Incentive and Competition

Posted by PITHOCRATES - December 19th, 2011

Economics 101

Prices set by the Free Market make Competitors Think and Innovate

Agriculture advances gave us food surpluses.  Food surpluses gave us a division of labor.  The division of labor gave us trade.  Money made that trade more efficient.  Religion and the Rule of Law allowed great gatherings of people to live and work together in urban settings.  Free trade let us maximize this economic output and elevated our standard of living.  Free labor sustained economic growth by increasing the number of people making economic exchanges.  Prices automated the process of assigning value and allocating scarce resources (that have alternative uses).  But that’s not all.  Prices also provide incentive and competition.

High prices signal high profits.  Or the potential for high profits.  Which encourages other people to enter the market to get their piece of these high profits.  People who think they can do a better job.  Make something better.  And sell it for less.  That’s right, to get rich they will sell it for less.  That’s key.  That’s how you gain market share.  The ultimate goal of all businesses.  Because with market share comes profit.  And often times this happens even with a price below that of the competition.

Prices set by the market allow this amazing phenomenon to happen.  It stimulates the creative juices.  It makes competitors think.  And innovate.  Providing incentive.  To improve on an existing idea.  Or replace an existing idea with a better idea.  All the while being guided by market prices.  Which tell them the current value a buyer places on a product or service.  And the final cost they have to remain below to bring their innovation to market.  If they do both they will gain market share.  By giving customers better value at a lower price.  And they will make themselves rich in the process.  The proverbial win-win of the free market.  The hallmark of capitalism.  Incentive and competition.

With Crony Capitalism Government Increases the Cost of Competition, Squelching any Incentive to Innovate

Free market prices are essential for free market capitalism.  If the market is not free to determine prices this amazing phenomenon will not occur.  Consumers will not get more value for less.  And business people and entrepreneurs will not take chances and create more value for less.  Because if there are outside forces influencing prices these forces also create uncertainty.  They throw unknowns into business calculations.  Things businesses have no power over.  Which makes them cautious.  And less prone to risk-taking.

We can see examples of this every time there is unrest in the Middle East.  Which tends to threaten the oil supply.  Everything in a modern economy uses energy.  Nothing comes to market without energy.  So anything that affects energy prices affects all prices.  Another example is government’s regulatory cost.  Such as Obamacare.  Which has caused great uncertainty.  And a lot of unknowns.  For entrepreneurs.  And business owners.  Who don’t know the ultimate regulatory compliance cost.  Freezing hiring.  And business expansion.  Extending the Great Recession.  Causing the economy to spit and sputter along.  Like an engine that just won’t restart.

Typically when government over regulates it’s to reward their friends and cronies.  Hence the term crony capitalism.  Which isn’t even capitalism.  Crony capitalism is about getting rich by who you know in government.  Not by creating more value for less.  The government fixes the game by keeping prices high for their cronies.  By enacting regulations that increase the cost of competition.  Squelching any incentive to innovate.  Leaving consumers stuck paying more for less value.

When Government Interfered with Market Prices they gave us the Great Depression and the Great Recession

Free market prices assign value.  Allocate scarce resources that have alternative uses.  Provide incentive to innovate.  Encourage competition.  Incentive and competition.  The hallmark of capitalism.  Which ultimately provides consumers with more value at lower prices.  And it does all of this automatically.  As long as government doesn’t interfere with this automatic pricing mechanism.

But government often does.  They interfere with this automatic pricing mechanism to reward friends and cronies far too often.  When they do the economy suffers.  And often goes into recession.  And when they really interfere, they cause Great Depressions.  And Great Recessions.

Government regulatory policy turned an ordinary recession into the Great Depression.  One of their greatest anti-business regulations being the Smoot–Hawley Tariff Act.  Which launched an all out trade war.  Killing the economy.  And government regulatory policy in the mortgage industry caused the Great Recession.    First by creating a housing bubble by forcing lenders to qualify the unqualified.  And then enabling this bad policy on a grand scale by having Fannie Mae and Freddie Mac buy the resulting bad subprime mortgages.  Which removed all risk from the lenders so they kept on approving bad subprime mortgages.

Say what you will about the Great Depression and the Great Recession.  But what you can’t say is that they were market failures.  Because they weren’t.  Both were government-made.  Because it was government that interfered with market prices.  Not the free market.  And the consumers paid the price for their crony capitalism.

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The Problem with the Occupy Wall Street People is that they don’t Know the Difference between Capitalism and Crony Capitalism

Posted by PITHOCRATES - October 15th, 2011

Bank Tellers have a Job because they didn’t go to College to get a Philosophy or an English Degree

Another proud day for American public education and American colleges (see Protesters arrested in bank march, party in Times Square by Georgett Roberts, Jennifer Bain and Kevin Fasick posted 10/15/2011 on the New York Post).

The “Crossroads of the World” were jammed when thousands of anti-greed protesters brought their party to Times Square, capping a day of marches marred by the arrest of more than 20 who stormed a Citibank branch.

And what do they want?  A lot of free stuff.  The greedy little bastards.

Brought their ‘party’?  Yeah, that about sums up these beatniks on Wall Street.  For them life is nothing but a party.  And a protest is an even better party.  I mean, look at them.  They’re having the time of their lives.

Earlier, 24 protesters were arrested when a mob stormed a LaGuardia Place Citibank and shouted slogans as two demonstrators closed their bank accounts in protest just after 2 p.m.

I hope they find a safe place for that money.  There are a lot of desperate people out there who need money.  And it would have been a lot harder for them to get at that money if they had left it locked in a bank.

They were screaming and chanting while they were going in. Security told them to leave, but they didn’t. They stood in a group chanting things to the tellers. There were locked in, and then they were taken away.”

If I’m not mistaken bank tellers aren’t part of that superrich 1%.  No.  They’re probably a part of that 99%.  Like the protesters.  Only they have a job.  Unlike the protestors.  Because they didn’t go to college to get a philosophy or English degree.

“We went into the bank to peacefully protest,” she said. “People were standing in the bank giving testimonials, speaking about their student debt, some of which is held by Citibank and a few undercover police officers came into the bank”

These people partied for 4 years (or more) while going to college getting their worthless degrees.  And learning how to hate America.  And the man.  And now they’re bitching to complete strangers about their own bad decisions?  Taking on debt for some BS degree?  Mom and Dad probably warned them not to do that.  To get a degree in something useful instead.  Like business.  Accounting.  Chemistry.  Something that has value in the economy.  But did they listen?  Apparently not.

He said he paid $559 annually in fees to the bank, including late charges.

“I’ve been wanting to move my money for awhile. But this opened my eyes,” he said of his experiences. “I’m going to use a community-based bank for my funds.”

This is just like someone living in East Berlin at the height of the Cold War waiting for their chance to escape to West Berlin.  To scale the Berlin Wall.  Before the East Germans shot him.  Or her.  Of course, there are some subtle differences.  East Germany was an oppressive police state that killed people trying to escape.  While America is a free county.  With a free market.  Where you can move your money to any bank you wish.  Without the threat of being gunned down by the state.

We call this free market capitalism.  Businesses compete for you business by pleasing you more than their competition.  You don’t need a law to make banks please you.  If you don’t like how a bank is treating you, leave.  All you have to do is open a new account.  Withdraw your money from the old account.  And deposit it into the new account.  It’s that easy.  It sure is a hell of a lot easier than trying to
climb a barbwire wall under withering machine gun fire.

If Government Favoritism Bothers you Perhaps you should Direct your Angst at Washington D.C. at the Next Election

These protestors may hate capitalism.  Because they were taught that on our college campuses.  But they sure love some of its billionaires.  Even though they belong to that 1% (see Protesters should not target entrepreneurs like Steve Jobs by Antony Davies posted 10/12/2011 on The Morning Call).

Steve Jobs, the co-founder of Apple who died last week at age 56, left the world a better place than he found it — and not just because of the treasure trove of gadgets he shepherded into creation.

Mr. Jobs’ life is a testament to what economists have long been telling us — that wealth and plunder are not the same thing. Plunder is what you get when you take from others. Wealth is what you get when you give to others.

Due to his commercial success, Mr. Jobs accumulated $8 billion of wealth over his life. But you won’t see Occupy Wall Street protesters coming after Jobs or Apple because it is so obvious that we freely gave our money to him in exchange for his products. We don’t view Jobs’ wealth as plunder, but as one-half of a transaction. We gave him $8 billion and he gave us the world that science fiction authors promised.

We voluntarily gave our money to billionaire like Steve Jobs.  The Occupy Wall Street mob is trying to take money from others.  The Steve Jobs of the world create wealth because they please us.  People like those on Wall Street threaten us for plunder or else.  Steve Jobs good.  Plunderers bad.

The young protesters currently occupying Wall Street should be careful where they direct their ire. People like Steve Jobs who gained their wealth by providing value to others — including the protesters using iPhones to call their friends — shouldn’t be the subject of protest. The protesters should focus their ire on those who use the political process to gain plunder by forcing the rest of us to subsidize their losing business models.

Some of these pirates can be found on Wall Street. They benefited when the government forced taxpayers to underwrite Fannie Mae and Freddie Mac’s largesse, and they benefited when the government forced taxpayers to bail out the companies that bet on that largesse.

But they’re not just in New York City.

Let us not forget that Fannie Mae and Freddie Mac are Government Sponsored Enterprises.  With close ties to the government.  Executing government policy.  And being under the official oversight of the government.  In particular, at the time of the subprime mortgage crisis, Barney Frank and Chris Dodd.  Who kept saying there’s nothing wrong with Freddie or Fannie.  That they were both as sound as a pound.  All the way up to the Great Recession.  Which they caused.

Pirates can be found on Main Street, where businessmen ask the government to create an unfair licensing system that will hamstring their competitors. They can be found in the public sector, where public unions ask the government to maintain a system that forces us to use the U.S. Postal Service to send first-class mail. Some can even be found on the farm, when they fight to maintain government requirements to put ethanol in our gas tanks and pay huge tariffs on imported sugar.

Here’s my point. Pirates can be found in all cities, and in all sectors, but their power to plunder has its source in one city: Washington, D.C. The federal government and the businesses that use political ties to force their products on consumers aren’t creating value — they’re enriching themselves at our expense. If protesters want to stop the plunder, then they are protesting in the wrong place.

That’s right, it takes two to tango.  And to plunder.  Lobbyists can’t lobby politicians unless they’re for sale.  Corporations can’t plunder unless they have cronies in Washington letting them.  By restricting competition.  And this is the key difference between capitalism (such as Steve Jobs used) and crony capitalism (such as what everyone is pissed off about).  It’s is crony capitalism that gets special favors from government.  In exchange for campaign contributions.

So if this kind of government favoritism bothers you, perhaps you should direct your angst to those who make the rules.  Washington D.C.  And by that I mean at the voting booth at the next election.  The way real democracy works.

The Occupy Wall Street Protestors have no Idea about Capital, Labor, Regulatory, Distribution, Insurance or Piracy Costs

And speaking of piracy, let’s talk about that a little.  And I’m not talking about bootlegging music or movies.  I’m not about literal pirates on the high seas (see Prepare to repel boarders posted 10/13/2011 on The Economist).

SOMALI pirates can be persistent. They have attacked the Maersk Alabama, a container ship owned by an American subsidiary of Denmark’s Maersk Line, no fewer than five times, most recently in May. In the first attack, in 2009, the captain was held hostage until the US Navy rescued him. Then Maersk put private armed guards on the ship. Since then, it has successfully repelled all boarders.

Maersk says it is only arming a few ships plying the pirate-infested waters off East Africa. But the practice is spreading rapidly among shipping firms despite the cost, which can run to $100,000 per voyage for a four-man team. That is because the number of attacks, off Somalia and elsewhere, has kept growing despite the strengthening of naval patrols (see chart). The European Union’s NAVFOR task-force, NATO warships and other navies patrol the waters off Somalia, but this has only pushed the pirates out into the open ocean, extending their attack zone towards India’s coast and as far south as Mozambique’s. This has forced the shipping industry, its insurers, and the national and international authorities that oversee them to accept that private armed guards are a necessity.

American ships plying these waters are bringing American-made goods to overseas markets.  Which everyone agrees is vital to our economy.  A positive balance of trade.  More exports.  Less imports.  And here we are trying to deliver our exports.  And having our ships hijacked by pirates.

Protestors hate corporations.  Because that’s where rich people sit back with their feet up on their desk puffing away on their fat cigars.  While counting their money.  At least, that’s what the protestors think.  They have no idea about the capital costs for plant and equipment.  Labor costs.  Regulatory costs.  Distribution (container ships ain’t cheap).  Insurance.  And, of course, piracy on the high seas and ransom demands.

Protestors are no fans of military spending, either.  They think the military is used just to invade other countries so we can steal their oil.  Well, they can’t blame this Somali piracy on America.  For the Somalis are stealing from anyone.  And nations everywhere have banded together to try and protect their trade routes.  But can’t.  Which is pretty sad.  Because during World War II we eventually defeated the U-Boat menace in the North Atlantic.  Of course, back then, we spent what was necessary on the military to win.  Unlike today.  Where the military budget is just a source of funds the Wall Street protestors want to plunder.

The Occupy Wall Street protestors are Acting like Spoiled Children, Like a Bunch of Eric Cartmans

The Occupy Wall Street protestors hate banks.  Capital formation.  Corporations.  That is, capitalism.  How do we know this?  Because they have told us.  Via Twitter.  Blogs.  YouTube.  Which they wrote and/or recorded on their Apple products.  And uploaded it to the Internet.  That we then downloaded on our Apple products.  Or other devices.  All of which made possible by banks, capital formation and corporations.  That is, capitalism.

These kids love capitalism.  They love the toys capitalism offers.  They just hate not being born into privilege.  Where they can afford to satisfy every want and urge as soon as they have it.  Without having to work hard or wait until they can afford to pay for these things.  They’re acting like spoiled children.  Like a bunch of Eric Cartmans.  Except for that part about being a bunch of filthy, stinking hippies.  For everyone knows that hippies are the bane of Cartman’s existence.  But apart from that one difference, these protestors are Eric Cartman.

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Protesters on Wall Street haven’t a Clue of what they’re Protesting About

Posted by PITHOCRATES - October 1st, 2011

Why are they Protesting?  Because Protesting is Fun.

They’ve gathered on Wall Street.  And they will be heard.  That is, if they had anything to say (see Occupy Wall Street protesters driven by varying goals by Tina Susman posted 9/29/2011 on the Los Angeles Times).

“At a certain point, there’s a valid criticism in people asking, ‘What are you doing here?'”

What are they doing there?  I think that’s pretty clear.  They’re protesting.  Why?  Because protesting is fun.  That’s why.

They may not know why they’re there.  Or understand how the free market economy works.  Have the foggiest idea of what capitalism really is.  All they know is that they had some Leftist high school teachers and/or some Leftist college professors who told them how much fun protesting was.  How much they enjoyed it all those years ago.  When they were dirty, filthy, stinking hippies.  Enjoying the college ‘education’ that Daddy paid for with his capitalistic career.  And how much they hated their fathers.  For being capitalists.  Which allowed their parents to give these spoiled little brats whatever they wanted.

Funny how some things never change.

The Man Sure gets Around; of course he was a Much Younger Man during the Vietnam era Protests.

But surely they must have a reason for being there?  Other than sticking it to the man (see Wall Street protest’s success not easily measured by the Associated Press posted 10/1/2011 on TRIBLIVE).

It all has the feel of a classic street protest with one exception: It’s unclear exactly what the demonstrators want…

“It’s time for us to come together to realize we are the masses, and we can make things happen.”

But he couldn’t say what, exactly, he wanted to happen. Handmade signs carried by some of the demonstrators — “Less is More” and “Capitalism is evil” — hardly make it clearer…

… the group’s lack of specificity serves a purpose because it invites outrage over a full spectrum of societal grievances. Indeed, some demonstrators say they are against Wall Street greed, others say they are protesting global warming and still others say they are protesting “the man.”

Yes.  The man.  I remember first hearing about ‘the man’ during the Vietnam era protests.  The man sure gets around.  Of course he was a much younger man in those days.  But just as oppressive.  He had a job.  He paid taxes.  Saved for retirement.  And saved for the college education for the next generation of protestors.  That vicious, selfish bastard.

The Protestors have no Leader or Message but have the Support of Teachers and Transport Workers

But these protestors are not alone.  Other anti-capitalists have come out to support them (see Wall Street protesters set to march on police by Ray Sanchez posted 9/30/2011 on Reuters).

… a unionized subway worker, said, “Last year we had 900 of our members laid off … These are our issues too: Wall Street, the banks, layoffs, the struggle that these young people are spearheading is our struggle too.”

Among those pledging solidarity were the United Federation of Teachers and the Transport Workers Union Local 100, which has 38,000 members. The unions could provide important organizational and financial support for the largely leaderless movement.

It was the high unemployment that cut the tax base of the city that required them to lay off some of their employees.  Because they couldn’t pay them and those generous pensions and health care benefits for their retirees.  And that didn’t have anything to do with the Wall Street banks.

It is interesting that the teachers and the transport workers are supporting a movement that has no message.  At least when the unions protest you know what they want.  Money.  And benefits.  But these protestors have no leader.  And no message.  But the teachers and the transport workers will be right there with them to help them win what they want.  More fun protesting.  I guess.

Corruption is Initiated by Government because they have the Power, they Write the Laws

Perhaps we should listen to the protestors themselves.  Let them tell us why they’re protesting.  Bill O’Reilly sent Jesse Watters to Wall Street.  To find out.  And here is what he learned.

http://www.youtube.com/watch?v=Crl31Xgc3_w

Well, that clarifies everything.  These people are demonstrating how poor our educational system is.

What they’re complaining about is not capitalism.  It’s crony capitalism.  Crony capitalism is when politicians sell themselves to the highest bidder.  They say if you give me lots of money I will write laws that favor you.  This is the corruption.  And government initiates it.  Because they have the power.  They write the laws.  And set the rules of the game.  And if you want to play you have to pay.

Not all corporations do.  Microsoft didn’t.  Until they were called to Congress in a huge antitrust case.  Because they were giving consumers something free.  The Internet browser Internet Explorer.  Microsoft has since learned their lesson.  And now lobby accordingly.

Democrats need the Youth Vote because the Young stay neither Young nor Ignorant Forever

There are some older people in these protests.  But the vast majority are college age kids.  Many of who will grow up and raise families.  Have a career.  And will think about other pressing issues of the day other than legalizing pot.

Yes.  These kids today?  A lot of them will be ‘the man’ tomorrow.  And some punk kids will demonize them in a similar protest some 10-20 years in the future.

This is why the Democrats work so hard on getting the youth vote.  Because the young stay neither young nor ignorant forever.

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President Obama uses Class Warfare to Increase Spending and Reward Political Cronies

Posted by PITHOCRATES - September 19th, 2011

They have Learned in the UK that Government can’t Pay for Everything

China may be subsidizing high-speed rail.  But in the UK, the government is moving the other way.  Because it is just too costly (see Arriva Trains: Fare rise in Wales 2% lower than England posted 9/19/2011 on the BBC News Wales).

The Welsh Government has told Arriva Trains Wales it can increase prices by 1% above the inflation rate.

Last month the UK government announced an average increase in England of 3% over inflation…

Tony Miles, from Modern Railways magazine, said the decision was good news for Welsh commuters but it would impact on the Welsh Government’s budget.

He said: “This is a policy decision by the Welsh Government, which is very much in line with their outlook that the burden of financing public transport should fall more on taxpayers centrally than on the individual passengers…

“The UK Government wants to shift the cost of the railways more away from taxpayers and towards users.

The UK went farther down the socialist road than the Americans.  They nationalized a lot of their industries.  Nationalized their health care.  And, of course, their transportation.  Now there are efforts to reverse this.  Continuing on the work of the great Margaret Thatcher.

There are some in the UK that have a novel idea.  To let people pay for a train ticket.  If they want a train ticket.  Imagine that.  Paying your own way.  How fair.  And rational.  But not all are keen on the idea.  For in Wales they want everyone to pitch in and pay for train tickets.  Even those who don’t ride on the train.

They have learned in the UK that government can’t pay for everything.  And some are now trying to undo years of government growth.  In transportation.  And elsewhere.  To unleash more free market capitalism.  That they were so kind to introduce to the Western World all those years ago.

Was the Great Depression the Worst Economy Ever before Obama Took Office?

In America, though, government continues to grow.  Even with election losses.  And economic malaise (see End of Recession Doesn’t Mean Good Times Return Right Away by David Johnson posted 9/19/2011 on Random Samplings).

Numbers just released by the Census Bureau, however, illustrate that while the recession may technically be over, household economic conditions did not improve…

During the 2010 calendar year, median household income was $49,445, 2.3 percent lower than in 2009 after adjusting for inflation.

The Obama administration’s Recovery Summer ended the Bush recession in 2010.  Or so they say.  The unemployment rate is still above 9%.  If you factor in the underemployed and those who’ve given up looking for a job it’s closer to 16%.  And real household income is down 2.3%.

But just imagine how bad things would have been if Obama didn’t end the Bush Recession with his Recovery Summer.  People would be saying that the Great Depression was the worst economy ever.  Until Obama took office.

To end the Bush recession Obama spent $800 billion in ‘stimulus’ spending.  Which failed.  Because he’s asking for another $450 billion stimulus package.  Despite the first one failing.  Well, it may have failed to stimulate the economy.  But it did stimulate government.

Only Union Jobs are Good Jobs in the Obama Admin because only Union Jobs Fill Democrat Coffers

So we know that their stimulus spending fails to stimulate the economy.  But why?  Is it because they don’t understand things economic?  Or is it because their stimulus has more political goals than economic?  Perhaps it’s both (see Illinois among worst states to do business: Survey by Ameet Sachdev posted 9/19/2011 on the Chicago Tribune).

Illinois ranked among the three worst states for business, according to a survey of U.S. corporate executives released Monday…

Taxes and high costs were among the factors that contributed to the state’s poor showing in the survey. California was deemed to have the worst business climate, followed by New York and Illinois.

So California, Illinois and New York have the worst business climates.  Because of taxes and high costs.  No surprise, really.  For these are big blue Democrat states.  With big blue Democrat cities.  And big public sector unions.  At both the state and municipal levels.  Which is why they have such high taxes and costs.  Those public sector pension and health care benefits are absolutely killing their economies with the high taxes required to fund them.

The Democrats can say what they want.  But they are not business-friendly.  They are only friendly to political allies.  Unions.  Teachers.  And public sector employees.  Which is why businesses want to leave these Democrat areas.  Not to exploit cheap labor.  But to stop their own exploitation by these Democrat strongholds.

Illinois recently increased its income tax rate, which has prompted several companies, including Chicago-based CME Group, to consider leaving the state.

Texas, North Carolina and South Carolina were viewed as having the best business climates, according to the survey.

Boeing built their new 787 Dreamliner plant in South Carolina.  But the Obama administration is trying to shut that plant down.  Why?  Because they don’t like South Carolina.  Or its people.

You see, all jobs are not good jobs.  As the Obama administration sees it.  And these new South Carolinian jobs are not good jobs.  Because they are nonunion jobs.  No union means no union dues.  And no money to flow into Democrat coffers.  So the Obama administration has nothing to gain politically.  And that’s why they are using the power of the National Labor Relations Board to shut that plant down.  And make Boeing expand production in Seattle.  Where the jobs will be union jobs.  And union money will flow into Democrat coffers.  Via union dues.

President Obama and the Democrats Prefer Crony Capitalism over Free Market Capitalism

We call this crony capitalism.  Some may even say extortion.

Crony capitalism is the opposite of free market capitalism.  Where merit wins the day.  In crony capitalism, though, it’s who you know.  And what kind of political power you have (see Obama administration ‘pressured Air Force general to change testimony’ by Toby Harnden posted 9/16/2011 on The Telegraph).

According to Republicans on Capitol Hill, General William Shelton, head of Air Force Space Command, told them in a closed session the White House urged him to alter his testimony about the Pentagon’s concerns about a new wireless project by a satellite broadband company…

LightSquared, based in Virginia, is funded by the multi-millionaire Philip Falcone, a frequent donor to Democrats. The satellite and broadband communications company plans to build a nationwide, 4G phone network that many generals believe would seriously hinder the effectiveness of high-precision GPS receiver systems used by the military…

The row over the allegedly improper intervention came as a Republican-controlled House of Representatives Committee investigated a federal loan guarantee to Solyndra, a solar firm also tied to a major Democratic contributor, which failed after receiving a half-billion US government loan guarantee.

A spokesman for Gen Shelton said that his testimony was “his own, supported by and focused purely on documented tested results”.

LightSquared insisted it had not sought to interfere with the properly regulatory process. The White House said reviewing congressional testimony was routine.

Interesting.  The White House says this is just routine.  Which it apparently is.  Whether you’re funneling tax dollars to a green energy company.  Connected to a rich Democrat donor.  Or trying to throw a contract to a communications company.  Also connected to a rich Democrat donor.  Even if it compromises national security.

It’s just business.  And our politicians are just business people.  In the business of rewarding political friends.  In return for generous campaign contributions.

So much for hope, change and transparency.

If You Confiscated all the Rich’s Income it would Wipe out Obama’s Deficit…for One Year

Crony capitalism.  A little extortion.  Mixed in with a generous helping of class warfare.  In other words, Obama politics (see Obama calls for broad tax increases by Stephen Dinan posted 9/18/2011 on The Washington Times).

President Obama on Monday proposed a deficit reduction plan that calls for about $3 in new tax increases for every dollar in additional spending cuts as he seeks to put his imprint on the ongoing talks with Congress over reducing the government’s staggering debt…

“This is not class warfare, it’s math,” Mr. Obama said in the White House’s Rose Garden as he laid out the outlines. “The money’s got to come from some place.”

Real incomes are down.  Unemployment is still above 9%.  If you count the underemployed and those who have given up looking for work the actual number is closer to 16%.  So how best to create more jobs to help people go back to work?  And boost those real incomes?  Well, if you’re a member of the Obama administration, you raise taxes.

But this won’t help the employment numbers.  So why do it?  Because it is class warfare.  Despite the president’s denial that it is.  For there is no other reason to do this.  It won’t help the economy.  And it won’t help reduce the debt.

If you took all income from those earning $200,000 or more you’ll be lucky to get $2 trillion.  At least this is all they had in 2008.

(Source:  SOI Tax Stats – Individual Income Tax Rates and Tax Shares)

See?  You can raise tax rates to 100% on the rich but it won’t help.  If you confiscated all their income you’d raise a lot of money, yes.  Enough to wipe out the Obama’s $1.6 trillion deficit.  For one year.  But it will be $1.6 trillion the following year.  Unless you cut spending.  Because you can take this money only once.  Unless these people agree to keep producing all this wealth as indentured servants.  Which I don’t see happening.

So Broke that We Must Raise Taxes but not too Broke that We can’t Throw $7 Billion to the USPS

So it is class warfare.  And cronyism.  Helping those who help them.  With taxpayer dollars.  Which is why they need to raise taxes.  Not to retire the debt.  But to help their political supporters (see President Obama deficit plans back ending Saturday mail by Ed O’Keefe posted 9/19/2011 on The Washington Post).

The White House is also calling on Congress to return $7 billion that USPS paid into a federal retirement fund to the delivery service to help pay for other retirement and health-care costs. Obama’s plans also would allow the Postal Service to raise stamp prices beyond the rate of inflation to better match the cost of delivery…

Though the Postal Service is a self-funding entity that doesn’t accept taxpayer dollars, it is a significant piece of the unified federal budget because its workers and retirees draw benefits from federal workers’ compensation, retirement and health-care accounts.

The country is so broke that it must raise taxes.  But it is not too broke that it can’t throw $7 billion to Obama’s friends in the USPS.

We are Regressing back to the Totalitarian Regimes of the Old World

All this talk about balance approach to deficit reduction?  And getting the rich to pay their fair share?  It’s all class warfare. To increase taxes.  To keep funding important political constituencies.  It has nothing to do with deficit reduction.  The numbers are just too large to be able to reduce the deficit with taxes alone.  You have to cut spending.

And this just isn’t going to happen with Democrats in power.  Because government spending is their lifeblood.  Their economic policies don’t work.  And they’re not designed to work.  They have but one purpose.  Politics.  Rewarding political favors.  With taxpayer dollars.

And they will sacrifice anything to keep spending.  The economy.  Our real incomes.  Our national security.  Even the American Dream.  Our liberty.  For we are regressing back to the totalitarian regimes of the Old World.  Where, if you’re not politically connected, you are fast becoming a second class citizen.

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High Gas Prices may be Keeping some of Us in Recession, but the Rich and our Elected Leaders are doing Okay

Posted by PITHOCRATES - June 27th, 2011

The Oil Supply determines Gasoline Prices

President Obama will release approximately 30 million barrels of oil from the U.S. Strategic Reserve to try and bring down gasoline prices for this summer driving season.  Because the high cost of gasoline is leaving consumers with little disposable income.  Or a reason to reelect him in 2012 (see U.S. Consumer Spending Stalled in May by The Associated Press posted 6/27/2011 on The New York Times).

Americans in May spent at the weakest pace in 20 months, a sign that gas prices are taking a toll on the economy, according to a government report Monday.

Recessions don’t reelect presidents.  Because people don’t like recessions.  People have little money to spend on the ‘luxuries’ (dinner out, movies, vacation, etc.) in life.  And barely have enough to pay for the necessities of life.  So the high price of gasoline does not make a happy constituent.  And if you need a happy constituent to reelect you, the smart money is bet on making the constituency happy.  By bringing down gasoline prices.  Which we know how to do.  President Obama has shown us.  You simply Increase the amount of oil in the market. 

So far, drawing down the Strategic Reserve is the only thing his administration has down to increase the supply of oil.  He stopped drilling in the Gulf of Mexico.  And new drilling permits have not exactly been flying out of Washington.  But there’s still hope.  Thanks to our good friends to the north.  Who have some of the largest oil reserves in the world.  And only need a way to get it to the American refineries.  Which Obama can make happen.  By saying ‘yes’ to an oil pipeline (see China eyes Canada oil, US’s energy nest egg by Rob Gilles, Associated Press, posted 6/26/2011 on Yahoo! News).

In the northern reaches of Alberta lies a vast reserve of oil that the U.S. views as a pillar of its future energy needs.

China, with a growing appetite for oil that may one day surpass that of the U.S., is ready to spend the dollars for a big piece of it.

The oil sands of this Canadian province are so big that they will be able to serve both of the world’s largest economies as production expands in the coming years. But that will mean building at least two pipelines, one south to the Texas Gulf Coast and another west toward the Pacific, and that in turn means fresh environmental battles on top of those already raging over the costly and energy-intensive method of extracting oil from sand.

Uh-oh.  Environmental battles.  You know what that means?  No relief at the pump.  Not from this administration that set green energy as the cornerstone of its economic recovery.  I mean, lowering the price of gasoline so people don’t remember the vacation that wasn’t come election time is one thing.  But making gasoline cheap and plentiful?  In an administration with Steven (somehow we have to figure out how to boost the price of gasoline to the levels in Europe) Chu as Energy Secretary?  Not going to happen.

Critics dislike the whole concept of oil sands, because extracting the oil requires huge amounts of energy and water, increases greenhouse gas emissions and threatens rivers and forests. Keystone XL, the pipeline that would bring Alberta oil to Texas Gulf Coast refineries to serve the U.S. market, compounds the issue…

Environmental groups want [President Obama] to reject it, seeing it as a test of Obama’s will to fight climate change.

The Chinese may likely get their pipeline.  But the environmentalists will be pressuring Obama to just say ‘no’.  So get used to those high prices.  They’ll probably be around for a long time to come.  At least until 2012.

The Rich get Richer, We get Poorer and Senators get Bigger Offices

People are getting richer than ever before.  Even during the Great Recession.  Some feel it’s not fair.  Especially those who hate corporate America (see The rich aren’t like you and me by Michael Winship posted 6/27/2011 on Salon).

The annual wealth report by Merrill Lynch and Capgemini finds that the assets of these so-called “high net worth individuals” reached $42.7 trillion in 2010, a rise of nearly ten percent from the previous year at a time when, as The Guardian observed, “austerity budgets were implemented by many governments in the developed world…”

Ernest Hemingway claimed that when F. Scott Fitzgerald once said to him, “The rich are different from you and me,” he archly replied, “Yes, they have more money.” Whether it’s true or not, the Hemingway in the story got it wrong. The rich not only have more money, they have more power, more clout — and more to hide.

Interestingly, this hasn’t changed during the Obama administration.  In fact, crony capitalism has never been better.  Bailouts for friends on Wall Street.  GE with a booming green energy business thanks to Obama’s green energy initiatives (and who are NOT, by the way, paying any income taxes).  Automotive bailouts that favored the UAW over actual stakeholders.  Oh, it’s good to be king.  And part of the ruling elite.  Now it’s time to reward them for a job…done (see Senators Stay Put in Hideaways by Daniel Newhauser posted 6/27/2011 on Roll Call).

A number of long-serving Senators are sitting out this year’s draw for coveted hideaways…

It’s a Senate tradition that is a cross between “Trading Spaces” and the NBA draft. Every two years, after some of the longest-serving lawmakers retire or pass away, the remaining Senators start the process of shuffling spaces, seeking to enhance their status with a coveted secret office.

The Great Recession lingers on because of high gasoline prices caused by government policies that hinder bringing more oil to market.  George W. Bush and Dick Cheney never did anything like this to drive up the price of oil.  And they were oilmen.  Who would have profited handsomely from high oil prices.  As the Democrats and the mainstream media pointed out endlessly as gasoline prices entered $4/gallon territory.  No such accusations now.  Just silence.  As the Obama policies leave a swath of destruction across the fruited plain.  Congress could do something about this.  But there is more important business to attend to.  Namely, showing other senators who has a bigger office.

Four of the 10 longest-serving sitting Senators decided it was time for an upgrade, including Hatch, who snagged the legendary space once occupied by the late Sen. Edward Kennedy (D-Mass.), and Levin, who moved into the impressive hideaway of former Sen. Chris Dodd (D-Conn.).

Hatch said his elegant new third-floor office, with a fireplace, large windows and high arched ceilings, is a significant upgrade, especially because it is just paces from the Senate floor.

And a nicer office.  Elegant?  Fireplace?  High arched ceilings?  What is this?  Imperial Rome?  Some get so upset when the rich get richer but when the people’s representatives, our servants, live just as good as the rich there is barely a whisper of disapproval.

Leahy, meanwhile, said he was in no hurry to move.

“Why would I want to give up mine?” he asked. “I’ve got the most beautiful view probably in the whole Capitol.”

An avid photographer, the second-most-senior Senator, brandishing a professional-grade digital camera, scrolled to a freshly snapped photo to prove his case.

“Recognize that guy?” he asked Wednesday, pointing to a man clad in familiar orange-tinted sunglasses, his arm casually resting on a balcony ledge looking out on a spectacular view of the Washington Monument. “It’s Bono.”

The seven-term Senator is the proud inhabitant of a first-floor hideaway, formerly the stomping grounds of the late Sen. Ted Stevens (R-Alaska). With a fireplace, built-in bookshelves, a private bathroom and a balcony, it is a rare gem among the Capitol’s hidden offices, and certainly enough to impress even a rock star.

This is your U.S. Senate.  Taking care of the people’s business.  Totally insulated from the Great Recession.  While taking the time to swoon over celebrities.  From the balcony of a gem of a hidden office.  It would appear that the rich are not the only ones who have more money, more power, more clout — and more to hide.

Out of Touch with American People

The Left attacked Ronald Reagan and George W. Bush as being out of touch with the American people.  Tax breaks for the rich.  And spending cuts for the poor.  That neither saw the suffering masses their policies created.  Well, President Obama is addressing this income disparity.  By making everyone poorer.  Except, of course, his cronies who are generous with the campaign cash donations.

The high cost of gasoline is hurting Americans and keeping the Great Recession alive and well.  And we can blame Barack Obama now for the high cost of gasoline.  By restricting the supply of oil to the market.  Because more oil means lower gas prices.  (Obama proved he knows this by drawing down the Strategic Reserve to do just that.)  His administration placed a moratorium on drilling in the Gulf of Mexico.  His administration is making it difficult to get drilling permits.  And now his administration may say ‘no’ to that pipeline from the Alberta oil sands to the Texas Gulf Coast.  Or delay saying ‘yes’ for as long as possible to appease the environmentalists.  Meanwhile, the Chinese will move ahead and do whatever it takes to get that Canadian oil.  Because without oil a modern economy will grind to a halt.  And no amount of windmills or solar panels will change that. 

The Chinese know this.  And they’ll probably get that Canadian oil while the Obama administration is still dithering over the environmental impact of the proposed pipeline.  Completely indifferent to the plight of struggling American families.  And quite happy to sit by and watch the price of gasoline get to European levels.  To advance their green energy policies.  So they can reward their most generous cronies.

And it was Ronald Reagan and George W. Bush who were out of touch with American people?

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We’d do better Emulating Bourbon Country than China

Posted by PITHOCRATES - June 25th, 2011

A Generous Government robs the Private Sector

The economy.  It’s bad today.  It’ll be bad tomorrow.  And probably will still be bad when many are thinking about retiring.  I say thinking.  Because that’s all they may be able to do about retirement.  Think about it.  As they keep working well into retirement age (see Retirement As We Know it Is “Dead”: EuroPacific’s Pento by Peter Gorenstein posted 6/22/2011 on Yahoo! Finance).

“Americans are have negligible savings, the real estate market is still in secular decline, stock prices are in a decade’s long morass, real incomes are falling, public pension plans are insolvent and our entitlement programs are bankrupt.”

Pento believes these issues could be resolved if the government takes the right steps. What might those be? He recommends lowering taxes, reducing inflation and balancing the budget as a means to increase the value of the dollar. If the dollar had more purchasing power and interest rates were higher, retirees would be able to live off their fixed income, he says.

Please note the common theme in the resolution.  Less government.  Less government spending.  Les government taxing.  Less government quantitative easing (i.e., stop depreciating the dollar).  Because it is all of this government intervention into the private sector that has killed so many private sector jobs.  Reduced our real incomes.  Bankrupted our entitlement programs.  And destroyed our pensions (because fat pension funds are just too tempting to ‘borrow’ from to pay for more spending.  And by borrow I mean steal).

A generous government is a government that robs the private sector to pay the beneficiaries of the public sector.  But they have taken so much that they have given the private sector the worst recession since the Great Depression.  Which, in turn, has starved government coffers.  Talk about killing two birds with one stone.

There’s no Recession in Bourbon Country

Despite being in the worst recession since the Great Depression thanks to all that government intervention into the private sector, there is some positive economic activity out there.  One area in particular that is near and dear to my heart.  Bourbon (see Bourbon’s popularity feeds growth of Kentucky distilleries by Bruce Schreiner, Associated Press, posted 6/25/2011 on USA Today).

The producers are aiming to quench a thirst for bourbon — especially premium brands — that is steady in the U.S. and rapidly expanding overseas, thanks in part to the comeback of cocktails appealing to younger adults, lower tariffs, robust marketing and a larger middle class in emerging markets.

A tariff is a tax on an import.  To protect the domestic competition.  Or so goes the theory.  Protective tariffs destroyed a lot of American industry that had no incentive to improve (textile, steel, automotive, etc.).  But that’s another story.  Thankfully, bourbon is an American spirit.  All proper bourbon hails from Kentucky.  Thanks to those freshwater streams through the limestone bedrock of those rolling hills.  So there are no foreign bourbon markets to protect.  Keeping tariffs lower than they may be otherwise.  Thus providing a healthy export market. 

Industry observer F. Paul Pacult, editor of the quarterly newsletter Spirit Journal, said bourbon makers are showing an adventurous side with premium offerings that reflect an “intramural competition.”

“There’s more innovation happening in Kentucky right now than any other place in the world,” Pacult said.

Now Kentucky is bourbon country.  There are a lot of distillers competing against each other.  And yet the bourbon market as a whole is growing.  There’s no recession in bourbon country.  Which just goes to prove the old maxim.  Competition makes everything better.

The industry’s biggest boost, though, has come from exports.

Producers of bourbon and Tennessee whiskey reaped $768.2 million in export sales in 2010, up from $303.8 million in 2000, according to the spirits council, citing statistics from the U.S. Department of Commerce and the U.S. International Trade Commission.

The biggest overseas customers include Australia, Japan, the United Kingdom and Germany, but the industry is looking at two seemingly bottomless markets — China and India — along with other emerging markets in Asia and Africa.

China and India.  Those two countries driving up the price of oil.  Because of exploding demand in their emerging middle classes.  Countries that gave up much of their communist/socialist ways.  Who turned their disdain for capitalism to ‘dain’ (which I think means the opposite of disdain).  And they have smoking hot economic growth.  Hard to believe that a communist country, China, is schooling the United States in free market capitalism.

Crony Capitalism and Corruption in China

Or are they?  Oh, they are getting more Western.  But not like the UK or the USA during the Industrial Revolution or the booming times that followed.  But after the growth of Big Government in those counties (see The long arm of the state posted 6/23/2011 on The Economist).

Chinese students used to aspire to a job with a foreign company. Now they are more likely to want one with an SOE [state-owned enterprises].

This may seem an odd choice, since the dynamism in China’s economy is mostly generated by non-state firms… In 1999 government-controlled firms owned 67% of industrial capital; a decade later their share had fallen to 41%. But in the industries that pay the highest salaries, state firms dominate.

A new shorthand has entered common parlance: guojin mintui, meaning the state [sector] advances and the private retreats. ..It has been tightening its grip on some industries it considers “strategic”, from oil and coal to telecommunications and transport equipment. It has been devising market-access rules that favour state firms. And to the chagrin of private businesses, it has allowed state companies to remain active in a surprising range of palpably non-strategic sectors, from textiles and papermaking to catering. In recent years property development has become a lucrative sideline for government businesses. “The tentacles of state-owned enterprises extend into every nook where profit can be made,” writes Zheng Yongnian of the National University of Singapore.

Already the young people are choosing the public sector over the private sector when it comes to their career.  Because the bloated public sector pays more.  With this higher pay they must be attracting the best and brightest to these SOEs.  So these SOEs must be kicking the non-state firms’ asses.

Some Chinese economists worry that the government’s response to the global financial crisis will bolster state enterprises and their bad habits at a time when they urgently need reforming. As the confederation’s researchers put it, much stimulus spending has involved “swapping from the left hand to the right hand”: the state lending to the state…

Unirule noted that the profits of state-owned industrial companies had increased nearly fourfold between 2001 and 2009. But their average return on equity was less than 8.2%, whereas that of larger non-state industrial enterprises was 12.9%. Factor in the low cost of borrowing enjoyed by SOEs and their access to land at below-market prices, the report said, and their real return on equity between 2001 and 2009 was minus 1.47%. They are, in effect, destroying capital.

Apparently not.  They actually have a negative return on investment.  So the SOEs are just deadwood propped up by government spending and special privilege.  Reminds me of another Asian country awhile back.  Where there was private sector/public sector partnering.  Where capital was shuttled from the left hand to the right hand.  Anyone like to guess the country I’m thinking about?  Anyone?  No?  Here’s a hint.  China and this other country hate each other.  Bitterly.  Which makes it rather ironic that they’re now following their example.  That Asian country is Japan.  During the Eighties.  A decade of spectacular growth.  That was more bubble than growth.  And we all know what happened in Japan in the decade that followed.  Not a whole hell of a lot.  Because the bubble popped.  And they suffered a devastating deflationary spiral similar to the Great Depression.  It was so bad that they called the Nineties the Lost Decade.

Some foreign businesspeople complain that market-opening measures initiated in the 1990s and early 2000s have run out of steam.  Many saw China’s accession to the WTO ten years ago as a great impetus for reform. But when the country reached the end of its transition period in 2006, its will faltered. Many foreign companies still report doing good business. But especially since the global financial crisis, the government has been widely accused of twisting rules in favour of its state-owned or, sometimes, private-sector favourites…

Local governments sometimes play a decisive role in determining which firms succeed and which fail. Take Himin, a manufacturer of solar water heaters based in the city of Dezhou in the northern province of Shandong. Himin is a private company, but it is the local government’s champion. Together Himin and the government have devised a branding strategy for Dezhou as China’s “solar city”. The government has helped Himin to grow by requiring apartment buildings to be equipped with solar water heaters and by subsidising solar-heated bathhouses in villages.

This is not capitalism.  This is crony capitalism.  Not much different from mercantilism.  And not a sustainable economic model.  Unlike entrepreneurism.  Like they’re doing in Kentucky.  While the nation is suffering the worst recession since the Great Depression, distillers are investing and innovating, competing against each other as they book record exports.  Without any partnering with their government.  While Himin is in bed with government.  A government that giveths.  And can just as easily taketh away.  And with business dependent only on their relationship to government, you can bet that there isn’t a lot of investing and innovating going on at Himin.  Because they don’t have to.  So why would they?

This scheme to encourage what the government calls “indigenous innovation” focuses on seven “strategic” industries, from alternative energy and low-carbon-emitting vehicles to information technology. First Financial Daily, a Chinese newspaper, reported that investments by these industries could amount to as much as $1.5 trillion over five years, of which the state is likely to contribute 5-15%. Mr McGregor says the scheme involves creating new Chinese technologies on the back of foreign ones supplied by companies eager for a share in the government’s massive spending. Some Chinese scientists have complained about the likely waste involved in state-directed R&D, but the party loves big projects too much to listen.

Good innovation doesn’t need government money.  Investors are more than willing to finance a good thing.  What investors don’t like to invest in are bad investments.  Which is typically what the government invests in.  Because a good investment can attract private capital.  So that leaves the bad investments for government to fund.

People flocking to the government for financing are just like ants at a picnic.  They just want to get in while the getting is good.  But they have little of value to offer.  They’ll just pull a lot of money out of the private sector that could have been put to better use.  By producing real economic growth.  With a positive return on investment.

Worse is the state directing private investment.  People risking capital know what good R&D is.  People risking other people’s money don’t.  And they’re far more tempted to consider political reasons than good science.

China’s state-sector reforms in the 1990s went for the low-hanging fruit. A decade ago angry workers were easily cowed into submission by police or bought off with handouts. But any further reform would affect the interests of people in the top echelons of the party as well as their families, who have extensive connections with state-owned firms.

Zhu Rongji, the former prime minister whose reforms obliterated many of China’s state-owned firms in the late 1990s, has also gone on the attack. In April he made a rare public appearance at his alma mater, Tsinghua University. He handed over copies of a four-volume collection of his speeches, due to be published later this year, and pointedly invited readers to “make comparisons with the situation today”. To his supporters, the present looks grim.

Top echelons of the ruling communists, as well as their families, are well connected with state-owned firms?  No wonder they have negative returns on equity.  They’re stealing money from these SOEs.  This is everything the communists said the capitalists did.  And here the wealthy communist elite are doing it themselves.  Exploiting the poor working class.  How ironic.

Maybe the Chinese are just drunk with power.  Or on that fine Kentucky bourbon.

You’re going to Work until you’re Dead

The Chinese economy is a house of cards.  Much like it was in Japan in the Eighties.  And it will crash.  One day.  Just as the Japanese economy fell.  And no doubt a round of deflation will follow.  Like in Japan.  The Chinese are already raising interest rates to stamp out inflation.  To try and stop a bubble in their economy.  Much like the rest of world is.  Well, pretty much everyone but Ben Bernanke in the U.S.  Who may still try another round of quantitative easing.  Silly Americans.  Adding inflation to high unemployment only gets you the misery of the Seventies.  Carter‘s stagflation.

Although some of that economic activity may be somewhat artificial, it is producing surpluses.  Enough for the Chinese to buy U.S. debt.  So the Americans can continue to pay for their entitlement programs.  Such as Social Security.  And Medicare.  Which everyone and their brother knows will go bankrupt in the not so distant future.  Just as the Baby Boomers start retiring en masse to stress these programs like they’ve never been stressed before.  Now imagine the Chinese economy crashing.  And their surpluses turn to deficits.  And they can’t buy U.S. debt anymore.  That’d be one painful scenario.  Unable to borrow money, the U.S. would have no choice but to cut spending.  In a big way.  As in all those entitlement programs.  Which account for almost half of all federal spending.  Ouch.

Retirement as we know it dead?  You better believe it.  You’re going to work until you’re dead.  Even if you saved for your own retirement.  Because a broke government is a desperate government.  And if they can’t raise enough money taxing income, and the Chinese aren’t buying our debt, they’ll start taxing your wealth.  Your savings.  Your assets.  Your retirement.  Some nations already do.  So it’s not unprecedented.  Which would make a Chinese crash rather depressing. 

Gee, I’d hate to be in our shoes.

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FUNDAMENTAL TRUTH #68: ” Beware the demagogue, the champion of the poor, for he has dictatorial aspirations.” -Old Pithy

Posted by PITHOCRATES - May 31st, 2011

A Despot needs a Mob

A despot can’t rise to power alone.  Because there is only one of him.  Or her.  A despot needs a mob.  Either to take power by force.  Or to vote him or her into office.  And unless the despot is in a despotic/third world country, the taking of power by force is not an option.  Military coups are just not that common in first-world democracies.  Mainly because no one’s life is that bad where they would risk the punishment for treason.  Because things like that will stay on your permanent record.  Doesn’t look good on a resume.  And treason can get you killed.

So, in a democratic country, you need to get people to vote for you.  Because the path to power is through the ballot box.  Even Adolf Hitler got his power in an election.  And he did that by lying.  Well, if you read his book (Mein Kampf), you had an idea.  Because he pretty much spilled his guts out in that book.  But few read it, apparently.  Even though it became a best seller.  After the fact.  When he had already ascended to power and it became required reading.  Or, required ownership.  It was the Nazi Bible.  Everyone had to have one.  Though few read it.

So how did Hitler rise to power?  He made the people like him.  And took advantage of some crises.  The armistice that ended World War I.  The Versailles Treaty reparations.  The Great Depression.  Things that really hurt the German people.  Made them angry.  Looking for relief.  And Hitler promised it.  Delivered in some magnificent oratory.   He hypnotized the masses with his speeches.  He knew what was wrong.  And it wasn’t the people’s fault.  It was others who wronged them.  The Allies.  The politicians who stabbed Germany in the back at Versailles.  And, of course, the Jews. 

Class Warfare works because it’s Emotional

It’s a winning formula.  Take advantage of a crisis.  By blaming it on someone.  It doesn’t really matter who.  As long as it is a small voting bloc.  And, of course, championing the little guy.  Being their voice.  Say the things they would like to say.  Say what they want to hear.  And who is the little guy?  None better than the poor.  Because there are always a lot of them.  And a lot of them are uneducated.  But they know one thing.  Rich people have a better life.  And an easier life.  While they have little.  And have a harder life.  Anyone can see how that isn’t fair.  Anyone that is poor, that is.  And anyone looking to exploit the poor.

There’s a reason why class warfare has been successful.  It works.  It’s irrational.  Illogical.  But it’s emotional.  Which is how you win elections.  By tapping into the feelings of the masses.  You don’t want them to think.  You want them to feel.  To feel their wrath.  Their frustrations.  Their hopelessness.  For them to feel how unfair life is.  How those in power (the politicians, the rich, the Jews, etc.), are keeping you down so they can live a privileged life.  It’s powerful.  And wins elections.

Of course, it’s often nothing more than a bunch of lies.  A complicated formula of treaties started World War I.  After the assassination of an Austrian duke.  In contested land in southeast Europe.  The Balkans.  A great historical crossroads of culture and religion.  That everyone and his brother has laid claim to since time immemorial.  It was a mess getting into.  And a bigger mess getting out of.  It had less to do with Jewish bankers.  And more to do with territorial ambitions of empires.  Which Germany had.  As did Hitler.  But that doesn’t go over well with the masses at election time.  Because history is boring.  No one wants to hear about it.  History is old.  About a time long ago.  The voters don’t want to hear about that.  They want to know what you are going to do for them now.  What are you going to do about their anger and frustration now?

The Power of the Lie

Well, you lie, of course.  You have to.  Because an angry and frustrated people want some kind of relief.  And they’re going to vote for the person who promises to give them the most.  They’re not going to vote for someone that is going to take away their freedoms and make them live in a police state.  I mean, if Hitler had told the truth in one of those magnificent speeches instead of putting it in a book that was painful to read, people would have heard the truth.  And it would have made a difference at the ballot box.  “So, Heinz, who are you going to vote for?  The Independent (Hindenburg)?  The Communist (Thälmann)?  Or the Nazi?  That guy that’s going to create the Gestapo that will oppress us and make us live in fear?  And conscript us and send us away to fight in a world war while our cities are bombed?”  “Hmmm, I don’t want a harder life, Günter, so I’ll probably vote for the Commie or the Independent.”  Incidentally, the vote tally in 1932 was as follows:  53.1% (Independent), 36.7% (Nazi) and 10.1 % (Communist).  Hitler didn’t win the presidential election.  But because of the large vote he got, Hindenburg reluctantly made him chancellor.  Proving the power of the lie.  And the rest is history.

No one willingly votes for a harder life.  And that’s what a despot will do once elected.  Because the despot wants power and wealth.  Not to help the poor.  The poor are only a convenient tool to use during an election.  So the despot must lie.  And because they are lying and have no intention of following through on any of their promises, the sky is the limit.  They can promise anything.  Even things that are impossible to do.  And attack the rational plan of the opposition as radical and extreme.  So they appeal to the emotions.  And attack the rational.  That’s why dictators in third-world nations round up intellectuals, college professors, students and anyone with glasses (a sign that they can read).  They don’t want people thinking.  They want them feeling.   Feeling their anger.  And feeling their frustration.

And this is why they win elections.  For people would rather hear a pleasant lie than an unpleasant truth.  Because it feels better.  Vote for me and I will give you a free college education, a housing subsidy, a shorter work week, a longer summer vacation, a younger retirement age, a richer pension and, of course, free health care for everyone.  We’ll pay for it by taxing the rich.  And we’ll tax them so much that we’ll be able to cut your taxes.  People like that message.  Those who don’t consider themselves rich, at least.  They don’t want to hear that the country is broke.  That we can’t afford these generous benefits anymore.  They want to hear yes we can.  If only the rich pay their fair share.

Pushing People down into Poorer Classes

Of course, the problem becomes that dividing line between the rich and everyone else.  Because the rich are the bad guys.  The ones living the comfortable life without having to work hard.  They’re easy to demonize.  The poor have no love for them.  But the middle class is another story. 

The middle class is the sweet spot of the population.  They’re not rich.  And there are a lot of them.  More importantly, they’re not poor.  And they vote.  So what to do?  If you lump them in with the rich when you attack the rich, they may not vote for you.  But politics is about one thing.  Money.  And you get it by increasing taxes.  The rich are taxed so much that raising rates on them does little.  They got rich because they’re smart with money.  And they will only pay so much in taxes.  And the poor are poor.  No, if you’re going to increase taxes, you have to do it on the middle class.  So you do.  After the election.  After the lying.  Then you raise their taxes.  So much so that you force those at the bottom of the middle class into the poor class.

For this is the goal of the despot.  To push people down into poorer classes.  Push some of the rich into the middle class.  And a lot of the middle class into the poor class.  Then you champion the poor.  Attack the rich.  While taxing the middle class.  Those you allow to remain rich become your cronies.  As in crony capitalism.  Who lavish you with wealth in exchange for government contracts.  While the middle class toils away for less.  And the poor look up to you as their savior.  Grateful that you’re one of them.  Even though you live in a palace.  While they don’t.  And even though their lives are still pretty wretched, the rich at least got theirs.  Sure, it doesn’t put food on the table.  But it feels good.

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Wind Farms don’t Deliver but a new Gasoline Engine May

Posted by PITHOCRATES - April 6th, 2011

During Peak Demand Wind Power Generated less than 5% of Capacity

Before President Obama banned U.S. deep water oil drilling he was for it.  But that support was only half-hearted.  More for political purposes.  Because he just doesn’t like oil.  And high gasoline prices don’t bother him either.  In fact, he likes them.  They’re more of an incentive for people to pay more for electric cars that don’t drive as far as those hated gasoline counterparts.  Which will please his liberal environmentalist base.  And please his crony capitalist Big Business friends who make green energy generation equipment.  To provide this huge new electrical demand to power all those electric cars.  Like General Electric.  Who builds a lot of green products.  Including windmills.

Renewable energy is all the rage in the Obama administration.  It’s the ‘in’ energy this season.  Clean.  High-tech.  Currently nonexistent so it will add a whole bunch of taxpayer subsidized jobs to the economy.  It’s win-win for the administration.  And best of all, for them, it doesn’t work (see Wind farm efficiency queried by John Muir Trust study posted 4/6/2011 on the BBC News Scotland).

The research, carried out by Stuart Young Consulting, analysed electricity generated from UK wind farms between November 2008 to December 2010

Statements made by the wind industry and government agencies commonly assert that wind turbines will generate on average 30% of their rated capacity over a year, it said.

But the research found wind generation was below 20% of capacity more than half the time and below 10% of capacity over one third of the time…

During each of the four highest peak demands of 2010, wind output reached just 4.72%, 5.51%, 2.59% and 2.51% of capacity, according to the analysis.

You know, there is a reason why ocean transports aren’t sail-powered anymore.  Wind was unreliable.  It sometimes didn’t blow.  And it wasn’t a concentrated source of energy.  It took a lot of rigging to hold up a lot of sail to push ships slowly across the ocean.  When the wind blew.  And it didn’t always blow. 

Coal and the steam engine changed all of that.  Shippers replaced their sail-powered ships with steam-powered ships.  And they’ve never looked back.  Eventually replacing their coal-fired engines with oil-fired engines.  Some of the world’s navies even took it a step further.  They replaced their oil-fired engines with nuclear reactors.  Some of these warships can stay on station for 6 months and longer without ever refueling.

See the trend?  Energy sources became more concentrated.  Engines became smaller.  Which allowed people to ship more stuff for less.  This is progress.  It’s why they can sell a lot of those electronic toys we so enjoy so cheaply.  Because they can ship so many of them that the shipping cost per unit is like the cost of a postage stamp.  Using wind farms, on the other hand, is the opposite of progress.  It’s going backwards.  This less concentrated energy source will take acres of windmills at a high infrastructure cost to produce a trickle of electricity.  All it will do is enrich the equipment manufacturers.  Who will show their gratitude with generous political contributions. 

Crony capitalism at its worse.  And because this technology won’t solve our energy problem, our energy problem will always be here.  Government couldn’t ask for anything more.  Please the environmentalists.  Throw subsidies at their cronies in Big Business.  Sustain political donations from same.  And never fix the problem.  Which means this cycle just keeps repeating.   Politics.  It’s a beautiful thing.  For some.

The Internal Combustion Engine is Reinvented

Wind power is not really a viable energy source.  When fleets of electric cars ‘plug in’ it won’t be windmills providing the power.  It will be either a coal-fired plant.  A natural gas-fired plant.  Or a nuclear plant.  To provide reliable power during peak demands will require an energy source less fickle than the wind.  So if we want those electric cars, the environmentalists will have to embrace that which they hate.  Fossil fuels.  Or their archenemy.  Nuclear power.

Is there another way?  Perhaps.  But it’s a fossil fuel alternative.  But one that the environmentalist may even warm up to (see New Car Engine Sends Shockwaves Through Auto Industry by Nic Halverson posted 4/6/2011 on Discovery News).

[R]esearchers at Michigan State University have built a prototype gasoline engine that requires no transmission, crankshaft, pistons, valves, fuel compression, cooling systems nor fluids. Their so-called Wave Disk Generator could greatly improve the efficiency of gas-electric hybrid automobiles and potentially decrease auto emissions up to 90 percent when compared to conventional combustion engines.

The engine has a rotor that’s equipped with wave-like channels that trap and mix oxygen and fuel as the rotor spins. These central inlets are blocked off, building pressure within the chamber, causing a shock wave that ignites the compressed air and fuel to transmit energy.

Sounds like a lot of science fiction.  But did you get that one number?  Reduce emissions by 90 percent?  An internal combustion engine that is almost emission-free?  What’s not to love about that?  Sure, it still uses gasoline, but it uses it so much more efficiently.

The Wave Disk generator uses 60 percent of its fuel for propulsion; standard car engines use just 15 percent. As a result, the generator is 3.5 times more fuel efficient than typical combustion engines.

Researchers estimate the new model could shave almost 1,000 pounds off a car’s weight currently taken up by conventional engine systems.

More efficient, lighter and near-emission-free?  It’ll exceed every CAFE and emission standard the environmentalist demands from the automotive industry.  This engine has everything.  It pleases the environmentalist.  Reduces our consumption of foreign oil.  And with such a small, efficient power plant, the auto companies can make the big cars people want to buy again.  What’s not to love about this engine?

Last week, the prototype was presented to the energy division of the Advanced Research Projects Agency, which is backing the Michigan State University Engine Research Laboratory with $2.5 million in funding.

Oh.  They used federal funding to develop this engine.  It would seem to the layperson that an engine as wonderful as this would have a market.  A big market.  And could attract private investors.  I mean, they’re building expensive cars that no one will buy without a massive federal subsidy (to both the buyer and the seller) just to please the government.  An engine like this would make life so much simpler for the auto companies.  And so much more profitable.  Which suggests this may be too good to be true.  For the best things in life don’t need federal subsidies.  If there is a market people will take risks.  If there is a profit to be made people will bring good things to market. 

More Power with Less Fuel is Progress

The Wave Disk Generator may be for real.  For it is a step in the right way.  It uses the same concentrated fuel we use today in our cars.  But it uses it more efficiently.  Reducing the size of the engine.  While providing more power.  With less fuel.  This is progress.  This is good.  The only thing of concern is the government’s involvement.  For this is the same government that is investing in wind-generated electricity. 

Yes, it’s possible that the government backed a winner here.  Anything is possible.  I mean, even a broken clock is right twice a day.  Time will tell.  Perhaps one day we’ll see the Wave Disk Generator under the hood.  But if the government is involved, don’t hold your breath.  It could be awhile.

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LESSONS LEARNED #59: “When the Right partners with business the Left calls it crony capitalism. When they partner with business the Left calls that smart government.” -Old Pithy

Posted by PITHOCRATES - March 31st, 2011

Microsoft Learns the hard way to Lobby Congress

Microsoft was a rogue corporation.  A big, profitable, rogue corporation.  And it was in the government’s crosshairs.  With all of their going about their business.  Alone.  Without any federal assistance.  Who did these people think they were?  They didn’t spend a dime lobbying the federal government for anything.  As if they could just go on about their business competing in the free market.  Scoffing at the government’s business resources.  All those things they could bring to the table.  To make an unorganized market organized.  Make Microsoft better.  Make Microsoft’s products better.  All for a nominal fee.  Some campaign contributions.  A vacation junket or two.  A little monkey business with someone you’re not married to.  A Roman indulgence of intoxicating substances and flesh.  You know, lobbying stuff.  But no!  Not Microsoft.  Those holier than thou sons of bitches.  Who did they think they were?

Well, Microsoft went too far.  Pissed off the wrong people.  People with friends in Washington.  People with power.  And a justice department.  Empowered with antitrust legislation.  Big, nasty, legal teeth.  Their crime?  They gave away Internet Explorer free.  And that was unfair to their competitors.  But it was a sweet deal to the consumer.  None of them complained.  They were happy to get IE free.  It saved them money.  It was their competitors that were pissed.  Because they couldn’t sell something that Microsoft was giving away free.  So the Department of Justice (DOJ) sued Microsoft claiming they violated the Sherman Antitrust Act.  Which Congress passed in 1890 to protect consumers.  And here the DOJ was fighting a case.  And if the DOJ won, the consumer lost.  They would have to pay for IE or a web browser from one of Microsoft’s competitors.  Which just goes to prove that it is never a consumer that complains about ‘predatory’ pricing.  It’s always a competitor that can’t compete at the same price that runs to the DOJ crying for antitrust protection.

Microsoft learned a very important lesson.  When you sit on big piles of money you don’t dis the federal government.  You show them the proper respect and give them some of that money. For your own protection.  For if you don’t they will go after you.  Like they did with Microsoft.  Who is smarter now.  Today, Microsoft spends millions on lobbyists.  To pay tribute for the pleasure of being left alone to operate in the free market.

Money Corrupts, Big Piles of Money Corrupt Absolutely

Microsoft is not alone.  There are a lot of honest companies out there.  But, sadly, there are a lot that aren’t.  Especially if they have a friend in Washington.  Because Washington sits on great big piles of money courtesy of the tax payers.  And a select few spend that money.   Put these two together and it’s a recipe for corruption.  Because one person can skim a little off the top of a huge transaction that is all but impossible to see.  Unless you start living like a Rockefeller on a government salary, that is.

The Teapot Dome scandal was the biggest government scandal of its time.  It involved leases to oil reserves transferred from the Navy to the Department of the Interior.  These were strategic reserves for our navy in case we went to war.  Important to have.  Because you don’t want to run out of oil during a war.  Albert Fall was the Secretary of the Interior.  And it was his job to lease those oil reserves.  Which he did.  But they didn’t go to the low bidder.  They went to the one that made it most worth his while.  Ultimately it was all that ‘making it worth his while’ that did him in.  He became a very rich man.  Which was impossible on his salary.  So they caught him.

Congressmen profit as Shareholders in Crédit Mobilier

The Teapot Dome was a big scandal perpetrated by a few players.  The Crédit Mobilier scandal, on the other hand, had far greater tentacles.  And is a good example of how government partnering with business goes wrong.  It involved the Union Pacific Railroad.  A sham company they created called Crédit Mobilier.  And some 30 Congressmen. 

The railroad to the pacific was a risky proposition.  It would take a very long time to build.  It would go through some very difficult terrain and hostile Indian country.  And there were few shippers on the proposed road.  In other words, it would take a long time to earn any revenue on this line.  And it was possible that they would never complete it.  Or ship enough freight to operate it profitably.  So the government stepped in and partnered with the Union Pacific.  And the fraud began.

The trick was how to make this loser a winner.  Railroad profits weren’t the answer.  So how can a railroad company make a profit without running any trains?  Why, from construction, of course.  That’s where Crédit Mobilier came in.  They built the railroad.  Billed Union Pacific.  Who then billed the government.  And, surprise, surprise, construction costs went way over budget.  Because they were overbilling Union Pacific.  Who then overbilled the government.  But the government just kept on paying.  Why?  Because they had shares in the very profitable Crédit Mobilier.  You see, when you share in the obscene profits of a government contractor you have little incentive to see or stop the fraud.

Government Steps into the Mortgage Business and Gives us the Subprime Mortgage Crisis

For years the federal government implemented policies to increase home ownership.  In their models, this was the driver of all economic activity.  A lot of material and labor builds a house.  And a lot of material and labor builds the things that furnish a house.  Ergo, the more people who bought houses the greater the economic activity.  And that meant everyone.  Even the people who couldn’t qualify for a mortgage.  A lot of which were minorities.  So if a bank denied anyone a mortgage, it just reeked of racism.  So lenders had to find a way to make the unqualified qualified before the DOJ charged them with discrimination in lending.  So, in the mid 1990s, they figured out how to make the unqualified qualified.  Along with a little help from the government.

The subprime mortgage was the vehicle.  Adjustable Rate Mortgages (ARMS).  And No Income No Asset (NINA, aka, Ninja) loans.  Of course, these by themselves didn’t solve any problem.  Because no respectable lender would ever approve such risky mortgages.  This is where government came in.  Or, rather, the Government Sponsored Enterprise (GSE).  Better known to you and me as Fannie Mae and Freddie Mac.  Here’s how it worked.  The GSEs bought those risky loans from the lenders.  Then sold them to Wall Street.  Where investment bankers packaged them into Mortgage-Backed Securities (MBS) and Collateralized Debt Obligations (CDO).  High risk loans became low-risk, high-yield securities.  The risk was transferred from the bank to the taxpayer and then to the investor.  And back to the taxpayers when they had to pay for the bailout of the subprime mortgage crisis.

The enabler for this great financial crisis was the government.  First ‘encouraging’ banks to loan to the unqualified.  And then by their partnership with the GSEs.  Encouraging more and more risky behavior because they were getting a piece of the action.  So they turned a blind eye.  Even when some warned the committees responsible for their oversight.  They laughed.  Said they were just mean racists trying to deny fair and affordable housing to minorities.  And they insisted that these GSEs were financially strong and healthy.  Up until the world learned they weren’t.

Crony Capitalism can be Smart Government if it Saves the Environment

There’s one reason why government partners with business.  Corruption.  Crony capitalism.  Either an unscrupulous business trying to buy favors for personal gain.  Or an unscrupulous politician trying to sell favors for personal gain.  And good luck if you run an honest business.  Because the buying and selling of favors simply becomes paying tribute to be left alone.

Both sides are guilty of this.  Though the Left says it’s the Right that is in the pocket of the corporations.  Which is funny.  Because the Left is just as guilty.  But when they do it, it serves a higher purpose. So it’s smart government.  Such as when one of the world’s largest corporations, GE, doesn’t pay any income taxes.  By using some creative accounting practices.  But they’re very cozy with the current administration.  So they get a pass.  And they’re eager to cash in on all that green legislation.  To help them sell their green products.  You see, that’s good for the environment.  So it’s okay that they don’t pay income taxes.  And, more importantly, they have lobbyists.  They know how to play the game.  And they play it well.

But when the Right wants to cut the corporate income tax to stimulate the economy to create jobs, that’s just corporate welfare.  They’ll fight that every day of the week.  But if a corporation’s lobbyists treat them well, they’ll make the incandescent light bulb illegal.  So that corporation can sell more of their compact fluorescent lamps.  But that’s not crony capitalism.  That’s just smart government.  Because it saves the environment.

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FUNDAMENTAL TRUTH #59: “When the Right partners with business the Left calls it crony capitalism. When they partner with business the Left calls that smart government.” -Old Pithy

Posted by PITHOCRATES - March 29th, 2011

The Right likes Capitalism, the Left likes Marxism

Crony capitalism isn’t capitalism.  At best it’s mercantilism.  At worse it’s autocracy.  But the critics of capitalism haven’t the foggiest clue of what capitalism is.  They think it just exploits the working class.  Like Karl Marx said.  Of course, Karl Marx was wrong.  His philosophy has never worked.  Whereas capitalism, true capitalism, has.  Try to point to a successful Marxist country today.  You can’t do it.  Because when you take from those according to ability and give to those according to need you have everyone trying to show as little ability and as great need as possible.  Put yourself in that position.  Do you want to show some genius and work 12-hour days and see all of your earnings go to people sitting at home collecting state benefits?  Or would you rather not work those 12-hour days, relax at home and collect those state benefits?  If these are your choices, you don’t have to answer.  Because everyone is going to choose to stay at home and collect benefits.  Because no one volunteers to be a slave.

In such a world try to imagine how many cellular towers people would install when no one wants to work.  Not many.  Which means no cell phones, no text messaging, no internet on your mobile device and no sitting in your favorite coffee shop Internet hotspot.  For no one will spend the excruciating time, money and effort to create something while he or she is paid less than those with greater need who do nothing.  In other words, there is no incentive to work hard.  So no one will work hard.  Just like you won’t work hard by working overtime hours for free.  And why won’t you?  Because when you work you sell your time to an employer.  It’s your time.  If no one is paying you for it, you’d rather do something fun.  We all would.  Because it’s our unalienable right to pursue happiness.  Like Thomas Jefferson wrote in the Declaration of Independence.  And pursue it we do.  Because when it comes to our happiness, we’re all Jeffersonians.  Even Alexander Hamilton.  Even though they often saw things differently.

And one of those things was capitalism.  Jefferson didn’t like bankers.  Especially when they were in tight with the government.  Hamilton, on the other hand, liked the bankers.  Because he knew the difference between money and capital.  Assume everyone has a few bucks in their pockets.  What is that going to buy these individuals?  Not much.  Certainly no cellular towers.  But when you pool that money together you get capital.  And capital can buy cellular towers and the other conveniences of modern society.  And this is capitalism.  There’s a little more to it but the point is capitalism provides incentive.  And incentive stimulates innovation.  People take risks, work hard and create great things.  Marxism, on the other hand, provides no incentive for anyone to innovate.  There are no risk takers and people work the bare minimum they can get away with.  And there is nothing great in a Marxist society except misery, hunger and fear.  North Korea and Cuba are about the last of the Marxist societies remaining.  The Soviet Union, Eastern Europe and Mao’s People’s Republic of China are relics of the Cold War.  Now on the ash heap of history.  And all of these countries have/had sealed borders.  People could not leave.  If they tried they often died.  Many still risked it.  Because life was horrible under Marxism.

Jefferson the anti-Capitalist turns to Capitalism

Now whenever you gather money in great big piles you invite corruption.  Especially in government.  Which is what Jefferson feared.  You need money to do things.  And if government had access to great pools of it, they could do a lot of things.  Build armies.  Build navies.  Fight wars.  Grow the size of government.  Increase the size of the federal payroll.  Buy favors.  Sell patronage.  So more and more people became part of a growing, bloated federal government.  Who then had a vested interest in seeing it continue to grow to protect and increase the power and money they had.  All the great cities in the old world (London, Paris, Madrid, etc.) were corrupt.  The bankers were in bed with the politicians.  And the people suffered.  In his beloved France, Jefferson saw firsthand this insidious combination of money and power impoverish and starve the masses.  He saw revolutionary fervor grow in the Jacobin clubs.  And witnessed the outbreak of the French Revolution.  To check the power of the absolute monarchy and instill republican ideals.  And he liked what he saw.

With the backdrop of history, two men (and their followers) pulled America in two directions.  The Hamiltonians wanted to model America after the British Empire.  Rich and powerful.  Jefferson envisioned a nation of citizen farmers.  Simple farmers toiling the land.  Free from the corruption of the banks and the merchants.  With limited government.  Working with a modest federal budget.  Without any debt.  Of course, this all went out the window with the Louisiana Purchase.  When he needed a big whopping pile of money.  And a little extraconstitutional authority as well.  Sort of like a European monarch.  Which he took.  And thanks to a little thing called capitalism, the British and Dutch put together some creative financing for the French and the Americans.  They paid cash to France in exchange for the American bonds they just underwrote.  Some would say it was a bit hypocritical considering his attacks against Hamilton, but the U.S. profited very well from that purchase.  The point being is that even an ardent anti-capitalist like Jefferson had to turn to capitalism to close this deal.  Because there was no other way a young and poor nation could ever come up with that kind of money without borrowing it.

But all politicians aren’t like Thomas Jefferson.  In fact, shortly after the Founding Father generation, government began to grow.  There were political favors.  Pandering.  And corruption.  As the quality of the politician declined more unscrupulous people were attracted to government.  A growing nation needed to grow.  It needed to build things.   Armies.  Navies.  Forts.  Government buildings.  Post offices.  Canals.  Railroads.  As the nation grew it collected more taxes.  It soon had a lot of money to buy these things.  And issuing contracts for these things could be a very lucrative endeavor.  For the unscrupulous politician.  Who would only contract with those who made it worth his while.  The unscrupulous businessman.

Buying and Selling Favors for Personal Gain

This is crony capitalism.  The joining of business and government in backroom deals.  This isn’t laissez-faire capitalism.  This is the buying and selling of favors for personal gain.  And this is what many people think capitalism is.  Especially those critics on the Left.  Who think in zero-sum terms.  The only way some people can have more money is if other people have less.  Some people are lucky.  Some just aren’t.  Ability and ambition have nothing to do with it.  It’s all based on who you know.  And when money and power is concentrated in too few hands, it shuts out others from the market place.  And that’s just not nice.  Good people will be unable to make other and more important things.  So unless someone smart steps in and coordinates this economic activity, that activity will be inefficient.  It will build the wrong things.  And the wealth will accumulate in the wrong hands.

These politicians want to partner with business to make the right things.  By the right people.  The things they want to see built.  And not the things they don’t like.  A good example of this today is the electric car.  And the internal combustion engine.  They love one.  And despise the other.  They put in policies to increase the cost of gasoline-powered cars.  And the cost of gasoline.  And provide subsidies to electric car companies to help them build cars no one wants to buy.  And subsidies to consumers to reduce the price on electric cars.  So they’ll buy something they don’t want.

Currently, there is no market for the electric car.  People are buying it now for one of two reasons.  Because of the subsidies.  Or the smugness.  Yet companies are building these cars.  Why?  Well, they’re not doing it to lose money.  They’re making money.  Somehow.  But it isn’t in the market place.  And if it isn’t the market place, it can mean only one thing.  They are getting some sweet federal subsidies to build these cars no one wants.  And this just isn’t capitalism.  It’s another example of crony capitalism.

The Left hates Shareholders, not Corporations

The Left attacks the Right for being the party of the big corporations.  They’re nothing but a bunch of crooks.  The corporations.  And the Republicans.  Republicans pander to the corporations.  They want to deregulate their industries.  While consumer safety suffers.  As does the environment.  And they want to cut their taxes.  Paid for by tax hikes on the poor and working class.  To those on the Left the business corporation is evil incarnate.  Unless they want to partner with them.  And build things together.  Then they’re okay.

The Left hates corporations.  Yet it’s always the left that favors corporatism.  The partnering of business and government.  Like in Mussolini’s fascist Italy.  Or outright nationalization of the corporation.  A complete takeover by the government. Like in Hugo Chavez‘s Venezuela.  It apparently isn’t the corporations per se they hate.  It’s the shareholders.  They have no problem with these corporations making obscene profits.  As long as the politicians can share in these profits.

So there you have it.  The difference between crony capitalism and smart government.  It all depends on the amount of money flowing into the government’s coffers.  If the shareholders keep the full return on their investment then the business and Republicans are practicing crony capitalism.  If the shareholders share their return on their investment with the Democrats, then that’s smart government partnering with business.

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