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Friday, March 03, 2006

Capital Accumulation Is Better Than "Fairness"

We never tire of reviewing the basics of economics because it is so often ignored by the pundits and our fellow citizens.

When George Reisman has an essay on elementary economics we read it and serve it to our readers. In the von Mises website, Reisman writes in "For Society To Thrive, The Rich Must Be Left Alone" how the wealth earned in free market business (as opposed to wealth derived from government subsidies/harassment or class action lawsuits) has a double benefit to society.

We start by shelving the Keynesian concept of relative wealth meaning the inexhaustive consumption of goods. We look at wealth as CAPITAL.

Writes Reisman:

This wealth, this capital, produces the goods which the average person buys, and as more of it is accumulated and raises the productivity of labor higher and higher, brings about a progressively larger and ever more improved supply of goods for the average person to buy.

But, besides creating cheaper goods, the first of our societal benefits, the capital creates businesses that dfreate jobs. And higher paying jobs as capital for businesses increase.

Reisman writes:

And the greater is that capital, the greater is this two-sided benefit to everyone. To the extent that the supply of goods produced is greater, prices are lower. And to the extent that the demand for labor is greater, wages are higher. Lower prices and higher wages: that is the effect of capital accumulation.

When the lower income earners spend all of their money, there is some benefit to the economy. But the economy soars when there is accumulated savings. That is because as banks increase their reserves from our collective savings, they lend the money to people for home purchases and entrepreneurial ventures. Absent capital, there can be no growth.

Economist Hernando De Soto has been studying the problems when a society cannot amass capital. In his book "The Mystery of Capital", de Soto explains how the absence of the evidence of title to property and the accompanying sharing out of ownership interest to that property denies the holder from expanding his capital base. The "poor" throughout the world possess massive amounts of money but cannot expand it through investment because of the lack of acceptable ownership rights that outsiders can rely upon for purchase. They have no access to secondary markets for mortgages or various securities.

So not only do governments world-wide refuse to assist in the amassing of capital, governments drive down investment opportunities, leaving these countries in 3rd-world status, by imposing wage, price, employment, safety and environmental regulations on those few local businesses.

Thomas Sowell discusses how South Africa, with massive unemployment (maybe higher than the reported 26%), has caused local firms to out-source in order to make a profit!

Writes Sowell:

Some businesses are not expanding but are just trying to survive. Costs blithely loaded onto them by politicians can prevent some of these kinds of businesses from surviving -- and their employees lose their jobs. Over time, businesses can shift more and more of their operations out of places where extra costs are imposed politically and some just move their whole business elsewhere. That means taking their jobs, and the taxes they pay, elsewhere.

Yes, government everywhere does its best to stifle business as it seeks to assume more power. Back to Reisman:

The last forty years or so have seen the imposition of environmental legislation and consumer product safety legislation, and numerous other government programs that serve to increase the costs of production. The great majority of people assume that the higher costs simply come out of profits and need not concern them. But the fact is that the general rate of profit in the economic system remains more or less the same, with the result that increases in costs show up as increases in prices, or as decreases in other costs, notably, wages.

Opponents to a free market are resting their view on incorrect assumptions learned from ignoramuses in government and the media. They are hurting themselves. We continue to replay the lessons with hopes we can persuade people one at a time.

Thursday, March 02, 2006

Sweden Does Not Look Good On Paper Anymore

In Sweden, the chicks are hot but the economy is not.

Economist Johnny Munkhammar discusses in TCS how Sweden's Big State economics has led to its slide from high growth in the early 1990's to serious economic regression. He provides many statistics and concludes:

If Sweden were a state in the US, it would be the fifth poorest. During the past 15 years, average annual growth has been 1.4 percent -- lower than the average for the US, the OECD and the EU...The unofficial total unemployment is some 20 percent. In the EU-15 between 1995 and 2003, employment grew more in 11 EU countries than in Sweden. In 2004, according to UNCTAD, only 12 countries out of 183 in the survey had a net outflow of investments -- the basis for any job creation -- and one of them was Sweden...During the last year, according to the Index of Economic Freedom by the Heritage Foundation and Wall Street Journal, 18 EU countries increased their economic freedom, but Sweden had the lowest score in five years.

Note: The outflow of investments harmed growth and employment. The US with its feared trade deficit has a great inflow of investments from its trade partners. So mush for that dire statistic.

Sweden has a combination of free market programs with statist policies. Unfortunately, the past decade saw an ascendance of the Social Democrats who have avoided free market solutions for the sake of "security". Thus, their "public health-care system is coming apart at the seams". Typical of socialist medicine, there are massive waits for medical services. Per Munkhammar, similar deterioration is seen in public education and elderly care.

Wednesday, March 01, 2006

After They Take Your Home, They Give It To Their Friends

SCOTUS is now hearing with a case regarding preferential treatment of businesses by governments after they have removed property from citizens via eminent domain. It is step two of the remove and deal powers as allowed in the Kelo case heard last year. In DaimlerChrysler Corp. v. Cuno, 04-1704, and Wilkins v. Cuno, 04-1724. citizens are challenging Ohio's tax breaks given Daimler Chrysler for moving into their state.

While some justices have changed since that decision, I do not see it likely that the Court will strike down Ohio's actions as this is a political decision. As Scalia rightly stated: "Let the people fight it out. Why should that be an issue that the court should decide?"

I agree. The egregious conduct is in the, in my view, unconstitutional taking of the property for the resale to another private party. Unfortunately, the Court in Kelo found even the taking, without any proof of blight nor the intent of using the property for a public purpose, was a political issue. While everything can be deemed political, the Court ignored the words of the "takings clause" and the Framers' intent.

While this economic war among the states by luring a company with tax breaks appears unfair, the earmarking of tax credits in favor of one business at the expense of revenue is for the citizens of the state to decide. I do not see this as curtailing the movement of goods in commerce that is the intent of the Commerce Clause. Though SCOTUS also erred on the commerce clause at issue recently in the medical marijuana case (the Raich decision).

Can Bayh Pull A Clinton?

Mike Taylor responds to Joseph Kenner's last point below:

William J. Clinton 370 electoral 44,909,889 popular vote
George H. Bush 168 electoral 39,104,545 popular vote
H. Ross Perot 0 electoral 19,742,267 popular vote

William J. Clinton 379 electoral 47,402,357 popular vote
Robert Dole 159 electoral 39,198,755 popular vote
H. Ross Perot 0 electoral 8,085,402 popular vote

If it weren't for Ross Perot, Clinton would never have stained a blue dress... well, at least not a blue dress in the Oval Office.

The chart above is the popular vote totals from '92 and '96.

In 1992 Clinton received 43.3% of the vote, Bush 41 received 37.7% and Perot got 19.0%.

Without Perot in the race, I don't think Clinton would have succeeded. Perot was drawing off conservative voters who just had their taxes raised by Geo. H. W. Bush... I can't see that over a third of those Perot voters would have gone for Clinton... no matter how hard those data are spun by Paul Begala and James Carville.

Running with the incumbency in '96, Clinton got the barest of majorities, 50%. Dole garnered 41.4%, Perot finished much worse at 8.5%.

The big myth is that Bill Clinton is a master politician... his "genius" was getting Ross Perot to run in 1992 and getting Bob Dole as an opponent in 1996...

And yes, I know that it comes down to the electoral vote.. I don't have Perot's vote count by state to see how he affected Ohio, West Virginia, Georgia, Minnesota, Iowa and Missouri... all in the Clinton electoral column in 1992.

I think that Evan Bayh is certainly "polished" as you put it, but he comes from a small Midwestern state and has little to no name recognition. And, yes, that could also describe Bill Clinton in 1992... but who would be Bayh's Ross Perot?

Perhaps John McCain... if he doesn't survive the Republican primaries but feels he can appeal to a plurality of voters?

Perhaps Rudy Guiliani... certainly a proven leader with HUGE name recognition and a record to run on? ... also a Pro Choice Republican.

Such stuff as political dreams are made on.

-- Mike

What the Dems Must Do To Win

I distributed an article by Mark Joseph to the Think Tank entitled "Memo to the Democrats: get in the game". Joseph suggests the election would be competitive (he predicts a major victory by George Allen over Hillary Clinton) if the following occurred:

1. Republicans nominate "lefty-leaning" Rudy Giuliani;
2. Republicans nominate John McCain;
3. Dems move abortion to a neutral party position (hard to sell that one, I'd say);
4. Dems nominate Evan Bayh;
5. Dems "engage the conservative churchgoing audience" (another hard one to sell);
6. Respectfully criticize the President (these tolerant Americans cannot stifle their hatred of him and conservatives in general);
7. Dems actually propose a workable reform such as a flat tax or social security reform (Does Joseph remember who owns the party?);
8. Dems "soften up" George Allen (where will they get an accommodating press to serve this purpose?).

Most of the above appears very unlikely.

Our resident former-Hoosier, who taught Bobby Knight everything he knows about chair-throwing and man-to-man defense, Mike Taylor attacks point #4 above:

I seriously question Mark Joseph's assertion #4 on how Democrats could win in '08:

4) Nominate Indiana Senator Evan Bayh for President. Bayh learned from his father, Senator Birch Bayh's defeat in 1980 how to present liberalism with a mainstream face. He's your man. If he's the nominee, you win and the Republicans lose.

As many of you may remember, I am from Indiana and I don't think that Evan Bayh is of presidential timber. At the very least he is not a candidate that would be a "lock" to win the presidency.

If you've ever seen Evan Bayh speak on the Sunday shows, you can not help but immediately ask yourself "What the hell did he just say?". I don't think that you can pin down Evan Bayh on any issue because he is trying SO hard to be all things to all people.

I'm not sure that Bayh is succeeding in "present(ing) liberalism with a mainstream face".

For those of you who have forgotten his father, Birch Bayh* was such a flaming liberal that he set off sprinkler alarms. Birch Bayh was the main proponent of the Equal Rights Amendment. How liberal is that?

That liberalism secured votes from "Da Region" in Indiana (that's basically the Gary, IN area for you non-Hoosiers) and inner-city Indianapolis. BUT ol' Birch protected farm subsidies and that got him enough of the rural vote to eke out a few wins over Republican candidates such as Dick Lugar. (Lugar eventually replaced "Vacillating" Vance Hartke as the other Senator from Indiana.)

Birch Bayh lost his Senate seat to Dan Quayle. So I'm not sure how that qualifies the father as a mentor to his son's political aspirations.

Evan Bayh is rated 33% by the National Taxpayer's Union and rated 91% by the NEA, indicating that he is well into the "bigger government is better government" camp. He's rated at 60% by the ACLU, 33% by the Christian Coalition, 85% by the AFL-CIO... does that sound like a "lock" to win in 2008?

-- Mike

*Little-known fact about Birch Bayh, in 1964 he pulled Ted Kennedy from the burning wreckage of a small plane crash near Springfield, MA. Which is more than Ted Kennedy did for Mary Jo Kopechne. The pilot of the plane and another passenger were killed in that crash.

Think Tanker Joseph Kenner adds the following:

"I don't think that you can pin down Evan Bayh on any issue because he is trying SO hard to be all things to all people." Those are famous words. The same was said about Bill Clinton when he was running in '92. I have no idea who the Dems will run but if they can get a polished all things to all people 'moderate' candidate they have a very good chance...depending on who the Republicans select.

Likely Result of Employer Provision of All Necessities

Dan Weintraub compares the inherent problems of employer provision of healthcare with the supposition of employer rendition of housing, transportation and food for employees. All of the problems of 3rd-party payers and lack of choice for consumer bear out.

Some of the negatives are:

1. Lower pay;
2. Less Choice;
3. Worse service;
4. Cost increases;
5. Emotional insecurity.

Anytime there is this 3rd party provision of "necessities", these 5 issues emerge. I will also add the eventual government dictate that no private alternatives are allowed. Think of other areas of life where someone other than yourself handles necessities. Consider government's provision of retirement benefits AKA Social Security:

The taxes have increased from 2% to 12.4%. That lowers pay.
The retiree has little choice over the type of investment and thus the returns for his "contributions".
The new drug plan is reported to have caused massive confusion for retirees.
The benefits do not adequately cover the costs of living for the life-style of one's choosing.
Baby boomers who have "banked" on this money now face likely benefit reductions (if not discontinuance when my kids wake up to the inequity of their obligations that they never voluntarily accepted).

As an aside, I look forward to the democratic wars of the future when those who have bludgeoned our children's financial future with these benefit plans lose their majority status.

Thanks to Coyote Blog for this link.

Tuesday, February 28, 2006

Liberal Jews and the Failure of the Oppressed

Arnold Kling has an interesting essay on why Jews tend to support centralized government "solutions" as the better, if not sole, alternative to individual responsibility. He calls it the "Moses Complex".

For instance, Kling says Jews ask: Why did not more Jews flee Germany during the Nazi run-up rather than ask why did some Jew not shoot Hitler during his many open-air rallies? The Exodus story is one of escape rather than a story of the oppressed overcoming a tyrant. He says the idea of the "bad Pharoah" controls their thought-process and overcomes the idea that any government leader lacking checks and balances will eventually oppress. He says Jews "ascribe bad government to the accidental result of having wrong leaders". There is almost the "attribution of God-like qualities to government".

This belief of Jews in the propriety of a government solutions is found in their liberal opinions on healthcare, schooling and retirement benefits.

I agree with his argument and particularly liked this quote:

Usually, problems are more complex and systemic than a simple oppressor/oppressed narrative can describe. Sometimes, the best solution is to increase, rather than to diminish, personal responsibility. Often, government programs can exacerbate problems, with no built-in correction mechanism.

The positive effects of even a failed personal attempt to solve a problem or create something is significantly better than a failed governmental attempt to cure the same problem. One obvious difference is that the failed government "solution" continues for decades due to its wealth while a personal failure is short run. Another is the individual's failure is limited to one person or family while the government failure harms millions of people for generations.

But most important, the individual who has failed has learned something valuable that can become a source of wisdom for better results in the future. The entrepreneur that has failed now has learned personal lessons (never to be forgotten) to likely insure success in the next endeavor. But, government rarely learns from its failures. And the best chance of creating a better society starts with each person and their individual acts.

And that is the essence of Judaism.

Monday, February 27, 2006

Free Market Means Refusing To Trade With Socialists?

On ABC's "This Week" yesterday, WaPo writer E.J. Dionne made a comment, the same one I have read during this week, that free market libertarians are hypocritical for supporting the sale of the US ports to a UAE company. Dionne stated that since the UAE government either owns or controls the acquiring company, that free market libertarians should not be in favor of this sale. The logic is that if libertarians are so against government ownership of private companies, then supporting the sale is akin to supporting socialism.

How ridiculous.

Free market proponents seek no restrictions on voluntary trade. Free market proponents see the consumer as having the right to trade with anyone. We feel it makes no sense to deny ourselves a good deal even when the other side chooses to reduce its prices because it receives its own government's subsidies, favorable regulations or money from its great aunt Hilda.

Does Dionne believe that free traders seek to restrict their market to those producers who receive no tax breaks, are unaffected by employment and environmental regulations or other government involvement? Certainly, if so, there would be no reason to trade with US companies.

We care less about the other party's make-up than we are with the concept of making the transaction. We are less about discerning the state of origin, skin color, hair color or other irrelevant traits of our trading partner. Socialism is what restricts trade.

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