Larry Summers; Wrong Again

The supposed mainstream economists have absolutely no idea about what macro economic forces causes what. There is no logic to what they say and a complete ignorance of economic history. This morning prior to an Export Import Bank meeting, Larry Summers, former Treasury Secretary, President of Harvard University and lifelong darling of leftist economists, was on Bloomberg TV discussing economic policy. I can’t quote him exactly but here is the gist of what he said. Export Import Bank subsidies (some of which go to healthy large corporations like Boeing) support US exports and labor. He added that he can’t understand why some economists oppose those subsidies and at the same time support corporate tax reduction, which, he said, only add to corporate profits. This is a perfect example of the Lefts one dimensional thinking and their complete ignorance of how capitalism works. So far as corporate profits go he is right, but only to a point. A reduction in the corporate tax rate would boost profits temporarily, but (everything being equal) competition would kick in and prices would decline below where they were before the tax cut. The former tax revenue would find it’s way into the customers pockets, not the shareholders. In a free market system a product is priced in order to return the maximum profit to shareholders. But, that price is not freely arrived at. Competition determines what that maximum price is, and if everyone competing eliminates an expense (as in corporate taxes) at least one competitor will reduce prices proportionately, forcing everyone else to do so. Of course a profit is necessary to survive, putting a floor on prices, but in theory that price level was determined before the tax reduction and would remain the same afterwards. Better marketing, cheaper production costs and a host of other things always cause variations in pricing and profitability, but these things are ongoing with or without tax reductions. If the coffee growers price goes down you can be sure after an adjustment period the supermarket price will go down as well. The first Ford car cost about $5,000, but after Henry Ford successfully reduced production costs with his assembly line, the price came down to $500. It is no different with taxes. I will only briefly mention the other positive ramifications of corporate tax reduction. Cheaper prices that would result are a benefit that every consumer enjoys, not only that reviled 1%. Consumer price reductions equate to an earnings increase for everyone, although liberal economists are loath to point that out. And although this simple concept seems too abstract for geniuses such as Summers, lower taxes and thus lower prices support wealth production and economic growth. My question is, are these ridiculous one dimensional (in a multi dimensional universe) liberal economic theories honestly (albeit foolishly) believed, or are the always decorated liberal economists really doing leftist marketing disguised as scholarship?

Nobel What?

Schiller got the Nobel prize and I am floored. Not because he got it. Not because the work he did is shoddy or wrong. I don’t even know what it is about. I am amazed because due to the award, he has been in the news talking about a variety of things. He has made clear that he has absolutely no understanding of basic economics, no idea of the principles that guide economic development. On CNBC he railed against the income gap. He said that the debt is unsustainable (true), the day of reckoning is coming (true), and that since raising taxes on the rich is the only way to correct it (false by lightyears), raising them now will be less painful than after the crisis occurs (maybe). When asked about the philosophical differences between himself and the other Nobel Prize in Economics winners he said that the difference is more political, their coming from University of Chicago and his being from Yale. Is not economics supposed to be a scientific inquiry? If so, is empirical evidence political? Is Newtonian physics left or right leaning? How about relativity? His statement is an absurdity. Yes, supply side economics is commonly referred to as from the right and Keynesian economics from the left. But they are mutually exclusive. One is correct and one is wrong. Political ideology is a total irrelevancy (the exception being climate change, which was spawned by political goals, nurtured by political agitation, and falsely promoted as science in a way that would make Marx, Goebbels and Freud blush). Needless to say, “leftist economics” are completely wrong. Ir assumes that people act the same regardless of what is imposed (taxes and regulations) by government. Worse, it assumes that the economic pie is finite. Therefore raising taxes raises government revenue. Again, this is absurd. Increased revenue comes from an expanding economy. Bleeding wealth producers of the currency needed to expand the economy and imposing senseless regulations decreases revenue to everyone, the producers, government and the poor as well. See Cuba, the former Soviet Union or Venezuela for details. The entire Keynesian idea makes no sense and it’s failure has been demonstrated every time it has been employed. Conversely, supply side has never failed. There is no argument. The question about Schiller is why is he so blind. Another idea he supports is the efficient market theory. That is just more garbage. If it were true, how would certain individuals make money year after year investing while others consistently underperform? It wouldn’t happen. It does because companies get mis-priced, people have varying degrees of talent, understanding and work ethics. People buy and sell with differing amounts of information, different macro assumptions, and different personalities allowing some to be patient while others cry our in pain every time things go against them. I won’t answer why Schiller is blind because it is off topic. I will say that maybe his left and right political ideas should be looked at.

Multiplier Myth

Capitalism has allowed the citizens of the United States to live better today than any people at any time in human history. The economy of a country is the single most important factor in determining the population’s lifespans, environmental health, the size of the middle class and the degree of social unrest. We would love to make economic predictions with some degree of accuracy. The problem is that the ability to predict the movement of a system is inversely proportional to the number of variables affecting that system, and the number of variables affecting an economy are infinite. The best we can do is develop policies based on observations of what generally increases or stifles growth. There are two mutually exclusive theories dealing with the government’s proper role in an economy; Keynesian economics and supply side economics. The one our nation adopts will determine whether we continue our prosperity, or if we become another failed grab at a Utopian dream. Democrats such as Wilson, Roosevelt and Obama have generally subscribed to Keynesian theory (JFK being an exception), and their policy decisions have been guided by it. Republicans such as Coolidge, Reagan, Bush and Kennedy (D) generally have supported supply-side. In 1936 John Maynard Keynes published The General Theory of Employment, Interest and Money. It says that during an economic downturn if the government stokes the demand side of the demand/ supply equation through increased spending, there will be a stimulative effect on the economy. Keynes proposed that this government induced momentum would create a “multiplier effect” (the term he used to describe the process), increasing economic activity, creating jobs and creating wealth. The idea is that the direct recipients of the increased spending will themselves spend more, as will the recipients of their spending etc. The whole idea rests on notion that if by any means consumption is increased, the economy will grow in a sustained way. Keynes thought that during a recession government should prime the economic pump regardless of where the money gets spent. This idea was stated in the extreme when he said that if the government paid to have dirt moved from one hole to another, the resulting multiplier effect would build economic activity and the economy. Think about what he is saying. The mere expenditure of money will in itself create wealth. In the mid nineteenth century this fallacy was debunked by Frederic Bastiet in his Broken Windows parable. But I digress. This liberal economic theory is the basis on which Hoover (R) and Roosevelt made most economic decisions trying to get us out of the depression, the theory which Japan has been employing for more than 30 years, and the theory on which the current administration is basing their entire economic policy. They have been trying to spin straw into gold. They will not succeed. Instead of thinking about supply and demand, think about what really is going on; wealth creation and wealth destruction, better known as consumption. The foundation of supply is wealth creation, just as the foundation of demand is wealth destruction. Wealth creation is the process whereby work, investment, imagination and perhaps a little luck come together to create something of utility that did not exist before. Unlike the physical universe where matter and energy can neither be created nor destroyed, wealth is continuously created and destroyed, or as economists say, consumed. The purpose of wealth creation is to consume. At a minimum it is necessary to survive. The idea is not pejorative. It is simply a fact. We eat food and it is gone. We drive a car, and after a few years it no longer works. Clothing, housing and most everything has a finite lifespan and must continuously be replaced. Think of what Keynes is proposing in the light of wealth creation and wealth destruction. He says that destroying wealth in any form will create more wealth. Poker is a zero sum game. Total losses and gains are always equal. If the economy were like poker, society could never advance economically. We would simply be redistributing wealth in different ways, but with no net advance. The good news is that the economy is not a zero sum game, but rather an expanding universe. The most difficult concept to grasp about capitalism and wealth creation (even though it occurs every day right in front of our noses) is that unlike poker, the process really does create things. Something is truly created from nothing. This phenomenon explains how it is possible that many economic transactions profit all the participants; owners, employees, customers and even people on their periphery. Through work and investment wealth is continuously created in every way imaginable. Unlike poker, wealth creation allows for infinitely more winners than losers. A tree has a certain value. If work is invested and it is harvested and delivered to a mill, because it has more utility than it did as a tree, its value goes up. When the sawmill strips the bark and cuts it into manageable pieces, allowing it to be used for many more things than it did when delivered, the value again increases. And when a carpenter forms those pieces into a chair, he has created even more value. Transporting the chair, advertising it, and retailing it all add value. Should any of these steps be improved on, such as a cheaper way to transport it or advertise it etc, a small bit of more wealth has been created. The retailer, the money provided by the bank to finance all the operations listed above, and many other components all join in so as to create value, aka wealth. The information age that developed in the last 40 years is a prime example of enormous wealth creation. When compared with the present day, communications devices hardly existed 100 years ago. Those that did were crude by today’s standards. Modern devices have created untold trillions in wealth. Mankind has taken grains of sand and created silicon chips, on which inconceivable

Language of the Left

The language of the Left is designed to push the debate in their direction, even when it conveys false information. The word for spending is spending, not a euphemism like “investment.” The word for taxes is taxes, not “revenue enhancements.” These words are brought into the debate for one purpose; to mislead. Lou Dobbs had Define America co-founder Jose Antonio Vargas on his Fox News show to debate Obama’s unilateral declaration rescinding part of our immigration law. Vargas, a prominent writer, had recently announced that he was not a US citizen, even though he has lived here most of his life. Dobbs repeatedly referred to him and others here illegally as “illegals”, and Vargas repeatedly corrected him saying they were “undocumented.” What is the difference? Illegal means that the individual is breaking the law. That seems pretty clear. People crossed the border illegally or illegally overstayed a visa (those born here to illegals are US citizens). Undocumented means that the individual has no documents, but may be here legally or illegally. It is the difference between driving without having obtained a drivers license, and driving when you left your drivers license home. If you are guilty of the former, suggesting the latter is simply false. Recently The New York Times and National Public Radio invented some new terms. They referred to George Zimmerman, the man who killed Travon Martin, as a white Hispanic, or a white Latino. Why? Simple. They wanted to make the tragedy into a race driven incident, even though by all accounts such an assumption is nonsense. Zimmerman is half white and half Latino. There is absolutely no evidence in his past or in the sequence of events leading up to the incident indicating race was a factor. Common verbiage would describe him as Hispanic or Latino. Given those labels, or as the PC crowd says, a person of color, the race element disappears. Did the NYT or NPR, those august institutions, ever refer to Barack Obama as a white African American? Of course not. “Stakeholder” is one of my favorites. In a capitalist system private property is vigorously protected, and the use of that property (within the law) is directed by its owner. This system has provided us with the most prosperous, most generous, freest nation in the history of mankind. The term stakeholder was invented by socialists to create the false impression that the public at large has the rights to that property. The public has the right to expect an owner to obey the law and to honor his contracts, but that is all. If we don’t like the owners choices we are free to not do business with him. If there are enough of us, he will get the message or cease to exist. Were the state to give the public the right to determine the use of that property, all forward economic and social progress would fall victim to the publics insatiable want for something for nothing. “Social justice” has joined the lexicon of the Left. The words sound very compassionate. Who can be against justice, especially in a social sense? In reality those who use it are simply trying to usurp private property rights to fund a redistributive agenda, one chasing an unachievable, false, utopian dream. The term is used to support and justify every socialist idea under the sun. Real social justice consists of protecting a man’s right to the fruits of his labor, not simply because it is ethical, but because it provides the most goods and services, the best environmental care, the best healthcare and the best of everything else that we as a society are capable of producing, and for everyone. Columbus thought he reached the Indian Ocean when he landed in the Antilles and named the people there “Indians.” The term stuck long after the mistake was recognized, and for centuries it referred to the indigenous peoples of the Americas. The PC crowd determined that it was a demeaning term and changed their reference to “Native American.” Native American had been used for centuries to refer to anyone born on American soil, regardless of race, regardless of when. Why would they do this? Indian had nothing pejorative associated with it. My theory is that since the Left adapts to change quickly, during the transition it allowed them to claim the moral high ground when those of us with less verbal agility continue to use the newly designated “racist” term, Indian. There are other reasons the Left change names. In the same way no liberal columnist wants to review any of their past predictions (invariably they are wrong), so too does the Left like to shed its failed past by changing names. Woodrow Wilson led the “progressive” movement until 1920, but his disregard for the Constitution, and such things as the Left’s embrace of eugenics soured the public on the movement. So, progressive was renamed “liberal.” But the liberals close ties with Communism, as well as other unpopular policies like their softness on crime became a political liability, so in the 1980s they returned to the name progressive (no one remembered the Wilson era, most were dead by then). The problem is, no matter what they call themselves, they continue to champion the same failed policies. Did anyone notice that all of the old Communist organizations and their members are today avid environmentalists? Same people, same ideas, just a different name. Is global warming science, or a political ploy designed to create world government? Be careful of the Left and their politically correct language. It is created under the banner of respect or compassion for certain groups or individuals, but in reality it is a naked attempt at forwarding a political agenda.

Responsible Government…lol

The city of Stockton California is about to go bankrupt. Now Californians have done some wacky self destructive things in the past, like the state spending billions on global frauding…oops…warming. Their hubris is staggering. Even if this was a real problem, what they did by spending a few billion would have been the equivalent of trying to extinguish a five alarm fire with a water pistol. Another example of their past insanity is around 1998, after a year where Silicon Valley executives exercised record stock options and the corresponding tax revenue to the state hit record levels, the legislature did a budget that assumed the same amount of money and more would be coming in year after year. Surprise surprise… when the money didn’t appear, they raised taxes. But Stockton takes the stupidity award, and this is only one example of many. For a period of time any city employee who worked for as little as 30 days, was given health care for him and his family for life, and for free. If we assume that a married man 30 year old with two children worked for a month, and the average inflation adjusted cost of health insurance over his lifetime would be $7,000 per year, also that he lives to 78, that would be a $336,000 benefit. If that number gets brought back for present worth, at today’s interest rates it comes to around $140,000. If there were 20 work days in the month he worked, forgetting the employees pay or other benefits, he would be receiving $7,000 per day from this alone. And these are the people running our government. BTW Another shocker… the city council that passed this were liberal Democrats.

An Average Week For a Radical Administration

You have all read enough about the Obama administration’s attack on religion, and their attempt (with MSM help) to twist the debate (distorting the right’s position) from religious freedom to contraception. However, you may not know about he latest insanity from the left, a growing movement supported by the head of Obama’s National Economic Council, Gene Sperling, for a Global Minimum Tax. I kid you not. They want all the industrial countries to agree to install a corporate tax of at least 30%. Several years ago Ireland became the economic miracle of Europe by cutting taxes over 20 times and experiencing unprecedented growth as a result. Their legislature proposed taxing corporations doing business in Ireland at a new lower rate of 18%, and corporations doing exclusively offshore business at 13%. There were howls from every capital in Europe, claiming a two tier system would be predatory. They said corporations would leave the mainland and relocate on the Emerald Isle. They stomped their feel and said it was simply unfair! So, Ireland agreed, and decided to drop both rates to 13%. Never having imagined they would adopt the lower rate, Paris and Brussels were left red faced. A similar argument is being used to support this Global Minimum Tax. It isn’t “fair” they say to incentivize companies to relocate in a favorable tax environment. It is interesting that the anti trust enforcers in liberal economic regimes (like Obama’s) claim to understand the idea that monopolies do not create much wealth, and they provide poorer products and services at higher prices than if they had competition. Of course when these anti trust zealots are dealing with the private sector, they see bogey men behind every rock. Microsoft was investigated for anti trust so many times in so many areas it would make your head spin, and by the time the adverse rulings came down, there was already a competitor beginning to eat their lunch, proving government action was (as usual) a solution in search of a problem. Microsoft’s crown jewels, Windows OS and their browser, Internet Explorer, have been losing ground for years to iOS, Safari, Firefox, Google Chrome, Android, Linux and others. And guess what? The competitive process left the consumer with better products at cheaper prices. These same people however, seem to relish the idea of government monopolies. Given the power of the sovereign, government monopolies are very real. What would the effect of a Global Minimum Tax be? Why would the left even suggest it? Because they want a the power to tax without leaving the payer anywhere to go. The left opposes school vouchers, which would create competition for the now monopolistic public school system. As a sop to the union Obama recently trashed the highly successful voucher program in DC, effectively telling poor children to drop dead. This is to protect the Teachers Union monopoly, Similarly, the left wants to monopolize where companies do business, insuring taxes are high across the board. They are afraid of those countries which would provide a healthy business environment. Competition demands companies/ people/ countries have to work and innovate to stay ahead, and knocking off the competition is easier than working to provide these things. Believe this. If you think western governments are fat and sloppy now, and this passes, you ain’t seen nothing yet. It is a disaster waiting to happen. A couple of months ago the Obama administration complied with US law (for a change, unlike immigration enforcement and other selective pursuits by the justice department) and because UNESCO recognized a Palestinian State, funding was withheld (United Nations Economic Scientific and Cultural Organization). The effect was great. Other UN organizations who might have followed suit stopped in their tracks, and even seemed to take a step back from their hard anti Israel pro Palestinian stand. So what does out State Department do after this rare success? Last week they recommended restoring funding to UNESCO. What is more astonishing is how many Jews think the left in general and the Obama administration in particular are not anti-semitic and anti Israel. I have experienced and read about many destructive, radical administrations in American history. Teddy Roosevelt, Woodrow Wilson, Franklin Roosevelt and Lyndon Johnson come to mind. But the Obama administration is an order of magnitude more radical, and more destructive than even these. God help us if he is reelected. Given what he has already shown he is capable of, imagine this radical chic leader with no reason to disguise his intentions for fear of losing the next election.

Santorum for the Defense

Imagine being charged with multiple offenses… raping the environment, causing disease and famine, taking wealth from the poor in order to enrich a few (mostly the strong and well connected,) starting wars for profit, keeping the masses uneducated, and general disregard for anyone or anything that does not provide you with personal benefits. But unlike a trial where the accused is innocent until proven guilty, these charges carry the assumption of guilt, and guilty until proved innocent not once, but repeatedly, and not proved in one way, but in multiple ways. At the trial the facts become secondary, because the prosecutor has no ethical boundaries, is willing to lie and distort whenever he deems it beneficial, and he has a huge microphone. Worse, if your defense team is able to overcome all of these hurdles, the jurors will be offered bribes to rule the opposite of what their charge dictates (aka wealth redistribution.) These are the challenges that the defense of capitalism, freedom and democracy face ever single day. There are lots of people defending capitalism, but they are small in comparison to the number prosecuting it. Given the defenders conviction that the ends do not justify the means, and the truth will win the day, they limit themselves to facts, even ones that weaken their argument. Add to that the media, the armed forces of the left, who give the prosecutors the largest possible forum and routinely swear to the fidelity of their lies. The prosecutors of capitalism are given phony awards for imaginary accomplishments in order to make the nonsense they spew seem credible. Undeserved academic degrees, Nobel prizes and other such garbage are commonplace. See Paul Krugman, Al Gore and Barack Obama for details. And then the refrains like “Everyone agrees,” “Almost all authorities agree,” etc. are repeated ad naseum until a totally false premise becomes “common knowledge.” For these reasons this onslaught is never easy to defend. The question is, which Republican candidate is best qualified to do so? Is it Mitt Romney, who recently said he wants to link the minimum wage to inflation? FYI The minimum wage is a naked political ploy to garner votes for Democrats, who know themselves that it is job destroying, socially repressive, keeps the poor from training and bettering themselves, and is generally wealth destroying. Or maybe it is the Mitt who recently said that he would fix the safety net for the poor. Does he not know that the safety net is an economic prison from which few escape, and many caught in its’ web become infected with a range of social pathologies? Does he know that the antidote for these social diseases is family, work and productivity instead of dependency and entitlement? Mitt might do a credible job defending collectivism, but he is the wrong man to defend capitalism. What about Newt? He has been on the wrong side of capitalism too often to be comfortable, but still he is far better than Mitt. If he chooses to defend it, he would articulate the message better than most. The thing is we don’t know when some whim will change his mind, or change the subject, leaving capitalism to be defined by the left. Ron Paul is actually the best by far to defend capitalism. He understands it and is unapologetic about his passion for it. His problem is that he doesn’t understand the national defense challanges of the 21st century, and that is the first job of government. This failure makes him almost unelectable (We can never say 100% unelectable after a community organizer with a 20 year mentoring relationship with an American hating, racist pastor, a terrorist friendship, and lifelong support for every radical cause, particularly the destruction of Israel, got elected President.) So we are left with Rick Santorum. His economic plan betrays a lack of understanding for the proper role of government generally, and particularly when it comes to the economy. However, he has many of the right ideas as well, and he makes no apology for them. He does at least understand capitalism will save mankind from some of his own failings, he is honest about his beliefs and has been consistent in articulating them. He understands that traditional American values, Judeo Christian values, are what allows capitalism to flourish and defends our freedom. His compassion transcends political opportunism, and he knows that the President must help everyone, including political opponents, and even if help means denying them the laundry list of narcotics the welfare state has addicted them to. I guess former Mayor Koch of New York was right. He said, “”If you agree with 80% of what I say, vote for me. If you agree with 100%, see a psychiatrist.” Rick is my 80% candidate, and that’s good enough…it will have to be.