Thursday, December 15, 2011

Fallacy of the Rich Getting Richer and the Poor Getting Poorer - Part 5

The Rich Get Rich and Poor Get Poorer. Or Do They?

By Virginia Postrel on August 15, 2002

To critics of economic liberalization and international trade, it is an article of faith that the rich are getting richer and the poor poorer.

"Inequality is soaring through the globalization period — within countries and across countries," Noam Chomsky told a conference last fall, summarizing this common view.

Antiglobalization activists are not just making up this idea. They have taken it from seemingly authoritative sources, notably the 1999 United Nations Human Development Report.

That widely cited report stated: "Gaps in income between the poorest and richest countries have continued to widen. In 1960 the 20 percent of the world's people in the richest countries had 30 times the income of the poorest 20 percent — in 1997, 74 times as much." It added that "gaps are widening both between and within countries."

Fortunately, this scary portrait is highly misleading.

"When I started looking at the numbers, I saw a lot of mistakes," says Xavier Sala-i-Martin, an economist at Columbia. Some were departures from standard economic procedures, like not correcting for price levels from country to country.

"Some agencies didn't adjust for the fact that Ethiopia is cheaper than the U.S.," he said. "Some of them were hiding numbers that we know exist." For instance, the report included data from only 19 of the 29 industrialized countries then in the Organization for Economic Cooperation and Development.

But the biggest problem was not so technical. It was hidden in plain sight. The United Nations report and others looked at gaps in income of the richest and poorest countries — not rich and poor individuals.

That means the formerly poor citizens of giant countries could become a lot richer and still barely show up in the data.

"Treating countries like China and Grenada as two data points with equal weight does not seem reasonable because there are about 12,000 Chinese citizens for each person living in Grenada," writes Professor Sala-i-Martin in "The World Distribution of Income (Estimated from Individual Country Distributions)." That is one of two related working papers for the National Bureau of Economic Research. (The papers are available on Professor Sala-i-Martin's Web site.)

Counting by countries misses the biggest economic advance in history, completely distorting the record of the globalization period.

Over the last three decades, and especially since the 1980's, the world's two largest countries, China and India, have raced ahead economically. So have other Asian countries with relatively large populations.

The result is that 2.5 billion people have seen their standards of living rise toward those of the billion people in the already developed countries — decreasing global poverty and increasing global equality. From the point of view of individuals, economic liberalization has been a huge success.

"You have to look at people," says Professor Sala-i-Martin. "Because if you look at countries, we do have lots and lots of little countries that are doing very poorly, namely Africa — 35 African countries." But all Africa has only about half as many people as China.

In his paper, "The Disturbing `Rise' of Global Income Inequality," he estimates the worldwide distribution of income by individuals rather than countries. The results are striking.

In 1970, global income distribution peaked at about $1,000 in today's dollars, a common measure of poverty ($2 a day in 1985 dollars). In 1998, by contrast, the largest number of people earned about $8,000 — a standard of living equivalent to Portugal's.

"That's what I call a new world middle class," says Professor Sala-i-Martin. It is mostly made up of the top 40 percent of Chinese and Indians, and the effect of their economic rise is big.

What about the argument that income gaps are widening within these rapidly advancing countries? With a few exceptions, it is true, but still misleading.

The rich did get richer faster than the poor did. But for the most part the poor did not get poorer. They got richer, too. In exchange for significantly rising living standards, a little more internal inequality is not such a bad thing.

"One would like to think that it is unambiguously good that more than a third of the poorest citizens see their incomes grow and converge to the levels enjoyed by the richest people in the world," writes Professor Sala-i-Martin. "And if our indexes say that inequality rises, then rising inequality must be good, and we should not worry about it!"

There is, however, one large country where the poor really are getting poorer while the rich grow richer: Nigeria, the most populous country in Africa.

Nigeria's economy has actually shrunk over the last three decades, and the absolute poverty rate — the percentage of the population living on less than $1 a day in 1985 dollars — skyrocketed to 46 percent in 1998 from 9 percent in 1970.

While most Nigerians were falling further into destitution, the political and economic elite grew richer. The problem is not too much liberalization but too little, a politicized economy with widespread corruption.

"The rich guys are doing well, therefore reforms will not come," says a pessimistic Professor Sala-i-Martin. He has begun studying Nigeria, trying to come up with ways around the political problem.

That country is typical of Africa, which is growing ever poorer. Fully 95 percent of the world's "one-dollar poor" live in Africa, and in many countries they make up the vast majority of the population. That poverty, not the rising wealth of Asian countries, is the global economy's real problem.

"The welfare implications of finding how to turn around the growth performance of Africa are so staggering," he writes, "that this has probably become the most important question in economics."

Thursday, November 17, 2011

Fallacy of the Rich Getting Richer and the Poor Getting Poorer - Part 4

Mark J. Perry quotes Milton Friedman on the fixed pie fallacy (also known as the fixed quantity of wealth fallacy and the zero-sum fallacy):

“Most economic fallacies derive from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.”

Warren Buffett does not become "richer" contingent upon the rest of us becoming poorer, just as the U.S. does not benefit by imposing tariffs on foreign goods. Professor Perry elaborates.

In terms of globalization and international trade, we see the “economic fallacy of the fixed pie” in operation all the time, just listen to Lou Dobbs on CNN every night. Many people think that China or Japan are somehow benefiting at our expense because of trade, or because of a current account deficit with those countries. Many people think that the gains from globalization somehow lift up the standard of living in China or India, by bringing down the standard of living in the USA; or that the gain in wages in other countries comes at the expense of a decline in American workers’ wages, etc.

But all of those beliefs are all based on the fixed pie fallacy. There is NOT a fixed, static amount of wealth or wages in the world, which is what the fixed pie fallacy assumes.

Stand back from economics and trade and think instead about life expectancy or literacy. There is certainly not a fixed amount of “life expectancy” in the world, nor is there a fixed amount of “literacy.” It is certainly possible for the life expectancy or literacy rates in 0ther countries to INCREASE, without DECREASING life expectancy or literacy in the US! That is, advances in life expectancy or literacy in China do NOT come at the expense of the US, because there is NOT a fixed amount, and the most likely outcome is that advances will continue to take place in BOTH countries.

Likewise, since there is not a fixed amount of wealth or prosperity in the world, globalization and trade will benefit BOTH the U.S and China.

Thursday, November 3, 2011

Fallacy of the Rich Getting Richer and the Poor Getting Poorer - Part 3

CBO Report Shows Rich Got Richer, As Did Most Americans

Some highlights from this (surprisingly) objective editorial:

The skyrocketing earnings of the very wealthiest get the headlines, but the vast middle of U.S. workers didn’t do too badly either over the study period: the 21st through 80th percentiles saw their inflation-adjusted incomes rise about 40 percent, and even the very poorest 20 percent had an 18 percent increase in real dollars. Mean household income, not including government transfers, rose by 62 percent; median income by 35 percent. (Many other studies have shown a slowing of middle- class earnings growth over the last decade; the CBO report doesn’t cover the years since the economic crisis of 2008.)

The data do much to contradict claims that America has become a permanently stratified society. A Treasury Department report on income mobility found that half the taxpayers in the bottom 20 percent in 1996 moved to a higher bracket by 2005. As one moves through life, one moves through earnings groups: 74 percent of people in the top 20 percent of households are in their peak earnings years, between ages 35 and 64; fewer than half the people in households in the bottom 40 percent are.

In sum, the vast increase in the wage gap may not be fair or good, but it isn’t arbitrary. And it’s certainly not a conspiracy of the so-called 1 percent.

The CBO report is a far more complicated and promising document than the conventional wisdom holds. Americans did move apart -- but it’s worth remembering that most of us moved up, too.

Sunday, October 23, 2011

Fallacy of the Rich Getting Richer and the Poor Getting Poorer - Part 2

Studies that support the claim that income inequalities/disparities are increasing ignore the fact that income/money/currency does not equal wealth.  Money and wealth are not the same.  Money does not hold intrinsic value and wealth implies a greater quality of life.  For example, income inequality has been increasing, but quality of life (wealth) disparities have been decreasing.  Anyone that assumes that the rich is getting richer on the backs of the middle class or the poor is making linear and static assumptions in a non-linear and dynamic environment.  Every group of people in the United States has seen an increase in the quality of life over the past 200, 100, or even 20 years.  The income gap may be widening, but the quality of life gap has been narrowing considerably.  The middle and lower classes of today are far better off than the middle and lower classes of the past.  To state otherwise would imply incredible ignorance or purposeful manipulation for political and/or ideological purposes.

The "lower class" of today lives a far better life (and a significantly longer life) than the "lower class" of 100 years ago - this is due to to a market system prevailing, and a socialist system being stifled and subdued. If the statists/socialists/Marxists had their way; our society would regress and the "lower class" (along with every other class) would be far worse off.  The statists want you to believe that that there is a growing disparity in the wealth and quality of life amongst the "classes"; and this is an outright lie. There is a growing disparity in income/paper/currency; but this leads to a narrowing of the disparities in wealth and quality of life. Wealth (quality of life) is NOT the same thing as Income (paper currency).

Example: the richest 1% of our society (the "rich") may earn 50% of the INCOME, however the "rich" CERTAINLY do NOT own 50% of the housing; nor do they own 50% of the land. The "rich" CERTAINLY do NOT own 50% of the automobiles. The "rich" CERTAINLY do NOT consume 50% of the food. The "rich" CERTAINLY do NOT consume 50% of the water.  The "rich" CERTAINLY do NOT consume 50% of the country's medical and health care resources.  The "rich" CERTAINLY do NOT utilize 50% of the country's educational resources.  Land, housing, automobiles, food, clean water, medical and health care resources, and educational resources equate to wealth and a higher quality of living.  Those that wish to demonize the top 1% or "the rich" are attempting to mislead by using the rhetorical tactics of red herring politics.

Wednesday, October 19, 2011

Fallacy of the Rich Getting Richer and the Poor Getting Poorer - Part 1

The fallacy that "the rich are getting richer and the poor are getting poorer" is not only foolish, but dangerous.  This claim assumes that there is only a fixed amount of wealth in our society and that in order for the rich to get richer they must take from the poor.  This is also known as the zero-sum fallacy.

This is one of many fallacies covered in Thomas Sowell's Economic Facts and Fallacies (page 157):

There are various ways of measuring income inequality but a more fundamental distinction is between inequality at a given time- however that might be measured- and inequality over a lifetime, which is what is implied in discussions of "classes" of "the rich" and "the poor" or the "haves" and "have-nots".  Given the widespread movement of individuals from one income level to another in the course of a lifetime, it is hardly surprising that lifetime inequality is less than inequality as measured at any given time.  Moreover, medical interns are well aware that they are on their way to becoming doctors, as people in other entry-level jobs do not expect to stay at that level for life.  Yet measurements of income inequality as of a given time are what dominate discussions of income "disparities" or "inequities" in the media, in politics, and in academia.  Moreover, a succession of such measurements of inequality in the population as a whole over a period of years still misses the progression of individuals to higher income brackets over time.

To say that the bottom 20 percent of households are "falling further behind" those in the upper income brackets- as is often said in the media, in politics, and among the intelligentsia- is not to say that any given flesh-and-blood individuals are falling further behind, since most people in the bottom 20 percent move ahead over time to rise into higher income brackets.  Moreover, even when an abstract statistical category is falling behind other abstract statistical categories, that does not necessarily represent a declining real per capita income, even among those people transiently within that category.  The fact that the share of the bottom 20 percent of households declined from 4 percent of all income in 1985 to 3.5 percent in 2001 did not prevent the real income of households in these brackets from rising- quite aside from the movement of actual people out of the bottom 20 percent between the two years.

Even when discussions of "the rich" are in fact discussions of people who have large accumulations of wealth- as distinguished from high levels of current income- much of what is said or assumed is incorrect.  In the United States, at least, most of the people who are wealthy did not inherit that wealth as part of a wealthy class.  When Forbest magazine's annual list of the 400 richest people first appeared in 1982, people with inherited wealth were 21 percent of that 400- which is to say, nearly four-fifths of these rich people earned the money themselves.  By 2006, fewer than 2 percent of the 400 wealthiest people on the Forbes magazine list were there because of inherited wealth.  Despite the old saying that "the rich get richer and the poor get poorer," the number of billionaires in the world declined from more than a thousand to less than eight hundred in 2008, while the number of American millionaires fell from 9.2 million to 6.7 million.

Bond Vigilantes and Market Discipline

The bond vigilantes are being suppressed by the Fed.  Therefore, the Fed is also suppressing fiscal discipline that would otherwise be imposed upon the federal government by the bond market, as discussed by Ronald McKinnon in the WSJ:

In past decades, tense political disputes over actual or projected fiscal deficits induced sharp increases in interest rates—particularly on long-term bonds. The threat of economic disruption by the so-called bond market vigilantes demanding higher interest rates served to focus both Democratic and Republican protagonists so they could more easily agree on some deficit-closing measures.

For example, in 1993 when the Clinton administration introduced new legislation to greatly expand health care without properly funding it ("HillaryCare"), long-term interest rates began to rise. The 10-year rate on U.S. Treasury bonds touched 8% in 1994. The consequent threat of a credit crunch in the business sector, and higher mortgage rates for prospective home buyers, generated enough political opposition so that the Clinton administration stopped trying to get HillaryCare through the Congress.

In the mid-1990s, Democrats and Republican cooperated to cap another open-ended federal welfare program—Aid to Families with Dependent Children—by giving block grants to the states and letting the states administer the program. Interest rates came down, and the Clinton boom was underway.

In contrast, after the passage of ObamaCare in March 2010, long-term bond rates remained virtually unchanged at around 3%. This was despite great doubt about the law's revenue-raising provisions, and the financial press bemoaning open-ended Medicare deficits and the mandated huge expansion in the number of unfunded Medicaid recipients. Even with great financial disorder in the stock and commodity markets since late July 2011, today's 10-year Treasury bond rate has plunged below 2%. The bond market vigilantes have disappeared.

Without the vigilantes in 2011, the federal government faces no immediate market discipline for balancing its runaway fiscal deficits. Indeed, after President Obama finally received congressional approval to raise the debt ceiling on Aug. 2, followed by Standard & Poor's downgrade of Treasury bonds from AAA to AA+ on Aug. 5, the interest rate on 10-year Treasurys declined even further.

Since Alexander Hamilton established the market for U.S. Treasury bonds in 1790, they have been the fulcrum for the bond market as a whole. Risk premia on other classes of bonds are all measured as so many basis points above Treasurys at all terms to maturity. If their yields are artificially depressed, so too are those on private bonds. The more interest rates are compressed toward zero, the less useful the market becomes in reflecting risk and allocating private capital, as well as in disciplining the government.

To know how to restore market discipline, first consider what caused the vigilantes to disappear. Two conditions are necessary for the vigilantes to thrive:

(1) Treasury bonds should be mainly held within the private sector by individuals or financial institutions that are yield-sensitive—i.e., they worry about possible future inflation and a possible credit crunch should the government's fiscal deficits get too large. Because private investors can choose other assets, both physical and financial, they will switch out of Treasurys if U.S. public finances deteriorate and the probability of future inflation increases.
(2) Private holders of Treasurys must also be persuaded that any fall in short-term interest rates is temporary—i.e., that the Fed has not committed itself to keeping short-term interest rates near zero indefinitely. Long rates today are the mean of expected short rates into the future plus a liquidity premium.

The outstanding stock of U.S. Treasury bonds held outside American intergovernment agencies (such as the Social Security Administration but excluding the Federal Reserve) is about $10 trillion. The proportion of outstanding Treasury debt held by foreigners—mainly central banks—has been increasing and now seems well over 50% of that amount. Since 2001, emerging markets alone have accumulated more than $5 trillion in official exchange reserves. And in the last two years the Fed itself, under QE1 and QE2, has been a major buyer of longer-term Treasury bonds to the tune of about $1.6 trillion—and that's before the recently announced "Operation Twist," whereby the Fed will finance the purchase of still more longer-term bonds by selling shorter-term bonds. So the vigilantes have been crowded out by central banks the world over.

Central banks generally are not yield-sensitive. Instead, under the world dollar standard, central banks in emerging markets are very sensitive to movements in their dollar exchange rates. The Fed's near-zero short-term interest rates since late 2008 have induced massive inflows of hot money into emerging markets through July 2011. This induced central banks in emerging markets to intervene heavily to buy dollars to prevent their currencies from appreciating versus the dollar. They unwillingly accept the very low yield on Treasurys as a necessary consequence of these interventions.

True, in the last two months, this "bubble" of hot money into emerging markets and into primary commodities has suddenly burst with falls in their exchange rates and metal prices. But this bubble-like behavior can be traced to the Fed's zero interest rates.

Beyond just undermining political discipline and creating bubbles, what further economic damage does the Fed's policy of ultra-low interest rates portend for the American economy?

First, the counter-cyclical effect of reducing interest rates in recessions is dampened. When interest rates dipped in the past, at least part of their immediate expansionary impact came from the belief that interest rates would bounce back to normal levels in the future. Firms would rush to avail themselves of cheap credit before it disappeared. However, if interest rates are expected to stay low indefinitely, this short-term expansionary effect is weakened.

Second, financial intermediation within the banking system is disrupted. Since early 2008, bank credit to firms and households has declined despite the Fed's huge expansion of the monetary base—almost all going into excess bank reserves. The causes are complex, but an important part of this credit constraint is that banks with surplus reserves are unwilling to put them out in the interbank market for a derisory low yield. This bank credit constraint, particularly on small- and medium-size firms, is a prime cause of the continued stagnation in U.S. output and employment.

Third, a prolonged period of very low interest rates will decapitalize defined-benefit pension funds—both private and public—throughout the country. In California, for example, pension actuaries presume a yield on their asset portfolios of about 7.5% just to break even in meeting their annuity obligations, even if they were fully funded.

Perhaps Fed Chairman Ben Bernanke should think more about how the Fed's near-zero interest rate policy has undermined fiscal discipline while corrupting the operation of the nation's financial markets.

Friday, September 16, 2011

Sunset the Entitlements

We are now aware that the Social Security "lockbox" is a joke.  Social Security and MediCARE alike are ponzi schemes (it is actually worse, since most ponzi schemes are funded by willing participants, however we have no choice but to "invest" in Social Insecurity).  In theory, both are excellent concepts.  However, when both are mismanaged by the government to the extent that the wealthiest, most prosperous, country in the history of the world (for now) cannot meet its obligations, commitments, and promises to its own citizens without drastic currency debasement; there is a serious problem that must be rectified.  The United States federal government has made promises to current senior citizens, and those promises must be upheld.  For that reason, both programs should remain completely in tact - as is - for the next ten years.  Starting in ten years, the age to receive Social Security and MediCARE benefits should be pushed back one year, and one year every subsequent three years thereafter.

In ten years, roll back the age at which one can receive Social Security and MediCARE benefits by one year.  Continue to roll the age of eligibility back by one year every three years.  Sunset the statist national ponzi out of existence and stop making false promises to the citizens of the United States.  Allow them to make their own choices with their own money; allow them to take their own risks after assessing their own risk tolerances.  Allow them to take ownership of their own assets and leave those assets to others upon their departure.

This is one change that will help those that are currently depending on these benefits and have been depending on such benefits being available to them in their golden years. The younger the citizen; the longer she or he will have to plan for their own retirement. Other reformations can - and should - be added onto this sunset concept, however the bottom line is that we MUST protect our senior citizens from the false hopes and false promises given to them by their government.

Saturday, September 3, 2011

Inception

"What is the most resilient parasite? Bacteria? A virus? An intestinal worm? An idea. Resilient... highly contagious. Once an idea has taken hold of the brain it's almost impossible to eradicate."

"An idea is like a virus, resilient, highly contagious. The smallest seed of an idea can grow. It can grow to define or destroy you."

Quotes from the movie Inception.


The ideas that are opposite to the rights to life, liberty, and property (rights that support free people, free minds, and free markets); have proven to be nothing but parasitic on our society.  Parasitic ideas such as Statism, Socialism, Corpratism, Marxism, and Keynesianism have only created regression, despite the proponents of such ideas claiming to be "progressive" or "liberal".

Tuesday, August 23, 2011

Securities and Exchange Conundrum

Should the Securities and Exchange Commission even exist?  Does the S.E.C. perform the tasks it is charged with effectively?  Of course we all want functioning, transparent, and regulated markets that abide by the rules of law, and the applicable contracts and covenants; however the S.E.C. has proven to be an utter and complete failure in accomplishing this.

Do you invest under the assumption that the Securities and Exchange Conundrum protects you and your money from fraud, abuse, and market manipulation?  In reading David Einhorn's Fooling Some of the People All of the Time, one can find this (amongst many, many other) highlights on page 399:

In a desperate attempt to prop up share prices, the Securities and Exchange Commission implemented a ban on short selling of financial stocks.  This emergency action, approved outside the usual government rule-making process and unsupported by any factual finding that short selling was indeed a problem, caused a 21 percent two-day spike in the New York Stock Exchange (NYSE) Financial Index in September 2008.  The SEC, charged with fighting market manipulation, instead sponsored the greatest manipulation in history.  It was short lived and ineffective, and ultimately contributed to investors losing confidence in the system.  By the time the ban was lifted a month later, the NYSE Financial Index had already fallen 11 percent from its preban level--on its way to collapsing 68 percent between its September peak and March 2009 low.

Monday, August 8, 2011

Central Bankers and Money Supply

We are quite generous with criticism directed towards politicians, and for good reason.  However, we do admit that central banks/bankers do not receive nearly enough criticism and blame for our present condition.

On recent news of S&P downgrading the credit rating of The Divided States of Entitlement; Alan Greenspan has decided to weigh in with his infinite genius that "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default".  Yes, and if we increase the quantity of the money, does this affect the value of the money?  If prices are contingent upon a money supply being X, and central bankers double the quantity of money...... would prices stay the same?  No.  The price of everything would increase along with the increasing supply of money.  The value of the money would erode and decrease, and the cost of everything would go up accordingly.  Thank you, Alan Greenspan, as you now have even less credibility than before (now equivalent to the credibility of Andrea Mitchell).

Monday, July 25, 2011

Walter E. Williams

Wallter E. Willaims recently called out an article published in Time Magazine* regarding the Constitution.  It is of no surprise that Williams easily disassembles the article and all associated foolish assumptions made therein.

The Constitution is Supreme Law, and therefore supersedes any/all other laws that may pose a conflict.  It staggers the mind that some people want to simply do away with, and forget, The Constitution - which is after all the rule of law - as it is supposed to protect individual rights to life and liberty.  (It should also protect the right to justly acquired property, however that is an issue best left for another day.)  Is anyone really against the rule of law?  We would hope not.  Surely, we do not all agree on each and every specific law, however anyone in the U.S. that disagrees with individual rights of life and liberty should perhaps research other countries.

If one has enough time, patience, and boredom to read this sad excuse for critical thinking; then good luck.  One problem is the concern that states with wide population disparities each have two Senators.  Nowhere in the article however does it mention that the 17th Amendment to the Constitution eroded the intended system of federalism, which would be a far superior system due to the varying complexities of each state.  Before the 17th Amendment was ratified, each state had the opportunity to allow their legislature to appoint U.S. Senator's to represent their own state interests.  State governments would therefore be much more inclined to appoint (and reappoint if applicable) Senators hesitant to defer state resources and powers to the federal government.  The current scheme of legalized bribery by way of earmarks (which also contributed to havoc being wrought on our health care system) does exactly that: defer state powers to the federal government.

With federalism as the main objective states could adapt laws, regulations, and taxes that suited their own needs--as long as they did not violate The Constitution and individual rights of life and liberty.  Is anyone really na├»ve enough to think that the social policies in Vermont should be the same as those in Texas?  Should New Hampshire and California maintain the same fiscal policies?  Would it be logical to force Utah and New York State to adopt identical policies on personal or economic issues?  No - three hundred million plus people would be far better off determining issues that are not covered in The Constitution on a state or local level.  Centralized planning always fails.  After all, people are allowed to move freely throughout the country, and trying to conform our society to a "one size fits all" lifestyle with identical values and priorities is a social engineering nightmare waiting to happen.

*Time Magazine: the favorite publication of Monday morningTuesday morningWednesday morningThursday morningFriday morning, and Saturday morning quarterbacks everywhere.  Note the Time magazine articles and covers over the years going back and forth between global cooling and global warming are not only contradictory but so incredibly desperate to cause sensationalism and/or panic in order to sell copies to the sheep/readers.  We have already stated our views regarding environmental issues: that the underlying goal for everyone should be to minimize waste; if not for environment reasons, then for economic reasons.

Sunday, July 17, 2011

Inflation and Government Control

"..... inflation is probably the most important single factor in that vicious circle wherein one kind of government action makes more and more government control necessary. For this reason all those who wish to stop the drift toward increasing government control should concentrate their effort on monetary policy."

F.A. Hayek - The Constitution of Liberty (pages 338-339)


On July 11, 2011, Doug Short put treasury yields into perspective (that is, yields that have been affected by the zero interest rate policy of the Fed) and summarized:

"A week after the end of QE2, the yield on the 10-year note has dropped 15 basis points to 3.03%. The most recent Consumer Price Index (the June reading for May) stands at 3.57%, which gives us a real 10-year yield of -0.54%."

Tuesday, July 5, 2011

Price Stability

As previously mentioned, The Federal Reserve determines monetary policy with the intent of maintaining stable prices, maximizing employment, and moderating interest rates as needed.  While analyzing the effects of QE2, Mike Ashton - The Inflation Trader - notes the following:

 - grain prices are up 17% since August 2010.
 - softs (coffee, sugar, cocoa, cotton) are up 56%.
 - gold and industrial metals are up, around 20% each.
 - crude is up 27% and retail gasoline prices at the pump are up 32%.
 - the dollar is worth 10% less on world markets.
 - stocks are up 24%

Ashton concludes that:

So if the Fed was trying to pump up stocks or nudge 2y note yields, they did a fine job. Beyond that, what we can see is… and what I’ve been saying all along… if you increase the quantity of money, the main thing you increase is the price level. The only reason you might expect a growth effect is if there is money illusion, meaning people see more money in their pockets and perceive themselves as wealthier because they don’t realize that the dollars are worth less. That is certainly somewhat true, but the figures above suggest that the most pronounced effects were on inflation expectations and the prices of raw commodities.

Well, we shouldn’t forget about this little effect as well: QE2 also kept Tim Geithner in his job for far longer than was good for the country. Obviously, Geithner knows that his job was made easier by the fact that the Fed was buying 85% of the Treasury issuance since November, and virtually 100% of the net TIPS issuance: he has apparently decided to “weigh” moving on from Treasury as soon as the budget deal is done. I’m sure the timing is completely coincidental and has nothing to do with the fact that the next guy is going to have to find a new $600bln buyer to take the Fed’s place (and maybe a bigger buyer, if the Fed ever decides to sell).

Sunday, June 26, 2011

Trickle-Down Ignorance

One need not watch An Inconvenient Tax (a film explores the history of the income tax in the United States) in order to be convinced that the current system of income taxation is an utter and complete disaster.

An issue that this documentary did not discuss is the fallacy of "trickle down economics", and the fact that those trying to espouse (or foolishly attack what is actually a fallacious argument anyway) the "trickle down" theory are misguided.  While our politicians are concerned with only rhetoric and short term political gains, Thomas Sowell's columns over the years provide invaluable insight.  Sowell truly is an intellectual heavyweight with the ability to break down the complex into layman's terms.  (His columns can be found here, here, and here.)  One of his best - Trickle-Down Ignorance - is pasted below from Capitalism Magazine:


As much as I enjoy most of the messages from readers, there is no way that I can answer more than a small fraction of them. The messages I don't reply to at all are those from obviously ignorant people who offer insults instead of arguments. However, a recent column has brought forth more than the usual number of uninformed denunciations, so it may be useful to other readers to explain why they should not take such nonsense seriously when they encounter it.
What I said that set off the crazies was that there is no such thing as "trickle-down" economics. Supposedly those who believe in trickle-down economics want to give benefits to the rich, on the assumption that these benefits will trickle down to the poor.

As someone who spent the first decade of his career researching, teaching and writing about the history of economic thought, I can say that no economist of the past two centuries had any such theory.

Some of those who denounced me for saying that there was no trickle-down theory cited an article by David Stockman years ago -- as if David Stockman was the last word, and I should forget everything I learned in years of research because David Stockman said otherwise.

What is often confused with a trickle-down theory is supply-side economics, such as that advocated by Arthur Laffer. That theory is that tax cuts can generate more tax revenue for the government because it changes people's behavior, causing more economic activity to take place, leading to more taxable income, as well as a faster growing economy.

It is not hard to find examples of when this happened -- for example, during the Kennedy administration, among other times and places.

Whether it will happen in a given set of circumstances is what is controversial, but none of this has anything to do with money trickling down from the rich to the poor. It has to do with the creation of more wealth in the economy as a whole.

The notion of a trickle-down theory is debunked on pages 388-389 of my book "Basic Economics" (2nd edition). But most of those who went ballistic over my denial of a trickle-down theory were not seeking further information.

As far as they were concerned, they already had the absolute truth and only needed to vent their anger over my having dared to say otherwise. That is a sign of a much more general and much more dangerous trend in our society today that goes far beyond a handful of true believers foaming at the mouth against one columnist.

If education provides anything, it should be an ability to think -- that is, to weigh one idea against an opposing idea, and to use evidence and logic to try to determine what is true and what is false. That is precisely what our schools and colleges are failing to teach today.

It is worse than that. Too many teachers, from the elementary schools to the graduate schools, see their role as indoctrinating students with what these teachers regard as the right beliefs and opinions. Usually that means the left's beliefs and opinions.

The merits or demerits of those ideas is far less important than whether or not students learn to analyze and weigh those merits and demerits. Educators used to say, "We are here to teach you how to think, not what to think."

Today, students can spend years in educational institutions, discussing all sorts of issues, without ever having heard a coherent statement of the other side of those issues that differ from what their politically correct teachers say.

There are students in our most prestigious law schools who have never heard arguments for the social importance of property rights -- not just for those fortunate enough to own property, but for those who don't own a square inch of real estate or a single share of stock. How they would view the issues if they did is a moot point because they have heard only one side of the issue.

People who go through life never having heard the other side of issues ranging from environmentalism to minimum wage laws are nevertheless emboldened to lash out in ignorance at anyone who disturbs their vision of the world. The self-confident moral preening of ignoramuses is perhaps an inevitable product of the promotion of "self-esteem" in our schools.

Monday, June 13, 2011

Competition Lowers Prices

Everyone is now painfully aware of the risings costs of health care.  However, it is extremely unfortunate that many still do not know why health care costs are increasing:  too much government interference and not enough competition.

Dr. David Gratzer of The Manhattan Institute has been discussing the desperately needed amendments to the Public Service Health Act for years.  He now writes that the Patient Un-protective and Un-affordable Care Act certainly does not foster competition, and merely creates 50 different variations of chaos:

Health Reform Creates Chaos With 50 States, 50 Sets Of Rules

“Toto, we’re not in Kansas anymore.” The line from the Wizard of Oz comes to mind with reports of the ongoing implementation of ObamaCare. In Kansas, the state government is reportedly charging ahead, excited to receive $32 million as its share of $241 million in federal grants. Kansas is eligible for the cash because it will be among the first 7 states to launch one of the health-insurance exchanges the law calls for.

There’s some irony here. After all, the State of Kansas is also suing the federal government to declare ObamaCare unconstitutional. But the bigger irony is that anyone’s in any hurry to open a health exchange at all, given current legal constraints.

Although ObamaCare is mostly a patchwork of bad ideas, President Obama’s earliest proposal for health reform actually included a very good idea: the plan for a national health exchange, similar to what federal employees use to buy their own health insurance.

A national insurance market would have allowed consumers to compare insurance costs across state lines. This would have helped to curb high costs in states which artificially raise the price of health insurance through unnecessary benefit mandates and other regulations.

If the president had carried through with his rhetoric on a national health exchange, consumers could soon be buying insurance plans that suited them directly, from any state they chose, comparing low-cost and high-cost plans without regard for artificial regulatory boundaries. In turn, lower-cost insurers could have marketed new products to lower-income customers more easily, since it would be easier to make a fair return on a basic health plan if it could be sold to a national market.

In the current model, discount insurers must re-price and repackage insurance plans for 50 small markets and 50 sets of regulations.

But Obama’s support for a competitive marketplace was short-lived. Liberal politicians at the state and national level woke up and realized that a national market would bring to an end their habit of micromanaging insurance rules and curb their ability to reward different constituencies with costly “benefit mandates” which serve in practice as a subsidy for provider lobby groups and special interests.

It didn’t take long for the president’s national health care marketplace to be refried, reheated, and served up as 50 individual state websites instead.

Remember: One of the stated objectives of ObamaCare was to foster free-market insurance competition to cut prices.

Now, with 50 uncompetitive state markets and new federal regulations on what is or isn’t an acceptable insurance plan on top of existing state laws, there will actually be less room for

price-cutting competition in health care. You can expect insurance costs to rise as a direct result.

Even isolated to individual states, the health exchanges will serve a purpose: Consumers using an exchange to buy coverage will have an easier time accessing the hundreds of billions of dollars’ worth of new federal insurance subsidies that ObamaCare provides.

While that’s good short-term news for American families who need the subsidies to purchase coverage, it only serves to increase the health care system’s dependence on money borrowed by governments on your credit. It will do nothing to make America’s health care system more affordable in the long term.

To understand why ObamaCare is such an enormous policy failure, it helps to look at the rest of the online world and the online markets we all know and love.

EBay works because a collectible you couldn’t possibly sell at a garage sale in Centerville, Iowa, might sell quickly if buyers in Texas, California and Georgia knew it was for sale. Amazon.com does well partly because it can stock anything it wants, trumping bookstores in your hometown that might not sell the Civil War book you’re looking for.

Recreate these online marketplaces with ObamaCare-style rules and you’ll understand the problem. Imagine shopping on Amazon, but not being allowed to buy books that are already sold by retailers within your home state. Imagine an eBay where customers have to physically live in the same state as the person making the sale before they can enter a bid.

Yes, Kansas will be a national leader when it opens up its health exchange, which it expects to do sometime in 2013. But here’s the problem, Toto: When the Kansas health exchange opens online, you’ll still be trapped in Kansas — at least as far as markets and health-insurance regulations are concerned.

Monday, June 6, 2011

Debt Issuance and Spending Cuts

This week the Treasury will be auctioning off the following:

$27 Billion in 13-week Bills on June 6, 2011
$24 Billion in 26-week Bills on June 6, 2011
$32 Billion in 3-year Notes on June 7, 2011
$21 Billion in 10-year Notes on June 8, 2011
$13 Billion in 30-year Bonds on June 9, 2011

After pledging to cut $100 billion, the House Republican leadership was only able to cut a pathetic $38 billion.  This weeks debt issuance, which is consistent with previous auctions, puts the cuts of $38 billion in perspective.  The question now remains; will the federal government heed the advice of Stan Druckenmiller to demand substantial spending cuts and enact true entitlement reform?

Some highlights of Druckenmiller and his interview with James Freeman (added information not included in the interview shown in parentheses):

 - Druckenmiller and his wife gave away over $700 million to charity in 2009.
 - Druckenmiller has been credited with orchestrating George Soros's successful shorting of the British pound in 1992 (earning one billion dollars of profit in a single day).
 - After working for Soros, Druckenmiller also built his own fund, Duquesne Capital, which at one point had $12 billion in AUM (as of August 2010, Duquesne Capital's returns had averaged 30 percent annually since 1986).
 - Forbes estimates Druckenmiller is still worth $2.5 billion, despite his generous charitable givings.
 - Druckenmiller, over the last two decades, has been the largest benefactor of the Harlem Children's Zone, a community service organization featured in the movie "Waiting for Superman".
 - Druckenmiller was accused by (the now disgraced former Treasury Secretary) Robert Rubin of wrongdoing in the Treasury market, however Druckenmiller was long Treasuries at the time, and is long Treasuries now (despite Rubin's accusation otherwise).
 - Druckenmiller spoke up about his concerns with the our fiscal situation in 1995 and noted that the first baby boomers would turn 65 in 2010.  He know states that we do not have another 16 years to get things in order.
 - He stated that the Treasury market is not a free market, nor is it a clean market due to The Federal Reserve buying much of Treasury bonds through QE2 to the tune of $19 billion of Treasurys a week.

Druckenmiller has proven expertise in the Treasury market and other fixed income markets.  Our political "leaders" would be making a major mistake not listening to him.

Sunday, June 5, 2011

Enough Clamor and Hyperbole

Stanley Druckenmiller was recently interviewed by the The Wall Street Journal:

'A financial crisis is surely going to happen as big or bigger than the one we had in 2008 if we continue to behave the way we're behaving," says Stanley Druckenmiller, the legendary investor and onetime fund manager for George Soros. Is this another warning from Wall Street that Congress must immediately raise the federal debt limit to prevent the end of civilization?

No—Mr. Druckenmiller has heard enough of such "clamor and hyperbole." The grave danger he sees is that politicians might give the government authority to borrow beyond the current limit of $14.3 trillion without any conditions to control spending.

One of the world's most successful money managers, the lanky, sandy-haired Mr. Druckenmiller is so concerned about the government's ability to pay for its future obligations that he's willing to accept a temporary delay in the interest payments he's owed on his U.S. Treasury bonds—if the result is a Washington deal to restrain runaway entitlement costs.

"I think technical default would be horrible," he says from the 24th floor of his midtown Manhattan office, "but I don't think it's going to be the end of the world. It's not going to be catastrophic. What's going to be catastrophic is if we don't solve the real problem," meaning Washington's spending addiction.

Widely credited with orchestrating Mr. Soros's successful shorting of the British pound in 1992, Mr. Druckenmiller also built his own fund, Duquesne Capital, into a $12 billion titan. He announced plans last year to close the fund and now reports, "I have no clients." He is still managing his own money, which Forbes magazine recently estimated at $2.5 billion.

Whatever the correct figure is, it would be significantly larger if Mr. Druckenmiller hadn't given away so much of his wealth. The online magazine Slate reported last year that Mr. Druckenmiller and his wife gave away more money in 2009—over $700 million—than anyone else in the country. Over the last two decades, he has been the largest benefactor of the Harlem Children's Zone, a community service organization featured in the movie, "Waiting for 'Superman.'"

It's hard to think of someone with more expertise in the currency and government-debt markets, but Mr. Druckenmiller's view on the debt limit bumps up against virtually the entire Wall Street-Washington financial establishment. A recent note on behalf of giant banks on the Treasury Borrowing Advisory Committee warned of a "severe and long-lasting impact" if the debt limit is not raised immediately. The letter compared the resulting chaos to the failure of Fannie Mae and Freddie Mac and warned of a run on money-market funds. This week more than 60 trade associations, representing virtually all of American big business, forecast "a massive spike in borrowing costs."

Wednesday, June 1, 2011

Ending Earmarks

We have now heard the left, the right, and even libertarians belittle the impact of earmarks.

- The left, albeit inconsistent and sometimes hypocritical, have minimized the significance of earmarks.
- The right has also stated that earmarks are not an issue of concern.  Mark Levin - someone that this site references quite often due to his accurate criticisms of an over-reaching federal government and his expertise in constitutional law - has stated on his radio show that earmarks are not a pressing matter.
- The libertarian Ron Paul has written that earmarks are a "distraction" and "phony issue".

With all due respect to the aforementioned individuals and groups (Mark Levin / conservatives and Ron Paul / libertarians):  They are wrong.  Earmarks incentivize legislators to vote for a bill that they would otherwise not vote for.  Therefore, if one is to address the big picture of (out-of-control) federal spending, then one must address the incentives for legislators to approve and vote for such bills.  After all, people respond to incentives.

In order to gain votes, the sponsors of a particular bill will include earmarks that designate funds to be appropriated to particular districts of legislators that are either against or neutral on the legislation in question.  This creates a moral hazard, as overall spending (in large omnibus spending bills or health care takeover bills) are passed due to the presence of earmarks.

Earmarks - essentially legalized bribery - manipulate and distort the way our lawmakers vote, and therefore should be identified and chastised at minimum; or preferably banned and ended altogether.

Friday, May 20, 2011

The Health Care Debate

204 more waivers have been granted by the administration.  That is, health care waivers that the administration will only grant to those politically connected, now total 1,372 according to hotair.com.  This goes to show just how wonderful this legislation is (and the accompanying regulations are) that so many are seeking waivers.

If you are new to the health care debate and realize what is at stake, then we would highly recommend you consider the following:

1.  Health care costs have skyrocketed - far surpassing the rate of inflation - due to the actions of the federal government.

2.  The housing market has still not yet recovered - and 28% of homeowners now have mortgages with negative equity - mainly due to the actions of the federal government.

3.  With the obvious exceptions of defense, police, courts, and emergency services; the federal government is responsible for rising costs and diminishing quality of almost every aspect of our lives - agriculture, energy, education, transportation, labor, financial services, housinghealth care, etc - all the while eroding the value of the dollar and punishing those trying to save for the aforementioned products and services.  Mike Shedlock has stated that inflation "is a stealth tax on the middle class and poor whose wages never keep up with inflation".

Two phenomenal resources for reading up on the issue of health care are David Gratzer of The Manhattan Institute and especially Michael F. Cannon of The Cato Institute.  Both have provided extensive analyses as to why a free market overhaul of our health care system is needed--all while maintaining the promises made to our senior citizens.

Former U.S. Comptroller General David Walker has stated that the one domestic issue that puts our country at the greatest financial risk is health care.  He has also stated that the unfunded liabilities of Medicare are fives times greater than the unfunded liabilities of Social Security.  The National Center for Policy Analysis (NCPA) has reiterated that unfunded liabilities of Medicare are approximately five times greater than Social Security.


Monday, May 16, 2011

Two Excellent Resources

Two great sites that are worth visiting, if you have not yet already, are LonelyConservative.com and RightDirection.com.

Lonely Conservative - observations from a New York State conservative.

Right Direction - moving New Jersey and America in the Right direction towards Reagan conservatism.

Saturday, May 7, 2011

Hayek Was Right and Keynes Was Wrong

Another creative video shows the concepts of Friedrich Hayek being debated against the dangerous theories of John Maynard Keynes.  This video is the sequel to the first educational and entertaining creation of John Papola and Russ Roberts.

Fannie Mae is another example of a Keynesian experiment gone wrong, at the taxpayers expense.  Not surprising that Fannie Mae is seeking even more taxpayer funds:

Mortgage finance giant Fannie Mae (FNMA.OB) on Friday said it would ask for an additional $8.5 billion from taxpayers as it continues to suffer losses on loans made prior to 2009.

The largest U.S. residential mortgage funds provider reported a net loss attributable to common shareholders of $8.7 billion, or $1.52 per diluted share, in the first quarter.

Including the latest request, the firm has taken about $100 billion from the U.S. government since it was seized in 2008, though it has also paid about $12.4 billion to taxpayers in interest.

Wednesday, April 27, 2011

Health Care and Senior Citizens

From the Wall Street Journal on July 23, 2009:

The Congressional majority wants to pay for its $1 trillion to $1.6 trillion health bills with new taxes and a $500 billion cut to MediCARE. This cut will come just as baby boomers turn 65 and increase MediCARE enrollment by 30%. Less money and more patients will necessitate rationing. The Congressional Budget Office estimates that only 1% of MediCARE cuts will come from eliminating fraud, waste and abuse.

From MIke Flynn at BigGovernment.com on March 30, 2011:

Ever since the passage of ObamaCare, I’ve been perplexed by a lingering question: Why did AARP so aggressively lobby for passage of the law? After all, the plan was built on $500 billion in cuts to MediCARE. Even in Washington, half a trillion dollars is still a ton of money. MediCARE is sacrosanct among America’s senior citizens. It was unfathomable to me that the nation’s largest membership association of seniors would, not just not oppose the cuts, but would actively lobby for them. It didn’t make any sense.

From USA Today on April 26, 2011:

New York ranks 28th in Social Security payments per person and 9th in MediCARE benefits. But the spending on MedicAID, the health program for the poor, is far above that in any other state. Only Washington, D.C., spends more.

New York spent $2,903 per person on MedicAID in 2010 — a third more than any other state. The U.S. average is $1,364. Nevada spent the least: $666 per person. 


MediCARE was created to help our seniors and will be squeezed by our incompetent government's "reform".  MedicAID was created for lower income members of our society, however the program has expanded and continues to expand, as the government is primarily responsible for rising health care costs.  Another component to rising health care costs is lack of tort reform on a state level.  Here in New York State the trial lawyers are protected by Sheldon Silver.  Silver wears many hats, some of which are less than flattering:

1. Speaker of the Assembly since 1994.
2. Employee of Weitz and Luxemberg which according to it's website is "the largest personal injury and mass tort plaintiffs’ firm in New York".
3. New York's "Shadow Governor" argued by some. 
4. "The Worst Politician in America" insisted upon by others.  
5. According to Americans for Tort Reform Association "president Tiger Joyce suggests that "no single state lawmaker in the country has done more to increase the profits of personal injury lawyers at the expense of jobseekers, consumers, taxpayers and health care patients" than Sheldon Silver."  ATRA's news release provides further details.

The situation is dire and must fixed to help protect our senior citizens.  As bad as the situation is on a national level; if the current trend continues, it will be far worse for our seniors in the once great State of New York.  If USD 500 billion is taken out of MedCARE to our seniors detriment, then the entire nation should be concerned.  However, those of us in New York State should be even more troubled, considering we already spend more per person on MedicAID than any other state.  Is this what Washington D.C. and Albany, New York stand for?

Sunday, March 20, 2011

The Diamond-Water Paradox

William L. Anderson writes in 2000 on The Freeman:

In Praise of Athletes High Salaries

While teaching in public schools many years ago, I found that almost all teachers believed they were underpaid and underappreciated. Things probably have not changed. My colleagues expressed their sentiments by hanging a newspaper editorial on a bulletin board in the teachers’ lounge that condemned the high salaries of professional athletes.

“Americans do not value education,” the editorial opined, citing as proof the fact that “a mediocre halfback in the NFL” was paid more than three times the average teacher’s salary. The statement had its desired effect, judging from my colleagues’ responses to the disgruntled editorial writer. 
The message was clear: Americans have their priorities wrong. If they truly valued education more than professional sports, teachers would be paid more than professional athletes. People recoil at the high salaries players receive, salaries that seem to be out of kilter with what the rest of us earn. In an extreme example, Michael Jordan was paid $36 million to play his last season with the Chicago Bulls of the National Basketball Association. Even most medical doctors fail to earn such a sum during their entire working lives. That athletes are much better paid is prima facie evidence that people in this country have no appreciation for what is really important. Thus the state should force the right values on us.
Even while more and more Americans attend professional athletic events, the athletes and their sports are under greater attack. Furthermore, the off-field behavior of many athletes—including the commission of serious crimes in some well-publicized cases—allegedly demonstrates that we should not be paying great sums of money to people who are not proper role models for our children.

Some of the details of the editorial are true. In fact, the gap between the average salaries for teachers and professional athletes in the last two decades has grown considerably. Yet, incredible as it may sound to the average person, this is a positive sign. Far from being an indication that people are worse off, the explosive growth in the salaries of professional athletes, as well as the overall surge of professional sports, demonstrates that individuals—including teachers—have become more prosperous.

Such a statement flies in the face of conventional understanding. After all, macroeconomic statistics like the consumer price index allegedly tell us that real incomes have fallen for the past three decades. Not only is it difficult to argue against such numbers, but for those of us who believe in limited government, there is also a dark satisfaction gained by showing that living standards are down as government intervention in the economy has increased.

The Power of Economic Analysis

The praxeological tools of economic analysis (Ludwig von Mises’s term for the science of human action is praxeology), however, are much more powerful than numbers created by the U.S. Department of Labor, and while we would like to be arguing that the expansion of the state in recent years has meant an absolute decline in living standards, perhaps there is another case to be made. We should be telling the world that free-market capitalism has succeeded despite the ubiquitous intrusions of government.

To understand how the increases in the salaries of professional athletes demonstrate that all of us are better off, we turn to an old issue: the diamond-water paradox. In The Wealth of Nations, Adam Smith asked why a diamond could fetch much more money in the marketplace than could water, despite the fact that water was much more necessary for human existence.

The solution to the paradox came from the “marginalists” of the mid and late nineteenth century, including Carl Menger of Austria, William Stanley Jevons of England, and Jules Dupuit of France. Value, they astutely pointed out, is determined by the usefulness of the marginal available unit of the item in question, or marginal utility. An individual imputes value to a particular unit of water, not to the overall characteristics of water itself.

Because water is plentiful and diamonds are scarce relative to water, in normal cases a unit of water will not be valued as highly as a diamond. However, if someone were wandering in the desert, dying of thirst, he might very well be willing to trade a beautifully cut diamond for a canteen full of water!

Friday, March 18, 2011

Scarcity

Thomas Sowell:

The definition of economics is the study of the allocation of scarce resources which have alternative uses.

The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.

Saturday, March 12, 2011

The Threat of Debt

Charlie Rangel (generally a bad source), Paul Krugman (mostly a terrible source), and Michael Moore (Moore is always an awful source) all claim that the government has plenty of money to go around, as this mantra fits their modus operandi of dividing and conquering by inciting class warfare.

Meanwhile - in the real world - Admiral Mike Mullen, Chairman of the Joint Chiefs of Staff, has stated that our national debt  poses the greatest threat to our national security.  Our politicians are not getting the message and continue to gamble with our future as wasteful spending has shown no sign of abatement.

Monday, March 7, 2011

Class Warfare

Desperation is the only reason as to why one party or "movement" would try to invoke class warfare.  After all, class warfare is incited to divide - as opposed to unite - by pitting the classes against each other.  Are voters smart enough to recognize a strategy as detestable as "divide and conquer"?  One can only hope so.

Those despicable enough to use class warfare as a political or ideological strategy would be quick to recite the fallacy that the "rich get richer and the poor get poorer", however this is only intentioned to appeal to the most ignorant and uninformed of audiences.  Class warfare may be good for a particular politician or political party trying to gain and/or maintain a position of power, however it is not good for the public - upper, middle, or lower class - and the mere mention of dividing people up into "classes" is in and of itself an unfortunate regression into divisive rhetoric that already gives the dividers an edge up on the proponents of unity.

Wednesday, February 16, 2011

Economic Plunder Association

The Economic Plunder Association (also know as the "Environmental Protection Agency" by some) is still in the business of destroying jobs, stifling innovation, and suppressing economic growth in general.

Regardless of whether or not you believe that global warming is a hoax (imposed on society to suppress economic development) or that global warming is the biggest threat to our society and is currently destroying the planet: the underlying issue should still be minimizing pollution.  After all of the rhetoric: the underlying goal should still be to minimize pollution and waste. By minimizing pollution and waste, scarce resources are used with more discretion, which in turn benefits both the environment and the economy.  Deterring free markets and halting economic development will prevent innovation that would have otherwise ultimately helped the environment.

Free markets lead to innovation that help create a more efficient application of energy, and any other resource for that matter.  No one wants excess pollution.  No one wants more waste than absolutely necessary.  It is expensive both economically and environmentally.  Any resource that is privately owned or privately managed will always be applied with greater discretion.  Therefore private ownership should be encouraged and embraced.  The Economic Plunder Association / Environmental Protection Agency is yet another government mandated public effort that diverts the importance of the underlying issue and distorts the goals that would otherwise benefit everyone.

Friday, February 11, 2011

Blatantly False

The claim that he did not raise taxes is "blatantly false".

He initially said that “I didn’t raise taxes once”.  Then again saying, “I didn't raise taxes once; I lowered taxes over the last two years.”


Americans for Tax Reform clearly outline the new taxes:

- Individual Mandate Excise Tax
- Employer Mandate Excise Tax
- Small business 1099-MISC Information Reporting
- Surtax on Investment Income
Excise Tax on Comprehensive Health Insurance Plans
- Hike in Medicare Payroll Tax
- Medicine Cabinet Tax
- HSA Withdrawal Tax Hike
- Flexible Spending Account Cap – aka “Special Needs Kids Tax”
- Tax on Medical Device Manufacturers
- "Haircut" for Medical Itemized Deduction from 7.5% to 10% of AGI
- Tax on Indoor Tanning Services
- Elimination of tax deduction for employer-provided retirement Rx drug coverage
- Blue Cross/Blue Shield Tax Hike
- Excise Tax on Charitable Hospitals
- Tax on Innovator Drug Companies
- Tax on Health Insurers 
- Biofuel “black liquor” tax hike
- Codification of the “economic substance doctrine”

- The President's entire claim of being a net tax-cutter rests merely upon the temporary tax relief he has signed into law.  The tax increases he has signed into law have invariably been  permanent.  In fact, he signed into law $7 in permanent tax hikes for every $1 in permanent tax cuts.

- Over 90% of the dollar value of the tax cuts he signed into law are only temporary.

- 100% of the tax increases he signed into law are, however, permanent.

- Permanent changes to tax law signed by the President amount to a net tax hike of $618.7 billion.


Is he knowingly lying?  Or does he really not know and is merely repeating what he is told to say?  Either scenario is embarrassing and unacceptable.