San Juan Mountains

San Juan Mountains
San Juan Mountains: Grenadier Range

Friday, May 25, 2012

Don't Blame The Executioner

Yesterday I wrote about economically ignorant people who are quick to blame a corporate raider (one of the legitimate business functions of Bain Capital) for breaking up a company that is faltering. These weepy-eyed, soft-headed commentators are seemingly incapable of seeing beyond the obvious fact that a company has been purchased for the purpose of breaking it up, to the bigger picture of how things came to be like this in the first place. Just like the wayward tourist who happens to wander into town just as the executioner is removing the head of some criminal, all he sees is the weeping family members and the copious amounts of blood. The nature of the criminal is never considered. It needs to be considered.
Liberals and other generally confused individuals love to point out that the activity of corporate raiders ends up in real people losing their jobs. When a raider takes over a company for the purpose of tearing it apart for cash value it is inevitable that many jobs will be lost. However, what the liberals are unwilling to see is the fact that the corporate raider is doing the public a valuable service. The raider is the executioner that has been hired by the public to do its dirty work. Blaming the corporate raider is misdirected. It is the public that is to blame for the death of a company.
There are many reasons a company can become nonviable. Bad management, accounting fraud, onerous government regulations, and bad business decisions can all contribute to the death of a company. The primary reason companies go bankrupt, however, has nothing to do with the aforementioned items. It is generally the case that companies go bankrupt because they no longer provide goods and services desired by the public at the price they are offered. Simply put, companies go bankrupt because they suffer losses and they suffer losses because the public stops buying what they offer. It is the consuming public that makes the final decision about which company will live and which company will die. This is a universal truth and it is not possible for any government bureaucrat or any crazed liberal to change it. The consumer is king. The consumer holds the power of life and death over all companies in business to make a profit. When a company dies it is because the sovereign consumer has decreed it to be so.
Corporate raiders (an unnecessarily pejorative term given the valuable function these people serve) sweep in to execute companies that the public has pronounced the death sentence upon. They salvage what they can and reallocate it towards more productive uses. What are those more productive uses? That is decided by, once again, the public. The sovereign consumer determines what will be made and what will not be made. Smart raiders take what they can from a dying company and reallocate it to a company that will thrive precisely because it gives the public what the public wants.
To focus attention upon the jobs that are lost when a corporate executioner comes to do his job is misdirected. The proper behavior at that point would be to focus attention upon the jobs that are being created by the activities of this mercy killer. By freeing up wasted capital it is now possible to serve the desires of the public more efficiently and, thus, create more capital and even more jobs. The executioner should be praised for what he has done. People who had previously been sentenced to work for a company that was doomed are now freed to find better places to sell their labor. If government stays out of the process it is highly likely that the new jobs found by the laborers will pay even more than the previous ones. This is necessarily so if the new jobs are involved in the process of producing goods and services that the public actually wants.
Those who want to focus upon the destructive part of the process of creative destruction need to reconsider their appraisal of the situation. Rather than placing the blame for the demise of the failed corporation upon the corporate takeover king, the blame should be placed squarely upon the shoulders of the people responsible for that death.....the consuming public. That, of course, would involve pointing the fickle finger of blame directly back at them. Because that would involve self-recrimination, we know that will never happen.
It is most important to note that, absent coercion and outright fraud, the process of killing a dying corporation is not immoral. The fact that people who previously worked for that corporation lose their jobs is not due to some immoral action on the part of the corporate raider. The corporate raider is simply speeding up the process. The company would have died a slow, agonizing death if the mercy killer had not come along. Those jobs were already lost due to the prior decisions of the public. That company was already dead because the consuming public had decided to stop feeding it with profits. Nothing lasts forever and sometimes the best thing to do is let a company die. When that time comes the executioner will be called. But don't blame the executioner for the death of the company. He is just doing what we instructed him to do.

Thursday, May 24, 2012

Froma Harrop Does Not Understand Economics/Hates Romney

There is an editorial in today's Denver Post  by Froma Harrop of "Creators Syndicate".  It is entitled "Bain and our screwed-up culture".  Bain Capital is the name of a company that Mitt Romney once headed.  Ms. Harrop does not like Mitt Romney.  Ms. Harrop does not like "the rich".  Here is what she says, "Weird how we pay tribute to heroes who make the ultimate sacrifice on the battlefield but absolutely worship those who make fortunes wresting every last penny from other members of their company.  As men see it:  If you're rich, you're automatically a great American."  She does not stop with her hatred for "the rich".  She specifically hates Mitt Romney when she says, "But even among those intent on making it big, people with a conscience will not cross certain lines.  Bain blew across them.  There seemed little it wouldn't do for a buck."  She goes on to recount several of the business deals transacted at Bain during Romney's tenure. 
Ms. Harrop also hates capitalism.  Or, at least, she hates what she believes is capitalism.  She says, "Let's talk about capitalism.  Granted, self-interest fuels the animal spirits that create our great business enterprises.  Because the benefits of capitalism flow down to society at large, we are often at pains to divide ethical behavior from the other kind....After World War II, American culture embraced a belief that labor and management should share in the fruits of capitalism.  Those norms have been obliterated to the point that many don't remember they existed."  Ms. Harrop is amazingly ignorant about economics.  Allow me to enlighten her a bit.
First, capitalism is not an economic system that a country decides to adopt.  Capitalism is nothing more than people seeking their own best interest and realizing that in order to trade for the things that others have, they need to produce something that others want.  The "self-interest" that Ms. Harrop disdains is integral to all human behavior.  Nobody every purposefully goes out and does something to harm himself.  Everybody always pursues his own self interest.  Even those who commit suicide do so because they believe it to be the superior option at the time.  Infantile thinkers like Ms. Harrop never seem to be able to get it into their heads that all people, in all places, at all times, always operate in what they consider to be their own best interest.  And that is a good thing. 
Second, a profit is never realized unless the interest of somebody else is served.  Like most socialists, Ms. Harrop despises profit.  She hates that fact that profit motivates people.  And, like most socialists, she has no conception of what a profit is or what a profit does.  She cries out about how horrible it is when somebody does something "to make a buck".  Assuming that there is no coercion involved, I cannot "make a buck" unless I first produce something you want.  Then, after I have produced it, we engage in a mutually beneficial trade.  We both go away happy.  And I made a buck. Why is this such a horrible thing?  Ms. Harrop does not say. 
Third,  Ms. Harrop adopts the ridiculous static pie notion of the economy.  According to her, if somebody profits, somebody else had to experience a loss.  This idea needs to be abandoned.  David Rose, in an article entitled "Why Moral 'Don'ts' Matter Most" (The Freeman, May 2012) states correctly that, "The hallmark of a free-market economy is voluntary transactions.  To occur, voluntary transactions must be mutually beneficial, so they tend to be welfare-improving.  Mutual benefit is made possible by the existence of transaction surplus--each party gets more than he gives up--the expectation of which provides the impetus for voluntary transactions."  Ms. Harrop would do well to consider this economic truth:  in the absence of government coercion, people will only and always do what they do because all parties benefit mutually.  Bain Capital did not realize profits because it destroyed other companies.  Bain Capital realized profits because it operated in the market place in such a fashion that it gave the majority of consumers exactly what they wanted.  If Bain Capital had not been giving consumers exactly what they wanted it would have realized losses.  The profits realized by Bain Capital are the best indicators that the company was satisfying consumer desires.
Ms. Harrop's comment about the "benefits of capitalism" flowing "down to society at large" is only sensible if one first presupposes that there is some government bureau that is capable of planning, organizing and directing the economic activities of every individual in the country.  She misses the point that every single living being is a part of the capitalist system.  Every time a man decides to make a purchase, he is being a capitalist.  Every time a man decides to not make a purchase, he is being a capitalist.  Every time a man goes to a movie, he is being a capitalist.  Every time a man puts a dollar in his savings account, he is being a capitalist.  Every time a man goes deer hunting, he is being a capitalist.  Everybody is a capitalist all the time.  It is inevitable.  All activity, if not the result of government coercion, is capitalistic activity.  The fruits of capitalism do not "flow" anywhere.  Each man produces his own fruit each time he acts.  The concept that rich people produce capitalistic fruits that others have to beg for is the product of an economically distorted mind.  I suspect, as is the case with just about everything, that her mind is severely distorted by envy.
Ms. Harrop's belief that something magical took place after WWII is downright silly.  She says that "American culture embraced a belief that labor and management should share in the fruits of capitalism."  First, "American culture" is an entity that does not exist.  How could something that does not exist possibly "embrace" something?  Personalizing an abstract concept like "American culture", and writing about that abstract concept as if it has personal ambitions is a technique used by socialists in order to justify wealth redistribution.  It is utter nonsense.  Second, people who work in labor and management share in the fruits of capitalism anytime they act.  When a person works, he gets paid.  That is an example of labor sharing in the fruits of capitalism.  We do not need an act of Congress for labor to share in the fruits of capitalism.  When a manager sells his management services to a business he shares in the fruits of his own capitalism.  He works.  He gets paid.  Nothing more needs to be said.
The fact that all people are capitalists who pursue their self interest at all times is not a "screwed-up" feature of our society.  It is a good thing that has made us the 8th wealthiest country in the world.  The fact that people like Ms. Harrop would justify their envy and desire for government control of all the means of economic production by writing about how our culture is "screwed-up"  is the real travesty here.

Wednesday, May 23, 2012

Are Americans Exceptional?

An article in the Denver Post last week recorded a fight between two candidates for political office.  I do not remember who the candidates were as I tend to ignore the details when I read that politicians are calling each other names.  Apparently these two forgot that we had a national holiday earlier this year which was specifically designed to teach us to not call each other names.  Maybe they were doing something else on that day.  They certainly did not learn the lesson about being nice. 
The fact that two politicians were being rude to each other is not what captured my interest.  What captured my interest was when one of the politicians described the other politician as a man who "does not believe in American exceptionalism".  Apparently that was the nastiest thing he could think of to say about his opponent.  I have heard the expression "American exceptionalism" previously but have  never given it much thought.  Since at least one candidate for political office has decided that a person must believe that Americans are exceptional in order to qualify for a high paying government job, I decided to think about this concept for a while.
Wikipedia defines the concept this way:  "American exceptionalism is the theory that the United States is different from other countries in that it has a specific world mission to spread liberty and democracy. In this view, America's exceptionalism stems from its emergence from a revolution, becoming 'the first new nation,' and developing a uniquely American ideology, based on liberty, egalitarianism, individualism, populism, and laissez-faire.  This observation can be traced to Alexis de Toqueville, the first writer to describe the United States as 'exceptional' in 1831 and 1840."  Too bad Mr. de Toqueville is not around today to see what has happened to the country he described as exceptional.  Liberty?  Laissez-faire?  Individualism?  Maybe, at some point in our distant past those things were true of us.  They most certainly are not true today.  We are one of the most regulated people in the world.  We have very little freedom to do what we want to do and say what we want to say.  To describe our economy as operating under laissez-faire is a joke.  Our masters allow us to earn income only because they need an income stream to tax.  And individualism.....Ha Ha Ha.....everybody who is anybody is a member of some government protected special interest group.
Americans really are exceptional in many ways, however.  The United States leads the world in the rate at which it incarcerates its own citizens.  We are number one in imprisoning ourselves.  The United States also leads the world in the rate at which its citizens are obese.  We are number one at being fat and out of shape.  Although not ranked number one, we are rated 14th out of 178 countries for the amount of national debt we have as a percentage of our GDP.  US high school graduates rank 19th out of 21 on the scale for test scores in math.  Science test scores fare a little better where US high school graduates are ranked 16th out of 21 countries.  So, I guess it is fair to say that Americans are truly exceptional in that we are one of the most violent, corrupt, fat, slovenly, indebted, materialistic and stupid nations in the world.  I am not sure I would want to advertise these truths however.  One category in which the US does rise to the top, in comparison with most other nations, is per capita income.  In that category US citizens are 8th out of 181 countries.  So, in addition to being fat, violent and stupid, we are also rich.  I do not think most people would consider a person to be exceptional for being fat, violent, stupid and rich.  In fact, I think most people would consider that person to be a bore.
It seems to me that the belief that we are somehow better than all of the other people in the world is a rather dangerous belief.  That belief makes it very easy to believe that we can never do anything wrong.  When we invade another country that country should thank us for what we are doing because we never do anything wrong.  Every other time that country was invaded by another nation it was a bad thing because other countries always do bad things. But when the US does something it is good simply because we are good and never do anything wrong.  Combining that belief with the fact that we are the largest economy in the world with the largest and most powerful military in the world is kind of scary.  At least I know if I lived in any country other than the one that never does anything wrong I would be scared.  But, since I live here, I can sleep peacefully.  Goodnight.

Tuesday, May 22, 2012

The Middle Class Is Not Disappearing

Every once in a while, usually when a politician or a socialist has an ax to grind, we hear a report about how the middle class is shrinking.  Last November the NY Times had a feature article entitled "Middle-Class Areas Shrink as Income Gap Grows, New Report Finds".  The article went on to say that, "The portion of American families living in middle-income neighborhoods has declined significantly since 1970, according to a new study,  as rising income inequality left a growing share of families in neighborhoods that are mostly low-income or mostly affluent."  There are many problems in discussions about the middle class in America.
First, America does not have a class system.  All talk of economic or social classes is purely mythological.  Nobody is born into a particular class.  There are no social rules associated with any group of people, as there are with classes.  Nobody is forbidden from moving up or down the socio-economic scale, as is the case within a class system.  Indeed, most people move up and down a great length of the income scale throughout their lifetimes as they experience increasing income during the earning years and reduced income during the retirement years.  All this talk of a class system must be motivated by something other than the fact that we actually have a class system.  I suspect envy is the prime motivator.
Second, the term 'middle class' is never defined.  I have read dozens of articles on the topic and not one author took the time or the effort to precisely define the parameters of the middle class.  I am told that the middle class is shrinking.  I am told that people are exiting the middle class to enter the upper and lower class.  I am told that the total number of people in the middle class is dwindling.  But I am never told what the boundaries of the middle class are.  Therefore, it is logically impossible to even discuss the topic.  Until the economic limits of the middle class are established, all talk about the members of the class is meaningless.
Third, the alleged demise of the middle class is almost always linked to the alleged demise of America.  Article after article describes how the shrinking middle class necessarily requires the advent of economic recession and, eventually, economic doom for all of us.  How that is supposed to take place is never described.  Usually there are just some vague references to a reduced manufacturing base that will inevitably result in economic decline.  How a shrinking manufacturing base will result in economic decline is also never described.  Historically, nations that have experienced a reduction in manufacturing almost always simultaneously experience a real increase in income.  This is due to the fact that lower paying manufacturing jobs are shipped to other countries and higher paying service jobs take their place.  If you have a hard time conceiving of this reality, think about Hong Kong for a while.  It seems as if there are a lot of things about the concept of the shrinking middle class that are not clearly defined.  Once again, I suspect envy.
Defining the middle class is surprisingly easy.  I went to the IRS website and did a quick search for the most recent income tax statistics on the matter (from 2009).  Based upon the amount of adjusted gross income reported on the 104 million returns filed that year it is amazingly easy to spot the middle class.  Here is the data:
  • 25% of the returns filed reported AGI below $25,000.
  • 49% of the returns filed reported AGI between $25,000 and $75,000.  This can be further broken down into 31% reporting AGI between $25,000 and $50,000 and 18% reporting AGI between $50,000 and $75,000.
  • 26% of the returns filed reported AGI above $75,000.  This can be further broken down into 11% reporting AGI between $75,000 to $100,000 and 13% reporting AGI between $100,000 and $200,000. 
  • The infamous 1% is made up of those reporting AGI in excess of $200,000.
A quick glance at the above data clearly indicates that we have an almost perfect bell curve in adjusted gross income in this country.  The lower class (economically speaking) makes less than $25,000.  The lower middle class is from $25,000 to $50,000.  The upper middle class is from $50,000 to $75,000.  The upper class makes more than $75,000.  25% of us are in the lower class.  49% of us are in the middle class.  26% of us are in the upper class.  A perfect bell curve.  How can anyone possibly allege that the middle class is disappearing in light of this statistical evidence?  But the fact that we have a perfect bell curve in income does not tell the entire story.  Incomes are also rising.
Real Disposable Personal Income Per Capita (http://research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=A229RX0&s[1][range]=10yrs), after dropping during the Great Recession, is once again on the rise and will no doubt soon be at all time highs.  Income is basically back to where it was prior to the recession (see the above link to the Fed graph to check this out).  This graph represents "real" income growth, so it is adjusted for inflation.  Although growth has been mostly flat since the end of the recession (due to a multitude of factors described in other blog postings), real income has risen dramatically over the past ten years.  The point of this is that per capita income is rising.  Everyone is making more money.  All classes are making more money.  The 50% of us in the middle class are making more money.  The 25% in both the upper and lower classes are making more money.  Why should there be a problem?  Why should people be upset about this state of affairs?
I would suggest that the only reason we have talk about the shrinking middle class is due to the fact of envy in the human heart.  It does not matter that half of the US population is squarely in the middle class.  It does not matter that everybody is making more money.  What matters is that the upper 1% is realizing a greater rate of income growth than everybody else.   The response of those who bemoan the loss of the middle class is, of course, nothing more than the sinful attitude/emotion of envy.  It needs to be suppressed.  People need to mind their own business.  People need to wish their neighbors well.  Good people need to do their utmost to destroy their own envious thoughts.  That is difficult to do when the news media, socialist college professors, and politicians pander to envy on a daily basis.  It is even more difficult to do when people are praised for their public service when they allow their envy to motivate them to engage in public protest against the 1%. 
What should we do?  Maybe we should just execute everybody in the 1%.  There are not very many of them and it would not take very long to pull it off.  Then each of us could take the couple of dollars we would get from our fair share of their accumulated wealth and be done with it.  Clearly what we are presently doing to the evil members of the 1% is not enough.  Presently we are taking 30% of their annual income from them as well as taxing the transfer of their estates at rates around 50%.  We also blame them for all of the world's woes and we use them to justify our own, lower, economic status.  We yell at them, scream at them, hate them, castigate them, blame them, and scapegoat them.  You know, on second thought, we had better keep these people alive.  They are way too useful to us alive.  If the 1% did not exist, who else could I blame for my own shortcomings?

Monday, May 21, 2012

Musings On Our National Holidays

I went to the Post Office last week to pick up my mail and noticed that the flag out front was flying at half-mast. My first thought was, "which politician died yesterday?" I had no idea why the flag was at half-mast so I did a quick search of the Internet when I returned to the office and discovered that it was declared by the government that we should all remember dead police officers on that day. OK, I thought, although I do not even know any police officers, much less any who have died. (Astute observers of this blog will know that that last sentence is not true. I do know one police officer, although she is no longer speaking to me.)
I was surprised to find out that our government had declared another national holiday honoring another group of government employees. That got me to wondering.....is there any national holiday for someone who is not a government employee? After all, it is profit seeking businessmen (includes women) who have built this country. It is profit seeking businessmen who employ the majority of those who go to work in this country. It is profit seeking businessmen who provide all of the revenue (excluding the money the Fed creates out of thin air) that supports the government of this country. Certainly, I thought, government would want to honor some profit seeking businessmen. Turns out, I was really wrong on this one.
I went to the Internet once again for a list of national holidays. I discovered more holidays that I was completely unaware of. The following discussion excludes the religious holidays observed in this country. The first holiday that came up was New Year’s Day. Not much to say about that one. The second holiday was Martin Luther King Day. You can check out my blog for January 16th (Call Me A Racist, If You Must) for my opinion of that day. January 25th is "No Name Calling Day". That made me feel good about myself. I think I got through that entire day without calling anybody a name. February 2nd celebrated the infamous groundhog. I consider the celebration of the groundhog to be far superior to the celebration of the life of any politician so no complaints there. In February we had two national holidays. One celebrated the birth of Lincoln and the other the birth of Washington, now expanded to honor all US presidents. March has no notable holidays other than the observance of St. Patrick's Day which we imported from the Irish. Being Welsh, I do not celebrate it. March 30th comes as close to a celebration of business as I have seen so far. March 30th is National Doctors Day. However, since doctors operate within a government cartel designed to protect their jobs, exclude competition, and raise their income, I do not classify them with real profit seeking businessmen. So, one quarter of the way into the year we have celebrated one political activist, two politicians, doctors, and an animal, in addition to being instructed to not call each other names.
April fool’s day starts the second quarter. I wonder who the fools are. April 16th is Patriots Day in many states. By "patriot" I am sure they mean "lover of government" and not "lover of land". Strange, isn't it, how the definition of "patriot" has changed since the times of the original patriots? It used to be that a patriot distrusted government. Now you are only a patriot if you trust government. Oh well. So we have our first outright day in which we are told to love our government. The love does not stop there however. April 22nd is Earth Day and we are ordered by the greenies to love the earth. I am not sure how to go about loving an inanimate object, especially one as large as the earth, but I am told to do it nevertheless. If I remember correctly I did not litter on that day. Hopefully that was enough. Mother’s Day and Father’s Day both come up in the second quarter. Like most people I believe those two holidays were largely the creation of the greeting card lobby. May 15th was Armed Forces Day. I suppose we are expected to honor our armed forces. May 28th is Memorial Day when we are expected to once again honor our armed forces. Only this time we are to honor those who died rather than those who are alive, although in my experience that distinction is often blurred. June 14th is Flag Day. I suspect that honoring the flag is simply another way of honoring the country which, as is usually the case, means honoring the government and the military. So the second quarter concludes with a day for fools, a day for the earth, a day for each parent (tough to do for children with homosexual parents....maybe we need a separate "parents day" for them?) and four days for the government/military complex.
The third quarter starts with Independence Day on July 4th. Of course, this is the biggest annual celebration of the birth of the United States and has largely become another celebration of government and military. August, thankfully, has no government declared holidays. I have wondered why I always seem to really like August. September begins with Labor Day. The celebration of labor, of course, is not in any way related to the celebration of the entrepreneurship that created it. Too bad. In the absence of entrepreneurship there would be no labor. Seems to me we should celebrate Entrepreneur Day rather than Labor Day but that is not the way the government sees it. September 11th of course is another Patriots Day. From what I have seen so far most celebrations on this day revolve around celebrating waging war on anyone the government declares to be a terrorist. September 17th is Constitution Day. Strange that we would have a national holiday celebrating a document that is largely ignored by the government, but we do. So the third quarter concludes having celebrated labor unions (largely supported by government) and three other days directly related to waging war and government.
The fourth quarter begins with Columbus Day. I suspect this national holiday will not be around much longer because it has run afoul of political correctness. Maybe it can be replaced with Native American Day? Regardless, Columbus was not a businessman as he was highly connected to European royalty. My search for a holiday celebrating capitalism continued. Veterans Day is November 11th. I am not sure what fine distinctions are supposed to be in all of these days for military personnel. My best guess is that Armed Forces Day is for present soldiers. Memorial Day is for all dead soldiers. Veterans Day must be for all soldiers who are neither presently in service or dead. November 22nd is Thanksgiving Day. I have managed to not celebrate a traditional Thanksgiving day for several decades now. I spend Thanksgiving Day far from the crowds, hiking around in obscure wilderness areas. I do not know what goes on at the national level on Thanksgiving. Given recent events my best guess is that the primary thing we are expected to do is watch a football game or two. During the half-times of those football games we are expected to give thanks to our military since it protects us from terrorists and defends our freedoms. I also suspect I should be giving thanks to the government as well. After all, the government directs the military in the best way to fight terrorists and protect my freedom. December 7th is Pearl Harbor Day. For those too young to recall, Pearl Harbor was the original 9/11. It was declared to remember those who died at Pearl Harbor, thus bringing the United States into World War II, where millions of people died for their respective countries. So the fourth quarter has a day for a government sponsored explorer, another day for the military, a day of general thanksgiving for government, and a final day for the military.
Am I crazy or does it seems as if our national holidays pretty much revolve exclusively around politicians, government and military? Is that all the United States is about? Is that all we should annually be exhorted to remember? Furthermore, why is capitalism conspicuously absent from all of our national holidays? Where is the recognition for the men and women who have literally built this country? Why is there no Bank Executive day? Bankers have done more to build this country than every single person recognized in every single national holiday mentioned above. Why is there no National Stock Exchange Day, since we have already established a precedent for honoring inanimate objects? The stock exchange is infinitely more responsible for building the United States, especially when compared to the inanimate "earth" which has been doing nothing but sitting around getting warmer. It seems like something is terribly amiss in our land. Yes, yes, I know. If it was not for the military we would have been taken over by some communist land ages ago and businessmen would never have been able to create capital. I am not convinced that belief is true. But even if it is, is not one day enough to celebrate the military? National holidays say a lot about national character. If you just beamed in from another planet and took the time to examine the list of national holidays we observe, what would you come to believe about the United States?