qe2

Once again credit to my boy Mikey for this one.  The part about the prices of energy, food and healthcare rising is the best.

Pennsylvania Bear Tragedy

My friend Mikey informed me of this terrible and heartbreaking tragedy. 

This is a very sad story about a bear.  Unfortunately bears all over Pennsylvania and the rest of the nation are suffering from similar fates.  Please inform anyone you know who cares about nature and wild life because if this is not stopped, it could be the end of wild bears as we know it.  Everyone should heed the warning to avoid feeding wildlife, because they become very dependent and can no longer forage for themselves. It is such a tragedy to see what this has done to our country's wildlife!

The photo below is an example of a disturbing trend that has captured the attention of the Pennsylvania Game Commission.

 

Animals that were formerly self-sufficient are now showing signs of belonging to the Democratic Party.  They have apparently learned to just sit on their ass and wait for the government to step in and provide for their care and sustenance.

This photo is of a black bear Democrat in Pennsylvania nicknamed Bearack Obearma.  Please help stop this injustice and support you local GOP candidate for Congress.  All you Pennsylvanians who would like to help protect our natural habitat, please vote for Pat Toomey!

psu can do more than party apparently

finally a few words on "net neutrality"

So I've had several people ask me to comment on the recent joint proposal by Google and Verizon for the FCC to regulate broadband internet while leaving wireless internet essentially unchanged.  I have wanted to comment on so-called net neutrality for a while because in my opinion a lot of the talking points involving this issue are very abstract and have little connection to reality.  Moreover, I think the debate comes down to the same issue that many of our current problems unfortunately come down to: a large company tries to sell the public that a regulation is "for the common good," but in reality it is simply a way to strengthen their business model or bottom line.  And enter Google.

So what is net neutrality?  According to its most fervent supporters the idea is that no internet traffic should be discriminated against based on the user or type of information.  And anyone who believes in discrimination is evil.  Hence net neutrality is a good idea because discrimination is bad.  But in all reality discrimination can be highly beneficial with regards to internet traffic.  Broadband providers have extremely complex networks that send an unimaginable amount of data from literally billions of sources.  Some is email, some is video, some is porn.  In order to keep the network from being hogged or to prevent a few high bandwidth users from slowing the access of others, it is perfectly reasonable to allow the providers to discriminate in order to properly maintain their networks.

And what's more is that the end goal of net neutrality supporters, an internet where packets are effectively treated the same regardless of source, size or user, is essentially exactly how broadband internet operates right now.  The free market has provided their end goal.  Absent a few examples like when Comcast chose to block ports used by torrent websites (in order to prevent bandwidth hogs from distributing copyrighted material illegally) or forcing people who operate email servers to upgrade to a commercial subscription, there is no serious packet discrimination that net neutrality supporters can point to and say "This is wrong.  The consumer is being hurt."  The reason for this is obvious: its not an actual problem to begin with.  There is nothing inherently wrong with forcing someone who needs to use more bandwidth to pay more.  

And like I said, enter Google.  This is company who owns youtube, provides over 8 GB of storage to anyone who uses their email service and who major source of income is based on people looking at and clicking online ads.  They are not only a bandwidth hog, but their entire business model is based on generating large amounts of traffic.  They understandably see a move by the government in the name of stopping discrimination as a way to prevent them having to realize the true costs of their network usage, and it would prevent broadband providers from either charging them more for the right to the priority access or slowing Google's packets to prevent network congestion.  In effect, people who use less bandwidth would be subsidizing google.

Now at this point, the FCC decided to step in.  Although the D.C. Circuit Court of Appeals slapped down the FCC in April when it ruled the FCC didn't have the authority to impose its net neutrality rules on Comcast based on broadband's definition as an "information service" under the Telecommunications Act of 1996, the FCC decided to simply redefine broadband as a telecommunications service under the act, giving it ample authority to regulate.  In fact, by doing so the FCC would be allowed to impose as much regulation on broadband providers as telephone companies, which includes price controls, right of access rules, and the ability to force geographical divisions and terms of service on providers.  In other words, we are taking one of the few industries that has been left unregulated, and has hence lowered prices, improved speed/service, and has grown by leaps of bounds, and imposing the heavy hand of government in order to protect the market position of a large multinational corporation.  There is little doubt that the internet is one of the great success stories of the market policing itself, both on the content side and on the access side.  Yet, according to net neutrality supporters all hell is set to break loose if the government doesn't get in there and .... ? That's just it, there isn't anything they can point to.  If it's not broke don't fix it.  They are fighting imaginary battles against imaginary villains down the road.

So although I don't believe that there are many, if any, benefits that could be derived from the net neutrality framework, I do believe it could impose a large number of negative consequences on access, competition, market efficiency, and costs of internet access.  In short, I have three major objections to the proposed regulations:

1) Network neutrality regulations threaten to set a precedent for even more intrusive regulation of the Internet;
This one is pretty obvious.  Once the FCC get their greasy little paws on something and it starts believing that it is what it does, and not the work of entrepreneurs and capital stake holders, that makes the internet open, free, expansive and a source of growth, it will inevitably argue for more control.  Sure right now they are claiming that they will regulate with a "light touch" so as to provide maximum freedom from regulation, when something inevitably goes wrong they will of course argue that they could have prevented it only if they had been in control.  They will never claim that any of these future bad consequences were due in part to their own regulations becuase that never happens - I'm pretty sure that is some kind of GOP myth or something.  If we don't nip this in the butt now, don't blame me when your transactions on amazon will be subject to FCC approval in about 15 years in order to "prevent fraud" or some bullshit along those lines.  And don't forget that little old surcharge on you bill that pays this "protection money."  But don't worry it will be hidden so that you won't be too disturbed by it.  It will come in the form of higher prices for both services and access.

2) Imposing such regulation will chill investment in competitive networks (such as wireless) and deny network providers the ability to differentiate their services;
This one is also pretty obvious I think.  When the FCC comes in and begins to impose rules like how you can charge your customers, how much you can charge and the types of services you must provide it inevitably limits consumers choices.  This in turn limits innovation and in essence codifies a singular business model.  Additionally, as regulation becomes more and more complex, it makes it harder and harder for anyone other than large corporations from being able effectively navigate the regulation thickets.  Currently there is a lot of innovation in the internet subscription market; besides traditional cable broadband, where there can be multiple players in a single market, there is DSL, increasing wireless broadband penetration, fiber optic infrastructure and satellite internet.  These all provide competition and innovation, preventing the types abuses that net neutrality supporters so abhor.  There is also a large risk that the regulations could have the perverse effect of cementing broadband providers market positions, thereby lowering their incentive, and the incentives of others, to invest in these alternative infrastructures.  Lastly, I addressed the lack of ability to control and maintain network stability above.

3) Network neutrality regulations confuse the unregulated Internet with the highly regulated telecom lines that it has shared with voice and cable customers 
This is similar to my first argument, but I just want to add a few more points.  Traditionally broadband was provided by cable companies and shares the line with both cable TV and telephone service.  Both these are highly regulated both with regards to network penetration and content, especially cable TV.  Therefore I find it unwise to further blur the line of the two.  If the FCC can prevent obscenity from being sent on cable TV, why should they stop there and allow it for a different service running over the same line they they now are in charge of.  Now I believe that all of this censorship is fundamentally wrong, and that it should be completely abandoned, but at the very least we shouldn't impose these stupid rules of the internet as well.  Therefore we should keep them as segregated as possible, preventing the kinds of regulatory abuse described above.

At the end of the day, this whole issue comes down to one thing for me: crony capitalism.  Look at the Google-Verizon proposal.  They want to impose net neutrality rules on the broadband providers while leaving wireless completely unregulated.  This is because it fits their business models best this way.  By allowing google to profit from forcing network providers to treat its traffic the same regardless of the effects on the network, while still allowing Verizon to discriminate traffic on its wireless networks.  This allows Verizon, whose major partner on phones like its best selling Droid is Google, to discriminate based on the type of plan purchased, importance of the traffic and the type of traffic - everything it wants to prevent for broadband.  They should rename the proposed legislation the "Google-Verizon Promotion at the Expense of Evil Comcast and AT&T Act of 2010."  There is a solution, however, and it has been working great for two decades: let the consumers decide.  If they want better or prioritized service, they can pay more for it.  If they think a broadband internet provider is being to restrictive with their network, they can switch to a DSL or wireless provider.  This would allow the market to continue to police itself and would prevent the government from inching its way further into one of the truly free markets in our society.

jim moran on what is wrong with economy

"Right now we've got to get this economy back on its feet," said Rep. Jim Moran (D-VA) (and I swear to God that is his actual name). "And the most de-stimulating part of our economy right now is state and local spending. They're cutting back and in fact in the last three months they cut about 100,000 jobs. In the last two years they've cut over 300,000 jobs. These are people who won't be able to make their mortgage payments, who won't be shopping at stores, who will be pulling the economy down..."

Really?  This moran really thinks the most destimulating part of our economy is lack of state and local spending? Is this in anyway a defensible viewpoint?  But I guess this is what you think when you represent northern Virginia and the only reason there are jobs there is because the huge largess of the federal government which takes money from the productive members of the rest of the country so that people in Moran's district can push some paper around.  Let's look at Exhibit A to see whether job losses in the public sector are a major problem right now.

Exhibit A

So state and local government job losses, which are more than offset by the number of jobs added by the federal government and are only 1.7% the number of losses in the private sector, are the major destimulating factor in the economy?  Look, the House and Senate just passed the $26 billion bailout of state governments.  This is nothing more than a special interest payout to union members by the democrats.  This money was meant for the American Federation of Teachers and the American Federation of State, County and Municipal Employees as payback for the campaigning for democrats the past few cycles.  Their major constituency wanted some cash and they got it.

And I am tired of the staright up bullshit that we have to do it "for the children."  Nothing about this money is going to help children.  These unions don't care about the children.  Now I'm not saying that teachers don't care about their students, but I am saying that the unions don't.  I could go on a rant about how the teacher's unions are the number one reason why are public schools are failing, but I already did, although only partially, here and here.  In short, teachers can't be fired, so once they are hired they continue to educate our kids even if they are horrible.  Why is this acceptable in our society?  Everyone in every other kind of profession is accountable.  And not only accountable for the amount of effort they put in.  They are accountable for RESULTS.  I don't give two shits if you are a teacher who comes in early and leaves late.  If your kids aren't getting the proper education then you should be fired and try a career doing something else.  This is the way it works in the real world.

But alas this is to no avail.  The only study I could find was in 2005 and the U.S. was ranked third in education spending in the world at around $8,000 per pupil (here).  However, that number is way under the actual spending levels as it includes only what is spent by state and local districts directly on the pupils.  It does not include the money that goes into the education bureaucracy or the outlays spent directly by the federal government.  In fact these two recent studies by the Washington Post and the Cato Institute showed that actual per student spending was closer to $25,000 and $19,000 in the school districts in Washington, D.C. and Los Angeles, receptively.  And these are two of the worst schoold districts in the country.  Until we recognize that accountability of educators and not spending it what is needed, public schools will continue to fail.  But don't worry, that moran said that we can alleviate the biggest destimulating section of the economy by giving them tens of billions more!  And I'm sure this money will lead to better results.  Until it doesn't.  And then the teachers demand more money.  And the cycle continues...

paul ryan's roadmap

While I was away on vacation, my favorite New York Times columnist Paul Krugman wrote a scathing attack on my boy Paul Ryan's Roadmap for America's Future.  The article was entitled The Flimflam Man, and asserted that Ryan was intentionally trying to mislead the American people and was hence a flimflam.  The article ended with this doozy:

So why have so many in Washington, especially in the news media, been taken in by this flimflam? It’s not just inability to do the math, although that’s part of it. There’s also the unwillingness of self-styled centrists to face up to the realities of the modern Republican Party; they want to pretend, in the teeth of overwhelming evidence, that there are still people in the G.O.P. making sense. And last but not least, there’s deference to power — the G.O.P. is a resurgent political force, so one mustn’t point out that its intellectual heroes have no clothes. 

But they don’t. The Ryan plan is a fraud that makes no useful contribution to the debate over America’s fiscal future.

 Krugman's whole thesis is that Ryan's plan is so absolutely, unequivocally useless that he is attempting to defraud the electorate by offering it up as a potential solution to our long term fiscal woes caused from vastly expanding entitlement payouts when baby boomers begin to retire.  Krugman expoused the following four major attacks on the Ryan plan in making this assessment.  They are 1) The CBO did not score the revenue portion of the Roadmap when it scored the budget effects of the plans spending cuts, 2) The proposed tax cuts would vastly outweigh any revenue savings negating any positive effect on the budget, 3) The fundamental tax reforms proposed by Ryan would benefit the rich while increasing taxes on the middle class and poor, 4) The plan would end Medicare.  I will address each of these criticisms in kind, and show why Mr. Krugman, rather than Mr. Ryan is the one without any serious ideas of how to avert the looming fiscal disaster that is entitlement spending.

1) The CBO did not score the revenue portion of the Roadmap when it scored the budget effects of the plans spending cuts

Well, I have to give it to Mr. Krugman here, he is right on this one.  But Mr. Krugman says "At Mr. Ryan’s request, it produced an estimate of the budget effects of his proposed spending cuts — period. It didn’t address the revenue losses from his tax cuts."  But the truth is very different than Krugman's assertion that Mr. Ryan asked the CBO to ignore the revenue side of his plan.  The fact is that it is not part of the CBO's job description.  The CBO only estimates spending levels NOT revenue.  That is for the office of the Joint Committee on Taxation (JCT), not the CBO.  Ryan asked the JCT to score his plan early in the year, however, there was this trillion dollar entitlement that was being force fed through every conceivable procedural loophole in Congress that happened to take up all their time.  For this reason they turned down Mr. Ryan's request because his plan was still only in the early planning stages.  So although the revenue side was not scored by a government accounting agency, I believe it is extremely misleading and dishonest of Krugman to assert that this was done at Mr. Ryan's request as a tactic to mislead the public.

2) The proposed tax cuts would vastly outweigh any revenue savings negating any positive effect on the budget

Mr. Krugman references a study by the Tax Policy Center (TPC), a left leaning joint venture of the Urban Institute and the Brookings Institute (both left leaning themselves) that determined that although Ryan's plan would effectively reduce spending, the tax cuts would cost approximately $4 trillion of additional  revenue over the first decade it takes effect relative to the tax rates that are currently in place (Note that it used the comparison scenario as one in which ALL the Bush tax cuts are allowed to expire).  This is evidence, according to Mr. Krugman, that Ryan's plan would do little to curb the deficit, as the TPC estimated that using their revenue projections coupled with Mr. Ryan's spending cuts the deficit would remain at approximately $1.3 trillion in 2020.

There are so many things I have to say about this I don't know where to start.  First and foremost, you have to take into account exactly what Mr. Ryan's revenue side of the plan actually is: fundamental tax code reform.  He would eliminate almost all deductions, exemptions and tax credits that are used disproportionately by the rich to shield income from taxation.  He would create only two personal income tax rates: 10% on the first $50,000 of taxable income, and 25% on everything above that.  One of the few exemptions he does allow to remain is a very generous standard deduction and personal exemption that would equal approximately $39,000 for a family of four, in order to protect poor workers from being taxed until their income reaches a level where they can effectively support themselves.  He would also eliminate taxes on interest, capital gains and dividends, which would greatly decrease the incentives to invest and hire thereby spurring economic growth.  Lastly, he would eliminate the corporate tax, which at 35% is second in the industrialized world only to Japan, and replace it with a business consumption tax (similar to a value added tax) at 8.5%.  This would make U.S. business more competitive while also forcing eliminating any tax benefit for corporations located overseas.  To eliminate the competitive disadvantage on American businesses and products, the BCT is not imposed on U.S. exports when they leave the U.S., while instead it is imposed on foreign imports when they enter the U.S. Current WTO rules prevent a corporate income tax from being border adjustable, so this fundamental reform is one of the few realistic ways of addressing the issues regarding the competitive tax disadvantage faced by many U.S. based corporations.

Now like I said, this is serious tax reform on a level unprecedented since the advent of the income tax.  Therefore, it is extremely difficult to forecast how it will affect revenue levels.  Mr. Ryan has repeatedly stated that his goal is to create a simplified tax system that still maintains historical levels of revenue which is approximately 18% of GDP.  The income and corporate tax rates in the plan are outlined above were put in place with that goal in mind.  According to the study done by the TPC, these taxation levels would only amount to about 16% of GDP and hence the revenue shortfall that Mr. Krugman cites as evidence of the plans lack of credibility.  However, there are also serious questions regarding the accuracy of the TPC's forecasts.  Mr. Ryan addresses the criticism that his proposal would cost trillions in revenues on his website here, but here are his main points:

• It is always important to examine the underlying baseline against which a plan is measured in these statements.  
• The tax plan in the Roadmap is designed to generally track the CBO’s “alternative fiscal scenario” baseline for revenues.  As a result, the Roadmap has fully accounted for any “revenue loss” that results from CBO’s “alternative fiscal scenario.”  As noted above, this baseline assumes that all of the 2001/2003 tax provisions are extended and the AMT is permanently patched for inflation (i.e. current tax policy as we know it is extended in future).  In contrast, the so-called “current law” baseline assumes much higher revenue amounts because all of the 2001/2003 tax provisions are repealed after this year, as dictated under current law, and the AMT is not indexed for inflation, allowing it to hit more and more middle-class taxpayers each year.  
• As a result, CBO’s current law baseline for revenues is $3 trillion higher over 10 years than its alternative fiscal scenario, meaning that any proposal aiming to track current tax policy would automatically be judged as losing $3 trillion in revenue relative to current law.     
• The current-law revenue baseline already builds in a host of tax increases that virtually no policymakers are proposing.  Relative to this current law baseline, any tax plan that doesn’t implicitly raise taxes significantly is labeled a major revenue loser.  It is telling, for instance, that the Tax Policy Center scored Presidential candidate Obama’s tax proposals and concluded that it would “lose” over $2.9 trillion in revenue over 10 years, relative to current law. 

As you can see, relative to any serious proposal other thank allowing the entirety of the Bush Tax cuts expire and allowing the alternative minimum tax to hit millions of more American's per year, almost any plan is going to lose revenue.  As Mr. Ryan correctly notes even Mr. Obama's plans to soak the rich would lose nearly $3 trillion of revenue according to the TPC analysis, which is not all that far off from is $4 trillion prediction for Mr. Ryan's plan (NOTE - I just want to say is a little disheartening to live in an age where a difference of $1 trillion is not that much).  Additionally, the TPC analysis is admittedly done in static terms.  Under their analysis cutting taxes as proposed by Mr. Ryan will do nothing to spur increased growth and will hence not bring in any additional revenue due to this growth.  Now I'm not saying that tax changes such as these will completely pay for themselves, but they absolutely will grow the economy and increase total taxable revenue faster than the alternative.  This will make up for at least part of the shortfall outlined above.  Additionally, although the TPC has a great deal of experience and expertise in analyzing personal income rates and their effects of revenues, they are not sure exactly how the BCT would affect revenues relative to the current corporate income tax, for this reason they made several assumptions that negatively affected in effectiveness and hence forcasted lower revenues.  In their defense this is extremely hard to judge because of the sheer size and nature of the tax changes outlined by the plan, but it does add uncertainty to their analysis.  Lastly they made a number of assumptions regarding subchapter S and other similar pass through tax business associations that they would take all their income through tax free dividends rather other avenues such as wages.  Admittedly this would be possible under the current version of the plan, although it is highly likely that because it has now been identified, this loophole would be eliminated before final passage of the bill Therefore the revenue estimates should be revised upwards.

In conclusion regarding the revenue shortfall that Krugman uses to attack the plan, it was based on an analysis that would undoubtedly reach the conclusion that it lost revenue compared to a politically untenable scenario.  It is also biased in favor estimating the revenue on the low side.  And lastly and most importantly, this is nothing more than a proposal.  The taxation numbers put forward by Mr. Ryan were designed to hit a long term revenue target of 18% of GDP.  If these estimates prove to be off, which the arguably are not or are very close if not, Mr. Ryan has repeatedly stated that he would be willing to adjust the plan to meet that target.  In the end I think Mr. Krugman's main beef with the plan is that he believes the historical average of federal revenue at 18% of GDP is too low, but instead of stating his obvious belief that the government knows how to spend money better than you do, he callously attacks a serious proposal using numbers he knows fit his argument but are not realistically relevant.

3) The fundamental tax reforms proposed by Ryan would benefit the rich while increasing taxes on the middle class and poor

Mr. Krugman claims that "The Tax Policy Center finds that the Ryan plan would cut taxes on the richest 1 percent of the population in half, giving them 117 percent of the plan’s total tax cuts. That’s not a misprint. Even as it slashed taxes at the top, the plan would raise taxes for 95 percent of the population."  First and foremost, Mr. Ryan's plan would allow anyone and everyone to choose whether to pay through the current tax system or his simplified tax system listed above.  Therefore it is simply not true that taxes would be raised on anyone.  Mr. Krugman either ignores this fact or hasn't done his homework for one of his articles.  Secondly, although the marginal tax rates would come down the most for the rich, the elimination of exemptions and other deductions which are mostly utilized by the rich would offset that partially a leading to less of a decrease in their effective tax rates.  But what is important here is that a dramatic simplification of the tax code whereby marginal rates are lower leads to more incentives for marginal production - i.e. growth.  By incentivizing people to work you will get more of it and the prosperity associated with it.  A simpler tax code will also have the added benefits of simplifying enforcement and make it harder for anyone to hide income.

4) The plan would end Medicare

Although the plan would restructure Medicare in a way that would give the individual consumer more control, it would not end the program.  There is only one sure fire way that Medicare would be destroyed and that is to do nothing.  Look at the percentage of federal revenue that would be required to fund social security and Medicare if they remain on their current paths (for an ominous look at the impending disaster, check out the National Center for Policy Analysis' Website):

Now here is what Mr. Ryan's policy does to ensure the solvency of Medicare according to his website:

• It preserves the existing Medicare program for those currently enrolled or becoming eligible in the next 10 years (those 55 and older today) - So Americans can receive the benefits they planned for throughout their working lives.  For those currently under 55 – as they become Medicare-eligible – it creates a Medicare payment, initially averaging $11,000, to be used to purchase a Medicare certified plan. The payment is adjusted to reflect medical inflation, and pegged to income, with low-income individuals receiving greater support. The plan also provides risk adjustment, so those with greater medical needs receive a higher payment.
• The proposal also fully funds Medical Savings Accounts [MSAs] for low-income beneficiaries, while continuing to allow all beneficiaries, regardless of income, to set up tax-free MSAs.
• Based on consultation with the Office of the Actuary of the Centers for Medicare and Medicaid Services and using Congressional Budget Office [CBO] these reforms will make Medicare permanently solvent
• Modernizes Medicaid and strengthens the health care safety net by reforming high-risk pools, giving States maximum flexibility to tailor Medicaid programs to the specific needs of their populations. Allows Medicaid recipients to take part in the same variety of options and high-quality care available to everyone through the tax credit option.

Now I'll admit that this would change how Medicare is structured by giving the consumer the power of choice to determine what plans best fit their needs.  However, to claim that it would end Medicare is disingenuous at best.

In conclusion, to claim that Mr. Ryan's proposal is not a serious one is absolutely absurd.  It addresses the impending collapse of social security and Medicare by making both programs permanently solvent while also giving consumers choices about how their coverage is structured, as well as how their social security income is invested.  It restructures the tax code to promote work, savings and is highly beneficial to long term investment.  Lastly, and unfortunately, it is the only serious proposal made by any member of Congress or of the executive that will prevent the looming fiscal crisis with regards to entitlements.  Calling it unserious and fraudulent is itself an unserious statement, and it is further evidence that Paul Krugman is not a legitimate commentator.  Even the TPC, whose numbers Krugman cited in his attack and are pretty hostile themselves to the plan, issued this statement on Friday defending Mr. Ryan's proposal and calling it "a useful contribution to the debate."  I guess some people will buy Krugman's argument that the government knows what best and that we can tax only the rich to pay for everything without any adverse consequences.  However, both Mr. Ryan and I believe that it is time for the American people to see a serious proposal that is fair, simple, and moves away from the expanding culture of dependency towards the qualities that this country was founded.  The same principles that made it into the greatest country the world has ever seen - freedom, liberty, hard work, self dependency and the power of the individual to choose what is best for them.  Please visit the Roadmap for America's Future and decide for yourself.

the truth is big business loves obama

"I'm generally supportive [of the financial reform bill]. To be sure, there are details of it that I think I'm less sure of, but I think, on the whole, financial reform is, absolutely is essential and I will say that last week, in New York, I listened to a speech by Barack Obama at Wall Street, and one of the points he made resonated with me because I’d said it myself. He said that the biggest beneficiaries of reform will be Wall Street itself.” 

- Lloyd Blankfein, CEO Goldman Sachs (Homeland Security & Government Affairs, Permanent Subcommittee On Investigations, U.S. Senate, Hearing, 4/27/10)

"We continue to believe that comprehensive health care reform will benefit patients and the future of America. That’s why we have been involved in this important public policy debate for more than a year and why we support action by the House to approve the Senate-passed bill along with the amendments found in the reconciliation legislation."

- Official Statement of the Pharmaceutical Researchers and Manufacturers of America (PhRMA), is the largest single-industry lobbying group in America on 3/21/10 regarding Obamacare.

"Climate legislation is one of the critical issues that will be considered this year on Capitol Hill.  The House passed the Waxman-Markey legislation, a comprehensive, economy-wide bill [that] represents a moderate approach that was supported by a wide range of major American companies who make up the US Climate Action Partnership – including companies with a strong Indiana presence such as AES, Duke Energy, Alcoa, Dow, DuPont, GM, Ford, and Chrysler . . . Exelon has been preparing for a low-carbon future for the last decade. [We have] [s]old or closed most of our inefficient fossil fuel plants, [i]nvested billions in our fleet of 17 zero-emission nuclear reactors. In summer 2008 [we] released Exelon 2020, our plan to reduce, offset, or displace 15 million metric tons of greenhouse gas emissions per year, equal to our 2001 carbon footprint, by 2020. We are one-third of the way to our goal, and have a plan to accomplish the rest."

- John Rowe, CEO Exelon Energy (Indiana Council on World AffairsMarten House Hotel, Indianapolis 1/20/2010)

So if you listen to any cable news network or read most any paper all you here is how Obama is "anti-business" and that it is for this reason that the economy is slowly recovering.  Well that is only a half truth in my opinion.  I don't think Mr. Obama is anti-business per se, although I do believe that he is anti-market, which is actually profoundly worse than being anti-business.  The three quotes listed above are all attributable to big business heavyweights: Blankfein is for financial reform, the PhARMA lobby was all for Obamacare and Exelon, one of the largest power producers in the midwest and mid-atlantic (the coal region), wants nothing more than a full cap and trade system.  Does any of this make sense?  Why would a financial giant like Goldman Sachs want more financial regulation?  Why would a power company that produces a majority of its power on fossil fuels want to have the price of those fuels increased dramatically?  The answer is easy of course: they see a future with less competition.

Take financial reform for instance.  Now I understand and agree that any sound financial system must have rules of the road.  However, I firmly believe that the rules should be clear and must be debated before they are enacted.  This is the opposite of what occurred in the Dodd-Frank Bill. There are no new clear cut leverage requirements, there are no new clear prohibitions on proprietary trading.  There are just directives.  These directives either require or authorize incompetent agencies like the SEC to issue rules it thinks are appropriate.  In total the U.S. Chamber of Commerce estimates that Dodd-Frank authorizes a total of 533 rules to be written over the next few years.  Are some of these rules probably necessary?  Of course, but instead of being written by the Congress in the full purview of the electorate they are going to be written in closed door meetings were you need to pay to play.  I bet Mr. Blankfein knows this and is happy about it.  Few firms have the regulatory, compliance and lobbying staff to compete with Goldman Sachs when the task becomes influencing the inept government agents writing these rules.  They will invariably benefit the biggest and most connected of the banks at the expense of their smaller competitors, hence their support for financial reform.  

The same can be said about Exelon's desire for cap and trade.  As Mr. Rowe mentions in his speech, Exelon has been moving away from carbon based energy for years now.  Exelon is a Illinois based power producer and was a major contributor to Barack Obama.  Now they want their reward.  Instead of having to compete on a level playing field where consumer demand requires energy companies to be as efficient and cost-effective as possible, Exelon wants the Obama administration to price its competition out of the market.  It's whole business model over the past few years is that it is trying to get into a position of strength by lowering its carbon footprint ahead of the U.S. legislation so that it could put its boot on its competitors once their costs were artificially higher because of diktats from Washington.  Now that cap and trade seems dead that are literally shitting their pants and demanding even more intervention from Washington on their behalf.  Notice how the other companies named in Mr. Rowe's comment are all major corporations with huge lobbying arms.  Their support is predicated on the belief that they will be able to influence who gets "free credits" and what parts of industry will be "exempt."  That sure is one way to compete effectively.

What these examples show is that government intervention in the economy always produces winners and losers.  For the most part the interventions most favored by Mr. Obama undoubtedly favor the largest and most connected businesses in the industries affected.  Be it the hundreds of new rules in Dodd-Frank that have yet to be written or the onerous requirement that all business entities must now file a 1099 for every supplier with whom they purchase over $600 per year in goods (courtesy one of the many unread provisions in Obamacare), red tape and government regulation most favors the largest firms with large legal departments and the funds to spend on lobbying.  Small businesses, the real economic and job growth engines in our society, have neither of those advantages.  They are forced to play by the rules negotiated by their larger competitors.  Usually this is to their disadvantage.  These same small businesses are not hiring for this exact reason.  

There are three costs that almost all small businesses face regardless of their type of business: the must pay for energy, they must pay for credit, and they pay for health care for many of their workers.  Under Mr. Obama's polices the price for all three is going up.  Throw in the fact that tens, if not hundreds, of thousands of these small business owners, who are often organized into partnerships, limited liability companies or Subchapter S Corporations, are about to see their taxes increased at the end of the year, it is completely logical that they are not hiring or expanding.  The best thing Mr. Obama could do to help the businesses is to be "anti-business" and instead be "pro-market."  Let them compete effectively with their larger competitors and stop disadvantaging them by enacting "reforms" that put these competitors in a position to write the rules of the game.  These businesses don't want handouts and special privileges, just the opportunity to compete fairly and let the market decide who has the best product.

why soccer will not become overly popular in america

On Sunday I watched the World Cup final with a couple of my buddies.  The game itself was ok, and I have been much less enthusiastic about the World Cup since the U.S. was eliminated by Ghana in the Round of 16.  As a life long fan of soccer both at the international level and at the highest professional levels in Europe, I was extremely excited about this World Cup in general.  The U.S. had received a favorable draw, and this was potentially their chance to make a big impact on the biggest of stages.  TV ratings for the tournament have been excellent back here in the U.S., leading many to conclude that soccer is poised to break into the stranglehold the big three sports (football, baseball and basketball) have on the American sports fan.  Like I said, I am a big soccer fan, but this type of talk is a little premature.  In fact, I have come to the conclusion that soccer will never become overly popular with Americans unless there are some fundamental changes to the game.  The reason for this is simple: the current rules and ruling body is fundamentally at odds with what American's consider the most important attribute of a sport: fairness.

Now don't get me wrong, soccer supporters will claim that the game is extremely fair.  However, depending on the source "fair" can mean quite different things.  Americans, very rightly and justly in my mind, believe in an idea of objective fairness.  They believe that fair means 'consistent with rules, logic, or ethics, or having or exhibiting a disposition that is free of favoritism or bias; impartial.'  This objective form of fairness means that you craft rules that are as objective as possible, and wherever possible ensure that conduct conforms to those rules.  This sense of fair would find it abhorrent if the results of the game were not justified based on the current existing rules.

For instance, this is why american football employs the use of instant replay in order to correct calls.  Americans demand that the flow of play be as consistent with the rules as possible.  If a situation occurs where a judgment call seems to be at odds with what the rules say should be the outcome, the ruling is changed to more accurately present the outcome that is consistent with the rule.  Obviously, this type of review is not as possible, feasible or even desirable in all situations as many sports include inherently subjective rules that cannot be altered with significantly changing the game itself.  However, one mark of the progression of sports in the United States is a move away from these subjective rules towards more objective ones.  Look at pass interference in football.  The rule, as defined by the NFL, is "There shall be no interference with a forward pass thrown from behind the line." This is obviously extremely subjective.  What constitutes interference could be drastically different from person to person.  However, as can be seen from the link to the NFL website above, the NFL tries extremely hard to characterize the rule in as objective a way as possible. The rule digest lists no less than nine specific acts that constitute the foul, eight acts that do not and five notes for officials to consider in borderline situations.  They have taken a subjective judgment call and made it as objectively fair as possible.  This is the essence of what American's consider fair.

However, fair can have another definition as well: 'just to all parties; equitable.'  This is what I consider the European definition of fair, and this type of fairness is the underlying rationale of many of the rules of soccer.  Rather than believing in objective rules that lead to predictable outcomes, European fairness means everyone should have a chance, regardless of skill or ability.  To them, it is more important that any and every competitor have a chance of success than rewarding the best teams that are most able to prosper under an objective set of rules.  Several soccer rules illustrate this point such as the running clock, refusal to entertain instant replay and the completely subjective definition of fouls/yellow cards/red cards.  For instance look at the Maurice Edu goal that was disallowed in the game with Slovenia.




As anyone who watched the goal will tell you (even an Slovenian who doesn't have his head up his ass) there was absolutely no reason to disallow the goal.  However, because of the subjective call of the under qualified Malian referee Koman Coulibaly, the U.S. only tied the game and had no other recourse.  The simple fact that Coulibaly was a referee at the most watched sporting event in the world is endemic of the European fairness doctrine.  Despite the fact that the best and most accurate referees in the world come from Europe and South America (because most of the high profile matches with a lot on the line are played in these locations) FIFA insists on using referees that come from every corner of the world to ensure that each region is "fairly" represented.  Wouldn't these countries be treated more fairly if the referees were competent and could apply the rules in a more objectively fair way?  And this is hardly the only example from this world cup.  There was Dempsey's disallowed goal against Algeria, the English goal that obviously crossed the goal line against Germany and Kaka's ridiculous red card just to name a few.  By moving towards objective rules that clearly define prohibited conduct and introducing a form of review to ensure that the rules are enforced in a consistent way soccer could grow in popularity by leaps and bounds back here in the U.S.

We take for granted the underlying rationale of rules in American sports: to ensure that, all else being equal, the best team on the field that day wins.  However, that is not the goal of the rules in soccer.  They want each team to have a chance, regardless of ability.  If this means that there will be objectively unfair outcomes, then so be it says FIFA.  This attitude is not only limited to soccer, but to almost all endeavors in Europe.  Thank god that is not the case here in the United States.  Until FIFA undertakes serious effort to prospectively change the rules of soccer to be more objectively fair, it will never be as popular in the United States where fans and citizens alike believe in the correlation between hard work, ability and success.

doublethink is alive and well

Prior to his election in 2008, the most common compliment bestowed on Barack Obama by the mainstream media was that he was an extremely skilled orator capable or persuading almost anyone of his point of view.  Swept up in the media storm that was Obama, he was constantly praised as the best speaker, even better than Reagan, of the last half century.  Obviously Chris Mathews is a full fledged Obama supporter, but just look at what he said a year and a half ago.



A simple youtube search will show numerous other examples of similar comments.  However, since becoming President Obama has not made nearly as many public speeches, and now that he is in a policy making position he has been a little more hesitant to expouse specific views on a variety issues.  Even the left has criticized him for failing to take the lead on issues ranging from healthcare to energy. However, I have notice an interesting trend when Obama does speak, and it is eerily familiar to a type of propaganda described by George Orwell over half a century ago.  Doublethink, the term penned by Orwell in his masterpiece Nineteen Eighty-four, was described by him as follows:

To know and not to know, to be conscious of complete truthfulness while telling carefully constructed lies, to hold simultaneously two opinions which cancelled out, knowing them to be contradictory and believing in both of them, to use logic against logic, to repudiate morality while laying claim to it, to believe that democracy was impossible and that the Party was the guardian of democracy, to forget, whatever it was necessary to forget, then to draw it back into memory again at the moment when it was needed, and then promptly to forget it again, and above all, to apply the same process to the process itself -- that was the ultimate subtlety; consciously to induce unconsciousness, and then, once again, to become unconscious of the act of hypnosis you had just performed. Even to understand the word 'doublethink' involved the use of doublethink..

 Now obviously Obama's rhetoric has not quite reached that of "the Party," but he is slowly inching his way in that direction.  The more common terms, doubletalk and doublespeak, both derived their meaning based on Orwell's concept of doublethink, and they may be more apt terms for Obama's current rhetoric.  Defined as any language that deliberately disguises, distorts, or reverses the meaning of a statement, resulting in a communication bypass, doublespeak has been employed by governments throughout history in order to enact unpopular policies or to hide those policies true costs.  Let's take a look at a couple of things Obama has said of the past year.

On healthcare: "We agree on reforms that will finally reduce the costs of health care," Obama said. "Families will save on their premiums; businesses that will see their costs rise if we do nothing will save money now and in the future. This plan will strengthen Medicare and extend the life of that program. And because it gets rid of the waste and inefficiencies in our health care system, this will be the largest deficit reduction plan in over a decade."  This was one of the main ways Obama was able to sell reform: he claimed premiums would go down for current insurance holders, that he would strengthen Medicare and total government spending would decrease.  All this while giving over 33 million more Americans coverage.  This is the essence of doublethink. Claiming that we can dramatically increase the total number of services while paying less for it!  However, in May the CBO released a new estimate saying that the cost of the bill would be $130 billion more than originally estimated over the first decade, effectively eliminating any "savings."  And this estimate uses ten years of revenue to pay for only 6 years of benefits.  Just look at Medicare as an example.  The program now costs almost ten times what the original estimate said it would be when it was passed.  First year economics tell you when you drastically increase demand for a service (by adding 30 million new people seeking care) while instituting a number of new mandates (accept everyone with preexisting conditions, covering dependents until age 26, etc.) that the price will rise - in this case premiums.  A great example of what happens when government tries to take over the healthcare system is in Massachusetts, and the current debacle up there has been documented thoroughly in today's Wall Street Journal.

On Energy: "Each of us has a part to play in a new future that will benefit all of us. As we recover from this recession, the transition to clean energy has the potential to grow our economy and create millions of jobs – but only if we accelerate that transition. Only if we seize the moment. And only if we rally together and act as one nation – workers and entrepreneurs; scientists and citizens; the public and private sectors." - Barack Obama, June 15, 2010, from whitehouse.gov
Obviously this quote refers to the notorious cap and trade bill.  In his oval office speech on the oil spill, President Obama tried to make the case the economics alone justify getting away from fossil fuels. In the speech he did not mention the phrase "climate change" even once, instead claiming that job growth and prevention of oil spills were the main impetus behind a cap and trade bill.  Once again the contradictions in such a statement are apparent.  Raising the cost of carbon will make energy more expensive.  This will put businesses in a precarious position: either devote more of their limited resources to paying for energy, or buy less of it and produce less as a result.  This will leave all types of industries with less money to spend on new investments or hire workers.  Will there be more workers in subsidized industries like wind and solar?  Yes, probably.  But these will be far outweighed by the losses in traditional industries.  You simply cannot pay more for energy as a whole, decreasing the capital available for investment, and expect the total amount of prosperity to increase.  Regardless of how pressing an issue climate change may or may not be, trying to sell cap and trade as a jobs bill is contradictory.

paul krugman for budget director!

So Peter Orszag recently resigned as director of the Office of Management and Budget.  I figure that he wants to get out before the fiscal train wreck comes to a head, and I'm sure the director of the budget's job isn't any easier when Congress refuses to even pass a budget (as they have done this year).  There has been some speculation regarding who Obama will nominate to replace Orszag, but I recently found this article by Simon Johnson, the former chief economist at the International Monetary Fund.  It had the laughable premise of suggesting Paul Krugman as Orszag's replacement.  Right now Krugman is getting a lot of heat for his recent op-ed which suggested, if not promised, that the U.S. was doomed to slip into another great depression if the U.S. did not spend billions and billions of deficit dollars to stimulate the economy (article here).  Really?  A depression is inevitable without massive increases in government spending?  Now although I don't agree with the premise that government spending alone will turn the economy around, I don't think that anyone other than Krugman believes that it is the only way to avoid a depression.

Unfortunately this is a tough hypothesis to test; however, we do know that for the past two years almost everything that has been suggested by Mr. Krugman has been implemented as policy by Mr. Obama.  As has been outlined by The Wall Street Journal and others, Obama has followed Krugman's advice to spend, spend, spend in order to counteract the negative aspects of a lack of demand; Mr Krugman has stated numerous times that he believes that depressed demand is the main culprit for our current economic troubles.  In order to stimulate demand, the government needs to spend because private industry will not.  That is the Krugman economic fix.

President Obama has heeded his warning.  First there was Mr. Obama's first budget, in which overall federal spending rose 18%, or $536 billion.  And this doesn't even reflect the true increase in spending.  Thanks to low interest rates the feds were able to save about $65 billion on debt servicing, so the true increase in federal outlays was closer to 22%.  And that was only in ONE YEAR.  Throw in the $800 billion dollar stimulus (which was not included in the budget) and total spending increased by roughly $1.4 trillion.  This increased spending meant that total federal expenditures reached over 24% of GDP, a post-war record.  How much more spending does Mr. Krugman want?  Under Obama we already now have one in every four dollars earned by American redistributed by 535 people sitting in Washington, D.C.  And lest we forget, that spending will increase even more when the the trillion dollar plus health care entitlement begins running huge deficits. 

Despite all this spending and the promise of economic recovery that came with it, the results have not materialized.  And this isn't the only reason to question Mr. Krugman's credentials to run the Budget Office.  Check out this Krugman Article from 2003 when he blasted the Bush administration for increasing deficit spending.  According to Krugman, he refinanced to fixed rate mortgage because he was sure that interest rates were sure to rise.  The Bush administration's reckless spending and tax cuts — which increased the deficit to about 3% of GDP — would have to cause interest rates to sky rocket.  Here he is in his own words:

But what's really scary — what makes a fixed-rate mortgage seem like such a good idea — is the looming threat to the federal government's solvency.

That may sound alarmist: right now the deficit, while huge in absolute terms, is only 2 — make that 3, O.K., maybe 4 — percent of G.D.P. But that misses the point. "Think of the federal government as a gigantic insurance company (with a sideline business in national defense and homeland security), which does its accounting on a cash basis, only counting premiums and payouts as they go in and out the door. An insurance company with cash accounting . . . is an accident waiting to happen." So says the Treasury under secretary Peter Fisher; his point is that because of the future liabilities of Social Security and Medicare, the true budget picture is much worse than the conventional deficit numbers suggest.

Oh wait I'm sorry.  I guess Mr. Krugman does understand that budget deficits can be a problem, although it is only when the party in power is one he does not agree with. He was worried when deficits were 3% of GDP, but now that it is almost 10% he insists on more spending.  Demand-siders (my new name for those insisting on government spending as the best way for economic recovery) will counter by saying the spending is needed now to avoid a recession, but regardless whether it is needed or not will not change the effects of those deficits.  Even if the spending is desperately needed, higher deficit levels coupled with the looming social security/medicare insolvency (which Mr. Krugman did rightly point out) can lead to tremendously bad consequences.  Most likely these will be soaring interest rates and the inflation that accompanies the monetizing of the debt.  Mr. Krugman can't have it both ways, and unfortunately I think his 2003 analysis was closer to correct.

All of this is just further evidence that Krugman isn't much of an economist anymore and is more just a liberal columnist.  He simply uses his economic background to attempt to justify typical liberal policies: increase spending and redistribution of wealth.  He loves to bash business and blames excessive risk as the major cause of the recession.  He has called long term unemployment a "slow-motion human and social disaster" that must be counteracted at almost any cost; however, he also called the Waxman-Markey Cap-and-trade bill "well short of what the planet really needs."  You don't have to be a economics professor at Princeton to recognize that increasing the cost of energy and more environmental regulation will slow economic growth, making it even harder for the unemployed to find work. When he attacked Senator Jim Bunning's block of the extension of unemployment benefits for people that have been out of work for up to two years, he claimed that it was "bizarre" that anyone would think that providing employment benefits in continuum would disincentivize people to work.  However, a textbook authored by Paul Krugman called "Macroeconomics" contains the following passage:

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . .  In other countries, particularly in Europe, benefits are more generous and last longer.  The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job .  Generous unemployment benefits in some European countries are widely believed to be one of the main causes of “Eurosclerosis,” the persistent high unemployment that affects a number of European Countries.

 Like I stated Krugman seems less and less like a economist and more and more like a typical political columnist.  This in and of itself is not a bad thing, however, when people try to defend Obama's economic policies they often point to Mr. Krugman for justification.  I refuse to defer to his diminishing authority.

corporations are bad, mmmkay?

That's common knowledge today, correct?  Corporations are evil, greedy entities that steal from the poor and give to the rich.  They don't care about anything but profits.  This type of greed is inherently evil, and money is the source of that evil.  For generations progressives and socialists have made that argument.  According to them, profit seeking is not a good thing, and without Big Brother there to keep them under control, they will eventually plunder the nation.  Look at the bashing BP is getting right now.  Obviously, they deserve a lot of blame of the spill itself.  However, criticism of BP is hardly limited to the spill.  Often the criticism has been aimed directly at allowing the profit seeking motive itself.  According to many of these commentators, the profit seeking motive is flawed, as companies will not consider the public interest in making decisions leading to less desirable social outcomes.  Instead, they believe that that the government should exercise huge amounts of control over these corporations in order to coax them into doing what they consider is "right thing to do."

As I mentioned in an earlier post, I am currently reading Atlas Shrugged by Ayn Rand.  Although I am only about half way done, a recent rant by one of the characters really caught my attention.  His name is Fransisco d'Anconia, and this rant was aimed to be a defense of the profit seeking motive.  He said it better than I could say it myself, so here it is in his entirety.  I know it is really long, but I think it is right on point.  (Note: Also, I just want to say that although Ms. Rand's estate obviously owns the copyright to the following excerpt, I am reprinting with the intention to comment on its meaning, so as to explain its significance and relevance today.  I believe this is consistent with the fair use doctrine codified under 17 U.S.C. § 106.  I encourage any and all, if they find the following passage interesting or through provoking to purchase the entire book and read it for themselves.  A link is provided at the end of this post.)

"So you think that money is the root of all evil?" said Francisco d'Anconia. "Have you ever asked what is the root of money? Money is a tool of exchange, which can't exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value.   Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce. Is this what you consider evil?

"When you accept money in payment for your effort, you do so only on the conviction that you will exchange it for the product of the effort of others. It is not the moochers or the looters who give value to money. Not an ocean of tears not all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow. Those pieces of paper, which should have been gold, are a token of honor--your claim upon the energy of the men who produce. Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money, Is this what you consider evil?

"Have you ever looked for the root of production? Take a look at an electric generator and dare tell yourself that it was created by the muscular effort of unthinking brutes. Try to grow a seed of wheat without the knowledge left to you by men who had to discover it for the first time. Try to obtain your food by means of nothing but physical motions--and you'll learn that man's mind is the root of all the goods produced and of all the wealth that has ever existed on earth.

"But you say that money is made by the strong at the expense of the weak? What strength do you mean? It is not the strength of guns or muscles. Wealth is the product of man's capacity to think. Then is money made by the man who invents a motor at the expense of those who did not invent it? Is money made by the intelligent at the expense of the fools? By the able at the expense of the incompetent? By the ambitious at the expense of the lazy? Money is made--before it can be looted or mooched--made by the effort of every honest man, each to the extent of his ability. An honest man is one who knows that he can't consume more than he has produced.'

"To trade by means of money is the code of the men of good will. Money rests on the axiom that every man is the owner of his mind and his effort. Money allows no power to prescribe the value of your effort except the voluntary choice of the man who is willing to trade you his effort in return. Money permits you to obtain for your goods and your labor that which they are worth to the men who buy them, but no more. Money permits no deals except those to mutual benefit by the unforced judgment of the traders. Money demands of you the recognition that men must work for their own benefit, not for their own injury, for their gain, not their loss--the recognition that they are not beasts of burden, born to carry the weight of your misery--that you must offer them values, not wounds--that the common bond among men is not the exchange of suffering, but the exchange of goods. Money demands that you sell, not your weakness to men's stupidity, but your talent to their reason; it demands that you buy, not the shoddiest they offer, but the best that your money can find. And when men live by trade--with reason, not force, as their final arbiter--it is the best product that wins, the best performance, the man of best judgment and highest ability--and the degree of a man's productiveness is the degree of his reward. This is the code of existence whose tool and symbol is money. Is this what you consider evil?

"But money is only a tool. It will take you wherever you wish, but it will not replace you as the driver. It will give you the means for the satisfaction of your desires, but it will not provide you with desires. Money is the scourge of the men who attempt to reverse the law of causality--the men who seek to replace the mind by seizing the products of the mind.

"Money will not purchase happiness for the man who has no concept of what he wants: money will not give him a code of values, if he's evaded the knowledge of what to value, and it will not provide him with a purpose, if he's evaded the choice of what to seek. Money will not buy intelligence for the fool, or admiration for the coward, or respect for the incompetent. The man who attempts to purchase the brains of his superiors to serve him, with his money replacing his judgment, ends up by becoming the victim of his inferiors. The men of intelligence desert him, but the cheats and the frauds come flocking to him, drawn by a law which he has not discovered: that no man may be smaller than his money. Is this the reason why you call it evil?

"Only the man who does not need it, is fit to inherit wealth--the man who would make his own fortune no matter where he started. If an heir is equal to his money, it serves him; if not, it destroys him. But you look on and you cry that money corrupted him. Did it? Or did he corrupt his money? Do not envy a worthless heir; his wealth is not yours and you would have done no better with it. Do not think that it should have been distributed among you; loading the world with fifty parasites instead of one, would not bring back the dead virtue which was the fortune. Money is a living power that dies without its root. Money will not serve the mind that cannot match it. Is this the reason why you call it evil?

"Money is your means of survival. The verdict you pronounce upon the source of your livelihood is the verdict you pronounce upon your life. If the source is corrupt, you have damned your own existence. Did you get your money by fraud? By pandering to men's vices or men's stupidity? By catering to fools, in the hope of getting more than your ability deserves? By lowering your standards? By doing work you despise for purchasers you scorn? If so, then your money will not give you a moment's or a penny's worth of joy. Then all the things you buy will become, not a tribute to you, but a reproach; not an achievement, but a reminder of shame. Then you'll scream that money is evil. Evil, because it would not pinch-hit for your self-respect? Evil, because it would not let you enjoy your depravity? Is this the root of your hatred of money?

"Money will always remain an effect and refuse to replace you as the cause. Money is the product of virtue, but it will not give you virtue and it will not redeem your vices. Money will not give you the unearned, neither in matter nor in spirit. Is this the root of your hatred of money?

"Or did you say it's the love of money that's the root of all evil? To love a thing is to know and love its nature. To love money is to know and love the fact that money is the creation of the best power within you, and your passkey to trade your effort for the effort of the best among men. It's the person who would sell his soul for a nickel, who is loudest in proclaiming his hatred of money--and he has good reason to hate it. The lovers of money are willing to work for it. They know they are able to deserve it.

"Let me give you a tip on a clue to men's characters: the man who damns money has obtained it dishonorably; the man who respects it has earned it.

"Run for your life from any man who tells you that money is evil. That sentence is the leper's bell of an approaching looter. So long as men live together on earth and need means to deal with one another--their only substitute, if they abandon money, is the muzzle of a gun.

"But money demands of you the highest virtues, if you wish to make it or to keep it. Men who have no courage, pride or self-esteem, men who have no moral sense of their right to their money and are not willing to defend it as they defend their life, men who apologize for being rich--will not remain rich for long. They are the natural bait for the swarms of looters that stay under rocks for centuries, but come crawling out at the first smell of a man who begs to be forgiven for the guilt of owning wealth. They will hasten to relieve him of the guilt--and of his life, as he deserves.

"Then you will see the rise of the men of the double standard--the men who live by force, yet count on those who live by trade to create the value of their looted money--the men who are the hitchhikers of virtue. In a moral society, these are the criminals, and the statutes are written to protect you against them. But when a society establishes criminals-by-right and looters-by-law--men who use force to seize the wealth of disarmed victims--then money becomes its creators' avenger. Such looters believe it safe to rob defenseless men, once they've passed a law to disarm them. But their loot becomes the magnet for other looters, who get it from them as they got it. Then the race goes, not to the ablest at production, but to those most ruthless at brutality. When force is the standard, the murderer wins over the pickpocket. And then that society vanishes, in a spread of ruins and slaughter.

"Do you wish to know whether that day is coming? Watch money. Money is the barometer of a society's virtue. When you see that trading is done, not by consent, but by compulsion--when you see that in order to produce, you need to obtain permission from men who produce nothing--when you see that money is flowing to those who deal, not in goods, but in favors--when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you--when you see corruption being rewarded and honesty becoming a self-sacrifice--you may know that your society is doomed. Money is so noble a medium that is does not compete with guns and it does not make terms with brutality. It will not permit a country to survive as half-property, half-loot.

"Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, 'Account overdrawn.'

"When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral. Do not expect them to produce, when production is punished and looting rewarded. Do not ask, 'Who is destroying the world? You are.

"You stand in the midst of the greatest achievements of the greatest productive civilization and you wonder why it's crumbling around you, while you're damning its life-blood--money. You look upon money as the savages did before you, and you wonder why the jungle is creeping back to the edge of your cities. Throughout men's history, money was always seized by looters of one brand or another, whose names changed, but whose method remained the same: to seize wealth by force and to keep the producers bound, demeaned, defamed, deprived of honor. That phrase about the evil of money, which you mouth with such righteous recklessness, comes from a time when wealth was produced by the labor of slaves--slaves who repeated the motions once discovered by somebody's mind and left unimproved for centuries. So long as production was ruled by force, and wealth was obtained by conquest, there was little to conquer, Yet through all the centuries of stagnation and starvation, men exalted the looters, as aristocrats of the sword, as aristocrats of birth, as aristocrats of the bureau, and despised the producers, as slaves, as traders, as shopkeepers--as industrialists.

"To the glory of mankind, there was, for the first and only time in history, a country of money--and I have no higher, more reverent tribute to pay to America, for this means: a country of reason, justice, freedom, production, achievement. For the first time, man's mind and money were set free, and there were no fortunes-by-conquest, but only fortunes-by-work, and instead of swordsmen and slaves, there appeared the real maker of wealth, the greatest worker, the highest type of human being--the self-made man--the American industrialist.

"If you ask me to name the proudest distinction of Americans, I would choose--because it contains all the others--the fact that they were the people who created the phrase 'to make money.' No other language or nation had ever used these words before; men had always thought of wealth as a static quantity--to be seized, begged, inherited, shared, looted or obtained as a favor. Americans were the first to understand that wealth has to be created. The words 'to make money' hold the essence of human morality.

"Yet these were the words for which Americans were denounced by the rotted cultures of the looters' continents. Now the looters' credo has brought you to regard your proudest achievements as a hallmark of shame, your prosperity as guilt, your greatest men, the industrialists, as blackguards, and your magnificent factories as the product and property of muscular labor, the labor of whip-driven slaves, like the pyramids of Egypt. The rotter who simpers that he sees no difference between the power of the dollar and the power of the whip, ought to learn the difference on his own hide-- as, I think, he will.

"Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips and guns--or dollars. Take your choice--there is no other--and your time is running out." (My emphasis added)

 Like I said, I am only about half way done, but this passage struck me as one of the most succinct, well-reasoned defense and applications of the principles first put forward by Adam Smith when he described the invisible hand of capitalism those hundreds of years ago.  With the America turning 234 on Sunday, it is important to keep in mind what made America great.  It was not those who wish to spend other peoples money for the "public good" but those who freely did what was in their best interest and along the way made a lot of money and just so happened to raise the rest of us up with them.

free lunches and the rule of law

"Nothing is free in this world."  That is one of the quotes I heard growing up on almost a daily basis.  Usually it was from my father, once again reminding me of something that I needed to do.  However, there may be no more of an apt quote to describe wealth creation in our society.  Contracts and business relationships are based on a symbiotic relationship between two parties: each offers something the other desires, and the parties offer to provide something the counter-party desires in return.  At the end of the day, each side is better off as they receive a benefit that they could not provide to themselves, and in order for the transaction to occur that benefit must at least be equal to the value of the payment in the mind of each party.  Hence, these transactions are often wealth generating, as each party is in a position they think that they are better off, and therefore more wealthy, than they were prior to the transaction.

In my opinion the Obama Administration does not recognize the market as a wealth creation mechanism or at the very least underestimates its importance.  Private transactions are the engines of economic growth, and if Obama were truly interested in turning around the job market and reinvigorating the economy he would put into place polices that further increase the incentives to do business such as lowering marginal tax rates, reorganizing and simplifying federal agencies in order to decrease complexity in industry and lower the barriers to entry, and begin addressing long term budgetary issues no so that markets will be reaffirmed in their belief of the long term solvency of the federal government (keeping low the cost of credit).

However, all of these policies have tradeoffs, be it decreased federal revenue, loss of some services or decreased payouts to those receiving entitlement payments (although it is worth to note that most of these savings would be at the expense of future benefits, not those currently on social security and medicare).  Many countries are already taking such measures, and they aren't your traditional list of unfettered capitalists: the United Kingdom, Germany and even partially France.  However, back in the good old U.S. Obama has made federal government spending in the form of jobless benefits, stimulus, and other spending programs the key to his economic development strategy.  According to Obama and the neo-Kenyesians who push this strategy, the U.S. economy's main problem is lack of demand, and that by pouring money into the system in the form of government contacts and welfare, demand will be boosted and the economy will grow.  This is partly the policy justification for the stimulus back in 2009, the continued extensions of jobless benefits and the current push to provide bailouts to that state governments so that they are not forced to make tough political decisions such as whether to fire teachers or raise taxes.  Obama continually dismisses the negative effect this spending has on the budget (which is completely financed through borrowing as the deficit is in the trillions of dollars) claiming that the extra debt is hardly a drop in the bucket compared to our total liabilities.  Therefore Obama is basically selling the position that the spending is all gain and no pain: we will experience growth now and the cost will be little more than interest payments down the road.

This brings me back to the adage, "Nothing in this world is free." Obama's policies seem to run afoul of this rule, and luckily more and more people are beginning to notice it.  Despite the administrations claim that the stimulus has created around 2.5 million jobs, which it has no way of supporting or justifying, there is little sign that it has had an overall positive effect on he economy.  The administration prefers these types of policy choices, whereby they can tout benefits immediately and push any potential liability down the road.  Well by this logic, why do we ever stop stimulating the economy? If wealth can be created simply by government spending, we should have government spend as much money as possible.  It's the elusive free lunch! The truth is that this type of spending dose little to encourage long term investment - the engine of wealth creation - and its adverse effects are simply kicked down the road.  This is endemic in many of Obama's policy choices: the healthcare bill, extension of jobless benefits, and all the other debt financed spending.  You know the day of reckoning for this debt is coming when even Western Europe is getting serious about fiscal restraint. Mr. Obama, there is a reason your European colleagues have rejected you calls for a new round of stimulus: even they no longer buy the hype that you can spend your way to growth.

On a slightly unrelated note, I also wanted to briefly discuss an issue that has become more and more troubling.  Since coming into office President Obama has done more to circumvent the rule of law there perhaps any president since FDR.  First, there was the Chrysler and GM bailouts, where Mr. Obama first "put his boot on the heel"of secured creditors in order to appease his union constituency (I documented it at the time here, here, here, here and here).  The bankruptcy system in this country is the envy of the world, and although it may sound counter-intuitive that is a very good thing.  Banks freely lend to businesses and homeowners because they have a mechanism to have that loan repaid even if the borrower defaults.  Usually this insurance takes the form of a security interest in property, whereby the bank will legally be allowed to take title upon default.  However, the system will only work if security priority rules are objective, straightforward and made prospectively.  Without this type of certainty, the lenders will not have faith in the system, and lending will dry up.  Just ask any entrepreneurs in Africa or Eastern Europe about their access to credit in countries that don't have such rules.  The economic growth of these countries suffers enormously as a result.

The GM and Chrysler bailouts were one example were the rule of law in credit allocation was eroded, and the BP shakedown for a cool $20 billion is another.  First, and let me make clear, it is completely BP's liability to compensate those who were adversely affected by this oil spill.  No one challenges this point.  In order for capitalism to properly function, an negligent or intentionally injured third party must be compensated when another party's actions have caused it economic damage.  This forces companies engaged in risky enterprises to take risk into consideration and price it into any business plan.  Just making BP pay these damages will incentivize other oil companies to either beef up their safety and security measures, purchase more insurance or a combination of both.  This is a good thing and example of the market's ability to absorb new information and price assets accordingly.  However, I absolutely do not agree with the President's choice to force BP to set aside $20 billion for claims to be distributed by a third party.  Although this may have been a smart business decision by BP (showing the public it s serious about its obligations, providing a low overhead way of distributing damages and otherwise forgoing at least part of what will be millions in legal fees by settling with some people quickly), BP's original announcement came after a meeting between its Chairman, Mr. Obama and Attorney General Holder.  I'm sure the threat of criminal investigations didn't come up in that meeting.  No I bet there was no quid pro quo at all.  Why would the Justice Department want to investigate the BP Chairman of the Board at all? How could a swedish director have any type of criminal liability for an explosion that happen in the Middle of the Gulf of Mexico?  The reality is there is no possible way to impose criminal liability on a director for this type of accident, although the threat of such an investigation is one hell of a bargaining tool...


What's more is the fact that Mr. Obama is once again rewriting the rules for creditors in an attempt to put politics ahead of the rule of law.  BP could not possibly come up with $20 billion cash without severely affecting its liquidity and cash flow.  Therefore it is making payment in roughly $1.5 billion quarterly installments.  However, until the total is paid, BP was forced to allow the federal government to put a lien on approximately $20 billion of BP's assets.  This may sound fair, but in reality this is giving the Feds first crack at BP's assets should a bankruptcy occur.  This secured interest is now on par with other secured creditors and I have no doubt that in the event of a bankruptcy the feds would be fully repaid at the expense of older creditors.  Although it may sound innocuous and just for the claims of those who have been damaged by the spill to be given a higher priority than creditors, this is simply not how our system works.  Congress designed the secured credit system as a way to ensure the adequate allocation of credit and it has worked exquisitely over time.  Capital from all over the world flows to the U.S. because of the protections it is provided and the impartiality of the courts that uphold the rules.  By turning the law on its head and giving the damages of tort victims higher priority than creditors, some faith and belief in the system is lost, and the rule of law eroded away.  Although innocuous in the short term, over time this trend will have devastating effects on our financial system.  Creditors will begin to price this uncertainty into the price of credit, making it more expensive.  Politically risky activities will begin to find it harder and harder to find credit at all.  This culture of ignoring the dictates of the rule of law, coupled with our increasing debt will, if let unchecked, eventually destroy credit allocation as we know it in this country.  Don't think the U.S. will be a financial powerhouse for ever, as money is the most fungible of all assets, and the flow in to the U.S. is surely vulnerable if the risk of loss is too high.  To protect against this, we must maintain the rule of law and not succumb to the political allocation of capital and economic rights that is more akin to Iran or Venezuela.

campaign finance: protecting people who can't think for themselves

So I just wanted to say a couple of words about the DISCLOSE Act that is currently being debated in Congress.  According to its authors, the DISCLOSE Act is designed to remedy the so-called problems created by the Supreme Court last year in their landmark Citizens United ruling.  Here is the narrative according to Nancy Pelosi:

The DISCLOSE Act is essential to ensuring that the American people – and our democracy – are not overwhelmed by special interest money and influence in our elections. In its decision in the Citizens United case, the Supreme Court opened the floodgates to unrestricted special interest campaign donations. Congress must act to ensure that the bank accounts of Wall Street and insurance companies will not drown out the voices of America’s voters. This legislation restores transparency and accountability to our campaigns, and ensures that Americans know who is really behind political advertisements. This bill requires corporations to stand by their ads in the same way candidates do, and prevents foreign-owned entities from participating in our elections. It prevents the use of taxpayer dollars to sway elections, and sets high standards for financial disclosure by outside groups seeking to influence our democratic process.

In reality the court in Citizens United said this: the government cannot penalize or prevent a corporation, union or person from spending their own money, independent from any candidate, on television ads, books, articles, movies or any other kind of speech.  The limits on the amount of money people and corporations can contribute directly to a candidate is still valid, and special interests cannot use money to bribe candidates.  All the court said was that if a corporation wished to make a commercial that addressed a particular issue or candidate, then that is their right under the first amendment.  And what is wrong with that?  Shouldn't we encourage the free flow of ideas?  In effect, the Court said that this type of speech, where the corporation is the speaker and the general public is the listener, cannot be attacked by the government.

So in effect the Democrats are scared to death that these corporations are going to have too much influence because they can explain their message directly to YOU!  For this type of communication to be a bad thing, then the dems must assume one thing: that the public is so stupid and easily misled that they cannot be allowed to hear the ads at all, lest they fall under the control of corporate brainwashing!  Seriously, they are so worried by the fact that information about candidates and issues will come from sources other than the politicians themselves that they scrambling to get an ad hoc DISCLOSE bill passed by July 4th.

There is also a great deal of obvious hypocrisy regarding both the Democrats reasoning for needing campaign finance laws and in the proposed implementation of the DISCLOSE Act.  First, Democrats claimed that the Court was flat out wrong in Citizens United and that Congress does indeed have the ability to restrict corporations from using their own funds on political ads.  According to dems, corporations are not persons and have no right to free speech.  Well according to that logic the federal government would be able to censor MSNBC, the New York Times (both owned by corporations) and even other business associations like LLCs, partnerships and closely held corporations.  This logic should be abhorrent to anyone who values the first amendment.  The reason these media companies aren't screaming out loud is that they are currently exempt from the regulations, but that could change on a whim because what Congress giveth, Congress can taketh away.  However, they are perfectly happy right now with their monopoly on reporting and presenting political issues, and want to make sure it stays that way.

Secondly, the DISCLOSE Act does a great deal to hinder who is able to present ads, putting restrictions on corporations who, although incorporated in the U.S., have at least 20% foreign ownership.  This would include thousands of companies including the likes of Verizon and Shell, for instance.  However, foreign unions such as the Service Employees International Union (SEIU) are not blocked out.  They will still be able to say what they want.  Additionally, unions would be exempt from the requirement that anyone who negotiates contracts directly with the federal government from placing ads.  That's right, now the public employees unions, who negotiate directly and often with the government over compensation, work rules and benefits, would still be allowed to place the ads despite this obvious conflict of interest.  Contrast this with a complete ban on spending by corporations who deal directly with the government.  Now personally I would be in favor of letting these groups do what they wish, but the blatant, partisan favoritism shows exactly where the democrats true intentions lie.  They are attempting to use the act for their own advantage, burdening  traditional Republican supporters, while advantaging their own.  A new era of transparency and post-political attitudes indeed.