San Juan Mountains

San Juan Mountains
San Juan Mountains: Grenadier Range

Friday, January 27, 2012

The Sources Of Income Inequality

President Obama made a big deal out of the concept of income inequality in his State of the Union address this week.  The fact that people earn different incomes is indisputable.  The fact that career politicians make a big deal out of the fact of income inequality is indisputable.  What is rarely discussed, however, is how income inequality comes to be in the first place.
There are only two ways I can derive an income.  Either someone voluntarily pays me to provide them with some good or service or I extract an income from somebody else by force.  The first way describes what takes place in business.  The second describes what takes place in government. 
When I go to work for somebody else I do not generally have the expectation that I will earn more income than my employer.  I understand that my employer has risked his own money in the establishment of his business. I understand that my employer has created the job that I am presently filling.  I understand that I am providing my skills to my employer in exchange for a cash payment that both of us have agreed upon and that neither of us have been coerced to pay (unless I am being paid the minimum wage....in that case government has coerced him into paying more than I am worth).  My employer will have a higher income.  I will have a lower income.  Nobody is evil.  Nobody is behaving immorally.  There is no reason for a third party to enter into our transaction and force us to be paid equally.  Our inequality of incomes is not a national disgrace.  It is most certainly not something that requires Congress to make a new rule/law to correct.  The income inequality that exists because of voluntary employment contracts is a good thing that allows business to function.  Income inequality in business simply recognizes that some employees are more productive than others and they are, in fact, paid accordingly. 
Politicians, bureaucrats, and other government employees, on the other hand, receive their income by involuntary transactions conducted under the  force of law.  All government employees are paid out of tax revenues.  Few, if any, citizens pay their taxes voluntarily (or at least, we would not pay as much as we do voluntarily).  Citizens pay their taxes because they will be thrown in jail if they do not.  Citizens have no choice as to how their taxes will be spent once the various government taxing authorities procure them.  It is immediately obvious that the income being received by government employees is not being received as a part of a voluntary transaction. 
According to Dan Arnall of ABC News, "The latest data from the Bureau of Labor Statistics (2009) show that government workers make about 5 percent more than private sector workers on average."  He goes on to point out that the disparity is greatest when private workers are compared to federal employees.  In many cases state and local government employees make less than private workers.  Where is Obama's outrage at the fact that federal government employees are making more money than their private market counterparts?  Where are the demands for reduced federal salaries so this terrible evil of income inequality can be resolved?  Where is the call for leadership from those in federal government to act as a beacon for us all in slaying the dragon of income inequality by voluntarily taking a reduction in their pay?   I will not be holding my breath.
Income inequality in business is a good thing.  It serves as a reward for the most productive and an incentive for those who aspire to be more productive.  Income inequality in government is a bad thing.  It is based not upon production and service to our fellow man, but it is based upon political connection, bureaucratic control and personal privilege.  If President Obama is serious about doing something about the alleged problem of income inequality I would suggest that he begin by dismantling a good portion of the federal bureaucracy.  Ultimately I do not believe that any politician cares about income inequality.  Ultimately I believe it all comes down to pandering envy and buying votes in the next election.

Thursday, January 26, 2012

Wind Energy Is Just A Bunch Of Hot Air

In today's Denver Post, Susan Reilly (CEO of Renewable Energy Systems Americas Inc.) opines that "Expiration of the credit for wind energy will have a serious negative impact on the wind industry, both in Colorado and nationally."  She thanks the Post for "highlighting the critical importance of extending the Production Tax Credit for wind energy."  Allow me to translate what Ms Reilly has just written and explain it in terms that exist in the real world.
The Production Tax Credit is a government subsidy that allows a business, in this case wind energy, that would not normally be supported by the free market to continue to exist.  In other words, in the absence of the subsidy, the business that Ms. Reilly supports would go bankrupt.  The subsidy, as is the case for all subsidies, comes from the taxpayers.  Simply put, Ms. Reilly is asserting that it is vitally important for the government to take some of your money and transfer it to people in the wind energy business because she believes you are too stupid to spend it there yourself.  Ms. Reilly believes that the coercive power of government should be brought to bear against you, the taxpayer, in order to pay for something that would go bankrupt if forced to stand on its own. 
To justify this theft Ms. Reilly presents an argument in which she says, "In the current tough economic climate, the wind industry is attracting billions of dollars of investment, building critical infrastructure, and most importantly, creating tens of thousands of US jobs."  Let's examine each of these claims:
1.  I don't know (and she doesn't cite any statistics) how much investment money the wind industry has attracted but I do know with absolute certainty that a great deal of that money has been attracted only because of the Production Tax Credit.  In the absence of that tax credit there would be far less investment going into wind energy.  In addition, we must not ignore the fact that if this "investment money" had not gone into wind energy it would have gone into something else, probably something without a tax credit and, therefore, something that would actually satisfy consumer demand.  At best this is a zero sum game.
2.  The "critical infrastructure" that is being constructed is nothing more than the wind towers themselves.  Wind towers are "critical infrastructure" only to the wind industry so this allegation is, at best, brazenly self serving.  If this infrastructure is critical, who else would use it if the wind energy industry collapsed?  I suspect it would have some utility for anyone who has a pathological desire to execute birds.  Other than that, I can't think of any group for whom this infrastructure would be critical.
3.  Ms. Reilly asserts that the wind industry is creating "tens of thousands of US jobs".  I will not quibble with the fact that they are "US" jobs.  After all, the wind is blowing in the US.  I just don't see why that is material to the discussion.  She cites no proof for her "tens of thousands" figure.  Nevertheless, it does not matter.  If the government decided to tax 100% of our incomes this year and spend it all on employing the entire nation in digging holes and filling them back in, we could properly claim that the hole digging and filling subsidy employed hundreds of millions of Americans in US jobs.  But I do not think you could find many people interested in the business.
If wind energy cannot stand on its own, it should not stand.  The fact that wind energy only exists because of government subsidy is proof positive that it should not exist.  Like it or not, the consumers have spoken and they do not want wind energy.

Wednesday, January 25, 2012

More Brainless Business Bashing

I saw a bumper sticker on a car last night that said "Corporations Are Not We The People".  Everything about that bumper sticker is wrong.
First, a corporation is simply a legal entity that includes a particular group of people.  The preamble to the Constitution of the United States incorporates the term "We The People" in exactly the same fashion.  "We The People" is simply a phrase that describes a particular group of people at that time.  So, in this sense at least, a corporation and "We The People" are exactly the same.
Of course, the author of the bumper sticker phrase was not trying to make a point about various groups of people.  I believe it is safe to say that the author was trying to say something like this:  Corporations are evil entities that exist for the purpose of robbing people and the government exists for the purpose of making everyone healthy, wealthy and wise.  Or, another way of putting it would be, Business - Bad, Government - Good.  Anyway I put it, it is still utter nonsense.
Everything we have today is produced by corporations (I recognize that some companies are private and that some companies choose not to incorporate) or companies that operate in search of a profit.  (Note:  Even non-profit corporations must show a profit, otherwise they go out of business.) The breakfast you consumed this morning was made by a corporation.  The car you drove today was built by a corporation.  The computer you are using now was built by a corporation.  The chair you are sitting in now was built by a corporation.  The electricity running your computer was delivered by a corporation.  The gas running your car was refined by a corporation. The pencil in your hand, the clock on your wall, the carpet under your feet, and the cell phone in your pocket were all provided by profit seeking corporations.   I challenge you to come up with one thing that you have that was not produced by a corporation.  For something that is allegedly evil by its very nature, corporations sure seem to do a lot of good. 
On the other hand, nothing that you have today was produced by government.  Government, by definition, cannot produce anything.  All government can do is take....and it does that very well.  Government will take anywhere from one third to one half of your income this year to pay for itself, in all its various forms.  Government will regulate your life in such minute detail that the type of toilet you flush, the type of light bulb you burn, the number of trees you are permitted to have on your lot, the type of hand rail you are permitted to install on your backyard deck, the type of food your children will be served at school, and the gas mileage and weight of your car are all determined in advance by various governmental decrees.  None of these regulations increases your freedom of choice or your general prosperity. 
No business will accost you on the street today and demand your obedience.  No business will force you to purchase its goods or services today.  No business corporation will fine or incarcerate you for failure to purchase its goods or services.  Government, on the other hand, will be watching you from the moment you walk out your door.  Cameras installed on street corners will observe you, looking for violations of the rules..  Police will be watching you, ticket book in hand.  Any violation of the thousands of unknowable rules regularly issued by government could suddenly cause you to be on the wrong side of the law and facing expropriation of your time, money and property.  Any "business" that has aligned itself with government in order to obtain monopoly status will give you no choice when dealing with it.  You are not free to mail a letter without the Post Office.  You are not free to hire a lawyer who is not a member of the bar.  You are not free to even get your hair cut unless the person doing so is approved by the government. 
"We The People" established this country under the principles of limited government and freedom for all.  "We The People" wrote the Constitution of the United States to allow its citizens freedom of association and the ability to form business corporations that seek profit by providing goods and services to fellow citizens.  Contrary to the senseless raving of the bumper sticker author, one of the best examples of "We The People" is found in a profit seeking corporation, relentlessly committed to providing superior goods and services to a populace that demands nothing less.  Business - Good, Government - Bad.

Tuesday, January 24, 2012

The President Is Not A King, Or A God

Expectations for the President's State of the Union address are running high.  We expect that he will have a plan for creating new jobs and reducing the unemployment rate.  We expect that he will have a plan for reducing the excess inventory in the housing market and stimulating sales of existing homes.  We expect that he will have a plan for taxing the citizenry that will maximize government revenues while, at the same time, allow all of us to keep most of what we earn.  We expect that he will have a plan to deal with the problem of "illegal drugs".  We expect that he will have a plan to educate our children.  We expect he will have a plan to "save family farms".  We expect that he will have a plan to regulate banks so a financial crisis like we recently experienced will "never happen again".  We expect that he will have a plan in regards to monetary and fiscal policy that will make us all richer than our wildest dreams.  We expect that he will have a plan on how to deal with Afghanistan.  We expect the he will have a plan on how to deal with North Korea.  We expect that he will have a plan on how to deal with Iran.  We expect that he will have a plan on how to operate as the "leader of the free world".  We expect that he will not only have a plan, but that he will lead all of us into a healthy, happy, safe, wealthy and secure future. 
Guess what?  The President cannot do any of these things.  No matter how nice, smart, charming, generous, brilliant, intelligent, brave, powerful, and wise he might be, he simply does not have the ability to accomplish any of our expectations.  He is just a man.  He is not a king.  He is not a god.  The Constitution of the United States recognized the natural limitations of men and appointed presidential power accordingly.  Do you know precisely what the Constitution empowers the President to do?  You might be surprised.  Here is the complete list of presidential powers:
1.  Commander in Chief of the Military Forces:  This does not mean he has the ability to declare war.  Congress has that power.  This does not mean he can send the military anywhere in the world to fight on his whim.  This does not mean that the military is his personal police force.  All that this means is that, once Congress has declared war, he is empowered to require the opinions, in writing, of the heads of each branch of the military in regards to the war effort.  Read it.  That is really all it says.
2.  The Power to Grant Pardons.
3.  The Power to Make Treaties:  With a 2/3rds approval of the Senate.
4.  The Power to Appoint Ambassadors:  Also with the approval of the Senate.
5.  The Power to Appoint Judges. Also with the approval of the Senate.
6.  The Power to Appoint Cabinet Members.
7.  The Power to Convene Congress.
8.  The Right to send a "State of the Union" message to Congress.
That's it.  Nothing more.  Compare that short list to what the president does today.  Compare that short list to what is expected of the president today.  There is little reason to wonder why many of our early presidents complained that their job was primarily that of being a symbolic figurehead.
In the early history of the United States many presidents did not bother to send an annual note to Congress on the state of the union.  Those who did would usually just write down some thoughts on a note and send it on its way.  The practice of using the "State of the Union" as a bully pulpit and an opportunity to campaign for reelection is a fairly recent phenomenon. 
The President delivers his "State of the Union" address tonight.  Every major television station will be televising the event.  Every cable news network will be televising the event.  There will be commentary prior to the event and there will be analysis after the event.  Everyone will be looking to the President and expecting him to give us hope and save the world.  It is an impossible task.  It can't be done, nor should it be attempted.  Elevating the presidency to the status of king or god is not healthy or wise.  My advice....watch something else.  Better yet, turn off the television and read the Constitution of the United States.  After all, the President did swear an oath to protect, defend and uphold the Constitution.  Isn't it time we hold him to his vow?

Monday, January 23, 2012

Profit Seeking Banks Are Not Dangerous


'I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property - until their children wake-up homeless on the continent their fathers conquered.' 
Attributed to Thomas Jefferson.  
As a part of the ongoing campaign to smear the reputation of profit seeking banks and elevate the government to a point where it is above any responsibility for the most recent financial crisis, some folks have been circulating the above quotation.  I did some searching and was unable to find a citation for the above quote.  In fact, the quote is generally just "attributed" to Jefferson.  Whether he said it or not does not really matter.  The quote expresses an opinion shared by many Statists (those who believe in the State, in all its forms, as a source of physical and economic salvation) in which they assert their profound beliefs in the beneficent power of centralized government banking and the evil of free market banking.  Nothing could be farther from the truth.Most folks do not realize that, prior to the creation of the US central bank (the Fed), independent private banks would sometimes issue "currency" on the deposits that they held.  This "currency" was generally in the form of gold certificates.  A gold certificate represented an actual physical holding of gold on deposit with the bank and it served as a much more convenient means of exchange than the physical gold itself.  The gold certificates were accepted and used by anyone who believed in the sound structure and good reputation of the issuing bank.
Occasionally a bank would try to scam investors and issue more certificates than actual gold on deposit.  This, of course, was inflation.  (It is also known as fractional reserve banking and it is one of the Fed's favorite pastimes.)  When depositors got word that more certificates had been issued than gold was in the vault they would go to the bank to withdraw their gold and the bank would be forced, by market discipline, to cease the inflation or go out of business.  No such discipline exists in a government central bank.  The Fed is free to inflate as much as it desires.
The quote attributed to Jefferson is false for one simple reason, free market banking does not allow for the hegemony necessary to create inflation and do economic damage.  The market itself would discipline the private banks and prevent them from either inflating or deflating the supply of money.  Those that attempted to inflate or deflate would be put out of business by the consumers.  Only government has the sheer brute force to inflict damage upon the economy by forcing all banks to participate in the Federal Reserve system.  Competition among free market private banks would ensure that any fraudulent activity on the part of those banks would be quickly discovered and punished. 
Statists, socialists, and those so filled with envy that they cannot think straight, would all have us believe that the Fed is benign and profit seeking private banks exist only to steal our wealth and destroy our lives.  A return to private banking would represent a return to sound money and, most likely , a gold standard.  It would be a good thing.  For that reason, I do not expect it to happen.