San Juan Mountains

San Juan Mountains
San Juan Mountains: Grenadier Range

Friday, February 3, 2012

Manufacturing Is Not A Sacred Calling

There is a widespread presuppositional bias among economically ignorant people and politicians which states that manufacturing jobs are sacred and white collar, "paper pushing", jobs are worthless and unproductive.  As a result politicians pander to the economic ignorance of the citizenry and attempt to buy votes by promising to protect American manufacturing and American manufacturing jobs.  On the other hand, those who work in white collar positions, that usually involve the shuffling of paper in one way or another, are castigated by the "real workers" as parasites and money grubbers.  Nothing could be farther from the truth.
No nail could be pounded, no bolt could be fastened, no sewer could be rooted, and no lawn could be mowed without capital.  In fact, no blue collar job could ever be brought into existence were it not for the prior activities of the white collar capital creators who put the funds in place to finance blue collar activities.  Manufacturing only takes place because manufacturing companies can obtain loans and sell stock via the capital markets of the world.  It is no exaggeration to assert that those who work in manufacturing owe their jobs to those who work in commercial and investment banking.  Once again we see that those evil bankers are not nearly so evil as we would be led to believe.  Next time you see a banker, take a moment to shake his hand and  thank him for the service he has provided to you and your community.  You would be much worse off without him.
Another erroneous presupposition is that manufacturing has to take place within some preordained geo-political boundary in order to be morally good.  Hence politicians attempt to buy our votes by telling us that they will create legislation to initiate "trade wars" against evil people in other countries who want nothing more than to buy our goods and sell us theirs.  Tariffs (taxes on trade) are erected and domestic businesses are protected from the competition of international producers.  The end result is not difficult to predict.  Once domestic producers are protected from foreign competition they become fat and lazy.  Quality declines.  Prices rise.  Think of cars made in Detroit during the 80s and 90s.  Think of steel produced in Pittsburgh during the 70s and 80s.  Think of sugar that is being produced as I write this blog.  Guess who pays for all of this?  Right again!  You do.
Globalization is a good thing.  Globalization allows for the practice of the division of labor on a scale that is unknown in human history.  The potential for economic growth and capital creation is greater today than at any time in the history of the world.  The potential for all citizens of the world to have an ever increasing standard of living exists now, if only the politicians would stop putting up barriers to free trade.  Each person should be allowed to do what he does best.  Each person should be allowed to buy and sell from whomever he wants.  The invisible hand, so eloquently described by Adam Smith, should be allowed to direct the flow of capital, manufactured goods and services to the point of greatest utility.  Standing in the way of the free market is, in actuality, an act of hate that is designed to impoverish one group at the hand of another.  Politicians love to be the men who stand in that gap.
There is one class of workers that is truly non-productive.  These people produce nothing in the way of wealth.  Indeed, they consume wealth.  These people take away what you have earned.  These people believe that they are your moral and intellectual superiors.  These people believe that it is your duty to praise their every deed.  These people are politicians, political analysts and political reporters.  They are a parasitic class.  They do harm.  They spread lies about the relative merits of white collar jobs and manufacturing jobs.  They pretend to care about you when all they want is personal power.  Beware.

Thursday, February 2, 2012

Obama Wants The Government In The Mortgage Business

The Denver Post reported today that President Obama wants to establish a new government program in which the federal government would take over underwater mortgages.  Obama is quoted as saying, "If you're ineligible for refinancing just because you're underwater on your mortgage, through no fault of your own, this plan changes that. You will be able to refinance at a lower rate."  This statement by the President reveals several interesting things about his lack of understanding of economics.
Being underwater on a mortgage is slang for saying the house is worth less than the mortgage.  The recent decrease in the value of many homes has resulted in many homeowners being underwater.  Obama says that a person should not be ineligible for refinancing "just because" his home is underwater.  This is a ridiculous statement.  I can't think of a better reason why a homeowner should  be ineligible for refinancing.  Why should a bank be forced to issue a loan on a home that is of a greater value than the home itself?  Banks are not in the business of losing money.  Banks have no moral duty to lend more money than the value of the collateral in support of the loan.  Only a politician would think that evil, greedy banks have a civic duty to give away money and suffer losses.
It is fascinating that Obama adds the parenthetical statement that the homeowner who is underwater is there due to "no fault of his own".  The Post goes on to say that, "Obama went to great pains to stress that the new program aims to help responsible homeowners who are hurt by falling home prices and not those buyers who overreached and bought more than they could afford."  Can you hear the questions that are screaming out to be answered?  Who is going to determine if the homeowner is underwater due to no fault of his own, or if he is underwater because he greedily overreached and bought more than he could afford?  Which government bureaucrat is going to be endowed with omniscience in order to make these crucial decisions?  How is this powerful bureaucrat going to determine the motives for purchasing a home, that are found deep in the dark recesses of the mind of each of the applicants for this new wealth transfer program?  The President is proposing a program that is economically impossible to implement.
Guess who is going to pay for this new government give away?  Evil, greedy, profit seeking banks, of course.  Since the banks got us into this problem, they need to pay to get us out of this problem.  Or so thinks President Obama.  I have written earlier on how the real estate boom/bust was entirely the creation of the federal government and not profit seeking banks.  (See "Banks did not hurt the economy...government did)  Obama wants to pay for this latest boondoggle by creating an additional tax on "big banks".  Can you hear the questions that are screaming out to be answered?  How big does a bank have to be, to be a "big bank"?  Who is going to make that decision?  How much is a big bank going to be taxed?
In a free market it is the banks that raise capital for mortgages.  If the government stays out of the way, the banks do a very good job at raising funds for mortgages.  So, President Obama believes that he can do a better job than the banks.  He believes that he is more qualified to raise funds for mortgages than the banks are.  What if he is wrong?  What if his program fails and the mortgage program goes bankrupt?  Who is left holding the bag?  You guessed it.  You are!  Welcome, dear citizen, to the banking business, Obama style.
The article in the Post referenced above was on page 2 of the first section.  On the first page of the business section I found an article with this headline, "Foreclosure filings in state drop 25 percent."  Isn't that ironic?  Obama has grabbed the headlines by proposing a new government wealth transfer program to solve a problem that is rapidly going away.  Is it possible that the President is more concerned about buying votes in a reelection year than he is concerned about economic reality?  Me thinks so.

Wednesday, February 1, 2012

More Lies About The Rich And Taxes

Earlier this week Senator Sheldon Whitehouse (D-RI), author of the "Buffet Rule" bill stated that, "In theory, we have a progressive tax code in which the more successful you are, the more money you make, the greater rate you pay in taxation.  Unfortunately what turns out to be the fact in practice is that you have these huge exceptions."  Senator Whitehouse certainly seems to be saying that he does not believe the US tax code to be progressive enough.  He seems to be saying that the "rich" (never defined) are not paying their "fair share" (also never defined).  These "huge exceptions" he refers to need to be penalized through the creation of a new tax that will guarantee that all folks making more than $1 million per year pay more than everyone below them.  Senator Whitehouse is grossly ignorant when it comes to who pays how much of the federal tax bill.
The following information can be found at the IRS website.  I am not making this stuff up.  The information presented below comes from 2009, the most recent year for which the IRS has complete data.  In light of the wildly inaccurate statement made by Senator Whitehouse, please note the following truths:
1.  There were 140,494,127 tax returns filed in 2009.  Of those, 236,883 were filed by households earning $1 million or more.  That represents 0.2% of all federal tax returns. Are these the "rich"?  If so, it is a mighty small group.
2. Despite the envy filled slanderous claims constantly being made about "excess executive compensation", only 8,274 returns were filed by households making more than $10 million.  That represents .006% of all federal tax returns.  I would guess a good percentage of those 8,274 households are made up of sports stars, music stars, and movie stars.  Nevertheless, those unfortunately folks were saddled with a tax payment burden that equaled 6.2% of all federal taxes paid in 2009.  Get this straight Mr. Whitehouse.  .006% of the "rich" paid 6.2% of all federal taxes.  You are correct.  This is not fair!  They should be paying much less.  How can anyone examine the data and conclude that the tax code is not progressive enough?
3.  The 0.2% of households that filed returns showing income in excess of $1 million for the year ended up paying 20.4% of all federal taxes.  That is not fair!  They should be paying much less.
4.  The top 3.0% of households (those making more than $200,000) paid 50.2% of all federal taxes.  Robbery!   Get this straight Senator Whitehouse.  Three percent paid fifty percent.  The only thing "unfair" about this truth is the fact that the three percent are paying way too much. The three percent are being legally robbed.
5.  The top 12.6% of households (those making more than $100,000) paid 74.7% of all federal taxes. Let's call this group the "rich".  The rich already pay three quarters of all federal taxes.  Why is that not progressive enough?  Why must they pay more?
6.  Conversely, the bottom 48.2% (those making less than 30,000) paid only 1.7% of all federal taxes.  How could anyone possible consider this group to be overtaxed?  How could anyone who is not insane argue that this group pays more in taxes than Warren Buffet?
Two conclusions can be drawn from the above information:
1.  We have arrived at the pure democracy that our founding fathers feared and attempted to prevent.  The lower half of the income population has now become a voting bloc that uses the federal tax law to extort income from the upper half of the income population. The bottom half is forcing the upper half to pay for all government services.  How can anyone consider this state of affairs to be unfairly biased in favor of the upper half?  Have we all lost our minds?  How can anyone justly maintain that the upper half needs to pay more?
2.  Anyone who believes that the "rich" (defined as the top 12.6% of the income population) are not paying their "fair share" (they are paying 74.7% of all federal taxes....significantly more than their fair share) is so filled with the desire to perpetuate class envy (in order to buy votes, if he is a politician) that he cannot think straight.
Senator Whitehouse believes that the US tax code is not progressive enough.  The application of a progressive tax code is a socialist-communist idea designed to deter the operation of the free market and give the state control of the fruits of economic production.  It is based upon the economic reality that there will always be more lower income people than upper income people.  When all people have a vote,  politicians will always pander to the envious lusts of the majority.  Senator Whitehouse is pandering to the hate filled envy of the lower income voters against the "rich" in order to retain his seat in the Senate.  This proposed bill will garner him many accolades from "the American people" (that half in the lower income bracket) and justify his exorbitant lifetime pension when he retires.  This is not what the founding fathers intended.

Tuesday, January 31, 2012

Government, Rights and Moral Claims

Spray painted across the store front of an Oakland store this week were these words from an Occupier, "Free Health Care For Everybody".  In the dreamy, envy filled, detached mind of the Occupiers, this sentence makes sense.  They seem incapable of understanding another important sentence:  There Ain't No Such Thing As A Free Lunch.  Nothing is free.  On the other hand, perhaps the Occupiers do understand this basic point.  After all, their claim that all citizens of the US are entitled to free health care services presupposes that they recognize that health care services typically come with a price attached to them.  Perhaps all they are attempting to say is that health care services are a basic human right and it is the duty of the federal government to provide those services to everyone.  If this is what they are saying, and I believe it is, they are economically ignorant (and probably morally bankrupt as well).
The concept that a citizen of this country can have a fundamental, God given right to something that also happens to cost something to produce is inherently contradictory.  The founding fathers recognized that we have fundamental, God given rights to life, freedom, and the use of our personal property.  My life, my freedom and the use of my personal property do not cost me or my neighbor anything.  Sure, purchasing my personal property costs me something.  But I bear the full cost of the purchase and it is really the use of my property ("the pursuit of happiness") that is of concern here.  When the theory is advanced that I have a right to something, in this case health care services, that I do not have the personal responsibility to purchase for myself, then somebody else becomes morally responsible to pay for my right.  When somebody else becomes morally responsible to pay for my right, I have a moral claim upon some portion of his income or assets.  This is what the Occupiers are saying and they have now moved into a position of extreme envy.  In fact, they become guilty of theft by force of government.  Here is why.
Health care services cost money.  I believe I have a right to free health care services.  Someone else must therefore pay for my health care services.  I therefore have a moral claim on the income or assets of my neighbor.  Who is responsible to enforce my moral claim on my neighbor's income and assets?  The government, of course.  According to the Occupiers, the government that acts best is the government that enforces the moral claims of the politically privileged receivers upon the income and assets of those who have lost the moral right to use their income and assets as they see fit.  We shall call this class the politically plundered theft victims.  The million dollar question, of course, is who makes the decision as to which way the money will flow?  Who has a moral claim on his neighbor's funds and who finds himself in the unenviable position of having moral claims enforced against his wealth? 
The answer to the question as to how the largess is to be distributed is that we are a democracy and whichever group is able to garner the most votes wins!  Politicians pander to the envy of many different special envy groups.  If any particular special envy group is able to get his guy elected, he wins.  Money will now be flowing in his direction.  Welcome to democracy, where everyone has his hand in his neighbor's pocket.  Better yet, according to the Occupiers, depersonalize the process a bit and dramatically raise corporate income taxes.  That way they will be able to assuage their collective conscience each night with the belief that they are not really stealing anything from their fellow citizens. They can tell themselves that they are simply taking back what they are entitled to from those greedy, evil corporations that robbed them in the first place and now need to be punished.  Those Occupiers....what a twisted moral net they weave.

Monday, January 30, 2012

President Obama Displays More Economic Ignorance

Last week President Obama delivered a speech in Ann Arbor, Michigan in which he threatened to eliminate federal funding for colleges that "jack up tuition" rates.  The average rate of increase in the cost of tuition and fees at public colleges and universities rose 8.3% in 2011.  Add in room and board and the average annual charge for one year of college education now exceeds $17,000.  Obama believes that most colleges and universities are profit seeking monsters seeking to destroy the savings of America's working families.  He further believes that they need to be restrained by the beneficent actions of the federal government.  He is very far from the truth.
Once again President Obama displays a woeful ignorance of economic reality.  Wouldn't it be wonderful if Congress passed a law forbidding all politicians to speak on economic issues until the speech has passed an economic truth test?  That simple law would eliminate the great majority of political speeches.  While it is true that the cost of a higher education has gone up more rapidly than the cost of most other things in this country, Obama fails to point his finger at the real culprit in this scenario.  Colleges are not primarily responsible for the rapid increase in costs.  The federal government is.  Allow me to explain.
Although far from operating in a pure free market, colleges are still not free to set their prices according to their whims.  There is competition for customers (students) by providers of education services (colleges).  Competition for customers results in providers doing everything possible to keep their costs down in order to attract as many customers as possible.  College expenses, however, are not like other household expenses.  College expenses can be paid for by utilizing low, or no, cost government loans.  This pool of money is provided by the taxpayers and the loans are known as student loans.  The below market interest rates paid on these loans are also subsidized by the taxpayers.  The profit losing terms of the loans (no accrual of interest until many years in the future, after the student has graduated or left school and generously extended periods of time for repayment) are subsidized by the taxpayers.
What is the impact of this government subsidy upon college tuition expenses?  Demand for educational services is artificially inflated.  With this increase in demand is a commensurate increase in price.  Simply put, the primary reason college tuition costs have risen more than other expenses is due to the fact that government has been subsidizing students via the federal student loan program.
We can now see the absurdity in Obama's statement.  He threatens to cut off the student loan program to colleges that have raised tuition.  But, colleges have raised tuition precisely because of the student loan program.  The problem is not greedy colleges.  The problem is meddling politicians.  If Obama really wants to slow the increase in college tuition he should abolish the federal student loan program.  Proposing the elimination of federally subsidized student loans however, would cost him votes.  Do not ever expect a career politician to do the right thing when doing the right thing might cost him votes.  It will never happen.