Henry Ford, Bill Hewlett & Dave Packard, Steve Jobs & Steve Wozniak, Howard Schultz, Ray Kroc and Richard Branson

Posted by PITHOCRATES - February 25th, 2014

 History 101

(Originally published May 8th, 2012)

Capitalism allows Entrepreneurs to bring their Great Ideas to Life

Entrepreneurs start with an idea.  Of how to do something better.  Or to create something we must have that we don’t yet know about.  They think.  They create.  They have boundless creative energies.  And the economic system that best taps that energy is capitalism.  The efficient use of capital.  Using capital to make profits.  And then using those profits to make capital.  So these ideas of genius that flicker in someone’s head can take root.  And grow.  Creating jobs.  And taxable economic activity.  Creating wealth for investors and workers.  Improving the general economy.  Pulling us out of recessions.  Improving our standard of living.  And making the world a better place.  Because of an idea.  That capitalism brought to life.

Entrepreneurs Risked Capital to bring Great Things to Market and to Create Jobs

Henry Ford established the Detroit Automobile Company in 1899.  Which failed.  He reorganized it into the Henry Ford Company in 1901.  Ford had a fight with his financial backers.  And quit.  Taking the Ford name with him.  And $900.  The Henry Ford Company was renamed Cadillac and went on to great success.  Ford tried again and partnered with Alexander Malcomson.  After running short of funds they reorganized and incorporated Ford Motor Company in 1903 with 12 investors.  The company was successful.  Some internal friction and an unexpected death of the president put Ford in charge.  Ford Motor built the Model A, the Model K and the Model S.  Then came the Model T.  And the moving assembly line.  Mass production greatly increased the number of cars he could build.  But it was monotonous work for the assembly line worker.  Turnover was high.  So to keep good workers he doubled pay in 1914 and reduced the 9-hour shift to 8 hours.  This increased productivity and lowered the cost per Model T.  Allowing those who built the cars to buy what they built.  In 2011 the Ford Motor Company employed approximately 164,000 people worldwide.

Bill Hewlett and Dave Packard established Hewlett-Packard (HP) in 1939.  In a garage.  They raised $538 in start-up capital.  In that garage they created their first successful commercial product.  A precision audio oscillator.  Used in electronic testing.  It was better and cheaper than the competition.  Walt Disney Productions bought this oscillator to certify Fantasound surround sound systems in theaters playing the Disney movie Fantasia.  From this garage HP grew and gave us calculators, desktop and laptop computers, inkjet and laser printers, all-in-one multifunction printer/scanner/faxes, digital cameras, etc.  In 2010 HP employed approximately 324,600 employees worldwide.  (Steve Wozniak was working for HP when he designed the Apple I.  Which he helped fund by selling his HP calculator.  Wozniak offered his design to HP.  They passed.)

Steve Jobs had an idea to sell a computer.  He convinced his friend since high school, Steve Wozniak, to join him.  They sold some of their things to raise some capital.  Jobs sold his Volkswagen van.  Wozniak sold his HP scientific calculator.  They raised about $1,300.  And formed Apple.  They created the Apple I home computer in 1976 in Steve Jobs’ garage.  From these humble beginnings Apple gave us the iPad, iPhone, iPod, iMac, MacBook, Mac Pro and iTunes.  In 2011 Apple had approximately 60,400 full time employees.

Jerry Baldwin, Zev Siegl, and Gordon Bowker opened the first Starbucks in 1971 in Seattle, Washington.  About 10 years later Howard Schultz drank his first cup of Starbucks coffee.  And he liked it.  Within a year he joined Starbucks.  Within another year while traveling in Italy he experienced the Italian coffeehouse.  He loved it.  And had an idea.  Bring the Italian coffeehouse to America.  A place to meet people in the community and converse.  Sort of like a bar.  Only where the people stayed sober.  Soon millions of people were enjoying these tasty and expensive coffee beverages at Starbucks throughout the world.  In 2011 Starbucks employed approximately 149,000 people.

Ray Kroc sold Prince Castle Multi-Mixer milk shakes mixers to a couple of brothers who owned a restaurant.  Who made hamburgers fast.  Richard and Maurice McDonald had implemented the Speedee Service System.  It was the dawn of fast food.  Kroc was impressed.  Facing tough competition in the mixer business he opened a McDonald’s franchise in 1955.  Bringing the grand total of McDonald’s restaurants to 9.  He would go on to buy out the McDonald brothers (some would say unscrupulously).  Today there are over 30,000 stores worldwide.  In 2010 McDonald’s employed approximately 400,000 people.

Richard Branson started a magazine at 16.  He then sold records out of a church crypt at discount prices.  The beginning of Virgin Records.  In 1971 he opened a record store.  He launched a record label in 1972.  And a recording studio.  Signing the Sex Pistols.  And Culture Club.  In 1984 he formed an airline.  Virgin Atlantic Airways.  In 1999 he went into the cellular phone business.  Virgin Mobile.  In 2004 he founded Virgin Galactic.  To enter the space tourism business.  His Virgin Group now totals some 400 companies.  And employs about 50,000 people.

The Decline of Capitalism and the Rise of the Welfare State caused the European Sovereign Debt Crisis

And we could go on.  For every big corporation out there will have a similar beginning.  Corporations that use capital efficiently.  Bringing great things to market.  Introducing us to new things.  Always making our lives better.  And more comfortable.  One thing you will not find is a great success story like this starting in the Soviet Union.  The People’s Republic of China (back in the days of Mao Zedong).  East Germany (before the Berlin Wall fell).  North Korea.  Or Cuba.  No.  The command economies of communist countries basically froze in time.  Where there was no innovation.  No ideas brought to life.  Because the government kind of frowned on that sort of thing.

There is a reason why the West won the Cold War.  And why we won that war without the Warsaw Pack and NATO forces fighting World War III.  And why was this?  Because we didn’t need to.  For the communist world simply could not withstand the forces of living well in the West.  Whenever they could their people escaped to the West.  To escape their nasty, short and brutish lives.  In the command economies of their communist states.  Where the state planners failed to provide for their people.  Even failing to feed their people.  The Soviet Union, the People’s Republic of China and North Korea all suffered population reducing famines.  But not in the West.  Where we are not only well fed.  But our poor suffer from obesity.  Which is not a good thing.  But it sure beats dying in a famine.

Sadly, though, the West is moving towards the state planning of their one time communist foes.  Social democracies are pushing nations in the European Union to bankruptcy.  Japan’s generous welfare state is about to implode as an aging population begins to retire.  Even in the United States there has been a growth of government into the private sector economy like never before.  Which is causing the Great Recession to linger on.  As it caused Japan’s lost decade to become two decades.  And counting.  As it is prolonging the European sovereign debt crisis.  With no end in sight.  The cause of all their problems?  The decline of capitalism.  And the rise of the welfare state.  Which just kills the entrepreneurial spirit.  And the creation of jobs.  Which is one cure for all that ails these countries.  And the only one.  For only robust economic activity can pull a country out of recession.  And for that you need new jobs.  And the entrepreneurial spirit.  In short, you need capitalism.

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FT166: “Multiculturalism celebrates are differences while breeding anti-American terrorists.” —Old Pithy

Posted by PITHOCRATES - April 19th, 2013

Fundamental Truth

The Entrepreneurial Spirit gave America the Economic Prowess to spend the Soviet Union into the Ash Heap of History

Immigrants used to come to the United States with great enthusiasm.  They were excited that they were going to be an American.  They wanted to assimilate.  They learned their American history.  Better than most people born in the United States.  When they took the oath of citizenship a euphoric joy filled them.  For having fulfilled their greatest dream.  If they heard their family members speak the language of their birth country they rebuked them sternly.  And told them, “We’re American now.  Speak English.”

Yes, there was great pride in becoming an American.  As immigrants saw America as Ronald Reagan saw it.  A shining city upon a hill.  Whose beacon light guides freedom-loving people everywhere.  People in the Old World yearned for the freedom of the New World.  Religious freedom.  Freedom from an oppressive government.  Economic freedom.  Where everyone had the same chance to be whatever they wanted to be no matter who their parents were.  For in America there was no privilege.  Just hard work.  And the ability to keep the fruit of all your labors.  This is the American dream.  This is why they came to this shining city upon a hill.

Immigrants wanted to assimilate.  They wanted to think of themselves as Americans.  For it meant something.  Something special.  It meant you were a citizen of the greatest country in the world.  For individual liberty unleashed great prosperity.  An entrepreneurial spirit.  American ingenuity.  Making America the leader in new technology.  Making work less tedious.  And life more enjoyable.  Giving America the highest standard of living.  Great food surpluses that let America feed the world.  And the military power to defeat Nazism and stand up to communism.  And the economic prowess to spend the Soviet Union into the ash heap of history.

Our Public Schools teach our Children that we Stole the Land from the Native Americans and got Rich on Slave Labor

People came to America to be Americans.  They remembered their culture.  But their culture did not identify who they were.  They were Americans.  Not hyphenated Americans.  As Theodore Roosevelt said, “In this country we have no place for hyphenated Americans.”  We were not Italian-Americans.  We were not Polish-Americans.  We were not Irish-Americans.  We were not German-Americans.  We were Americans.

Our public schools once taught our children about the Founding.  The abuses of European monarchies.  Unjust taxation.  And the perverse powers of privilege.  Things the Founding Fathers found abhorrent.  The Founding Fathers knew the history of Greece and Rome.  King John and Magna Carta.  And the English Civil War was not that distant from their time.  They were students of the Enlightenment.  They read Adam Smith.  Believed in laissez-faire economics.  And championed limited government.  When they formed a new country they drew from this vast pool of knowledge.  And made the greatest country in the world.  One with religious freedom but based on Judeo-Christian values.  A country so great that rulers of other nations wanted to hinder its ascension to further greatness.  While the people living under those rulers wanted to be Americans.

This experiment in self-government had some growing pains.  We were not perfect.  But we were far more perfect than any other government out there.  But our public schools don’t teach that today.  Instead, they teach our children that the Founders stole the land from the Native Americans.  That we stole our southern land and California from the Mexicans.  Who gained their independence from Spain who colonized these lands.  Land they had stolen from the native people who were living on it at the time.  (Interestingly, when the Mexicans gained their independence from a European power the land belonged to the Mexicans.  But when the Americans gained their independence from a European power the land belonged to someone else.)  That we stole Cuba and the Philippines from the Spanish.  Who stole it from the people living on these lands when they arrived and stole it.  Yet it is the Americans who were an imperialist power stealing land.  Never the Mexicans or the Spanish.  And, of course, that America grew rich and powerful thanks to free slave labor.  Despite that very same economic system causing the South to lose the American Civil War.

The American Educational System failed to make Dzhokhar Tsarnaev NOT burn with a Seething Hatred of America

Then the attacks on capitalism came.  The system that made America great.  All of a sudden it was unfair.  It was unjust.  And it exploited the poor to help the rich get richer.  A better system was socialism.  For it was fair.  It was just.  Because it put people before profits.  (Just ask those who lived in the Soviet Union, the People’s Republic of China under Mao, North Korea, Cuba and the people who lived behind the Iron Curtain in Eastern Europe how wonderful it was to live where they put people before profits.  Here’s a hint.  A lot of these people were shot while trying to escape their social utopia).  Unlike the most evil thing in the world.  The corporation.  Who underpaid their workers.  Raped the land of its natural resources.  And polluted the environment.  So not only were they evil for pursuing profits they were evil for exploiting both people and the planet.  So we needed more government to regulate capitalism.  And those evil corporations.  So our children learned the evils of capitalism and the goodness of government in our public schools and universities.  Where their teachers and professors taught them all of the badness of the United States.  While glossing over all of its goodness.  Imbuing some shame into our students for being American.  Even making some burn with a seething hatred of the United States.

And so began the diversity movement.  And multiculturalism.  If America was so shameful we should not celebrate what unified us as Americans.  But we should celebrate our differences.  We no longer celebrated the things people immigrated to the United States for.  But the things they fled in the countries they emigrated from.  We are no longer Americans.  We are now hyphenated Americans.  And it was the thing preceding the hyphen that made us great now.  Not being American.  Because America had a shameful past.  And had a long way to go to atone for her sins.  Making a lot of hatred of America now home-grown.  Especially in the American universities.  Where radicals from the Sixties who wanted to overthrow capitalism and replace it with socialism now write the curriculum.  And these radical professors disparaged judgmental Christianity every chance they could.  For they liked the sex and drugs of their Me generation.  Mocking the Judeo-Christian values that made America great.  Something those who were not Christians ate up.

So the American university system is a hotbed of anti-American sentiment.  Perhaps explaining why some of the greatest terrorist attacks on American soil were perpetrated by people educated in the United States.  Such as Khalid Sheikh Mohammed.  Architect and mastermind of a series of terrorist attacks.  Including the attacks on 9/11.  Who attended college in North Carolina.  Earning a degree in mechanical engineering.  And Anwar al-Awlaki.  Who earned a degree in civil engineering from Colorado State University.  He also studied education leadership at San Diego State University.  And worked on a doctorate at George Washington University.  Then moved to Yemen and became the Osama bin Laden of the Internet.  And then we have the Boston Marathon bombers.  Dzhokhar and Tamerlan Tsarnaev.  Who immigrated to the United States about a decade ago.  With Dzhokhar being so young he probably has no memories of his native Chechnya.  A hotbed of radical Islamist terrorism.  Locked in a bitter war with Christian Russia.  Where barbarous acts in that conflict have rivaled the atrocities of the Eastern Front in World War II.  Yet he burned with such a seething hatred of an America founded on Judeo-Christian values that he could place a bomb next to an 8 year old child.  A seething hatred he learned from someone while living in America.  Either directly from the American educational system.  Or indirectly as that educational system failed to make him NOT burn with a seething hatred of America.

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Balance Sheet, Financial Ratios, Private Equity, Toys “R” Us, Bain Capital, Leveraged Buyout and Initial Public Offering

Posted by PITHOCRATES - May 29th, 2012

History 101

Private Equity guides a Business foundering in Rough Seas into a Safe Harbor to Refit it for Profitability

The balance sheet is the one of the two most important financial statements of a business.  It’s a snapshot in time of the financial position of a company.  In the classical format all assets are on the left side.  And all liabilities and equity are on the right.  And the total value of all assets equals the total value of all liabilities and equity.  In other words the business bought all of their assets with money raised by borrowing (liabilities), with money raised by selling stock (equity) or with money generated by the business (retained earnings/profits). 

Everything you ever wanted to know about a business you can find on the balance sheet.  Through numerous financial ratios you can determine if the business is using their assets efficiently.  Or have too many assets that cost more to maintain for the revenue they produce.  You can tell if a business has too much debt.  Or has so little debt that new debt can finance growth and expansion.  Which could attract new equity investors for further growth.  You can see if they’re matching the terms of their debt with the life of their assets.  Or if they’re taking on long-term debt obligations to provide short-term working capital.  A review of a firm’s balance sheet can also tell how well the management team is doing.  Or how poorly.

The financial picture the balance sheet provides of a business is an objective picture.  It gives an outsider a different view of the company than an insider.  Who may have a more subjective view.  They may not want to shutter a poorly utilized factory because of pride, sympathy for the employees or unfounded hope that business will improve soon.  So they will risk losing everything by not accepting that they must let some things go.  Like a cargo ship foundering in rough seas.  To save the ship and most of its cargo a captain may have to jettison some cargo.  If he or she doesn’t the captain can lose the ship.  The cargo.  And the lives of everyone on board.  Perhaps having a life or death decision in the balance makes it easier to make those hard decisions.  Perhaps that’s why some CEOs can’t let some things go.  Because they never accept the seriousness of their situation.  Perhaps this is why an outsider can read a balance sheet and see what the CEO can’t.  And act.  Like the captain of a ship foundering in rough seas.  And this is what private equity does.  Guides a foundering business into a safe harbor.  Refits it.  And then re-launches it on a course of profitability.

Toys “R” Us

Toys “R” Us was hitting its stride in the Eighties.  They were dominating the retail toy business.  Even expanding internationally.  And into other lines.  Children’s clothing.  Kids “R” Us.  And baby products.  Babies “R” Us.  There was no stopping them.  The secret to their success?  Sell every hot new toy kids wanted.  And sell it cheap.  At or below cost.  Using these loss leaders to get people into their stores.  Where they could sell them more expensive goods in addition to the most popular ‘must have’ toys. 

Then came the Nineties.  And serious competition.  From the big department stores, discount chains and warehouse clubs.  Target.  Wal-Mart.  Costco.  And then the Internet.  Who could use the Toys “R” Us strategy just as well.  And do them one better.  Toys “R” Us focused on selling the ‘must have’ toys at the lowest price.  Where customers came in knowing what they were looking for.  Finding it.  And heading to the checkout.  With a plan like that you don’t need customer service.  So when the competition matched them on selection and price they also threw in better customer service.  Wal-Mart surpassed Toys “R” Us.  Which was by then losing both profitability and market share. 

In 2004 a consortium of private equity (KKR and Bain Capital) and Vornado Realty Trust bought Toys “R” Us for $6.6 billion in a leveraged buyout.  And they turned the corporation around.  With a new management team.  Made the corporation more efficient.  In the brick and mortar stores as well as online.  The company is better and stronger today.  But it has delayed its Initial Public Offering (IPO) for about 2 years now due to a couple of lackluster Christmas seasons during the Great Recession.  They will use the capital raised from the IPO to pay down the debt from the leveraged buyout now sitting on Toys “R” Us’ balance sheet.  Making the turnaround complete.  Allowing the private equity firms to exit while leaving behind a healthier and more profitable company.

The Goal of the Leveraged Buyout was to make Toys “R” Us a Stronger Company

Private equity was successful at Toys “R” Us because Toys “R” Us was a good company.  From 1948 it consistently did the smart thing and grew into the giant it is.  But then it matured.  And the market changed.  Like a ship foundering in rough seas they just needed a little help to captain them through those rough seas.  And that’s what private equity did. 

Many will criticize the sizable debt they’ve left on their balance sheet.  But the plan was always to take the company public again.  Using the proceeds from the IPO to clean up the balance sheet.  Yes, the equity partners will also make a fortune.  But Toys “R” will emerge from this process a stronger company.  Which was the goal of the leveraged buyout.  They did not chop up the company and liquidate the pieces.  They purchased it in 2005.  And the company is still around today in 2012.  What have they been doing all this time?  Trying to make the company the best it can be.  So they can profit greatly from the IPO. 

No doubt the balance sheet of Toys “R” Us has never looked better.  Other than the debt added for the leveraged buyout.  Which they have been able to service since 2005.  So clearly the company is doing something right.  And just imagine how well they will do after they clean that debt off of their balance sheet.  After the IPO.  Suffice it to say that our grandchildren will be shopping there for their own children one day.

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Henry Ford, Bill Hewlett & Dave Packard, Steve Jobs & Steve Wozniak, Howard Schultz, Ray Kroc and Richard Branson

Posted by PITHOCRATES - May 8th, 2012

History 101

Capitalism allows Entrepreneurs to bring their Great Ideas to Life

Entrepreneurs start with an idea.  Of how to do something better.  Or to create something we must have that we don’t yet know about.  They think.  They create.  They have boundless creative energies.  And the economic system that best taps that energy is capitalism.  The efficient use of capital.  Using capital to make profits.  And then using those profits to make capital.  So these ideas of genius that flicker in someone’s head can take root.  And grow.  Creating jobs.  And taxable economic activity.  Creating wealth for investors and workers.  Improving the general economy.  Pulling us out of recessions.  Improving our standard of living.  And making the world a better place.  Because of an idea.  That capitalism brought to life.

Entrepreneurs Risked Capital to bring Great Things to Market and to Create Jobs

Henry Ford established the Detroit Automobile Company in 1899.  Which failed.  He reorganized it into the Henry Ford Company in 1901.  Ford had a fight with his financial backers.  And quit.  Taking the Ford name with him.  And $900.  The Henry Ford Company was renamed Cadillac and went on to great success.  Ford tried again and partnered with Alexander Malcomson.  After running short of funds they reorganized and incorporated Ford Motor Company in 1903 with 12 investors.  The company was successful.  Some internal friction and an unexpected death of the president put Ford in charge.  Ford Motor built the Model A, the Model K and the Model S.  Then came the Model T.  And the moving assembly line.  Mass production greatly increased the number of cars he could build.  But it was monotonous work for the assembly line worker.  Turnover was high.  So to keep good workers he doubled pay in 1914 and reduced the 9-hour shift to 8 hours.  This increased productivity and lowered the cost per Model T.  Allowing those who built the cars to buy what they built.  In 2011 the Ford Motor Company employed approximately 164,000 people worldwide.

Bill Hewlett and Dave Packard established Hewlett-Packard (HP) in 1939.  In a garage.  They raised $538 in start-up capital.  In that garage they created their first successful commercial product.  A precision audio oscillator.  Used in electronic testing.  It was better and cheaper than the competition.  Walt Disney Productions bought this oscillator to certify Fantasound surround sound systems in theaters playing the Disney movie Fantasia.  From this garage HP grew and gave us calculators, desktop and laptop computers, inkjet and laser printers, all-in-one multifunction printer/scanner/faxes, digital cameras, etc.  In 2010 HP employed approximately 324,600 employees worldwide.  (Steve Wozniak was working for HP when he designed the Apple I.  Which he helped fund by selling his HP calculator.  Wozniak offered his design to HP.  They passed.)

Steve Jobs had an idea to sell a computer.  He convinced his friend since high school, Steve Wozniak, to join him.  They sold some of their things to raise some capital.  Jobs sold his Volkswagen van.  Wozniak sold his HP scientific calculator.  They raised about $1,300.  And formed Apple.  They created the Apple I home computer in 1976 in Steve Jobs’ garage.  From these humble beginnings Apple gave us the iPad, iPhone, iPod, iMac, MacBook, Mac Pro and iTunes.  In 2011 Apple had approximately 60,400 full time employees.

Jerry Baldwin, Zev Siegl, and Gordon Bowker opened the first Starbucks in 1971 in Seattle, Washington.  About 10 years later Howard Schultz drank his first cup of Starbucks coffee.  And he liked it.  Within a year he joined Starbucks.  Within another year while traveling in Italy he experienced the Italian coffeehouse.  He loved it.  And had an idea.  Bring the Italian coffeehouse to America.  A place to meet people in the community and converse.  Sort of like a bar.  Only where the people stayed sober.  Soon millions of people were enjoying these tasty and expensive coffee beverages at Starbucks throughout the world.  In 2011 Starbucks employed approximately 149,000 people.

Ray Kroc sold Prince Castle Multi-Mixer milk shakes mixers to a couple of brothers who owned a restaurant.  Who made hamburgers fast.  Richard and Maurice McDonald had implemented the Speedee Service System.  It was the dawn of fast food.  Kroc was impressed.  Facing tough competition in the mixer business he opened a McDonald’s franchise in 1955.  Bringing the grand total of McDonald’s restaurants to 9.  He would go on to buy out the McDonald brothers (some would say unscrupulously).  Today there are over 30,000 stores worldwide.  In 2010 McDonald’s employed approximately 400,000 people.

Richard Branson started a magazine at 16.  He then sold records out of a church crypt at discount prices.  The beginning of Virgin Records.  In 1971 he opened a record store.  He launched a record label in 1972.  And a recording studio.  Signing the Sex Pistols.  And Culture Club.  In 1984 he formed an airline.  Virgin Atlantic Airways.  In 1999 he went into the cellular phone business.  Virgin Mobile.  In 2004 he founded Virgin Galactic.  To enter the space tourism business.  His Virgin Group now totals some 400 companies.  And employs about 50,000 people.

The Decline of Capitalism and the Rise of the Welfare State caused the European Sovereign Debt Crisis

And we could go on.  For every big corporation out there will have a similar beginning.  Corporations that use capital efficiently.  Bringing great things to market.  Introducing us to new things.  Always making our lives better.  And more comfortable.  One thing you will not find is a great success story like this starting in the Soviet Union.  The People’s Republic of China (back in the days of Mao Zedong).  East Germany (before the Berlin Wall fell).  North Korea.  Or Cuba.  No.  The command economies of communist countries basically froze in time.  Where there was no innovation.  No ideas brought to life.  Because the government kind of frowned on that sort of thing.

There is a reason why the West won the Cold War.  And why we won that war without the Warsaw Pack and NATO forces fighting World War III.  And why was this?  Because we didn’t need to.  For the communist world simply could not withstand the forces of living well in the West.  Whenever they could their people escaped to the West.  To escape their nasty, short and brutish lives.  In the command economies of their communist states.  Where the state planners failed to provide for their people.  Even failing to feed their people.  The Soviet Union, the People’s Republic of China and North Korea all suffered population reducing famines.  But not in the West.  Where we are not only well fed.  But our poor suffer from obesity.  Which is not a good thing.  But it sure beats dying in a famine.

Sadly, though, the West is moving towards the state planning of their one time communist foes.  Social democracies are pushing nations in the European Union to bankruptcy.  Japan’s generous welfare state is about to implode as an aging population begins to retire.  Even in the United States there has been a growth of government into the private sector economy like never before.  Which is causing the Great Recession to linger on.  As it caused Japan’s lost decade to become two decades.  And counting.  As it is prolonging the European sovereign debt crisis.  With no end in sight.  The cause of all their problems?  The decline of capitalism.  And the rise of the welfare state.  Which just kills the entrepreneurial spirit.  And the creation of jobs.  Which is one cure for all that ails these countries.  And the only one.  For only robust economic activity can pull a country out of recession.  And for that you need new jobs.  And the entrepreneurial spirit.  In short, you need capitalism.

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Capital and Capitalism

Posted by PITHOCRATES - May 7th, 2012

Economics 101

Entrepreneurs have an Insatiable Desire to Think and Create

It takes money to make money.  For it is money that buys the means of production.  The land, manufacturing plants, small shops, office space, machines, equipment and infrastructure that make things.  The trucks, barges, container ships, locomotives and rolling stock that transport raw material, work-in-progress and finished goods.  These physical assets are capital.  From assembly lines to inventory control systems to accounting software.  Things that let businesses conduct business.  And make profits.

This is the key to capitalism.  Profits.  It’s what allows businesses to make the things we need and enjoy.  Profits are what make an entrepreneur take a risk.  To spend their life savings.  To mortgage their home.  To borrow from a bank.  They do these things because they believe they will be able to earn enough profits to replenish their life savings.  To make their mortgage payments.  To repay their loans.  AND to earn a living in the process.  It is a risky endeavor.  And far more risky than working for someone and earning a steady paycheck.  But if entrepreneurs didn’t take these risks we wouldn’t have things like the iPhone or the automobile or the airplane.  All of which were brought to us because one person had an idea.  And then invested in the capital to bring that idea to market.

Some business ideas succeed.  Many more fail.  But people keep trying.  Because of that insatiable desire to think and create.  And the ability to earn profits to pay for their ideas.  To build on their ideas.  To expand their ideas.  From the first thoughts of it they kicked around in their head.  To the multinational corporations their ideas grew into.  All made possible by the profits they earned.  The more they earned the more they could do.  As they reinvested those earnings into their businesses.  To buy more capital.  That allowed them to build more things.  And use even more capital to bring these things to market.  Creating jobs all along the way.  Jobs that only came into being because of those profits that started as a single thought in someone’s head.

If you can’t Service your Debt your Creditors can and will Force you into Bankruptcy

This is where corporations come from.  From a single thought.  Profitable business operations grow that thought into the corporations they become.  For corporations are not the evil spawn of the damned.  Corporations come from people having a great idea.  Like Starbucks.  And Ben and Jerry’s.  Who are now everywhere so we can enjoy their products wherever we are.  All made possible by the profits of capitalism.

Who’s up for a little accounting?  You are?  Well, then, you came to the right place.  For we’re going to learn a little accounting.  Right here.  Right now.  Corporations determine their profits by closing their books at the end of an accounting period.  A series of accounting steps culminate in the trial balance.  Where the sum of all debits equal the sum of all credits.  Or eventually do after various adjusting entries.  Once they do the books are balanced.  And business at last can see if they were profitable.  By producing an income statement.  Which lists revenue at the top.  Then sums all costs (materials, production wages, payroll taxes & health insurance for that labor, etc.) that produced that revenue.  Subtracting these costs from revenue gives you gross profit.  Then comes overhead costs.  Fixed costs.  Like rent and utilities.  And overhead labor (corporate officers, management, accounting, human resources, etc.).  They sum these and subtract them from gross profit.  Which brings us to earnings before interest and taxes (EBIT).  A very important profitability number.  For if there is any money left by the time you reach EBIT your business operations were profitable.  Your business was able to pay all the due bills to produce your revenue.  Which leaves just two numbers.  Interest they owe on their loans.  And income taxes.

EBIT is a very important number.  For if it’s not large enough to service your debt everything above EBIT is for naught.  Because if you can’t service your debt your creditors can and will force you into bankruptcy.  Never a good thing.  And what follows is usually the opposite of growing your business.  Shrinking your business.  By seriously cutting costs (i.e., massive layoffs).  And eliminating unprofitable lines of revenue.  Downsizing and reorganizing as necessary so your cost structure can produce a profit at the given market price for your goods and/or services.  A price determined by your competition in the market.  If you cannot downsize and reorganize sufficiently to become profitable then you go out of business.  Or you sell the business to someone who can make a profit.  Because unless you can turn a profit your business will consume money.  And that money has to come from somewhere.  Typically it is the business owner until they run out of life savings and home to mortgage.  Because a bank can’t give you money to lose in your business.  For their depositors put their money into the bank to grow their savings.  Not to shrink them.  So a bank has to be profitable to please their depositors.  And if the bank is using their money to make bad loans they will remove their money.  As will other depositors.  Perhaps creating a run on the bank.  And causing the bank to fail.  So while operating at a loss will save employees jobs in the short term it will cause far greater harm in the long term.  Which isn’t good for anyone.

Capitalism works because with Risk there’s Reward

As you can see getting those accounting reports to fairly state the profitability of a business is crucial.  For it’s the only way a business knows if it can pay its bills.  And the way they pay their bills complicate matters.  Revenue and costs come in at different times.  To bring order to this chaos businesses use accrual accounting.  Which includes two very important rules.  To record accurately when revenue is revenue (for example, a down payment is not revenue.  It’s a liability a business owes the customer until the sale transaction is complete).  And to match costs to revenue.  Meaning that every cost a business incurred producing a sale is matched to that sale.  Even long-term fixed assets like buildings and machinery.  Which they depreciate over the life of the asset.  Charging a depreciation expense each accounting period until the asset is fully depreciated.

Because of these accounting reports that fairly state business operations a business knows if they are profitable.  That they can pay all of their bills.  Their suppliers AND their employees.  Their health insurance AND their payroll taxes.  The interest on their debt AND their income taxes.  They can pay all of these when they come due.  And not run out of money when other bills come due.  Which is why they can have confidence when they read their income statement.  Knowing that they paid all their costs due in that accounting period.  Including the interest on their debt.  And their income taxes.  Which takes them to the bottom line.  Net profit.  And if it’s positive they have money to reinvest into their business.  To expand operations.  To increase sales revenue.  Create more jobs.  And they can grow.  But not too much that they lose control.  So they can always pay their bills.  So they can keep doing what they love.  Thinking.  And bringing new ideas to market.

This is capitalism.  Where people take risks.  In hopes of making profits.  They invest in capital to make those profits.  And then use those profits to invest in capital.  It works because there is a direct relationship between risk and profits.  It’s why people take risks.  Create jobs.  And provide the things we need and enjoy.  Because with risk there’s reward.  And accounting reports that fairly state business operations give a business’ management the tools to be profitable.  By matching costs to revenue.  Telling them when they are not using their capital efficiently.  Helping them to stay profitable.  (Unlike anything the government runs.  Because there is no matching of costs to revenue.  Taxes come into the treasury and the treasury pays for a multitude of things.  With no way to know if they are using those taxes efficiently).  And this is capitalism.  Risk and reward.  And accountability.  For when you’re risking your money you become very accountable.  Which is why capitalism works .  And government-run entities don’t.

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Consumption, Savings, Fractional Reserve Banking, Interest Rates and Capital Markets

Posted by PITHOCRATES - January 23rd, 2012

Economics 101

Keynesians Prefer Consumption over Savings because Everyone Eventually Dies

Consumer spending accounts for about 70 percent of total economic activity.  This consumption drives the economy.  In fact, someone built a school of economics around consumption.  Keynesian economics.  And he loved consumption.  John Maynard Keynes even created a formula for it.  The consumption function.  Which basically says the more income a person has the more that person will consume.  Even created a mathematical formula for it.  No doubt about it, Keynesians are just gaga for consumption.

Of course, Keynesians don’t love everything.  They aren’t all that fond of saving.  Which they see as a drain on economic activity.  Because if people are saving their money they aren’t doing as much consuming as they could.  In fact, their greatest fear when they propose stimulus spending (by giving people more money to spend) to jump-start an economy out of a recession is that people may take that money and save it.  Or, worse yet, pay down their credit card balances.  Which is something most responsible people do during bad economic times.  To lower their monthly bills so they can still pay them if they find themselves living on a reduced income.  Of course, being responsible doesn’t increase consumption.  Nor does it make Keynesians happy.

Keynesians don’t like people behaving responsibly.  They want everyone to live beyond their means.  To borrow money to buy a house.  To buy a car.  Or two.  To use their credit cards.  To keep shopping.  Above and beyond the limits of their income.  To spend.  And to keep spending.  Always consuming.  Creating endless economic activity.  And never worry about saving.  Because everyone eventually dies.  And what good will all that saving be then?

To Help Create more Capital from a Low Savings Rate we use Fractional Reserve Banking

Intriguing argument.  But too much consuming and not enough saving can be a problem, though.  Because before we consume we must produce.  And those producing the things we consume need capital.  Large sums of money businesses use to pay for buildings, equipment, tools and supplies.  To make the things consumers consume.  And where does that capital come from?  Savings.

A low savings rate raises the cost of borrowing.  Because businesses are competing for a smaller pool of capital.  Which raises interest rates.  Because capital is an economic commodity, subject to the law of supply and demand.  Also, with people living beyond their means by consuming far more than they are saving has caused other problems.  Borrowing to buy houses and cars and using credit cards to consume more has led to dangerous levels of personal debt.  Resulting in record personal bankruptcies.  Further raising the cost of borrowing.  As these banks have to increase their interest rates to make up for the losses they incur from those personal bankruptcies.

To help create more capital from a low savings rate we use fractional reserve banking.  Here’s how it works.  If you deposit $100 into your bank the bank keeps a fraction of that in their vault.  Their cash reserve.  And loan out the rest of the money.  When lots of people do this the banks have lots of money to loan.  Which people and businesses borrow.  Who borrow to buy things.  And when buyers buy things sellers will then take their money and deposit it into their banks.  The buyer’s borrowed funds become the seller’s deposited funds.  These banks will keep a fraction of these new deposits in their vaults.  And loan out the rest.  Etc.  As this happens over and over banks will create money out of thin air.  Providing ever more capital for businesses to borrow.  Which all works well.  Unless depositors all try to withdraw their deposits at the same time.  Exceeding the cash reserve locked up in a bank’s vault.   Creating a run on the bank.  Causing it to fail.  Which can also raise the cost of borrowing.  Or just make it difficult to find a bank willing to loan.  Because banks not only loan to consumers and businesses.  They loan to other banks.  And when one bank fails it could very well cause problems for other banks.  So banks get nervous and are reluctant to lend until they think this danger has passed.

A Keynesian Stimulus Check may Momentarily Substitute for a Paycheck but it can’t Create Capital

Consumption, savings, investment and production are linked.  Consumption needs production.  Production needs investment.  And investment needs savings.  Whether it is someone depositing their paycheck into a bank that lends it to others.  Or rich investors who amassed and saved great wealth.  Who invest directly into a corporation by buying new shares of their stock (from an underwriter, not in the secondary stock market).  Or by buying their bonds.

Collectively we call these capital markets.  Where businesses go when they need capital.  If interest rates are low they may borrow from a bank.  Or sell bonds.  If interest rates are high they may issue stock.  Generally they have a mix of financing that best fits the investing climate in the capital markets.  To protect them from volatile movements in interest rates.  And from competition from other corporations issuing new stock that could draw investors (and capital) away from their new stock issue.  Even to secure capital when no one is lending.  By going contrary to Keynesian policy and saving for a rainy day.  By buying liquid investments that earn a small return on investment and carrying them on their balance sheet.  They don’t earn much but can be sold quickly and converted into cash when no one is lending.

A lot must happen before consumers can consume.  In fact, high consumption can pull capital away from those who make the things they consume.  Because without capital businesses can’t expand production or hire more workers.  And no amount of Keynesian stimulus can change that.  Because there are two things necessary for consumption.  A paycheck.  And consumer goods produced with capital.  A stimulus check may momentarily substitute for a paycheck.  But it can’t create capital.  Only savings can do that.

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Stocks and Bonds

Posted by PITHOCRATES - January 9th, 2012

Economics 101

When Companies grow their Capital Requirements grow beyond a Bank’s Lending Ability

We note a civilization as being modern when it has vigorous economic activity.  Advanced economies around the world all have the same things.  Grocery stores.  Clothing stores.  Electronic stores.  Appliance stores.  Coffee shops and restaurants.  Factories and manufacturing plants.  And lots and lots of jobs.  Where people are trading their human capital for a paycheck.  So they can take their earnings and engage in economic activity at these stores, coffee shops and restaurants.

To buy things off of shelves in these stores things have to be on those shelves first.  Which means selling things requires spending money before you earn money.  Businesses use trade credit.  Such as accounts payable.  Where a supplier will give them supplies and send them an invoice typically payable in 30-90 days.  They will establish a credit line at their bank.  Where they will borrow from when they need cash.  And will repay as they collect cash (such as when their customers pay their accounts payable).  And take out loans to finance specific things such as a delivery van or restaurant equipment.

Businesses depend on their bank for most of their credit needs.  But when companies grow so do their capital requirements.  Where capital is large amounts of money pooled together to purchase property, buildings, machinery, etc.  Amounts so great that it exceeds a bank’s ability to loan.  So these businesses have to turn to other types of financing.  To the equity and debt markets.

Investors Invest in Corporations by Buying their Stocks and Bonds

Equity and debt markets mean stocks and bonds.  Where we use stocks for equity financing.  And bonds for debt financing.  Stocks and bonds allow a corporation to spread their large financing needs over numerous people.  Investors.  Who invest in corporations by buying their stocks and bonds.

When a business ‘goes public’ they are selling stock in their company for the first time.  We call this the initial public offering (IPO).  If the company has a very promising future this will bring in a windfall of capital.  As investors are anxious to get in on the ground floor of the next big thing.  To be a part of the next Microsoft.  Or Apple.  This is when a lot of entrepreneurs get rich.  When they are in fact the next big thing.  And if they are, then people who bought stock in their IPO can sell it on the secondary market.  Where investors trade stocks with other investors.  By buying low and selling high.  Hopefully.  If they do they get rich.  Because the greater a company’s profits the greater its value and the higher its stock price.  And when a company takes off they can sell their stock at a much higher price than they paid for it in the IPO.

When a corporation needs to borrow more than their bank can loan and doesn’t want to issue new stock they can sell bonds.  Which breaks up a very large amount into smaller amounts that investors can buy.  Typically each individual corporate bond has a face value of $1000.  (So a ten million dollar ‘loan’ would consist of selling ten thousand $1,000 bonds).  Like a loan a corporation pays interest on their bonds.  But not to a bank.  They pay interest to the investors who purchased their bonds.  Who can hold the bonds to maturity and collect interest.  Or they can trade them like stock shares.  (Changes in the interest rates and/or corporate financial strength can change the market value of these bonds.)  When a bond reaches maturity (say in 20 years) the company redeems their bonds from the current bondholders.  Hopefully with the new profits the bond issue helped to bring into the corporation.  Or they just issue new bonds to raise the money to redeem the older bonds.

A Company Usually has a Mix of Equity and Debt Financing that Balances all the Pros and Cons of Each

There are pros and cons to both equity and debt financing.  Selling stock transfers ownership of the company.  Sell enough so that someone can own more than 50% and that someone can replace the board of directors.  Who in turn can replace the CEO and the other corporate officers.  Even the business founder.  This is the big drawback of going public.  Founders can lose control of their company.

Stocks don’t pay interest.  So they are less threatening during bad economic times.  As business owners, stock shareholders are there for the long haul.  During the good times they may expect to collect dividends (like an interest payment).  During bad times they will wait it out while the company suspends dividend payments.  Or, if they lose confidence, they’ll try and sell their stock.  Even at a loss.  To prevent a future greater loss.  Especially if the corporation goes bankrupt.  Because stockholders are last in line during any bankruptcy proceedings.  And usually by the time they pay off creditors there is nothing left for the shareholders.  This is the price for the chance to earn big profits.  The possibility to lose everything they’ve invested.

Bonds are different.  First of all, there is no transfer of ownership.  But there is a contractual obligation to make scheduled interest payments.  And if they fail to make these payments the bondholders can force the company into bankruptcy proceedings.  Where a corporation’s assets can be liquidated to pay their creditors.  Including their bondholders.  Which, of course, often means the end of the corporation.  Or a major restructuring that few in management enjoy.

Stockholders don’t like seeing their share value diluted from issuing too many shares.  Bondholders don’t like to see excessive debt that threatens the corporation’s ability to service their debt.  So a company usually has a mix of equity and debt financing that balances the pros and cons of each.  A financing strategy that has been working for centuries.  That allows the advanced civilized world we take all too much for granted today.  From jetliners.  To smartphones.  To that new car smell.  For none of these would be possible without the capital that only the equity and debt markets can raise.

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Capitalism vs. Communism, Socialism, Occupy Wall Street and President Obama

Posted by PITHOCRATES - October 14th, 2011

The Corporation was Created to Raise Capital and Manage Risk so they can Build the Stuff we Want

No wonder the Occupy Wall Street people have their heads filled with nonsense.  Here’s an Ivy League publication that doesn’t even understand what a stakeholder in a corporation is.  They have a stake, i.e., a share.  They own stock.  They’ve risked their capital.  And if you don’t risk capital, then you’re just not a stakeholder (see Occupy Wall Street: What Businesses Need to Know by Hari Bapuji and Suhaib Riaz posted 10/14/2011 on the Harvard Business Review).

The demonstrators are asserting that they are stakeholders in American business, and they’re correct — they are stakeholders, as consumers, as employees, and as citizens affected by the financial system in general.

No they’re not.  Unless they bought stock in these corporations.  Which I doubt, because people typically don’t protest against companies they invest in.  Unless they’re idiots.

The corporation was created to raise large amounts of capital.  And manage risk.  By selling stocks to shareholders.  So they can raise the money to build the stuff we want.  Things that hopefully would make a profit one day.  A profit that the shareholders would share in.  As they are the ones taking the BIGGEST risk.  The corporate officers of these corporations have a fiduciary responsibility with the shareholders.  To make a profit.  It’s their company.  They paid for it.  And these shareholders owe nothing to that mob on Wall Street.  Unless any of them own stock.

You’d think those writing for a business school would understand basic business 101.

Businesses should look at whether existing models of compensation are contributing to this inequality. They need to find ways to reward performance without increasing pay disparities. Developing new models of compensation and governance is not easy and can only be possible through a long-term and sincere engagement with a wide set of stakeholders, such as regulators, academics, and representatives of workers.

They want to do away with merit.  And introduce something more akin to communism.  Where everyone is equal.  No matter the value of their work.  People have tried this.  In North KoreaCuba.  And the former Soviet Union.  Note the word ‘former’ in that last one.  There’s a reason why it’s former.  No one wanted to do the harder jobs if they didn’t get paid any more for the additional brain power or risk.  And those stuck carrying the weight of their comrades?  They just didn’t bust their ass in the process.  And that’s why the Soviet Union is a ‘former’ union.

But this is what the Occupy Wall Street people want.  Force people to do those harder jobs.  But pay these wealth creators no more than them.  Even if they only work at a Starbucks.  Or collect government assistance.

The Egalitarian Polices of the Great Society Destroyed the Economy in the Seventies

So an Ivy League publication doesn’t understand business.  But you know who does?  Al Jazeera.  Their conclusions are all wrong but at least they get a lot of stuff right along the way (see The instability of inequality by Nouriel Roubini posted 10/14/2011 on Al Jazeera).

While these protests have no unified theme, they express in different ways the serious concerns of the world’s working and middle classes about their prospects in the face of the growing concentration of power among economic, financial, and political elites. The causes of their concern are clear enough: high unemployment and underemployment in advanced and emerging economies; inadequate skills and education for young people and workers to compete in a globalised world; resentment against corruption, including legalised forms like lobbying; and a sharp rise in income and wealth inequality in advanced and fast-growing emerging-market economies.

Of course, the malaise that so many people feel cannot be reduced to one factor. For example, the rise in inequality has many causes: the addition of 2.3 billion Chinese and Indians to the global labour force, which is reducing the jobs and wages of unskilled blue-collar and off-shorable white-collar workers in advanced economies; skill-biased technological change; winner-take-all effects; early emergence of income and wealth disparities in rapidly growing, previously low-income economies; and less progressive taxation.

American industry is uncompetitive.  That appears to be the problem.  That’s why there are fewer jobs.  So people who earn income via their labor are being priced out of the market by their generous pay and benefit packages.  But people who earn their income via capital always have a place to invest capital.  Capital is capital.  It is always competitive.  That’s why more wealth is accumulating to the rich.  Because they haven’t killed their golden goose.  Like unions have killed unskilled American manufacturing.

This doesn’t explain those kids on Wall Street, though.  The ones with college degrees.  Their problem is their degrees.  Many of them are worthless.  Probably a lot of English majors out there.  Or have degrees in sociology.  Anthropology.  Philosophy.  Women studies.  Etc.  But there just aren’t a lot of stores out there selling this stuff.

The increase in private- and public-sector leverage and the related asset and credit bubbles are partly the result of inequality. Mediocre income growth for everyone but the rich in the last few decades opened a gap between incomes and spending aspirations. In Anglo-Saxon countries, the response was to democratise credit – via financial liberalisation – thereby fuelling a rise in private debt as households borrowed to make up the difference. In Europe, the gap was filled by public services – free education, health care, etc. – that were not fully financed by taxes, fuelling public deficits and debt. In both cases, debt levels eventually became unsustainable.

Too much debt is never a good thing.  But those bubbles weren’t the result of inequality.  They were the result of trying to make everyone equal.  Extending credit to the credit unworthyPutting people into houses who had no business owning a house.  That was the fault of irresponsible government policy.  Not inequality.  Just like the free education, health care, etc.  We didn’t have these problems when those things weren’t free.  And when only people who could qualify for a mortgage were getting mortgages.

The problem is not new. Karl Marx oversold socialism, but he was right in claiming that globalisation, unfettered financial capitalism, and redistribution of income and wealth from labour to capital could lead capitalism to self-destruct. As he argued, unregulated capitalism can lead to regular bouts of over-capacity, under-consumption, and the recurrence of destructive financial crises, fuelled by credit bubbles and asset-price booms and busts.

Karl Marx was wrong.  At least, he hasn’t been proven right yet.  And many have tried.  The Soviets.  The Chinese.  The North Koreans.  The Cubans.  Marxism has been an abject failure.  And those busts were made worse by monetary policy trying to eliminate them.  If credit wasn’t so cheap and mortgage standards weren’t so low there would have been no housing bubble.  It was government policy that encouraged people to accumulate debt.  Not inequality.  Government is just bad at running things.  Which is why Marxism has been an abject failure.

Thus, the rise of the social-welfare state was a response (often of market-oriented liberal democracies) to the threat of popular revolutions, socialism, and communism as the frequency and severity of economic and financial crises increased. Three decades of relative social and economic stability then ensued, from the late 1940’s until the mid-1970’s, a period when inequality fell sharply and median incomes grew rapidly.

Some of the lessons about the need for prudential regulation of the financial system were lost in the Reagan-Thatcher era, when the appetite for massive deregulation was created in part by the flaws in Europe’s social-welfare model. Those flaws were reflected in yawning fiscal deficits, regulatory overkill, and a lack of economic dynamism that led to sclerotic growth then and the eurozone’s sovereign-debt crisis now.

Government spending exploded during the Sixties.  They printed so much money in the Seventies to pay for the obligations of the Sixties that Nixon decoupled the dollar from gold.  So he could print more money.  Giving us record high interest rates.  And record high inflation.  Weak GDP.  And high unemployment.  This was all because of the egalitarian polices of the Great Society.  They destroyed the economy in the Seventies.  Reagan and Thatcher brought back prosperity.  By stopping the insanity.  They cut taxes.  Cut regulation.  And the economy took off.  It’s the reversal of the Reagan-Thatcher policies that are returning the economy to the malaise of the Seventies.  Both in the UK.  And the USA.

In the Soviet Union all of the Good Stuff came from the Decadent, Capitalist West via the Black Market

But this socialist/communist claptrap is what they’re teaching in American universities.  These protestors don’t understand the role of capital in the modern economy.  The entrepreneurial spirit.  Risk management.  They don’t understand anything other than that they weren’t born into privilege.  And this just pisses them off (see OWS’ Program? Distract From Dems’ Failures by Charles Krauthammer posted 10/14/2011 on Investors.com).

To the villainy-of-the-rich theme emanating from Washington, a child is born: Occupy Wall Street. Starbucks-sipping, Levi’s-clad, iPhone-clutching protesters denounce corporate America even as they weep for Steve Jobs, corporate titan, billionaire eight times over.

These indignant indolents saddled with their $50,000 student loans and English degrees have decided that their lack of gainful employment is rooted in the malice of the millionaires on whose homes they are now marching — to the applause of Democrats suffering acute Tea Party envy and now salivating at the energy these big-government anarchists will presumably give their cause.

Except that the real Tea Party actually had a program — less government, less regulation, less taxation, less debt.

What’s the Occupy Wall Street program? Eat the rich. Then? Haven’t gotten that far. No postprandial plans.

It’s ironic that that they hate corporate America but love to indulge in their products.

During the Cold War.  When there was full employment behind the Iron Curtain.  In the tractor factories.  People stood in line all day to buy soap and toilet paper at reasonable prices.  But they bought Levi’s on the black market.  And anything else they wanted that wasn’t dreary and drab.  Or scratchy and caustic.  Whatever the price.  Why?  Because all of the good stuff came from the decadent, capitalist West.

These protestors need to read a little history of what it was like when there was true egalitarianism.  It sucked.  That’s why Soviets defected to the U.S.  And Americans didn’t defect to the U.S.S.R.  Because capitalism was better.  People lived better under capitalism than they did under communism.

The President of the United States should not use the Risk of Civil War as a Reelection Strategy

As Krauthammer says in his column, this Occupy Wall Street movement has political motives.  Obama is following in the shoes of Jimmy Carter.  The economy is in the toilet.  His policies have all failed.  And he has no chance of reelection based on his record.  So he is using the class warfare card.  Which is irresponsible.  And dangerous.

Obama is opening a Pandora’s box. Popular resentment, easily stoked, is less easily controlled, especially when the basest of instincts are granted legitimacy by the nation’s leader.

Mobs are easy to create.  But they take on a life of their own.  Are dangerous.  And unpredictable.  The president of the United States should not use the risk of civil war as a reelection strategy.  Because it’s not exactly constitutional.  Or in keeping with the oath of office he swore.

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The Tea Party vs. Occupy Wall Street

Posted by PITHOCRATES - October 7th, 2011

As far as Protest Movements go these Tea Party People can be Rather Boring

Everyone who follows the mainstream media knows that the Tea Party is nothing more than a bunch of radical racists out to raise hell and get into your face if you dare to disagree with them (see Glenn Beck on the Mall by Lexington posted 8/29/2010 on The Economist).

It is indeed both presumptuous and preposterous of Mr Beck to claim the mantle of Martin Luther King and the civil-rights movement for his own noxious style of politics. However, not seeing is believing: I saw no evidence at all of racism at this particular event. It was a good-natured, somewhat solemn, gathering of mostly white and well-to-do people from all over America who for some reason or other saw fit to respond to Mr Beck’s plea to show up to “restore” America’s honour. The main focus of the formal ceremony consisted of paying tribute to the country’s servicemen and veterans, of whom there were many in the crowd.

This was Glenn Beck‘s rally back in 2010.  Probably the most hated man in the Tea Party movement.  Those on the Left belittle and mock this man to no end.  Because they think he is dangerous.  Incendiary.  A racist of the first degree.  If so, where was the racism?  The radicalism?  The in your face anger?

As far as protest movements go these Tea Party people can be rather boring.

The Mark of a True Liberal is Being Generous with other People’s Private Property

So, yes, the Tea Party appears to be rather boring when they protest.  Can’t say that for the Occupy Wall Street people, though.  They’ve been pretty provocative.  Breaking the law.  Getting arrested.  And being really, really annoying (see For Some, Wall Street Is Main Street by Cara Buckley posted 10/7/2011 on The New York Times).

Panini and Company normally sells sandwiches to tourists in Lower Manhattan and the residents nearby, but in recent days its owner, Stacey Tzortzatos, has also become something of a restroom monitor. Protesters from Occupy Wall Street, who are encamped in a nearby park, have been tromping in by the scores, and not because they are hungry.

Ms. Tzortzatos’s tolerance for the newcomers finally vanished when the sink was broken and fell to the floor. She installed a $200 lock on the bathroom to thwart nonpaying customers, angering the protesters.

“I’m looked at as the enemy of the people,” she said.

I don’t recall the destruction of private party at any Tea Party rallies.

A sandwich shop is not a big corporation.  It’s a small business.  A Mom and Pop type store.  I don’t recall this demand on their list of demands.  Free access to use and destroy Mom and Pop stores everywhere for their exploitation of the working class.  All one or two that work for them.

Mothers have grown weary of navigating strollers through the maze of barricades that have sprouted along the streets. Toddlers have been roused from sleep just after bedtime by chanting and pounding drums.

Heather Amato, 35, a psychologist who lives near the protest area, said she felt disturbed by some of the conduct of the protesters. She said she had to shield her toddler from the sight of women at the park dancing topless.

I can’t understand why these people would have trouble getting a job.  Chanting and pounding drums at all hours of the night.  And girls getting so drunk that they let the Bobbsey Twins out in public.  (If you ever been on spring break you know you usually don’t see the girls come out until after vast amounts of alcohol have been consumed.  ).  If that doesn’t say responsibility and punctuality I don’t know what does.

The site of the protests, Zuccotti Park, is privately owned but open to the public. Melissa Corley, a spokeswoman for Brookfield Office Properties, which owns the park, said in a statement that sanitation conditions had reached “unacceptable levels.”

If you’ve never been to an outdoor concert let me clarify.  There’s trash everywhere.  And lots of pee.  Perhaps even some poop.  Sad to say I knew of a guy in construction that liked to leave ‘surprises’ for his coworkers.  In a trench.  In a dumpster.  In an attic.  He just thought it was funny.  He was eventually fired.  But I don’t think it was poop-related.  I believe he failed a drug test.

Several businesses said they had no choice but to respond to the influx of protesters by closing bathrooms.

Mike Keane, who owns O’Hara’s Restaurant and Pub, said that theft of bathroom soap and toilet paper had skyrocketed and that one protester used the bathroom but failed to properly use the toilet.

Both Ms. Tzortzatos, owner of Panini & Co., and Mr. Keane said that the protesters rarely bought anything, yet hurled curses when they were told that only paying customers could use their bathrooms.

Steve Zamfotis, manager of another nearby store, Steve’s Pizza, said: “They are pests. They go to the bathroom and don’t even buy a cup of coffee.”

Mr. Zamfotis said he closed his bathroom after it repeatedly flooded from protesters’ bathing there.

Stealing toilet paper?  That would explain some of the unacceptable sanitary conditions in the park.

Speaking of poop, this reminds me of another poop anecdote.  The same guy who told me about that construction worker had some port-a-johns on job site.  Apparently he pissed off some workers.  After which they, too, didn’t use the toilet facilities properly.  They didn’t lift the lids.  They just pooped on them.  Some people protest in strange and mysterious ways.  Which is what I’m guessing happened here.  Either on the toilet seat.  Or, perhaps, on the floor.  And that reminds me of yet another poop anecdote.  I knew a lawyer who did that once.  He was angry at his landlord.  So he pooped in the stairwell.  I guess that showed her.  Just like these protestors showed this restaurant owner.

Kira Annika, a spokeswoman for the protesters, wrote in an e-mail that she had not heard of such complaints. “We were under the impression that the local business community appreciated our patronage and the attention that we give them,” she wrote.

Still, in a widely distributed pamphlet, “Welcome To Liberty Plaza: Home of Occupy Wall Street,” participants were given explicit instructions on where to find relief.

“After you’ve dined,” the pamphlet reads, “feel free to refresh yourself in the restrooms of neighboring businesses like Burger King and McDonalds without feeling obligated to buy anything.”

A manager of the Burger King in question said he had no trouble with the protesters, though a maintenance worker at the McDonald’s, Deon Cook, said that in recent days he had been forced to clean the bathroom every five minutes.

How generous they are with other people’s private property.  The mark of a true liberal.  I’m sure they would be just as generous with their own private property.  And welcome strangers into their homes to use their toilets.

Yves Delva, a manager at a nearby Modell’s Sporting Goods, said sales had been brisk for sleeping bags, sweatshirts, hand warmers sweatpants and goggles — that last item presumably bought to protect the eyes from pepper spray, which has been used by police officers in response to the demonstrations. “We’ve been profiting,” Mr. Delva said.

Well this is strange.  This is capitalism.  And these are products of corporations.  I guess they’ll surrender their principles when it gets cold and wet.  Probably even be willing to go back to their parent’s house.  To a warm, dry bed.  And heat.  Once the temperatures fall.  And the rainy season sets in.  One thing for sure.  They ain’t the protestors their parents were.

The Problem with the Occupy Wall Street people is that they are not more Tea Party-Like

And it’s just not me saying this.  Even one of their supporters says this (see Tea Party Lessons for the Left by Michael Tomasky posted 10/4/2011 on Yahoo! News).

But now comes Occupy Wall Street. Is the cosmic score about to be evened? Maybe. But paradoxically, only if this new left protest movement embraces some crucial lessons from the Tea Party movement—and if it outgrows certain impulses from 1968 that continue to loom large in the left’s imagination.

… To succeed, it would have to model itself on 1963, not 1968. And I’m not confident that any left-wing protest movement today can understand that.

What do I mean? In 1963, we had the March on Washington. No one threw anything. There were no drum circles. The protesters of 1963 said to America, “We are like you; in fact, we are you.”…The protesters of 1968 said to America, “We are not like you; in fact, we hate you…”

What changed, between 1963 and 1968? This: In 1963, protest was undertaken for the purpose of winning. By 1968, protest became a carnival of self-expression. Winning was the stated goal, but deep down, emotionally, it wasn’t really the goal: sticking it to the man was. Imagine that the SCLC-led protesters of 1963 had indulged in self-expression, and ask yourself whether they would have succeeded. I think I need say no more on that.

So these protesters are getting it wrong.  They’re protesting for the fun of protesting.  Not for some deep underlying philosophical principle.  It appears you can summarize all of their grievances and demands with one word.  PARTY!  Sort of the way it was in 1968.  I guess.

And this is where today’s protesters need to steal a page from the Tea Party activists. I beg, plead, implore, importune: Get some spokespeople out there for the cause who are just regular Americans…

The genius of the Tea Party movement lies entirely in the fact that its public faces were, by and large, regular Americans. How many stories did we all read about the homemaker from Wilkes-Barre and the IT guy from Dubuque who’d never been involved in politics in their lives and never thought they would be until the Tea Party came along? These people resonate with other Americans: “She’s my neighbor; he’s just like me.” That gave the Tea Party movement incredible force and made the media take it seriously, and making the media take you seriously is, alas, at least half the battle in our age.

The OWS movement is part of the way there. The “We Are the 99 Percent” trope is powerful. It is true. But the movement has to prove that it really is the 99 percent. It has to win middle America, and the way to win middle America is to be middle America. For all the Seattle-ish longhairs down in Zucotti Park—whom the mainstream media and the right wing will undoubtedly highlight—there are, to be sure, homemakers in Wilkes-Barre and IT guys in Dubuque who sympathize. Find them. Put them out there. Get them on cable.

So if I understand this correctly, the problem with the answer to the Tea Party, the Occupy Wall Street people, is that they are not more Tea Party-like.  They’re not as polite.  As law abiding.  As clean.  As respectable (you don’t see many bare-breasted women dancing at Tea Party events).  So they need to be more like this.  And less like themselves.  More like respectable grownups.  And less like overindulgent children.  Who have but one thing on their mind.  PARTY!

The Tea Party Respects the Rule of Law and Private Property Rights

Occupy Wall Street is not the Tea Party.  For the Tea Party is interested in the Rule of Law.  The Constitution.  They are concerned that the nation is drifting too far away from the intent of the Founding Fathers.  Those guiding principles that have made the United States that shining city upon the hill.  The ultimate destination for emigrants everywhere.  Whereas the Occupy Wall Street People want bigger government and more free stuff.  And, of course, they want to do one other thing.  PARTY (see The Left’s Pathetic Tea Party by Rich Lowry posted 10/4/2011 on National Review Online)!

In the Occupy Wall Street movement, the Left thinks it might have found its own tea party…

This is a sign either of desperation to find anyone on the left still energized after three years of Hope and Change, or of a lack of standards, or both. The Left’s tea party is a juvenile rabble, a woolly-headed horde that has been laboring to come up with one concrete demand on the basis of its — in the words of one sympathetic writer — “horizontal, autonomous, leaderless, modified-consensus-based system with roots in anarchist thought.”

The Right’s tea party had its signature event at a rally at the Lincoln Memorial where everyone listened politely to patriotic exhortations and picked up their trash and went home. The Left’s tea party closed down a major thoroughfare in New York City — the Brooklyn Bridge — and saw its members arrested in the hundreds.

The Tea Party respects the Rule of Law.  And private property rights.  That’s why they’re not pigs when visiting other people’s property.  They don’t poop and pee wherever they want.  Disrupt traffic.  Or get arrested.  I mean, if you had to have either the Tea Party people or the Occupy Wall Street people be your next door neighbor, who would you choose?

What was remarkable about the Right’s tea party is that it depended on solid burghers who typically don’t have the time or inclination to protest anything. Occupy Wall Street is a project of people who do little besides protest. It’s all down to a standard operating procedure: the guitars, the drums, the street theater, the age-old chants…

The New York Times quoted one Occupy Wall Street veteran telling a newcomer: “It doesn’t matter what you’re protesting. Just protest.” That captures the coherence of the exercise, which is a giant, ideologically charged, post-adolescent sleepover complete with face paint and pizza deliveries.

Again, I think we can sum up their grievances and demands with one word.  PARTY!

Now it’s Time for Them to Stop Thinking about Themselves and Just go Home

There’s an expression that goes like this.  Don’t sh*t where you eat.  A vulgar expression, yes, but it’s kind of apropos.  It means you don’t have sex with someone at work.  Because if the relationship goes sour, as they almost always do when you fool around at work, it can become very awkward around each other after the break up.  Which can be very unpleasant.  And strain the working relationship.

Now the ‘having a job’ part of this analogy has nothing to do with the Occupy Wall Street people.  It’s more of a literal meaning.  If you’re trying to win the hearts and minds of the people around you, well, you can’t go pooping all over their private property.  Nothing says ‘I hate you more’ than an unwelcomed poop.  And strains the solidarity relationship.

Of course, these indiscriminate poopers don’t care about anyone but themselves.  They protest not for an overriding principle.  But to get free stuff for themselves.  And, of course, to PARTY!  That’s why they have long overstayed their welcome in this neighborhood.  Now it’s time for them to stop thinking about themselves.  And just go home.

www.PITHOCRATES.com

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LESSONS LEARNED #86: “Smug, all-knowing condescension camouflages a vacuous philosophical basis.” –Old Pithy

Posted by PITHOCRATES - October 6th, 2011

Ronald Reagan had a B.A. in Economics, Served in the Army, was President of SAG and Served Two Terms as California Governor

The Left hated Ronald Reagan.  They belittled him.  Made snarky comments like ‘he’s just an actor’.  That he wasn’t smart enough to be president.  And not qualified.  For all he could do was give a good speech.  Because he was just an actor.

Yes, he was an actor.  But he did go to college.  Had a B.A. in economics and sociology.   Enlisted in the Army and served in the cavalry.  Earned a commission in the Reserve Officer Corps just before World War II.  Served stateside during World War II making training films for the army.  Severely nearsighted, the Army classified him for limited service only.  Which meant he couldn’t serve overseas.  He served 8 years as president of the Screen Actors Guild (SAG).  During the height of the Red Scare.  Which cemented his anti-communist credentials.  (Yes, there were communists in Hollywood.  As well as in the FDR administration.)  Hosted General Electric Theater for 8 years.  He visited General Electric R&D facilities.  About 135.  Saw job creation up close during his tenure with GE.  Helping to hone his economic views.  He served two terms as California governor.  During the peak of the Vietnam anti-war protests.  When he gave his concession speak at the 1976 Republican Convention, delegates mumbled that they had nominated the wrong man (Gerald Ford).  At the age of 69, Reagan became president.  Despite snarky comments like ‘he’s too old to be president’.

So Reagan had the education.  And a long list of experience on his resume.  Experience that took him through some of the most defining moments of American history.  And spent 8 years as governor of the most populous state.  Eight years of solid executive experience.  So he was every bit qualified for office.  The people who attacked him just didn’t like his ideology.  And the fact that he was very good in elected office.  So they used smug, all-knowing condescension to belittle him.  And it worked well.  For they did not like Reagan on American college campuses.  Where kids parroted what they heard in the media.  And on their favorite shows.  But didn’t have an original thought in their heads.

Incidentally, Barack Obama got a B.S. in political science from Columbia.  And a law degree from Harvard.  He served 3 terms as Illinois state senator.  And 2/3 of a term as U.S. senator.  He had no military experience.  No executive experience.  And his only other experience was confined to academe.  Or law.  Yet those who said Ronald Reagan was not qualified to be president had no problem with Barack Obama.  Go figure.

George W. Bush had an M.B.A. from Harvard, served in the Texas ANG, ran businesses and served two terms as Texas Governor

But compared to George W. Bush, they held Ronald Reagan in great esteem.  For the Left just flat out called Bush an idiot.  And simply too stupid to be president.

For being stupid Bush was pretty well educated.  He had an B.A. in history from Yale.  A good thing for presidents to know.  History.  And he earned an M.B.A. from Harvard.  The only president to have one.  He served stateside in the Texas Air National Guard during Vietnam.  He then worked in the oil industry.  Started up some oil exploration companies.  Bush Exploration, for one.   This merged with Spectrum 7.  Where he served as chairman.  The oil glut of the Eighties hit that company hard.  It later merged with Harken Energy.   Where he served on the board.  He helped Dad run for president.  Bought a piece of the Texas Rangers after that.  Spent five years there as the managing general partner.  Built the value of the team so well that when he sold his chunk he got uber rich.  Then he served about one and a half terms as Texas governor.

This is the man the Left said was too stupid to be president.  This man who had an M.B.A. from Harvard.  One of the most pretentious Ivy League schools.  A man who worked in the energy industry.  And understood it.  Who knew how to run a business.  And did.  Even ran a Major League baseball team.  And had some 6 years of solid executive experience as the governor of the second most populous state.  So he, too, was every bit qualified for office.  The people who attacked him just didn’t like his ideology.  And the fact that he was very good in elected office.  And in the business world.  So they used smug, all-knowing condescension to belittle him.  And it worked well.  For they did not like Bush on American college campuses either.  Where kids parroted what they heard in the media.  And on their favorite shows.  But they didn’t have an original thought in their heads.  Some things just never change.

Incidentally, Barack Obama got a B.S. in political science from Columbia.  And a law degree from Harvard.  He served 3 terms as Illinois state senator.  And 2/3 of a term as U.S. senator.  He had no military experience.  No executive experience.  And his only other experience was confined to academe.  Or law.  Yet those who said George W. Bush was not qualified to be president had no problem with Barack Obama.  Go figure.

They make their Snarky Little Comments about the Greed of Corporations while Greedily Demanding more Government Benefits

And speaking of these college geniuses, you can hear a lot of them doing what they do best.  Whining.  They’re protesting up on Wall Street.  Cause they hate capitalism.  Because their tens of thousands of dollars in student loan debt hasn’t given them a high paying job.  And because they hate capitalism you know they don’t have a business degree.  Or anything that can be used in the business world.  Further, if they don’t want to be a toady to corporate America, they probably don’t have a degree that would help them gain employment with a corporation.  Like a chemistry degree.  An engineering degree.  Or a physics degree.  No.  These would have been too corporate.  And possibly too harmful to the environment.  Not to mention hard.

These protestors are living the protest life of the Sixties.  Complete with free love.  And drugs.  Which, incidentally, is why they went to college.  Not to sit in some boring-ass lectures and take exams with math on them.  And that’s why they’re so angry.  Because during difficult economic times corporations don’t have the money to waste on wasteful degrees like women’s studies.  Art.  Poetry.  French.  Anthropology.  Or some other liberal art or social science.  No.  The only high paying job opportunities for these are in academe.  Or in government.  When they are flush with taxpayer cash.  Thanks to corporations providing real jobs for taxpayers.  But when there are no real jobs, there are no tax dollars to pay for these phony baloney jobs.

So they make their snarky little comments about the greed of corporations.  About the greed of the bankers.  About the greed of Republicans.  All the while they are greedily demanding more government benefits.  Paid for by the very people they are protesting against.  While enjoying the very things these greedy corporations have given them.  They are using wireless technology to live-tweet their latest list of whines.  All technology created by the very corporations they hate.  Produced under the system they want to purge from America.  Capitalism.

If it wasn’t for Capitalism they’d be Working in a Field Somewhere for Subsistence Right Now

Look at Apple.  And Steve Jobs.  Look at what he created.  And ask yourself this.  Why Steve Jobs and not someone in Cuba?  Someone in North Korea?  Someone in the former Soviet Union?  These are three hardcore socialist regimes these protestors admire.  Who have egalitarian systems of government.  Where there is fair-shared misery.  No one lives better than anyone else.  Except those within the party apparatchik.  Which these protestors naturally assume they would be part of.  Once America became fair.  And they stripped the rich of all their wealth.  For the benefit of mankind.  And by mankind I mean these protestors.

Cuba even has a national health care system that is so impressive that Michael Moore made a movie about it.  While condemning the inferior American system.  Cuba is great.  They care about their people there.  So much so that they don’t let them leave.  For fear of the substandard love they’ll get in another nation.  Still some of these fools try to escape their utopia.  By crossing shark-infested water in some of the most unseaworthy boats.  To get to Florida.  In the USA.  To the country that the Wall Street protestors say is worse than Cuba.  If only they had iPhones in Cuba they could get their live-tweet feed from Wall Street so they would know that things are better there.  So they can stay there.  In their utopia.

Of course, it’s not better there.  And Steve Jobs wasn’t a Cuban.  He wasn’t a North Korean.  He wasn’t a Soviet.  He was an American.  An entrepreneur.  And a capitalist.  Who made Apple a rich corporation by giving us things we can’t live without.  Things we never asked for.  Things we didn’t even know about.  Until after he created them.  And he told us how cool they were.

They can make snarky, all-knowing, condescending remarks all day long about corporate greed and the evil of capitalism.  But if it wasn’t for capitalism they’d be working in a field somewhere for subsistence right now.  And the fact that they don’t know this shows how empty headed and brainwashed they are.  And what a piss-poor job our public schools and colleges are doing.

www.PITHOCRATES.com

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