Now people are talking reform again for ideological reasons, but there is little creative thinking. Conservatives want to cut or destroy these programs, Democrats want to expand them and eliminate requirements. That’s about as creative as it gets. No one is talking about simplifying the system or killing the bad incentives. Other countries are: Britain is trying to put all of its benefits in one place and put a cap on them and Germany combined its benefit centers with job centers and brought down its unemployment rate. We aren’t talking about any of that.

We should.

The first problem with our system is that it is so complex that it’s not even clear what everyone gets. For example, CATO just did a study which claimed that a single mother would get paid more benefits in 39 states than a secretary would be paid and, in 11 states, the single mother would get more than a first year teacher. Clearly, that would discourage working, right?

Yeah, but CATO didn’t account for the fact that not everyone gets all the benefits. For example, only 15% of those who receive cash benefits (TANF) also get a housing benefit (what CATO counted as the largest benefit). CATO also failed to consider that some benefits (like food stamps and Medicaid) continue even after you get a job. In fact, most people receiving Medicaid and food stamps have jobs.

So the obvious question is that if we don’t know much about how the system actually works, then how can we know there is a problem? Well, the confusion itself is a problem. This confusion makes it hard to determine what works and what doesn’t, and whether or not the system actually discourages employment. Clearing up that confusion would go a long way toward (1) diagnosing the problems, (2) monitoring that people are getting what they need but aren’t taking advantage of the right hand not knowing what the left hand is doing, and (3) making reform more effective.

Further, the system does discourage work, and the Congressional Budget Office has proved it. The CBO examined the Pennsylvania scheme to see what happens as the benefits phase out. TANF vanishes once a person earns $4,900 a year. The Earned Income Tax Credit (given to 9.4 million people), gives a single mother a credit that rises to $3,250 per year if she makes between $9,600 and $17,500 in income each year, but then phases out fast. At $23,000 in income, the single mother loses food stamps and federal housing assistance.

The CBO then viewed these reductions as “taxes” for the sake of comparison. In other words, because these benefits declined as income rose, the CBO counted the loss of the benefits as a tax on the new income. This is actually a great way to look at the reduction of benefits because it shows exactly what the value of working is worth. And what the CBO found was that as the typical single mother earned more income, her effective marginal rate rose from 17% to 95%! Said differently, when you factored in the benefits lost by the single mother as she earns more income, she effectively keeps only 5% of what she earns from her new job.

This is solid proof that our system discourages people from working: would you work if you only kept 5% of what you earned? That needs to change. We need to reform the system to reduce benefits more smoothly, and to keep the effective taxation rate lower. In fact, I would suggest that the system should be designed to make sure the effective tax rate never rises above 20% if you want people to have an incentive to work.

Thoughts?

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The Moral And Economic Case For The Minimum Wage?

We are fighting for an honest day’s pay for an honest day’s work. It is a moral and economic imperative that we raise the federal minimum wage. People who work full-time in America shouldn’t live in poverty.

-- Labor Secretary Thomas Perez

Uh huh. Let’s look at this shall we?

● An honest day’s pay for an honest day’s work.

A wage is set when one person says, “I am willing to pay X for someone to labor for me,” and when someone else responds, “Sure, I’ll labor for that.” There is nothing more honest than that. Both parties have placed a value on the labor and they agree on that value. How is that dishonest in any way?

Dishonest is not paying what you promised. Dishonest is forcing someone to work or cough up part of their wages... like unions do and government and the mob. Nice company you keep Perez. The truth is that the free market provides the honest wage, it’s the government who tries to impose dishonesty.

● Moral imperative to raise the minimum wage.

What exactly is the moral case for the minimum wage? Wages are reached by the consent of those who will do the paying and the working. What is the moral case for some a-hole bureaucrat substituting his judgment about what should be paid? Perhaps if people were being forced to work at some price, then I could agree, but there is no such force. There is more than enough of a safety net to avoid working if the offer is too low and there are many means to increase your value so that others will bid for your services. There is nothing moral about forcing one side in a transaction to pay more just because someone claiming to speak for the other side thinks they should... dictating what someone will contribute is immoral, it’s called slavery.

● Economic imperative to raise the minimum wage.

Ha. The economic case against the minimum wage is clear. It kills jobs. It artificially makes workers more expensive without the dictates of supply and demand. That means employers will find ways to work with fewer employees... the phrases “work harder” and “replaced by a machine” come to mind. When someone talks about the “case for raising the minimum wage,” what they are really saying is “I want to sooth my conscience by pretending to help poor people, when the reality is that I’m encouraging employers to wipe out the very jobs poor people need to build their lives.” And not only does this wipe out jobs, but since the workers are still floating around, it results in lower wages for those with jobs and more power to employers to demand more work for less money because the workers are more easily replaced by the newly unemployed. Maybe this should be under the moral argument?

● People who work full-time in America shouldn’t live in poverty.

Agreed, but who are you talking about and how does raising the minimum wage help this problem?

The federal minimum wage has crept up to $7.78 an hour. That’s $16,182 a year if you work full-time. The federal government defines poverty as follows. For a one person family, it’s anyone earning less than $11,490. Hmm. For a two person family, it’s anyone earning less than $15,510 a year. Hmm. Strange. So someone working at the minimum wage for 40 hours a week for a year is above the poverty level even if they have a non-working spouse. It’s not until they add a child that they hit the poverty level: $19,530.

So let’s make this statement more honest: “People who work full-time in America with a non-working spouse and one or more children shouldn’t live in poverty.” Doesn’t quite have the same effect does it?

Now let’s add the obvious: no one who is offering “an honest day’s work” gets paid the minimum wage for very long. McDonalds starting wages are $7.85. Within a couple years of showing you can do your job, that goes up to $9.45. That works out to $19,656. Thus, you would now need a second child and a non-working spouse to qualify as “living in poverty.” Heaven help you if your lazy-ass spouse also worked at McDonalds. Then you’d need four kids just to keep that fun “in poverty” label.

Perez is shadowboxing against a straw man here. There is no one who works full-time and falls into his definition except by choice... too many kids, nonworking spouse. Having one of these jobs will never buy you a mansion and it won’t be as fun as coaching a professional football team, but you won’t live “in poverty” either as Secretary Perez wants you to believe. Moreover, over time, you and your spouse will actually slowly creep your way into the middle class. And if you work more than 40 hours, as every professional I know does, then you can go a lot higher than lower-middle class. Two spouses working 60 hours a week at minimum wage earn $49k a year and almost $60k at McDonald's non-entry wages.

What would help here would not be a raise in the minimum wage -- which would cost many their jobs, depress wages, and reduce employee bargaining power. What would help would be slashing the taxes on the wages these people earn and incentives for McDonalds to hire more people. More jobs in the same labor market means higher wages and more power for employees. That’s what’s really needed.

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The Great Depression, Revisited

Some weeks ago, I spelled out why the much-maligned "supply side" economics are in fact very beneficial to--well, most people, as evidenced by the booms of the '20s, '80s, and so on. Of course, the obvious liberal comeback would be "yeah, but after the Roaring Twenties, there was a Great Depression!"

The implication, of course, being that conservative economic policies may cause a short-term boom, but in the end they always screw you over, because greed and overspeculation cause market crashes and so on and so on. Sounds plausible enough on the surface, I guess, but only because people don't spend a lot of time picking it apart. Several good writer-historians--Amity Shlaes' The Forgotten Man, for one, Burton Folsom's New Deal or Raw Deal?, for another--have done a good job in recent years of condensing the economics and fiscal issues involved, however, and the events of the 1920s and '30s are much easier to understand now.

So with that in mind, let's take a look at the beginnings of the Great Depression, by exploding some popular myths associated with it. For example:

1. The Wall Street crash caused the Depression.

Well, it certainly didn't help anything, but in the immediate aftermath of 1929's "Black Tuesday," no one seemed to regard the crash as a big deal. Neither the government, nor the media, nor the business leaders, all of whom regarded it as a momentary fluke irrelevant to the national economy. Maybe a lot of wealth had been lost on paper, in stock certificates and the like, but contrary to what liberals later claimed, that was not the only kind of wealth being generated in the '20s. Consumer goods and utilities had expanded drastically during the decade, and even after the crash, every economic indicator suggested that as remote parts of the country were electrified, introduced to cars, etc., this ongoing wealth-production would inevitably drive stocks back up. Which might well have happened within a year or so, except....

2. Herbert Hoover was a "rugged individualism" laissez-faire guy.

....the POTUS just couldn't stay out of things. (Sound familiar?) It's true, Hoover was a self-made man who made his wealth in the private sector, he did believe in the necessity of individual action and self-reliance, and as a public official, he consistently argued that the central government was constitutionally prevented from taking a direct hand in the economy. But he had also built a reputation as "The Great Engineer," and was always consumed with the need to do something, and to be seen doing it. His first reaction to the Wall Street crash and subsequent downturn was to decide that runaway inflation was the problem (he wasn't the only one) and to combat it by having the Fed drastically reduce the money supply. Plus, he undertook what may have been the first major "stimulus" program, increasing spending on public buildings by over $400 million, persuaded major businesses not to cut wages, and even suggested, as early as December 1929, the need for public health management and regulation of the electric industry. So, definitely not a "do-nothing" executive. Which leads me into....

3. The Republican Party opposed doing anything to help the country.

(Okay, I could have wrapped this into the last one but I wanted three headings.) Oh yes, the GOP did want to take action to protect the country--and that was the trouble. One key aspect of the Republicans until the mid-20th century was their commitment to a protective tariff to bolster home industries, a position dating back to their formation in the industrialist North. Hoover and his Republican Congress were no exceptions, and their tendency was strengthened by demands from farmers and businessmen alike that they be protected from foreign competition right now. The result was the God-awful Smoot-Hawley Tariff of 1930. Native and foreign observers predicted that the tax would prove disastrous, and it did. The international economy was completely broken up; many countries, seeing their American markets ruined, retaliated by raising their own tariffs on U.S. exports, or boycotting them altogether. The cost to our productivity was probably incalculable, but certainly it ran into the billions. Not for the last time, trying to control events from Washington proved disastrous. And the same could be said of Hoover's other attempts--restricting the money supply and preventing businesses from cutting wages played well initially, but they also took away the market's flexibility and did more harm in the long run. Again.

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Long story short--no one denies that there would have been a nasty recession for the U.S. to go through no matter what. But there was no reason, at the beginning, for it to have been any more than that. We'd had lots of economic "panics" before, and they lasted only a year or two with little long-term damage. What made things worse was the intervention by the Hoover administration, or at least the ways in which it intervened. Sinking your own country's economy is bad enough, sinking the international economy--now that's quite an accomplishment. At any rate, I think we can put to bed this idea that the boom of the '20s somehow caused the Depression, and that a government refusal to respond made it awful.

Unfortunately, voters and elites alike drew exactly the wrong conclusions from the 1929-32 period, deciding things were now so bad because government hadn't done enough. That's how we got FDR and the brand-spanking New Deal. Exactly how and why that failed, I'll get to later. To be continued....

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More Obamacare Chaos

As Obamacare continues to wreak havoc on the nation’s medical tract like an uncooked pork milkshake, it's time for another update. Here's what you need to know to be fully entertained updated:

● Why Save Employers?: I’ve been debating why Obama would push off the employer mandate, but not also push off the individual mandate. There really is only one answer that keeps coming to mind: he wants to jack up the number of people in the Exchanges. Why? Well, all those “wonderful” rates you keep hearing about from the Exchanges are based on the assumption that vast numbers of healthy people will sign up for insurance. If they do, then the rates will work because those people will pay much more than they cost -- then the system might survive. But if they don’t, then the rates will skyrocket and the system is dead. How bad will it get? I would expect the rates in the Exchanges to double in 2015.

I based that on New York’s rates. It was announced this week that New York’s rates would fall 50%! Surprised? You shouldn’t be. New York already imposes the requirements Obamacare imposes on insurers, such as taking everyone and having no limits on payments. Unlike Obamacare, New York doesn’t force anyone to buy insurance. The result is that all the healthy people stay away from insurance in New York and insurance becomes MEGA-EXPENSIVE for those who are in the pool. That’s why the rates are so high. That’s also what will happen if people don’t signup for Obamacare. So if people don’t sign up, New York’s rates are what you would expect nationwide from Obamacare... and that will kill the program by making it too expensive for anyone to buy.

So how does this relate to the employer mandate? The insurance providers are already admitting that their rates assume that a sufficient number of healthy people will be forced to buy their insurance to make the rates viable. But that’s not happening. People with existing care want no part of the Exchanges and people without insurance aren’t planning to buy any. This is why Obama delayed the employer mandate. By delaying the employer mandate, Obama is hoping to prevent employers from offering insurance, which will force their employees into the Exchanges, where they can prop up the rates at their present level until the fines get high enough that people are forced into the Exchanges.

But it won’t work. Why? Well, two reasons. First, the delay isn’t going to change anything. Big companies already provide health insurance and those that don’t aren’t going to start just because of an insignificant fine -- they’re actually looking at something called "skinny plans" as a way to minimize fines. Secondly, as has been shown by companies who do offer health insurance (like McDonalds), people don’t sign up for it because they can’t afford it, not because they don’t want it, and a fine isn’t going to change that. So basically, delaying the employer mandate won’t change anyone’s mind on this issue and it won’t fill the exchanges.

● That Wasn’t The Deal Vader I: Hospitals whored themselves for Obamacare because they were promised that if they accepted slightly lower Medicare/Medicaid rates, then they would get significantly more money from newly-insured patients and all these new Medicaid patients, and they would never be faced with people who can’t pay again. Apparently, hospital companies are managed by retarded baboons because they fell for this.

Now it turns out the Medicare/Medicaid cuts were worse than expected. Plus, there were additional cuts to Medicare/Medicaid as a result of sequestration. Moreover, with Republican states not expanding Medicaid, which means more than 60% of the new people they expected to be covered by Medicaid won’t be, they’ve discovered that they aren’t going to be getting the new Medicaid patients they were promised. Because of this, hospitals have started laying off massive numbers of staff.

And it ain’t over yet. The suggestion that everyone would have insurance was always a sucker bet. First, the number of uninsureds has actually increased 14% under Obama. Secondly, the law was written in such a way that it expected most people who don’t currently have insurance will pay the fine rather than buy insurance... that’s what funds the law! How hospital managers missed that reeks of management-negligence or more retarded babooning. So no new Medicaid patients, no new insurance patients, bills still going unpaid, and compensation rates going down... 0% of promises filled. Nice trade, guys.

● That Wasn’t The Deal Vader II: Obama made two firm promises when he pimped for Obamacare: “If you like your insurance... you can keep it,” and “If you like your doctor... you can keep your doctor.” And if you believed it, then you might be an idiot. Not only are we slowly learning that tens of millions of people will be dumped from their existing insurance, but HHS admitted this week that you might not be able to keep your doctor either. This is no surprise. It will depend on the plan you pick and if your doctor is part of that plan.

● That Wasn’t The Deal Vader III: Hoo boy, the unions are furious. And they have good reason. Obamacare seems designed to kill the unions. With labor laws being what they are, there isn’t really a lot of point to labor unions anymore. In fact, the only real selling point they have left is that unions can provide cheap access to good healthcare. Without that, private sector unions will probably die off. This is why they’ve opposed universal coverage for a long time, actually. Well, Obamacare wasn’t supposed to be a threat because it doesn’t provide anything like universal coverage and it was supposed to basically allow the unions to keep working outside the system. But now they realize that’s not true. Now they realize that Obamacare makes it very easy for employers with union employees (especially small/mid-size companies) to dump their expensive health plans by pushing their employees toward the Exchanges. Unlike everyone else, however, union employees can’t get subsidies, so the Exchanges are too expensive to use no matter what happens to the rates.

Hence, Obamacare has taken what was the unions’ only real reason to exist and turned it into a point to avoid unions. Are we sure Obama isn’t a plant?

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News Nuggets

Let’s do a couple of quick-hit news items you may have missed... nuggets, as it were... golden chicken parts.

● Obamacar-nage: We’ve been saying all along that Obamacare will kill jobs. Now there’s some interesting proof in the form of a poll. The poll was commissioned by a law firm and it was conducted by Gallup. They surveyed 603 small business owners and found this:

● 41% said they have frozen hiring to avoid Obamacare.
● 19% said they have laid off employees to avoid Obamacare.
● 48% think Obamacare will hurt their bottom lines. Only 9% think Obamacare will be good for their business.
● 55% think Obamacare will lead to higher costs. Only 5% think it will lead to lower costs.
● 52% think Obamacare will lead to a reduction in the quality of healthcare. Only 13% expect an improvement.

This is rather interesting, especially the first two points. If half of small businesses have either frozen hiring or laid people off, that’s a horrible sign for any sort of economic improvement. Small business accounts for two-thirds of all new jobs over the past couple decades. Interestingly, this has some “experts” shocked as they figured small business would happily take a bullet to solve Obama’s problem... ha ha. Others are still stupidly holding out hope that “education” can change minds. Propaganda is fun, but it doesn’t work when people can see the bottom line.

● Obamacare Lies: Last week, the Centers for Medicare and Medicaid Services boasted that insurance premiums fell nearly $4 billion last year, which they called "savings" and which they attributed to the Obamacare requirement that insurers spend at least 80% of their revenue on providing medical services. Well, not quite.

Someone asked the industry lobbyist, America's Health Insurance Plan, about this and the response was that they had no idea where the Centers for Medicare and Medicaid got their data because the industry didn't give it to them. Moreover, they noted that most insurers were already well above the 80/20 requirement, so the requirement isn't likely to have done anything in any event. In the end, they weren't sure why premiums would have gone down. I can tell you why though. When Obama first announced his plans to destroy our medical system, there were 43 million uninsured. Now there are 49 million. That means somewhere around six million people lost their insurance since Obama deigned to bless us with "universal coverage." Call me crazy, but I'm thinking those six million people no longer paying health insurance premiums is probably what caused the overall amount paid in premiums to drop by $4 billion.

● Economists Are Liberals? A lot of people seem to think that economists are conservatives. I’m not sure why people think this, but it’s not true. According to a 2008 survey of the American Economic Association:

● 49% of members were registered Democrats and only 17% were registered Republicans.
● 60% supported Obama.

In a 2003 study of 1,000 economists, only 8% supported free-market principles.

● China Breaking: I’ve said several times that China has serious problems and will probably never overtake the US economically. Their demographics are against them, as their population is aging ultra-fast, and China's population will start shrinking dramatically soon. Similarly, their costs of doing business have been rising so fast that they are no longer competitive. They’ve lost manual labor work to Bangladesh and apparently it now makes more sense to open most new factories in the US rather than China. Making things worse, China appears to have slipped into recession and their growth is well below the level people have generally assumed they need to maintain social stability. Indeed, there is also a question of whether they ever actually had the growth they claimed. Everyone knows official statistics in China are fantasy, so people have been estimating growth based on electricity consumption figures. Now it turns out that China knew this and has been faking that data as well. Some people think China is only growing at 4% compared to the 9% they have been claiming.

Historically speaking, when you look at the other Asian tigers, each of whom burned out, China is following the same pattern – fast growth as they move people from the peasantry into the working class, followed by stagnation once they run out of peasants and as wages rise. If China's growth is in single digits, then they're pretty far along that curve. To put it simply, history tells us that China has peaked.

Now their last gasp appears to be a plan to move more people to the cities. Right now 1/2 of the population lives in cities. They want to increase this to 2/3. To do that, they are moving the equivalent of the entire population of the US into cities they are only now building. The plan is to get them all relocated by 2030. This sounds like a disaster in the making as it sounds unlikely there will be jobs for these people in those cities. Be thankful that for all of our problems, we are nothing like China.

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Trickle, Trickle, Trickle....

"Trickle-down economics." "Voodoo economics." "Reaganomics." Ooh, I'm getting a chill down my spine. I am referring, of course, to the poorly understood and very maligned idea that is "supply-side economics," with a title much newer than the idea itself. What is it, and why do liberals say it doesn't work? Let's discuss.

What we call supply-side only got its name in the '70s, thanks to some of Nixon's economic people, and frankly, that alone should be reason to look for a new title. But it has a long pedigree, going back to Adam Smith and other greats of the time. It's not so much a philosophy of the size of government as a question of how to get the most bang for your (literal) buck where state revenue is concerned. And it is a simple idea, really: Very low taxes may not bring in a sufficient amount of revenue, but high taxes strangle the productive capacity of taxpayers, causing them to earn less income, therefore they pay fewer taxes, therefore the government gets less revenue as well. The trick is to find an optimum tax rate at which citizens earn the most income and pay the most taxes. In twentieth-century circumstances, that generally means tax cuts, especially on the most productive members of society--the rich.

There have been lots of criticisms of this idea, some of them rather sophisticated and pointed, admittedly. All too often, though, especially when voiced by partisan leftists, such critique devolves into "tax cuts for the rich," "Republicans looking out for their fellow fat cats," etc. And also, liberals have claimed that these policies don't work, that they only benefit the wealthy and end up causing economic slumps down the road.

What actually happens when these "unfair" tax cuts go into effect? Let's look at one of the more famous extended examples of this working, those terrible "Roaring Twenties" of the Coolidge presidency.

After a nasty recession in the early '20s, Harding and then Coolidge pushed through, over intense opposition from progressives in Congress, a drastic tax cut. Top rates went down to 25 percent, lower than they have been at any point since. What happened? Well, if you're even passably familiar with 20th-century America, you probably know there wasn't a sudden economic collapse, a bankrupt government, a disintegration of law and order, etc. U.S. GDP grew by 59 percent between 1921 and 1929, and even more importantly, during this same period, annual tax revenue over the same period grew from about $300 billion per year to $700 billion per year.

But the other feature of these 1920s tax cuts is especially worth dwelling on. So top earners, i.e. the rich, saw the greatest reduction in tax rates. That means the rich bore less of the total tax burden under Republicans Harding and Coolidge, right? Well, actually, no. Statistics show that when the first of the 1920s' Revenue Acts was passed, those making over $100,000 paid about one-third of all taxes per year. By decade's end, after all the tax cuts had taken effect, said group paid two-thirds of the total burden. Conversely, while those making over $100,000 saw their average income increase by a healthy 15 percent, those earning between $10,000 and $100,000 saw a whopping 84 percent growth in income. In other words, the farther down the economic ladder one was, the better deal one got from these "tax cuts for the rich." It might be noted further that minorities weren't excluded from this good fortune; black Americans saw a rapid improvement in their standard of living over the decade, until by 1930 their unemployment rate was slightly below that of whites.

Since I mentioned "Reaganomics" as one of the derogatory terms used by critics of supply-side policies, it bears mentioning how things went when similar policies were tried in the '80s. Reagan began his administration with across-the-board tax cuts, provoking the inevitable caterwauling from liberals; once more, the government did not fall apart, but saw a doubling in annual income tax revenue over the course of the '80s. Moreover, the top 1 percent's share of the tax burden rose by 40 percent, despite having their income tax rates lowered from 70 to 28 percent, while the bottom 60 percent saw a 20 percent drop in its share. As in the '20s, there was remarkable growth among the lower and middle classes, with particular expansion among middle-class and small business-owning African-Americans.

That these periods of prosperity were followed by economic downturns in the '30s and early '90s should be taken into account, of course. But by the same token, we cannot and should not ignore the very real economic improvements up and down the ladder that took place after the implementation of supply-side policies. They made a positive difference in America.

But if liberal mockers of supply-side really want a target to unload on, I can give them one just as good as Reagan. Namely, a President who cut the tax rate for top earners from 91 to 70 percent, proportionally a far greater cut than, say, G.W. Bush undertook; a man who argued high taxes caused low revenue and defended tax cuts on capital gains as a means of "obtaining capital and thereby the strength and potential for growth in the economy." His name was John F. Kennedy.

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