Free Market Capitalism is the Best Way to keep Workers from Bathing in the Milk we Buy

Posted by PITHOCRATES - March 29th, 2014

Week in Review

Competition makes everything better.  If there was only one restaurant in town they could serve pretty bad food.  Because if the people don’t have time to cook for themselves where else are they going to go?  This restaurant could use ingredients past their ‘use by’ dates.  Meats discounted by stores because they passed their shelf life date.  They could use canned goods they heat up in a microwave.  Using the cheapest ingredients that can be cooked the least amount of time by the fewest people.  To keep costs down.  It can work.  Until there is competition.

If a restaurant opened next door that cooked only with fresh ingredients and did not use a microwave oven their food is going to taste a lot better.  And people will stop going to that other restaurant to enjoy the better quality next door.  This is why competition makes everything better.  Because people choose what’s best for them.  And if a business continually strives to exceed a customer’s expectations their customers will keep coming back.  If they don’t people will just take their business elsewhere.  And businesses will run tight ships.  To make sure no one brings harm to their brand.  Because if they didn’t something like this could happen (see Russian dairy plant closed after workers bathe in the milk by Sergei L. Loiko posted 3/28/2014 on the Los Angeles Times).

A Siberian dairy plant was temporarily closed Friday after its workers had been found bathing in milk, a Russian consumer oversight agency reported.

Trade House Cheeses, a dairy producer in Omsk, about 1,600 miles east of Moscow, was closed for 90 days by regional authorities for an urgent inspection after complaints resulting from photographs and a video posted by one of its employees on a Russian social network.

In the photographs and video clips posted on New Year’s Eve by worker Artyom Romanov, a group of undressed employees relax in a container of milk as part of their celebration. While still partly undressed, they then demonstrate cheese making in a clownish manner…

After the video appeared on NTV, a federal television network, many residents of Omsk refused to buy products made at the plant, an NTV report said this week…

“For five years Russia has been languishing in a so-called experiment of practically exercising no control over consumer production after a law was introduced limiting inspections of such facilities to only once every three years,” said Yanin, the board chairman of the Russian Confederation of Consumer Societies, a Moscow-based group…

The average salary of a sanitary inspector is equal to $500 a month, but instead of raising that, the government decided to try to prevent the inspectors from taking bribes by in effect seriously curbing their ability to control production norms and practices, Yanin said.

Of course, this is the wrong conclusion to draw from this. The problem isn’t lax inspections by underpaid inspectors.  The proper conclusion is in a previous paragraph.  That conclusion is why we don’t have these problems in the United States.  Or if we do they are very rare.  The same goes for other capitalistic societies based on free markets.  Unlike the communism they once had in Russia.  Or the crony capitalism they now have in Russia.  Because communism and crony capitalism are corrupt systems.  Government establishes and maintains monopolies.  Either by force under communism.  Or by bribes and kickbacks under crony capitalism.  Which, of course, eliminates competition.  And THIS is the problem here.  As the residents of Omsk identify.  Who refused to buy an inferior product.

You could get rid of all the inspectors in the United States and this problem would not be any more prevalent than it is now.  Why?  Because of competition.  Especially in the age of social media.  For business have lost sales for just appearing to think ‘incorrectly’ on social issues.  Just imagine what would happen if a video like this came from an American dairy.  The backlash would be the worst conceivable.  And this would happen before any government action.  That backlash would spread to every store throughout the nation.  Nay, to every capitalistic country based on free markets in the world where that brand sells its products.  People would pause as they reached for a product from this dairy on their supermarket shelf.  And move to the left or to the right.  And pick up a product from another dairy.

This is what keeps American dairies clean.  And every other established brand.  For with competition consumers can reach for another product on the shelf.  And once they do because they lost faith in a brand for any reason (such as cleanliness) it could take a very long time for that brand to reestablish the trust of the consumer.  Costing it billions in lost revenue.  This is why food businesses are cleaner in capitalistic countries based on free markets.  Because of competition and profit.  The two best protectors a consumer can have.

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Union Cabbies want you to wait Longer for a Ride

Posted by PITHOCRATES - January 19th, 2014

Week in Review

Today there is an app for everything.  Have smartphone will travel.  Literally.  Unless, that is, union cabbies want to make you stand in the rain/snow and cold for an hour in a bad neighborhood (see Why a taxi driver protest turned violent in Paris by Dylan Stableford posted 1/14/2014 on Yahoo! News).

The attacks by striking cab drivers on Uber cars in Paris on Monday — with protesters shattering windows, smashing mirrors and slashing tires — appear to be the first violent clashes in the ongoing battle between local cabbies and app-based car services.

But tensions, in Paris and elsewhere, have been brewing for months. Cab drivers say Uber and apps like it, which allow customers to hitch rides nearly instantly from their smartphones, create unfair competition and undermine the traditional cab-hailing business…

In Portland, Ore., Uber has urged lawmakers to change an ordinance requiring town cars to wait an hour before picking up would-be passengers.

In Paris, a “15-minute law” went into effect on Jan. 1, requiring all Uber drivers to wait 15 minutes after a request is placed to pick up a passenger — a move aimed at leveling the competition for traditional Parisian cabbies.

Nonetheless, hundreds of unionized cab drivers participated in Monday’s protests in Paris, demanding a 30-minute delay, minimum fares and a driver recruitment ban. At least 12 Uber cars were targeted, according to local reports.

Imagine that.  Because someone else found a better way to do things union cabbies want new laws to prevent that better way.  They want to make a person wait for an hour before anyone picks them up.  An Uber car could be around the corner when they get the request.  They could drive around the corner and pick this person up within three minutes.  But if the union cabbies get their way the Uber car will have to sit there for an hour before moving.  To give a union cabbie a chance to drive by and get hailed.  Leaving that person in the rain or snow.  Or in a bad neighborhood.  Just standing there.  Vulnerable.  Just so someone providing a poorer service can get his or her business.

This is the difference between free market capitalism and crony capitalism.  In free market capitalism the consumer is number one.  And gets the highest quality at the lowest price.  In crony capitalism unions, businesses and government are number one.  For they are cronies and look out for each other.  At the expense of the consumer.  Who gets lower quality and higher prices.  As unions, businesses and governments collude together to enrich themselves by forcing people to pay more for less.

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Crony Capitalists paid their Friends in Government to Ban the Incandescent Lamp

Posted by PITHOCRATES - January 5th, 2014

Week in Review

Competition makes everything better.  For consumers.  That’s you and me.  For it’s that competition that makes business give us more for less.  To please us.  And to persuade us to give them our dollars for their products.  It’s a great system.  It prevents businesses from giving us shoddy goods at high prices.  For if they did they would lose their customers.  And go out of business.  So competition in free market capitalism gets businesses to choose to please their customers.  By giving them more for less.  Which allows them to stay in business.  Unless they have corrupt friends in government (see Industry, not environmentalists, killed traditional bulbs by TIMOTHY P. CARNEY posted 1/1/2014 on the Washington Examiner).

Say goodbye to the regular light bulb this New Year.

… Starting Jan. 1, the famous bulb is illegal to manufacture in the U.S., and it has become a fitting symbol for the collusion of big business and big government.

The 2007 Energy Bill, a stew of regulations and subsidies, set mandatory efficiency standards for most light bulbs. Any bulbs that couldn’t produce a given brightness at the specified energy input would be illegal. That meant the 25-cent bulbs most Americans used in nearly every socket of their home would be outlawed…

Competitive markets with low costs of entry have a characteristic that consumers love and businesses lament: very low profit margins. GE, Philips and Sylvania dominated the U.S. market in incandescents, but they couldn’t convert that dominance into price hikes. Because of light bulb’s low material and manufacturing costs, any big climb in prices would have invited new competitors to undercut the giants — and that new competitor would probably have won a distribution deal with Wal-Mart.

So, simply the threat of competition kept profit margins low on the traditional light bulb — that’s the magic of capitalism. GE and Sylvania searched for higher profits by improving the bulb — think of the GE Soft White bulb. These companies, with their giant research budgets, made advances with halogen, LED and fluorescent technologies, and even high-efficiency incandescents. They sold these bulbs at a much higher prices — but they couldn’t get many customers to buy them for those high prices. That’s the hard part about capitalism — consumers, not manufacturers, get to demand what something is worth.

Capitalism ruining their party, the bulb-makers turned to government. Philips teamed up with NRDC. GE leaned on its huge lobbying army — the largest in the nation — and soon they were able to ban the low-profit-margin bulbs.

When you have collusion between big business and big government you no longer have free market capitalism.  No.  Instead you have crony capitalism.  Where rich people both in business and government collude with each other to make themselves even richer.  While making consumers poorer.

The lamp manufacturers got new laws that forced consumers to pay the higher prices they wouldn’t without a law compelling them to do so.  Making the lamp manufacturers richer.  And the lobbyists poured lobbying money over their friends in government.  Who probably stripped naked and rolled around on it, rubbing that cash all over their naked bodies.  And said God bless global warming.

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Entrepreneurs Fail not because they are Stupid but because of an Anti-Business Environment

Posted by PITHOCRATES - June 16th, 2013

Week in Review

The ‘capitalism’ we have today isn’t our Founding Father’s capitalism.  Yet critics of today’s ‘capitalism’ act as if it is.  And point to the inherent flaws of this ‘capitalism’.  As an excuse to bring in more governmental regulations to fix the problems of ‘capitalism’.  Which is the reason why today’s ‘capitalism’ isn’t capitalism.  It’s not the same economic system that made the United States the number one economic power in the world.  No.  It’s moved more towards European social democracy.  The system that gave the European nations their sovereign debt crises.  But those learned intellectuals speaking from their ivory towers still talk about fixing the problems of ‘capitalism’.  Without really understanding what the real problem is.  And it ain’t capitalism.  It’s the interference of capitalism and free markets.  This is the source of all our problems today.  And unless you address these problems you’re just wasting your time (see How to Reduce ‘Infant Entrepreneur Mortality’ by Sramana Mitra posted 6/10/2013 on the Harvard Business Review Blog).

Ever since the 2008 financial crisis, intellectuals have had to ask themselves, ‘Does Capitalism Still Work..?’

Two particular problems stand out. First, Capitalism has been hijacked by speculators. Second, the system enables amassing wealth at the tip of the pyramid, leaving most of society high and dry. Both problems have resulted in a highly unstable, volatile world order that jitters and shocks markets periodically, leaving financial carnage and mass scale human suffering.

The first problem with ‘capitalism’ today is that intellectuals are trying to fix it.  There isn’t anything wrong with capitalism.  The problems we have today have nothing to do with capitalism.  Because what we have today is state capitalism.  Crony capitalism.  European social democracy.  We have too much government in capitalism.  Who are favoring their big corporate friends in exchange for big corporate campaign donations.  And the only reason we have these speculators is because of the government.  Who is pumping so much cheap money into the economy for the speculators to speculate with.  And when their crony capitalist friends fail the government bails them out with tax dollars.  Because there is no downside to speculation when you have friends in government speculators will speculate.

People like to blame the banks and Wall Street for the subprime mortgage crisis.  But they didn’t create that crisis.  They just played their part.  The government created it.  By pumping cheap money into the economy to keep interest rates artificially low.  To encourage people to buy houses.  Even those who weren’t even considering buying a house.  Or those who simply couldn’t afford to buy a house.  These people changed their behavior based on the government’s manipulation of the interest rates.  As the government intended to do.  And they made everything worse with policies to encourage more and more home ownership.  The big one being Bill Clinton’s Policy Statement on Discrimination in Lending.  Where the government threatened lenders to lend to the unqualified or else.  So they did.  Using the subprime mortgage to qualify the unqualified.  And then the government-sponsored enterprises, Fannie May and Freddie Mac, bought those toxic subprime mortgages from these lenders, chopped and diced them into investments called collateralized debt obligations.  And sold them to unsuspecting investors as high-yield, low-risk investments.  Because they were backed by the safest investment of all time.  The home mortgage.  Only they didn’t tell these investors that these mortgages were toxic subprime mortgages being paid by people who couldn’t qualify for a conventional mortgage.  The safest investment of all time.  The conventional home mortgage.  So these lenders were able to clear these toxic mortgages off of their balance sheets.  Allowing them to issue more toxic subprime mortgages.  They were making money by writing these risky subprime mortgages.  But incurred no risk.  So they kept qualifying the unqualified for more and more mortgages.  Which was profitable.  Safe.  And kept the government off of their backs as threatened in Bill Clinton’s Policy Statement on Discrimination in Lending.

This isn’t capitalism.  This is government and their crony capitalist friends using their power, privilege and influence to game the system.  To enrich themselves.  This is what caused the mess we have today.  Where speculators and those in government get richer.  While Main Street America sees its median income fall.  And entrepreneurs struggle to stay in business.

Everybody talks about the role small businesses play in growing economies and creating jobs. However, as it stands, in America alone, 600,000 businesses die in the vine every year. This colossal infant entrepreneur mortality is a product of colossal levels of ignorance about how to build and sustain businesses.

And a myriad of governmental regulations, taxes and a litigious society.  Entrepreneurs today have to spend a lot of money and time protecting their money and time.  They need accountants and tax lawyers to help them comply with an ever growing regulatory environment.  And a boatload of insurances to keep the sharks at bay who all want a piece of their wealth and will sue if given the least opportunity.  It’s so complex that if they try to navigate their own way through these enormous burdens places on business they often make mistakes.  Or simply overlook something that they shouldn’t have.  Often times they just don’t charge enough to cover all of these costs they never expected when starting their businesses.  So when, say, a tax bill comes due they simply don’t have the cash on hand to pay it.  And then the downward death spiral begins.  This is why restaurants and construction companies are the number one and number two business to fail.  Where we have brilliant chefs and trades people who can cook or build something better than anyone else.  But are so out of their element when dealing with the business side of their trade.  The regulatory costs, taxes, insurance, etc.  And find they spend more of their time not doing what they love—cooking or building—but pushing paper through a labyrinth of red tape.  And often don’t find out they are not charging enough to cover all of the regulatory costs, taxes, insurance, etc., until it’s too late.

There is actually a method to the madness of entrepreneurship. And while the ‘character traits’ that support entrepreneurship — courage, tolerance for risk, resilience, persistence — cannot be taught, the method of building businesses can and should be taught.

In fact, it should be taught not just at elite institutions, but at every level of society, en masse.

If we can democratize the education and incubation of entrepreneurs on a global scale, I believe that it would not only check the infant entrepreneur mortality, it would create a much more stable economic system.

No.  That’s not the answer.  The reason why a lot of people remain employees instead of going into business themselves is that these people don’t want to deal with all the regulatory headaches their bosses have to deal with.  A tradesperson would rather work their 8-hour shift and go home.  They don’t want to deal with payroll taxes, workers’ compensation insurance, liability insurance, vehicular insurances, health insurance, real property taxes, personal property taxes, quarterly tax filings, business income tax, use tax, OSHA requirements, environmental requirements, city and state inspections, permits and licenses, etc.  If a tradesperson could just throw his or her tools in a truck and go into business they would.  But they can’t.  So they won’t.  Because it’s just so much easier being an employee than an employer.  Who are always guaranteed a paycheck if they work.  While an employer only gets paid after everyone, and everything, else gets paid.

You want to reduce infant entrepreneur mortality rates?  Get the government out of the private sector.  And give these entrepreneurs a chance.  You’d be surprised at what they can do if the government just leaves them alone.  Just like Andrew Carnegie, John Rockefeller, Henry Ford, etc., did.  Who probably couldn’t do what they did today.  Not in today’s anti-business environment.

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Keynesian Economics is as Corrupt and Immoral as is Crony Capitalism

Posted by PITHOCRATES - May 5th, 2013

Week in Review

Before John Maynard Keynes came along the established economic thought was classical economics.  Those principles that made America the number one economic power in the world.  A sound money like the gold standard gave you.  Low tax rates to encourage economic risk taking.  Responsible government spending for only those things a federal government should be doing.  And only spending what that minimal federal tax revenue could pay for.  Little government intervention into the private sector economy.  And thrift.  People spending money very cautiously.  And saving as much as they possible could.  To save for the future.  While providing investment capital for businesses.

These policies made the United States the number one economic power in the world.  Laissez-faire capitalism.  Tried and proven for over a century in the U.S.  But then government got big in the beginning of the Twentieth Century.  The progressives came into the government.  And they needed a new way to lie to and deceive the American people.  And then came along John Maynard Keynes.  The answer to their dreams.  Whose Keynesian economics has destroyed nation after nation with his assault on classical economics.  And now debt crises from excessive government spending in the Twentieth Century have plagued Greece, Italy, Spain, Portugal, Ireland, the United Kingdom, Japan, the United States, and other nations that dared to embrace Keynesian economics.

President Obama’s economic recovery has been horrible because he embraces Keynesian economics.  He lied like a good Keynesian to the American people to pass his stimulus.  It did nothing.  As predicted by everyone that isn’t a Keynesian.  He continues to destroy the American economy with near zero interest rates.  Destroying our savings.  Creating stock market bubbles while the labor force participation rate falls to its lowest since the Seventies.  And caused the federal debt to soar to levels that we can never pay down.  Putting us on the road to Greece.  All because of the corrupt economic school of thought John Maynard Keynes gave us.  That governments everywhere are using to increase their size and power.  To elevate the government class into a new aristocracy.  That lives very well thanks to those people beneath them.  The working class.  That works longer while earning less.  Like the nobility and peasants of old.  And a little Orwellian.  As they built this upon a house of lies.  Beginning with changing the meaning of words (see Two Sides of the Same Debased Coin by Hunter Lewis posted 5/2/2013 on Ludwig von Mises Institute).

When we turn to Keynes’s economics, perhaps the most fantastic self-contradiction was that an alleged savings glut, too much supposed idle cash, could be cured by flooding the economy with more cash, newly printed by the government. Perhaps even more bizarrely, Keynes says that we should call this new cash “savings” because it represents “savings” just as genuine as “traditional savings.” That is, the money rolling off the government printing presses is in no way different from the money we earn and choose not to spend.

All this new “savings” enters the economy through the mechanism of low interest rates. At this point, Keynes further confounds his forerunners and elders by arguing that it is not high interest rates, as always thought, but rather low interest rates, that increase savings, even though we started by positing too much savings in the first place.

Keynes’s followers echo this even today. Greenspan, Bernanke, and Krugman have all written about a savings glut which is supposed to be at the root of our troubles, and have proposed more money and lower interest rates as a remedy, although they no longer call the new money “genuine savings.” They prefer quantitative easing and similar obscure euphemisms…

The General Theory does argue that interest rates could and should be brought to a zero level permanently (that’s pages 220–21 and 336)…

Keynesians hate savings.  They don’t want people saving their money.  They want them to spend every last dime.  And then borrow more money to spend when they run out of their own.  Because consumer spending is everything to them.  Spending is what drives economic activity.  And any money they save they don’t spend.  And drain out of the economy.  Which is why they want zero interest rates.  Or even negative interest rates.  To discourage people from saving.  For if you lose purchasing power when you put your money in the bank you might as well spend it now.  And generate economic activity.

This is, of course, a ‘live for the day and screw the future’ mentality.  For if people spend all of their money going out to dinner, buying new cars, going on more vacations, running up their credit cards, etc., that will create a lot of economic activity.  But when these people retire they will have to live like paupers.  Because they didn’t save for their retirement.  Even if someone loses their job and is out of work for a few months if they have no savings they will struggle to pay their mortgage or rent.  Struggle to put food on the table.  They will struggle to pay their utility bills.  And their credit card bills.  This is the problem of living as if your income stream will never end.  It sometimes does end.  And if you didn’t bank a rainy day fund you could find yourself suffering some extreme hardship as you can no longer afford to live like you once did.

Keynesians once called printed money ‘savings’.  Today they call tax cuts ‘spending’.  A little Orwellian doublespeak.  Change the meanings of words.  So they can fool the people into believing that the government printing money and depreciating the currency is the same thing as you working hard and saving for your retirement.  And not taking more of your hard-earned paycheck is irresponsible government spending.  The only government spending, incidentally, they find irresponsible.  This is a fundamental tenet of Keynesian economics.  Deceiving the people.  So politicians can continue to recklessly spend money they don’t have to buy votes for the next election.  And to reward their campaign contributors with the favors of crony capitalism.

These Romney advisors also, of course, believed in the fairy tale of borrow-and-spend stimulus. It is usually forgotten that Keynes assured us that each dollar of such stimulus would produce as much as twelve dollars of growth and not less than four dollars. Even the most ardent Keynesians have, of course, been unable to demonstrate as much as one dollar. How did Keynes know that you would get four dollars at least? He didn’t. He told the governor of the Bank of England, Norman Montague, that his ideas were “a mathematical certainty” but that was just a crude bluff.

What is empirically verifiable is that all debt, private or public, has been generating less and less growth for decades. In the ten years following 1959, the official figures say that you got 73 cents in growth for each dollar borrowed. By the time of the Crash of ’08, that was down to 19 cents. And I expect it was really negative by then and is deeply negative now.

Keynes lied.  But that lie sanctioned governments to expand into the private sector economy.  So they embraced the lie.  And continue the lie.  Because none of these politicians want to give up the good life and get a real job.  They like it the old fashioned way.  Before the Founding Fathers had to muck it up with their attacks on the nobility.  They like being part of the aristocracy.  To live better than any of the poor schmucks that work a 40-hour week.  They just want to take a percentage of that poor schmuck’s earnings for themselves.  Rub elbows with the beautiful people.  And laugh at the working class.

The idea that you can take a dollar from the taxpayer, run it through a costly bureaucracy that a portion of that dollar has to pay for and think you’re going to generate more than a dollar in economic activity is absurd.  By the time that dollar reenters the economy the government has skimmed so much off the top that any economic activity it generates is negligible.  Now compare that to how the taxpayer who earned that dollar spends it.  He or she spends a dollar out of that dollar.  Because they’re not putting it through a costly bureaucracy before they spend it.

Which begs this question.  If a wage earner gets more economic activity when spending that money why not let that wage earner keep more of his or her money to spend?  For each additional dollar they can keep they can generate another dollar of economic activity.  Not the 19 cents the government will be lucky to generate from it.  Ah, well, if they can keep their money they may just do something responsible with it.  Like save it.  Which Keynesians hate.  And the government won’t be able to skim at least 81 cents from each dollar if they don’t tax it away.  Which Keynesians hate even more.

The common theme [of Keynesian Economics] is that market prices don’t matter…

Is this, then, the essence of Keynesianism, its blind destruction of the price mechanism on which any economy depends, as Mises demonstrated? Yes. But there may be an even deeper essence…

For the Victorians, spending within your means and avoiding debt were not just financial principles. They were moral principles. Keynes, who was consciously rebelling against these same Victorians, described their “copybook morality” as “medieval [and] barbarous.” He told his own inner circle that “I remain, and always will remain an immoralist…”

So, in conclusion, when we strip down Keynesianism to its essence, the relationship to crony capitalism becomes even clearer. Crony capitalism represents both a corruption of capitalism and a corruption of morals. Keynesianism also represents both a corruption of economics and a corruption of morals. Crony capitalism and Keynesianism are just two sides of the same debased coin.

The price mechanism allocates scarce resources that have alternative uses.  Through the laws of supply and demand.  Guaranteeing that the people who most want a resource—and are willing to pay more for it than others—will get that resource.  While those who don’t want that resource as badly are not willing to pay the higher prices others are willing to pay.

This is capitalism.  This is what enables you to go out and buy the things you want.  Because the price mechanism has automatically allocated millions upon millions of resources in the economy to get them into the things people most want to buy.  Crony capitalism smashes this apart.  By distorting market forces.  With government fiat.  Which allocates those resources first to their close friends who, in return, favor their friends in government with generous campaign contributions.  Or gifts of gratitude.  While others must pay a higher price.  If they can even get these resources at all.  Which they might not be able to do if they don’t please someone in government who has power over these resources.

This is crony capitalism.  Corrupt.  And immoral.  Just as is Keynesian economics.  Unlike the classical economics that made this country the number one economic power in the world.  Thanks to the gold standard, low taxes, low government spending, little government intervention into the private sector economy and thrift.  Things that kept a government moral.  However hard they may try not to be.

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People beg the EPA to Waive their Ethanol Mandate to lower Food Prices but the EPA Refuses

Posted by PITHOCRATES - November 18th, 2012

Week in Review

People suffering from the high price of corn beg the EPA to waive the ethanol mandate.  To use corn for food.  And not for fuel.  To help hungry children in the US.  And around the world.  Whose parents have to pay higher and higher food prices thanks to a reduced corn crop thanks to those droughts this past summer.  The EPA’s response?  Kids are fat enough already and could stand to lose a few pounds.  Figuratively, of course (see EPA rejects request to waive requirements for corn-based ethanol by David Shepardson posted 11/16/2012 on The Detroit News).

The Environmental Protection Agency on Friday rejected a request from eight governors and nearly 200 members of Congress to waive requirements for the use of corn-based ethanol in the nation’s 240 million vehicles in the wake of this summer’s severe drought.

The move is a victory for corn farmers that have seen prices jump by 400 percent in recent years, but a loss for pork and beef producers who have seen the price of feed jump…

The EPA said it has not found evidence to support a finding of severe “economic harm” that would warrant granting a waiver of the Renewable Fuels Standard.

Can you imagine gasoline prices rising 400% and the government saying they see no economic harm in that?  Can you imagine prescriptions prices rising 400% and the government saying they see no economic harm in that?  Can you imagine the cost of health insurance rising 400% and the government saying they see no economic harm in that?  Of course you can’t.  So why do they not see harm in a 400% rise in corn prices?  Could it be because the ethanol lobby supports Democrat candidates and their environmental policies?  And higher corn prices mean more generous campaign donations?  Perhaps.

“We recognize that this year’s drought has created hardship in some sectors of the economy, particularly for livestock producers,” said Gina McCarthy, assistant administrator for EPA’s Office of Air and Radiation. “But our extensive analysis makes clear that congressional requirements for a waiver have not been met and that waiving the RFS will have little, if any, impact…”

In 2011, nearly half the corn grown in the U.S. was diverted to ethanol production to meet the RFS, critics say…

Food producers — including the makers of frozen food and restaurant chains — have criticized the mandates, saying it raises food prices…

The American Coalition for Ethanol praised the decision by the EPA…

The Michigan Farm Bureau had opposed granting the waiver, saying it doesn’t believe keeping the requirements in place “would severely harm the economy of Michigan at this time.” But Michigan poultry and livestock producers are affected by higher corn prices.

The governors of Maryland and Delaware, also home to poultry producers, told the EPA in October that without a waiver they would face “the loss of thousands jobs.” North Carolina, New Mexico, Georgia, Texas, Virginia, Utah and Wyoming also had asked EPA to waive the requirements.

The EPA conducted several economic analyses and concluded that on average waiving the mandate would reduce corn prices by 1 percent. EPA also said waiving the mandate would not affect household energy costs.

The Democrats talked a lot about arithmetic during the 2012 campaign.  Saying that simple arithmetic proved that they should raise tax rates on rich people.  Because collecting another 5% or so from high income earners would help balance the budget.  Even though we have trillion dollar deficits.  And the proposed tax rate hikes would bring in nowhere near a trillion dollars.  So it would appear the Democrats are arithmetically challenged.  Which probably explains why they say doubling the corn crop (by eliminating the methanol mandate) will only lower corn prices by 1%.  When doubling the supply of any other commodity in the world would cause the price to collapse.

These are the same people that place import tariffs on foreign made goods to restrict supplies to keep domestic prices high.  These are the same people that accuse other nations of anti-dumping violations for flooding the market with their goods.  Which lowers domestic prices.  So these people seem to believe that increasing supply will lower prices.   Except when it comes to corn.  Even if you double the size of the corn crop.  Amazing.

Of course, it’s about the money.  The corn and ethanol producers are getting rich.  Who are only getting rich because of their friends in government.  Which is the definition of crony capitalism.  Or corruption.  The government interferes with market forces.  So their friends and supporters can get rich.  And share that wealth with their friends in government.

And while the crony capitalists are getting rich the American consumer gets poorer.  As they pay more for corn, beef, pork, chicken, eggs, milk, cheese, etc.  Families have to cut back on their grocery budgets.  And cut back on going out.  Because they have less disposable income.  And restaurants have to raise their prices because of the increase in their food costs.  But this is okay as far as the EPA is concerned.  As they put big money political contributions ahead of American families.

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An Ivy League Professor says their Ivy League Government Policies have killed the American Dream

Posted by PITHOCRATES - June 10th, 2012

Week in Review

The Ivy League has long had an influence over government policy.  Administrations have been filled with Ivy League graduates.  Where they have been advising lawmakers and writing policy.  Much of the economic mess we suffer from these days goes back to the progressive views of the Ivy League.  Where they think the private economy will work better when smart and enlightened thinkers like themselves tweak it. 

And over the years our capitalist free market has been slowly morphing into crony capitalism.  Where those businesses with like minded ideas as those in government (as advised by their Ivy League intelligentsia) get preferential treatment by the government.  And those who don’t think right are hit with excessive regulations and taxes.  Or as they would say in Columbia, being fair.  Because fair is whatever they say is fair (see The ‘American Dream’ Is a Myth: Joseph Stiglitz on ‘The Price of Inequality’ by Aaron Task, Daily Ticker, posted 6/8/2012 on Yahoo! Finance).

In his latest book, The Price of Inequality, Columbia Professor and Nobel laureate Joseph Stiglitz examines the causes of income inequality and offers some remedies. In between, he reaches some startling conclusions, including that America is “no longer the land of opportunity” and “the ‘American dream’ is a myth…”

For example, just 8% of students at America’s elite universities come from households in the bottom 50% of income, Stiglitz says, even as those universities are “needs blind” — meaning admission isn’t predicated on your ability to pay…

“What I want is a more dynamic economy and a fairer society,” he says, suggesting income inequality is ultimately detrimental to those at the top, too. “My point is we’ve created an economy that is not in accord with the principles of the free market.”

The only thing preventing the American Dream today is progressive government policies.  Immigrants used to come to this country with nothing but loose change in their pockets and went on to start a business.  Today there are so many taxes and fees and regulations that require a lawyer to understand.  This is what’s killing the American Dream.  Government.

More millionaires are self-made middle class people with a good idea.  They became entrepreneurs.  And succeeded despite the obstacles government put in place.  For no one ever heard an entrepreneur say he or she wished there was more government involvement in their industry.

The only people stuck in their class are the elite rich who own the Ivy League institutions and restrict admissions to their friends and family.  And the poor who are the victims of government programs that are supposed to help them.  Implemented by government on the advice of those Ivy League graduates who fill the ranks of policy makers in Washington.  Which perpetuates a permanent underclass for government to take care of with ever expanding government programs.

He is right, though, about the economy not in accord with free market principles.  President Obama hates capitalism and has taken active measures to oppose it.  Shut down oil exploration on federal lands and in international waters within our exclusive economic zone.  Not approving the Keystone XL pipeline.  Strong-arming Obamacare through Congress with backroom deals to pass a bill the American people didn’t want.  Subsidizing green energy companies like Solyndra that fail.  Attacking private equity.  And so on.  Helping like-minded people.  And hurting those who think differently.  This administration has become the model of crony capitalism. 

The land of opportunity and the American Dream will return this November.  It will take a while to undo some of the damage done these past 3 years or so.  But opportunity is still there.  If government would only get out of the way.

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Versailles Treaty, Marshall Plan, Post-War Japan, MITI, Asian Tigers, Japan Inc., Asset Bubbles, Deflationary Spiral and Lost Decade

Posted by PITHOCRATES - February 21st, 2012

History 101

Douglas MacArthur brought some American Institutions into Japan and unleashed a lot of Human Capital

At the end of World War I the allies really screwed the Germans.  The Treaty of Versailles made for an impossible peace.  In a war that had no innocents the Allies heaped all blame onto Germany in the end.  And the bankrupt Allies wanted Germany to pay.  Placing impossible demands on the Germans.  Which could do nothing but bankrupt Germany.  Because, of course, to the victors go the spoils.  But such a policy doesn’t necessarily lead to a lasting peace.  And the peace following the war to end all wars wasn’t all that long lasting.  Worse, the peace was ended by a war that was worse than the war to end all wars.  World War II.  All because some corporal with delusions of grandeur held a grudge.

The Americans wouldn’t repeat the same mistake the Allies made after World War II.  Instead of another Versailles Treaty there was the Marshal Plan.  Instead of punishing the vanquished the Americans helped rebuild them.  The peace was so easy in Japan that the Japanese grew to admire their conqueror.  General Douglas MacArthur.  The easy peace proved to be a long lasting peace.  In fact the two big enemies of World War II became good friends and allies of the United States.  And strong industrial powers.  Their resulting economic prosperity fostered peace and stability in their countries.  And their surrounding regions.

MacArthur changed Japan.  Where once the people served the military the nation now served the people.  With a strong emphasis on education.  And not just for the boys.  For girls, too.  And men AND women got the right to vote in a representative government.   This was new.  It unleashed a lot of human capital.  Throw in a disciplined work force, low wages and a high domestic savings rate and this country was going places.  It quickly rebuilt its war-torn industries.  And produced a booming export market.  Helped in part by some protectionist policies.  And a lot of U.S. investment.  Especially during the Korean War.  Japan was back.  The Fifties were good.  And the Sixties were even better. 

By the End of the Seventies the Miracle was Over and Japan was just another First World Economy 

Helping along the way was the Ministry of International Trade and Industry (MITI).  The government agency that partnered with business.  Shut out imports.  Except the high-tech stuff.  Played with exchange rates.  Built up the old heavy industries (shipbuilding, electric power, coal, steel, chemicals, etc.).  And built a lot of infrastructure.  Sound familiar?  It’s very similar to the Chinese economic explosion.  All made possible by, of course, a disciplined workforce and low wages.

Things went very well in Japan (and in China) during this emerging-economy phase.  But it is always easy to play catch-up.  For crony capitalism can work when playing catch-up.  When you’re not trying to reinvent the wheel.  But just trying to duplicate what others have already proven to work.  You can post remarkable GDP growth.  Especially when you have low wages for a strong export market.  But wages don’t always stay low, do they?  Because there is always another economy to emerge.  First it was the Japanese who worked for less than American workers.  Then it was the Mexicans.  Then the South Koreans.  The three other Asian Tigers (Hong Kong, Singapore and Taiwan).  China.  India.  Brazil.  Vietnam.  It just doesn’t end.  Which proves to be a problem for crony capitalism.  Which can work when economic systems are frozen in time.  But fails miserably in a dynamic economy.

But, alas, all emerging economies eventually emerge.  And mature.  By the end of the Seventies Japan had added automobiles and electronics to the mix.  But it couldn’t prevent the inevitable.  The miracle was over.  It was just another first world economy.  Competing with other first world economies.  Number two behind the Americans.  Very impressive.  But being more like the Americans meant the record growth days were over.  And it was time to settle for okay growth instead of fantastic growth.  But the Japanese government was tighter with business than it ever was.  In fact, corporate Japan was rather incestuous.  Corporations invested in other corporations.  Creating large vertical and horizontal conglomerates.  And the banks were right there, too.  Making questionable loans to corporations.  To feed Japan Inc.  To prop up this vast government/business machine.  With the government right behind the banks to bail them out if anyone got in trouble.    

Low Interest Rates caused Irrational Exuberance in the Stock and Real Estate Markets

As the Eighties dawned the service-oriented sector (wholesaling, retailing, finance, insurance, real estate, transportation, communications, etc.) grew.  As did government.  With a mature economy and loads of new jobs for highly educated college graduates consumption took off.  And led the economy in the Eighties.  Everyone was buying.  And investing.  Businesses were borrowing money at cheap rates and expanding capacity.  And buying stocks.  As was everyone.  Banks were approving just about any loan regardless of risk.  All that cheap money led to a boom in housing.  Stock and house prices soared.  As did debt.  It was Keynesian economics at its best.  Low interest rates encouraged massive consumption (which Keynesians absolutely love) and high investment.  Government was partnering with business and produced the best of all possible worlds.

But those stock prices were getting way too high.  As were those real estate prices.  And it was all financed with massive amounts of debt.  Massive bubbles financed by massive debt.  A big problem.  For those high prices weren’t based on value.  It was inflation.  Too much money in the economy.  Which raised prices.  And created a lot of irrational exuberance.  Causing people to bid up prices for stocks and real estate into the stratosphere.  Something Alan Greenspan would be saying a decade later during the dot-com boom in the United States.  Bubbles are bombs just waiting to go off.  And this one was a big one.  Before it got too big the government tried to disarm it.  By increasing interest rates. But it was too late.

We call it the business cycle.  The boom-bust cycle between good times and bad.  During the good times prices go up and supply rushes in to fill that demand.  Eventually too many people rush in and supply exceeds demand.  And prices then fall.  The recession part of the business cycle.  All normal and necessary in economics.  And the quicker this happens the less painful the recession will be.  But the higher you inflate prices the farther they must fall.  And the Japanese really inflated those prices.  So they had a long way to fall.  And fall they did.  For a decade.  And counting.  What the Japanese call their Lost Decade.  A deflationary spiral that may still be continuing to this day.

As asset prices fell out of the stratosphere they became worth less than the debt used to buy them.  (Sound familiar?  This is what happened in the Subprime Mortgage Crisis.)  Played hell with balance sheets throughout Japan Inc.  A lot of debt went bad.  And unpaid.  Causing a lot problems for banks.  As they injected capital into businesses too big to fail.  To help them service the debt used for their bad investments.  To keep them from defaulting on their loans.  Consumption fell, too.  Making all that corporate investment nothing but idle excess capacity.  The government tried to stop the deflation by lowering interest rates.  To stimulate some economic activity.  And a lot of inflation.  But the economy was in full freefall.  (Albeit a slow freefall.  Taking two decades and counting.)  Bringing supply and prices back in line with real demand.  Which no amount of cheap money was going to change.  Even loans at zero percent.

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Free Market Competition versus Cronyism and Monopoly

Posted by PITHOCRATES - January 15th, 2012

Week in Review

There is a general misunderstanding of what capitalism means.  When most people criticize capitalism, they’re not criticizing capitalism.  But, instead, crony capitalism.  Where some in business seek special favors from government.  Thus preferring the privilege of cronyism over free market competition.

Economics can range between two poles.  Free competition.  And monopoly.  Free competition is an essential element of capitalism.  Whereas monopoly requires the power of the state to enforce (see Competition and the Economists by Murray N. Rothbard posted 1/10/2012 on Ludwig von Mises Institute).

To Adam Smith and to his successors, “competition” was not a term defined with mathematical precision; it meant, generally, “free competition,” i.e., competition unhampered by governmental grants of exclusive privilege. And “monopoly” tended to mean such grants of governmental privilege.

To Adam Smith, for example, “competition” was used in the common-sense way that businessmen use it: to mean rivalry between two or more independent persons or firms. “Free competition” meant absence of grants of exclusive privilege, freedom of trade and freedom of entry into occupations; “monopolies” meant grants of exclusive privilege.

When Smith used the term “competition,” for example, he used it to describe the competition among buyers, which bids prices up when demand exceeds supply, or the competition of sellers, which bids prices down when supply is greater than demand.

Free market competition keeps consumer prices down.  Because of that competition between sellers.  When there is crony capitalism there is less competition.  And elements of monopoly.  Which lets prices stay high.  This is crony capitalism.  It lets those politically connected escape free market competition.  So they can enjoy higher selling prices.  And you can only do this with friends in high places.  Who have the power to suspend free market forces by legislation.  Which is the only way you can.

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Capitalism and Crony Capitalism are not the Same Thing

Posted by PITHOCRATES - January 14th, 2012

Week in Review

A lot of people condemn capitalism.  But the thing they attack isn’t capitalism.  It’s crony capitalism.  Where some in business buy favors from their friends in government (see Crony Capitalism? Blame the Progressives by Warren Meyer posted 1/5/2012 on Forbes).

The core of capitalism has nothing to do with, and is in fact inherently corrupted by, the exercise of state power.  At its heart, capitalism is one simple proposition — free exchange between individuals based on mutual self-interest.  There is no room in this definition for subsidies or special government preferences or bailouts.  The meat and potatoes activities of crony capitalism are corruptions rather than features of free markets.  Where state power to intervene in economic activity does not exist, neither does cronyism.

Meyer discusses this in specific areas: antitrust, licensing, protectionism, economic management, picking winners, green energy, consumer protection, employee protection and Obamacare.  Please follow the link to Forbes and read the full piece.

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