In another Example of how well Government Runs Things, the U.S. Postal Service lost another $5.1 Billion

Posted by PITHOCRATES - November 19th, 2011

Week in Review

More dismal news from the U.S. Postal Service (see Postal Service Logs Loss in Billions by JENNIFER LEVITZ posted 11/16/2011 on The Wall Street Journal).

The Postal Service said it lost $5.1 billion through Sept. 30 and that the loss would have hit $10.6 billion without recent legislation allowing it to delay a required annual $5.5 billion payment into a fund for future retiree health benefits. But the payment postponed by Congress is now due by Nov. 18, and the agency repeated that it could run out of cash by the end of fiscal 2012 without congressional action.

The Postal Service is an independent government agency whose operating budget isn’t funded by taxpayers, other than a subsidy to serve overseas voters and the disabled.

Postal Service heads said the agency could regain its financial footing by cutting annual costs by $20 billion by the end of 2015. The service “can become profitable again if Congress passes comprehensive legislation to provide us with a more flexible business model so we can respond better to a changing marketplace,” Postmaster General Patrick Donahoe said in a statement.

In other words, this government agency could become profitable again if it quits being a government agency.  For one thing we’ve learned is that the government can’t run anything well.

But everyone is sure that the government should get more involved in regulating business.  And taking over health care.  Because…, well, I’m not sure why.  Because everything they run ends up like the Postal Service.

Total mail volumes fell by three billion pieces, or 1.7%, from 2010. First-class mail, the agency’s most profitable product, continued its steady decline as consumers continued to pay bills online and communicate digitally. The postal service lost more than $8 billion in fiscal year 2010. It has already begun closing post offices and some 300 mail-sorting facilities.

If you’re getting all nostalgic over losing some postal services don’t demand another government bailout.  If you want this dinosaur so badly pay a bill through the mail.  Or write a letter to a friend instead of texting.  If you can’t do these things than just admit it.  This is the march of technology.  And progress.  And you don’t need the Postal Service as it currently is.

Instead of bailing out the Postal Service we need to reinvent it.  Get a little free market capitalism in it.  For capitalism can fix anything.  If we let it.  It’s given us better ways to pay our bills.  And to communicate with our friends.  Just think what the Postal Service could do if that kind of thinking happened there.

But that will never happen if we keep trying to save the thing fewer and fewer want to use anymore.  It’s like insisting we maintain video cassette recorders (VCRs – I spelled it out the long way so the young people knew what those letters meant) in the world of video streaming.  There is just a better way to do things these days.  And people are choosing the better way.

 

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LESSONS LEARNED #34: “Sure, until you win the lotto you’re all for sticking it to the rich.” -Old Pithy

Posted by PITHOCRATES - October 7th, 2010

Buddy Can You Spare a Dime

In the old days, we used to jail people who didn’t pay their debts.  Even in the United States.  A couple of signers of the Declaration of Independence even served time in a debtors’ prison.  We took it seriously.  Honoring your debts.  For those who didn’t, they found themselves inside a jail until they did.  Or until they died.

We jailed some people over small sums.  The severity of the punishment (broken families, disease, starvation, privation, physical abuse, etc.) was often extreme in comparison to the size of the debt owed.  In time we would move away from such barbaric justice.  No, in the modern, caring world, we don’t torment those who are down on their luck and find themselves penniless.  You see, the modern world is a caring world.  We abhor the sufferings of our fellow man.  So we show them kindness.  Charity.  We forgive them their debts and help them rebuild their lives.  Well, most of us do.

If you find yourself owing the IRS, you better pay up.  For they will send you to prison.  And take whatever you have.  They will destroy your life.  And your family.  Because they want to make something perfectly clear.  You don’t f*ck with the IRS.  They play to keep.  All the time.

The War on Alcohol

The 18th Amendment prohibited “the manufacture, sale, or transportation of intoxicating liquors within, the importation thereof into, or the exportation thereof from the United States and all territory subject to the jurisdiction thereof for beverage purposes.”  The government may have shut down supply, but the market remained.  Enter criminal gangs.  Who furnished the supply to meet the demand.

None did it better than Al Capone.  His gang ruled Chicago.  People admired him.  After all, he wasn’t hurting anyone.  He was just giving the people what they wanted.  A way to relax and blow off steam.  Like we do today when we enjoy an alcoholic beverage with our friends.  But the gang violence grew.  The pictures following the Saint Valentine’s Day Massacre were just too gruesome.  Soon thereafter the FBI branded Scarface as public enemy #1.

Bootlegging, prostitution, murder, extortion…Capone broke a lot of laws.  But he crossed the line.  He committed a crime that was so heinous that it would land him ultimately in Alcatraz, America’s most secured federal prison.  That crime?  Income tax evasion.

On the Road Again

Willie Nelson is a big time Democrat.  He’s into saving the environment.  Animal rights.  Legalizing marijuana.  Helping the farmers.  And he’s a regular peacenik.  So you’d think he’d be a big fan of Big Government.  Well, yes and no. 

He became very wealthy by the 1980s.  And like a good Democrat, he tried to shield some of that wealth from the IRS.  He parked some of it in some talk shelters.  Then came along Ronald Reagan.  He understood what Andrew Mellon understood (Secretary of the Treasury for Warren G. Harding).  High tax rates made rich people hide their money.  Lower tax rates encouraged rich people to invest their money.  When Mellon cut the tax rates wealthy people paid more taxes and less wealthy people paid fewer taxes.  The progressive tax system worked even better at lower tax rates.  Tax revenue increased as the wealthy invested their money instead of finding creative ways to hide it.  It worked for Reagan, too.  He even closed tax shelters as a further incentive for the wealthy to invest their money to grow the economy and create jobs.  That worked, too.  Savvy wealthy people everywhere were putting Americans back to work.  Only one small problem.  The not so savvy wealthy were caught unawares.

Willie Nelson didn’t move his money from his tax shelters.  When Reagan disallowed those shelters, his money sat there accruing federal taxes.  And interest and penalties.  He blamed and sued his accountants.  The accountants countered that they only did the accounting and taxes.  They were not investment advisors.  Anyway, the IRS seized his assets.  He went on the road again and often to pay off his tax bill.  His total bill came to about 16 million in back taxes, interest and penalties.  Which he paid.  As he no doubt would have from the get-go if he had sought appropriate counsel to help him negotiate the 1,000+ page U.S. tax code.

Easy Money – For the IRS

There are many stories like Willie Nelson’s.  Even Treasury Secretary Timothy Geithner, the smartest man in America, couldn’t figure out his own taxes.  (But we were to excuse him for this because no one else was as qualified as he was to write and administer the U.S. tax code).  But it’s not only the not-so-savvy celebrity rich and the intellectually challenged intellectuals who have trouble with the U.S. tax code.  The poorest of the poor who never had money can sometimes run afoul of the IRS.

Playing the lotto.  Millions do.  Most lose.  And they’re lucky that they do.  Many lotto winners have their lives take a turn for the worse.  Friends and relatives you don’t know are reacquainting themselves with you.  Well, not you so much as your new found wealth.  Con men target you.  Charities.  Neighbors.  Some spend the money fast.  Or recklessly.  Develop drug addictions.  Get robbed.  Even murdered.  There are a lot of stories out there.  Just search the Internet.

When you win the lotto, you can take a lump-sum payment.  Or you can take a series of payments.  Either way the IRS taxes this as income.  And the amount of these payouts will most probably push you in the highest income tax bracket during the period of these payouts.  So the IRS likes lotto winners.  Your odds of winning are slim to none but someone always wins.  And that’s a tax bonanza for the IRS.  Not-so-savvy people who become rich overnight.  The full force and power of the U.S. government falling on some poor schmuck who probably never had a tax liability in his or her life.  Money just doesn’t get any easier. 

Capital Gain or Income?

Some may sell the rights to their future payments.  It’s sort of like selling a rental property.  For example, take a house that rents for $1,000 per month and sells for $150,000.   The buyer gets those future rent payments.  The seller gets the money back that they paid for the house and, hopefully, a capital gain (i.e., they sell the house for more than they paid for it).  The seller pays a capital gains tax on their capital gain.  They do not pay any further income tax on the rental income that the buyer now collects.

Some lotto winners see selling their rights to future payments in the same light.  And that they should only pay a one-time capitals gain tax (at a lower capital gains tax rate) in lieu of the higher income tax rate.  The IRS begs to differ.  And they usually get their way.

Sadly, some buyers advised those selling their rights that they could pay the lower capital gains tax rate.  Which they did.  And faced heavy tax bills for back taxes, interest and penalties as a consequence.  Once again, easy money for the IRS.  You can search the Internet for stories like these, too.

Pay or Else

Whether a gangster, a celebrity, a Democrat brainiac or a low-income lotto winner, we all share something in common.  Whatever our politics, when it comes to our money, we all try to avoid paying our ‘fair share’ of taxes.  We may demand that other rich people pay their taxes, but we will do everything we can to avoid paying our taxes.  But we play a dangerous game when we do.  For those who do and lose, they learn a painful lesson.

You don’t f*ck with the IRS.

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Obama Makes FDR Look Like a Conservative

Posted by PITHOCRATES - September 29th, 2010

Then

None of FDR’s New Deal programs pulled the economy out of the Great Depression.  Businesses sat on their cash.  Afraid of further liquidity problems.  Afraid of what anti-business policy the FDR administration would pass next.  And the depression had left them with so much excess capacity (because no one was buying anything) there was no need to hire anyone to expand capacity.  So they didn’t.

FDR tried to stimulate the economy with record government spending.  None of it helped.  There were some make-work projects for some people.  But public make-work projects don’t stimulate an economy.  Jobs in the private sector do.  And excessive government spending just makes the businesses in the private sector nervous.  The government has to pay for that spending eventually.  Through higher taxes.  Excessive borrowing.  Or simply by printing money.  None of these actions bode well for the private sector.  They will just increase the cost of doing business (via higher taxes, higher interest rates or a higher inflation rate which makes everything more expensive).

The Great Depression finally ended thanks to Adolf Hitler and Hideki Tojo.  With a world plunged in war, our allies needed war material.  Enter the Arsenal of Democracy.  The FDR administration suspended the New Deal policies and allowed the private industry to do what it did best.  Unfettered capitalism.  Unimpeded by government.  And the rest is history.

Now

We are trying the failed policies of the FDR administration again.  And they’re working just as well as they did for FDR.  Excessive government spending is making the businesses in the private sector nervous.  Because they know the government will have to pay for that spending eventually.  Through higher taxes.  Excessive borrowing.  Or simply by printing money.  So they’re battening down the hatches.  Preparing for a rough ride through stormy, economic seas.  Sitting on excess capacity.  And piles of cash.  Because they don’t know what anti-business policy the Obama administration will pass next.

It’s worse now than it was then.  The world is not at war.  Massed armies are not threatening our allies.  There are no customers for the Arsenal of Democracy.  World war can’t pull us out of this depression.  We are on our own.  We will pick up the tab for Obama’s spending.  Well, not us.  Our children will.  Or their children.  Or their children’s children.  And each day the Obama administration spends more, the worse that day of reckoning will be. 

It doesn’t have to be this way, though.  If we stop the spending we can mitigate the damages.  But we have to act soon.  For we are fast approaching the point of no return.

I Have this Strange Feeling of Déjà Vu                                                           

Command economies don’t work.  That is, if you go by the historical record.  The New Deal failed.  The Soviet Union failed.  And where they haven’t failed, life isn’t so good.  I mean, no one is trying to sneak into North Korea or Cuba.  Why?  Because it sucks in those countries.  And yet we keep trying to be like those countries.  Why?

How bad is it?  Well, here’s one opinion:  U.S. Economy “Close to a Destructive Tipping Point,” Glenn Hubbard Says (by Aaron Task on Yahoo! Finance).  It’s a discussion of a new book:  Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity by R. Glenn Hubbard and Peter Navarro.  Based on titles, I’d say it’s pretty bad.  You might want to add this book to your reading list.

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Obama to Small Business: Take the Money. Please.

Posted by PITHOCRATES - September 27th, 2010

Smart Dumb People

Imagine you’re a business owner.  Let’s say you manufacture and sell fancy, high-end, architectural lighting for high-end homes.  Business was good during the housing bubble.  So good you expanded production.  Built a new factory.  Then, with the subprime mortgage crisis, sales took a nosedive.  You had to shutter the new plant you built during the bubble.  And you had to cut a shift at your other factory.  Because with the new home market in the crapper, high unemployment and a general lack of optimism in the future, few people are buying fancy, high-end, architectural lighting.  So what do you do?  Borrow money so you can expand production and hire more people?  If you’re an idiot, perhaps.  But you’re not.  So you won’t.

Business people are smart.  They understand business.  The people in the Obama administration, on the other hand, are a bunch of idiots.  When it comes to business.  They may have their Ivy degrees and their smug condescending arrogance, but they are some of the dumbest smart people that ever were.  To them all business owners are thieves who exploit their employees.  They don’t like them but they understand they need them.  To provide the jobs.  Because everyone can’t work in government.  Someone has to work in the private sector so the government has someone to tax.

With their simplistic understanding of business, they believe business just needs more money.  That’s their answer to everything.  More money.  A business owner can hire more people if only he or she had more money.  Ergo, get them more money.  Hire the people.  Create jobs.  Build stuff.  Just do it already.  What’s the problem?

“Ah, Mr. President, what am I going to do with all this stuff if no one buys it?”

“Huh?  What?”

“That’s what I thought.”

Spend Baby Spend

The economy is a complex thing.  But it’s simple to operate.  All you have to do is get the hell out of the way.  But there are those who just can’t.  They need to tinker.  Because they are smarter than you.  And every other consumer.

Economists are like weather forecasters.  They’re wrong more than they’re right.  Let’s face it; if these people could figure out the economy, they wouldn’t need a day job.  But they do.  They need to offer ‘expert’ commentary.  And advise presidents.  To feel important.  To feel better about themselves.  For being such abject failures that they need a day job.

And, of course, the ones who find favor with those in power are the ones who favor the use of that power.  Keynesians.  Unemployment, Mr. President?  Why you fix that by spending money.  Inflation, Mr. President?  That’s just too much money chasing too few goods.  So you need to spend more.  To stimulate the economy to build more goods.  Inflation is good.  It stimulates.  And it helps to pay off the debt you’re building with your deficit spending.  A trillion dollars today may only be a few hundred billion, say, 10 years from now.  Billions are easier to repay than trillions.  And the more we inflate, the easier it will be to pay off that debt.  See?  Deficit spending and inflation are good things.  So keep spending.

It’s a load of crap.  But it’s doesn’t take much to sell it to a president.  Especially if they want to spend.  As the current president does.  And, boy, does he.

Failed Policies of the Past

Easy money and irrational exuberance created the housing bubble.  People borrowed money and bought over-priced houses.  Then the bubble burst.  The huge inventory of unsold homes corrected the market.  Prices plummeted.  Interest rates went up.  Adjustable Rate Mortgages (ARMs) reset at higher rates.  Subprime mortgages defaulted.  Foreclosures.  More houses thrown on the market, pushing prices down further.  People still paying their mortgages found they owed more than their houses were worth.  Some walked away.  More houses thrown on the market, further depressing housing prices.  That’s what easy money and excess capacity gives you.  A bubble.  Then a deflationary spiral.

And now the Obama administration wants to return to these failed policies of the past.  Obama wants business to borrow money to increase capacity to build stuff no one will buy.  (See AP article Small biz, banks may spurn Obama’s $30B program by Pallavi Gogoi on My Way.)  It’s not housing.  But it’s still the same.  Irrational exuberance.

It’s the Government, Stupid

It’s not a tight credit market that’s hurting this economy.  It’s the Obama administration.  Just like it was the FDR administration.  There’s just too much uncertainty.  Too many anti-business policies.  When you see government dissolve a legal obligation (screwing the bond holders) in favor of helping a political constituency (the UAW), business owners take notice.  And get nervous. 

If you want to help the economy, you got to stop scaring business owners.  You got to stop running roughshod over the rule of law.  If people enter into legal contracts, they need to have some assurance that the government will honor those contracts.  And, to date, the Obama administration’s actions don’t give much assurance.

Until they stop scaring business, what idiot is going to expand and hire people?  That doesn’t work for the government?

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Oppressed Migrant Workers are Good for Democrats

Posted by PITHOCRATES - September 26th, 2010

Farm Labor is Hard

Ever drive through the Midwest during a harvest season?  See the acres of wheat, corn and soybeans?  And the migrant workers to harvest those crops?  Well, no.  You don’t.  What you typically see is a mechanical harvester (such as a combine that cuts, threshes and cleans grain) and a mechanical collection bin (like a dump truck).  Instead of an army of migrant workers, you typically see two pieces of equipment and two drivers.

We call it advancement.  Modern farmers invest capital into machinery to mechanize their farms.  Sure, some don’t like it.  Modernization.  It reminds me of an anecdote an old friend of mine told me once.  He was operating a ditch-digging machine (like a big chain saw with wide blades that slices a narrow trench into the ground).  He was working at a municipal facility.  An older union employee was watching him with disgust.  Eventually, he spoke up.  He said, “You know how many men you and that machine are putting out of work?”

You ever dig a ditch?  It’s back-breaking work.  Manual ditch diggers would agree.  They would join a union for higher pay to do something no man should have to do.  And when we free men everywhere from doing something no man should do, a disgruntled union employee will go and cut your hydraulic lines.

Congress Gets Serious about Migrant Workers…with a Comedian

Comedian Stephen Colbert recently testified before Congress.  In character.  (You can read about it and see some highlights -or lowlights, depending on how you feel about a comedian taking his shtick to Capitol Hill- in Rachel Rose Hartman’s Stephen Colbert draws attention to self, then farmworkers during Hill appearance on The Upshot, a Yahoo! News Blog.)  So he could testify about migrant workers in California.  He did a skit on Comedy Central’s The Colbert Report about migrant workers in California.  He spent a day trying to work like they did.  Alongside other migrant workers.  Many who were there illegally (and are the subject of ‘comprehensive’ immigration reform).  Colbert said it was back-breaking work in unbearably hot weather.  He hated it.  He then closed on a serious note saying we exploit these illegal aliens.  As being in the country illegally doesn’t really give them the full protection of the law.

My question is, why aren’t these farmers mechanizing their farms?  Wheat, corn and soybeans are NOT the only crops harvested mechanically.  There are mechanical harvesters for oranges, grapes, cucumbers, peppers.  Even tomatoes.  And, of course, green beans, which Colbert was picking.  So why are there still so many migrant pickers crossing our borders?

The Economics of Farming

Generally, there is as tradeoff between capital and labor costs.  When labor costs are high, we invest capital into machinery.  When capital costs are high, we invest in labor.  It would appear the California farmers are using labor instead of machinery because illegal aliens are cheap and plentiful.  But they’re not indispensable.  If they were not so plentiful, labor costs would go up (basic economic rule of supply and demand).  Which would lead these farmers to make capital investments into machinery.  Problem solved.  No more illegal immigration.  No more exploitation of illegal aliens.  And no more back-breaking labor.  The kind a person shouldn’t have to do.

But they’re still there.  Because our border is so porous.  Why?  Are we reluctant to take a job away from an oppressed migrant worker?  Afraid he may become disgruntled and…cut a hydraulic line?  It makes you scratch your head.  Why won’t we seal that border?  Make the illegal immigrants less plentiful and more expensive.  So farmers use machinery instead.  I mean, sure, the illegal aliens have friends in Washington who care about their plight.  But they don’t have a labor union protecting their low-paying, god-awful jobs by lobbying against the mechanization of those farms.  It would appear that the rich farmers are not the only ones exploiting these migrant workers.

The Democrats Need Voters

The government could seal that border.  But they won’t.  And the government makes repeated attempts to grant amnesty.  (And downplay the horrific drug violence near the border.)  A shortcut to citizenship for these illegal aliens.  You put these together and it means only one thing.  The government wants these illegal aliens there.  And they want those farmers to exploit them.  Because that makes good political fodder.  To help them pass amnesty.  And get a boatload of grateful new citizens who will remember them in the voting booth.

As the electorate continually rejects the Democrats and their policies, they are constantly looking to add new voters to the rolls who haven’t rejected them yet.  They ‘get out the vote’ to as many young (and naive) voters as possible once they reach voting age.  They get as many people as possible dependent on government and tell them those benefits will be cut by Republicans if given the chance.  And now, the greatest Democrat voter-registration drive of all time.  Granting citizenship to millions of illegal aliens.  And the Democrats will probably tell them that the Republicans will revoke that citizenship if given the chance.  Fear does work well for them.

Of course, the Left has to depend on deceit.  Because no one knowingly votes for higher taxes, a weakened economy and a more dangerous world.

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FUNDAMENTAL TRUTH #32: “America is great but it can’t make bad ideology good.” -Old Pithy

Posted by PITHOCRATES - September 21st, 2010

We’ve Always Done Things This Way

The Old World was set in her ways.  Change didn’t come easy.  When it came it often spanned centuries.  But not always.  As the Roman Empire incorporated new territories into the empire, she modernized those new territories.  Roads.  Fresh water.  Sanitation.  Rule of law.  Markets.  The things that made cites better.  Civilizations better.  But as a civilization grows, so does its government.  And as government grows, taxes inevitably become more onerous.

A sprawling empire required a sprawling bureaucracy to control it.  And a huge standing army to protect it from without.  And to police it from within.  When you expand and conquer new territory, the spoils of conquest can fund your empire.  When your borders are relatively static, though, you have to use alternative sources of funding.  Taxation.  As the tax burden grew, dissatisfaction grew.  Fewer citizens volunteered to serve in Rome’s legions.  So Rome relied more and more on hired armies.  This increased the cost of empire.  And it increased taxation.  The tax burden grew so great that people gave up their small farms and worked for the bigger farms.  Worked for the rich landowners.  Some tried to quit farming all together.  This caused problems in trying to feed Rome’s legions.  And her bureaucracy.  The food supply became so critical that the Romans wrote new laws forbidding people to leave their farms.  Farmers were bound to the land.  They could never leave.  If you were born on the land you would farm the land.  Forever.

During the decline of the Western Roman Empire you saw the rise of the economic system that would dominate the Middle Ages.  Feudalism.  As the Western Empire declined, the power began to shift to the rich landowners.  As did loyalties.  As the empire further disintegrated, the power of Rome could no longer protect you.  Or feed you.  And thus food and protection became the foundation of feudalism.  Land owners, the nobles (i.e., lords), would let you work their lands.  The bulk of the proceeds went to the landlord.  But you also had a portion of the manor to farm for yourself.  In exchange for the use of a lord’s land you provided military service to the lord.  When needed to protect the lord and his lands.  Property rights allowed the lord’s sons to inherit the estate upon his death.  So property ownership became hereditary.  As did the nobility.   And so it would be for centuries.

England Leads the Way

From the nobles arose one.  A dominant one.  A ruler of nobles.  A king.  A king consolidated the many nobles’ estates into a kingdom.  A country.  And the king became sovereign.  The supreme authority.  The nobles pledged their loyalty to the king.  Provided for the king.  And fought for him when necessary.  Thus the few, the many and the one.  The masses (the many) served the lords and worked on their estates.  The lords (the few) were the wealthy land owners who served the king.  The king (the one) ruled the kingdom.

Thus the European monarchy was born.  In France it was absolute.  In England, in 1215, the nobles met King John on the meadow at Runnymede.  And the king reluctantly set his seal to the Magna Carta.  In England, there would be limits to the sovereign’s power.  The king may be king, but the nobles held the wealth.  And with it a lot of power.  Sometimes they saw things differently.  And the little people, the masses, often saw things differently than did the king and lords.  These different interests were reconciled, in time, by king and Parliament, a two-house or bicameral legislature (comprised of the House of Commons and the House of Lords). 

England was the place to be.  Rule of law.  Bill of rights.  Commerce.  Banking.  Capitalism.  Liberty.  Food.  Security.  Your common everyday Englishman had a better quality of life than your common everyday [insert any other European national here].  As transoceanic trade took off, the great European powers collided with each other.  Fought for that lucrative trade.  In the Old World.  And in the New World.  These wars became very expensive.  And some lasted for years.  Like the Seven Years War.  Which the British won.  And took many French possessions throughout the world.  But at a huge cost.  She incurred a great debt.  Especially in securing one of her colonies.  British North America.

Tea Anyone?

So England taxed her British American subjects.  Only problem was, these English subjects had no representation in Parliament.  And this was very un-English.  Taxation without representation.  This caused tension.  Also, Great Britain’s mercantilist policies were also rubbing the colonists the wrong way.  America was growing.  And she wanted free trade.  But that was impossible when the home country maintained a favorable balance of trade at your expense.  And had the Royal Navy to enforce it.  As a colony, everything had to ship to/from England ports on English ships so England could accumulate bullion.  The British protected their industries.  Her colonies fed raw materials to these industries.  And that’s all they did.

Trouble brewed for a while.  When Great Britain legislated what type of tea they could drink (only British East Indian tea), the American colonists had had enough.   There was a tea party in Boston, a revolution and formal independence.  And then a new nation.  With a bicameral legislation.  An executive.  And a judiciary.  It wasn’t quite Parliament, but was very similar in function.  The president was the one.  The Senate was the few.  And the House of Representatives were the many.  But there were key differences.  There was no king.  No hereditary nobility.  And there would be no mercantilism.  Despite Alexander Hamilton’s best efforts.

Let’s Just Agree to Disagree

Getting the colonies to come together to declare their independence was not easy.  It helped that there was already a shooting war going on.  Lexington and Concord.  Bunker Hill.  The coastal towns the British burnt and left in ruins.  They were already fighting a rebellion.  The declaration was almost a moot point.  But it was important.  And, after some arm twisting, they voted for independence and posted their Declaration of Independence.  But that was then.  After the Revolutionary War, there was no such unifying force.  Everyone was back to looking out for number one.  Well, most. 

Locked in a Philadelphia hall during a sweltering summer thick with horseflies, a collection of America’s finest worked to create a new government.  George Washington, Ben Franklin, Alexander Hamilton, James Madison, to name just a few, could hardly agree on anything.  The Constitution they created was not great in their eyes.  But it was probably the best that they could do.  So acknowledged, they sent it to the states for ratification.  The odds were against them.  It would take some persuading.  And persuading they did.  Hamilton and Madison (and John Jay) wrote a series of essays appearing in newspapers to make the case for ratification.  They addressed and answered all arguments against ratification.  (You can read these today in the Federalist Papers.)  And this effort was successful.  The states ratified the constitution.  There was now a nation known as the United States of America.

Our first Secretary of the Treasury was Alexander Hamilton.  A capitalist genius.  And a great admirer of the British Empire.  Being a recent transplant to the American Colonies, he had no deep-seated resentment of the former mother country.  In fact, he wanted to emulate her.  She was the greatest empire in the world.  She was obviously doing something right.  But he pushed too far.  His mercantilist plans were a bit much for some.  Especially the ‘simple’ farmers of the South.  The planter elite.  Led by Thomas Jefferson (covertly) and James Madison (overtly), they fought Hamilton tooth and nail and did everything to destroy him.  (After seeing his plans Madison switched to the opposition.)    And ultimately, did.  When Aaron Burr shot him in a duel on the field of honor at Weehawken, New Jersey, across the Hudson from New York City.  All because Hamilton tried everything within his power to keep him from becoming president of the United States and governor of New York.  Because he was on unprincipled man.  Burr took offense to that.  And, well, the scoundrel challenged him to a duel and killed him.  But I digress.

The American Ideology

The American ideology is simple.  It includes things that have been proven to work.  And excludes things that have been proven not to.  A large, diverse people make up America.  So at the heart of our ideology is that we agree to disagree. 

We don’t have kings or nobility.  We don’t have an entitled class.  No hereditary rights.  Here, it doesn’t matter who your father was.  Or what group you belong to (religious, societal, etc.).  No one person is better than another. 

We have property rights and live under the rule of law.  We honor legal contracts.  We built our nation on laissez faire capitalism.  Free markets.  With a minimum of government interference.  We do what we want and respect that others do what they want.  And we are free to do this as long as we play by the rule of law.

It was a long road getting here.  We took the best history had to offer.  And rejected the worst that history included.  Nations who did likewise went on to greatness, too (like the United Kingdom and Northern Ireland, Canada, Australia, etc.).  Those who didn’t have been repositories of great suffering and human bondage (North Korea, Cuba, The People’s Republic of China, the Soviet Union, etc.).  Of the latter nations, please note that life is getting much better in China and the former Soviet Union with the introduction of capitalism and free markets.  And it’s not in North Korea and Cuba where these governments stubbornly cling to failed policies to keep their governments in power.  Whatever the cost is to their people.

It’s the Ideology, Stupid

Good ideology makes good nations.  Bad ideology makes bad nations.  A good nation can NOT take bad ideology and make it good.  A good nation that implements bad ideology will only make that good nation bad.  All people have the capacity for greatness.  And that greatness will shine through if the government doesn’t suppress it.   To see this all we have to do is look to history.  It’s all there.  The good.  The bad.  And the ugly.

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Gold Doesn’t Lie

Posted by PITHOCRATES - September 19th, 2010

Gold and money have an intimate relationship.  Sort of a love/hate thing.  Because, in general, if you love one, you hate the other.  Actually, those are pretty strong words.  Let’s just say it’s a like/disinterested relationship.

During times of reckless, irresponsible monetary/fiscal policy, many people prefer gold over hard cash.  Why?  Two reasons.  Monetary inflation.  And currency depreciation.  Actually, these are two sides of the same coin.  No pun intended.  Well, maybe a little.

When the government spends more money than they have, they have to get more money.  They can increase taxes.  They can borrow it.  Or print it.   And we the people ultimately get poorer when they do. 

If they increase our taxes, we grow poorer.  And…, well, I guess that’s self-explanatory.

If they borrow it, they have to pay interest on what they borrow.  And, ultimately, we pay that.  When they borrow, they sell government securities.  And when they do, there’re more securities on the market.  They have to compete with corporate and municipal bonds (and other debt offerings).  And these have to compete with the government securities.  And how do you do that?  You attract investors with higher interest rates.  And we grow poorer when we have to pay those higher interest rates on our mortgages, car loans and credit cards.

If they print money it means they can no longer borrow.  Meaning they are so far in debt or so un-creditworthy that no one wants to buy their securities.  This is bad.  Real bad.  Because ‘printing’ is really their only option.  I put ‘printing’ into single quotation marks because most money is electronic these days.  Just numbers in columns.  In the old days, though, more of the money was paper.  And they really printed it.  Like in Weimar Germany following World War I.  Depression and reparations caused their printing presses to spit out cash at staggering rates (inflation).  So much so that the value of each individual note plummeted (currency depreciation).  The Germans actually used it for firewood.  Why?  It took less cash to burn than it took to buy firewood to burn.  And when Germans got any cash that they didn’t burn, they tried to spend it as fast as they cold before it became worthless.

This is how we get poorer with inflation.  It makes our money worth less.  Which makes everything cost more in dollars.

This is why gold is attractive during times of reckless, irresponsible monetary/fiscal policy.  It’s a lot harder to ‘inflate’ the quantity of gold.  You just can’t flick a switch.  You gotta mine it.  Process it.  Transport it.  Then introduce it into the market.  This takes time.  And involves a lot of costs.  It just doesn’t happen overnight.  So gold is a relatively safe asset to park your wealth in.  It holds its value.  And, in dollar terms, it increases its value the more money is depreciated.  As the dollar loses its value, it takes more and more dollars to buy the same amount of gold.

So, a high gold price is basically a rejection of a government’s monetary/fiscal policies.  And governments don’t like this.  Especially the Obama Administration.  Which has raised the bar on being irresponsible.  Gold prices are up.  So Rep. Anthony Weiner, Democrat of New York, is investigating.  And he wants to regulate (see Weiner, Waxman Set Gold Hearing from the Future of Capitalism website).  Because gold-selling companies advertise on conservative, cable programming.  Thus he can kill two birds with one stone.  He can try to hide the consequences of the administration’s irresponsible policies.  And he can hurt the advertising revenue of the news outlets that report on those irresponsible policies, thus muzzling the ‘free press’. 

Rep. Weiner can say what he wants to about the gold-selling companies and the conservative outlets but that doesn’t change one significant fact.  The price of gold is up.  And there is a reason for that.  The current monetary/fiscal policies are heading in a very bad direction.  A politician can lie all he wants about that fact.  But the market, left to its own devices, can’t.  And that’s why they want to regulate it.  So they can make it lie.

(Note:  PITHOCRATES does NOT offer investment advice.  Whether or not gold is a good investment is up to you and your financial adviser.)

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Let the Lying Begin

Posted by PITHOCRATES - September 8th, 2010

Labor Day has passed.  And you know what that means?  That’s right.  The kids are back in school.  But it’s not all good.  It also marks the beginning of the election season.  And the lying has already begun.  Well, it’s been going on since, well, the late 18th century.

The economy sucks.  There are no jobs.  But that’s no surprise, is it?  A Keynesian in the White House.  Keynesians in charge of both houses of Congress.   And if there is anything a Keynesian knows how to do is to kill an economy.

Andrew Mellon advised Warren Harding to cut taxes.  He did.  And we got the Roaring Twenties.  FDR gave us a decade long depression with his economic policies.  LBJ’s Great Society gave us, ultimately, the stagflation of the 1970s.  Ronald Reagan’s tax cuts gave us the ‘Decade(s) of Greed’.  The Left condemned the first decade.  But they praised the second decade.  Lucky Clinton.  Well, until that blue dress.

Keynes got it right.  Sort of.  You stimulate the economy with fiscal policy.  But not by tax and spending.  You stimulate by making the business environment more favorable for business.  This creates jobs.  Lowers unemployment.  And brings in great big piles of money to the government.

But what you will hear this election season is that we’re not going back to the failed economic policies of the past.  We’re not returning to ‘trickle-down’ economics.  And they’ll say that with righteous indignation.  Even though the economy was a helluva lot better with those ‘failed’ policies.  You know why?  Those policies work.  Their policies don’t.  But their policies give them more power.  Policies that work don’t.  And they know that.  So they lie.  To better themselves at our expense.

You’d think they’d be happy just to get the great big piles of money with a bustling economy.  But they’re not.  They want the power.  To satiate their great big egos.  And to establish themselves as a permanent upper class.

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LESSONS LEARNED #29: “The problem with doing what is best for the common good is that few can agree on what the common good is.” -Old Pithy

Posted by PITHOCRATES - September 2nd, 2010

COYOTE UGLY

We’ve all heard the joke.  What’s coyote ugly?  That’s when you wake up with an extremely ugly person in bed lying on your arm.  After a night of heavy drinking.  You’re fairly certain you had sex.  You’re not 100% sure because you can’t remember anything.  But here the two of you are.  Naked.  The circumstantial evidence is pretty damning.  You want to get out.  Fast.  Instead of waking your lover, you chew your arm off so you can slip away quietly.  Like a coyote will do if caught in a steel-jaw trap.

The lesson here is, of course, to drink in moderation.  For when we drink to excess, we sometimes do things we wouldn’t normally do sober.  But we do.  Drink to excess.  And get drunk.  And, boy, when we do, some of us really do.  Make a real mess of their lives, too.  You see, drunken husbands do not make happy wives.  Or good fathers.  Especially when drunken husbands beat up their wives, spend their paychecks at the corner saloon, have sex with prostitutes and catch syphilis (which they then pass on to their wives and soon to be born children). 

For these reasons, wives have been behind various temperance movements throughout history.  And they have had modest success.  If you ever found yourself in a dry county thirsting for an adult beverage, you can thank these ladies.  But Prohibition?  That’s a different story.  That took Big Government.  The Progressives.  Who thought they knew best what was for the common good.

DO AS I SAY, NOT AS I DO

Wives have suffered unfairly from the affects of alcohol.  But during the 19th century, their power was limited.  They had to rely on grass-roots movements.  And their churches.  Which had moral authority as we were much more religious back then.  Most drunken husbands knew they were behaving poorly.  When sober.  But things changed in the 20th century.  The powers of the government grew.  This power and new sciences (like eugenics) made some believe they could make a better society by passing enlightened laws.  (And make better people in the case of eugenics).

We call it social engineering.  Using the power of the state to change human behavior.  Well, change it for those who are not apparatchiks of the state.  The elite Progressives, including the ladies of high society, still drank.  For it wasn’t illegal to drink adult beverages.  Only to manufacture, sell, or transport them.  So it was the poorer elements of society who felt the impact of Prohibition.  And the immigrants.  Who the social elites blamed for all the drinking woes.  For people in their strata of society didn’t have drinking problems.  So there was no reason to punish them.  The elites.  They weren’t the problem.  It was the poor.  And the immigrants.  They’re the ones government needed to keep from drinking themselves to ruin.

So while the elites still enjoyed their intoxicating beverages in the safety of their mansions and clubs, Al Capone and other bootleggers fought for turf.  For control of the illegal liquor trade.  Shooting each other with Thompson Machine Guns in our public streets.  That’s a .45 caliber round.  It makes big holes.  And shatters bone.  A lot of these rounds were flying through our public streets.  And they hit more than just gangsters.

Prohibition modified some behavior.  But at great cost.  Congress repealed it in 1933.  In part to stem the liquor violence.  And part because the Great Depression was too depressing sober.

JUST SAY NO

I once worked at a small office in a bad part of town.  One day a woman knocked on the door.  She asked if that ‘short guy’ that opens the gates in the morning was around.  I said no.  Then she asked me if I wanted to have a little fun.  I said, “Thank you, but no.”  My secretary had come to the door while I was talking to her.  After I closed the door, she told me that woman just lost a lot of weight.  And that she probably had AIDS.

Women like her were common in the neighborhood.  They sold sex for drug money.  When they weren’t with a John they were getting high.  Men, too.  One time, this 6-foot-plus behemoth in a skirt was walking in the street shouting something incoherent.  Our driver discovered he was a guy.  When he lunged through his open window while turning at the corner.  I don’t know what scared him more.  The assault.  Or the fact that she was a he. 

By the way, that short guy that opens the gates?  He was married.  And had a couple of daughters.  God only knows what he gave his wife.

Drug addiction is not good.  No one’s life ever got better by being addicted to drugs.  None of these people ever planned on drug addiction.  It just happened.  Somehow.  One day you’re just partying with some friends.  Then the next thing you know you’re turning tricks or stealing to support your habit.  If you have money it’s a different story.  Then you can party until you kill yourself.  John Belushi overdosed from a heroin/cocaine cocktail called a speedball.  Chris Farley, too.  It’s unlikely that the speedball was their first high.  They probably started out with something less potent.  Like marijuana.  The entry drug of choice.  Only when that drug loses its charm do people step up to something a little more potent. 

Of course, if you don’t start, chances are you won’t move up to something more potent.  This was the idea behind Nancy Reagan’s anti-drug program.  Stop the kids from starting.  To resist peer pressure.  To just say no.  Her program did modify some behavior.  Kids did use fewer drugs.  But she was Ronald Reagan’s wife.  The Left didn’t like him.  Or her.  So they ridiculed her program as being simplistic.  Discontinued it.  And drug use by kids increased.

GANGSTA’S PARADISE

Like Capone and his fellow bootleggers, the illegal drug trade is controlled by gangs.  And they, too, fight over turf.  But those involved at the street level of the drug trade today are a lot younger.  During the days of Prohibition, kids played with toy guns.  Today, they’re playing with real guns.  Not so much playing but killing each other.  And innocent bystanders.  In drive-by shootings.  Why?  Because drugs get you money.  And money gets you power.  Put all that together and it’s very seductive to kids from broken homes in the hood.  Who have nothing.  And have nothing to lose.  It’s almost romantic.  Fighting.  And dying.  A regular gangster.  Living in a gangster paradise.

Once in, though, it’s hard to get out.  The song Gangsta’s Paradise (by Coolio featuring L.V. from the 1995 Movie Dangerous Minds) laments about that paradise.  “Tell me why are we so blind to see.  That the ones we hurt are you and me.”

You get higher up in the echelon and the violence gets worse.  You can see that on America’s southern border.  And further south.  Kidnappings.  Beheadings.  And other unspeakable things.  Because of the big money in illegal drugs.  Like there was in bootlegging.  Make something illegal that people still want and will buy, and that something becomes a very profitable commodity indeed.

DAMNED IF YOU DO, DAMNED IF YOU DON’T

So what’s the answer?  What is the best course of action for the common good?  We can keep drugs illegal.  And continue to fight the war on drugs.  And watch the violence escalate as people fight to control this illicit trade.  Or we can decriminalize drugs.  Make them easily accessible.  And cheap.  The drug gangs would go the way of the bootlegger gangs.  And the crack/meth whore in the street won’t have to perform as many sexual acts to support her habit.

Alcohol is legal today.  And there are a lot of social costs because of that.  But the majority of people who do drink are not driving under the influence or beating their wives.  Or getting syphilis from a prostitute hanging out at the corner saloon.  Wouldn’t it be the same for drugs?

Kids drink.  Even though they can’t legally buy alcohol.  But the worse thing they can do is kill someone while driving a car.  Or get killed in a car driven by another drunken kid.  Or kill themselves from binge drinking.  Or get pregnant because they got drunk at a party.  Or get infected with a venereal disease because they got drunk at a party and had sex.  These are very bad things.  But they’re not an addiction.  Sure, you can become an alcoholic, but a lot of kids don’t like the taste of the adult beverages they’re consuming.  They’re just doing it for the party buzz.  And vomiting after.  It takes awhile, for some, to get over that hump where those awful tasting beverages don’t taste so awful anymore.  But drugs?  They’re tasteless.  There isn’t a delivery system ‘hump’ to get over.  Which makes the addiction process that much easier.  And where there is only one kind of drunk, there are all sorts of highs.  New and different drugs to explore.  When you get bored with the drug du jour.  So, no.  It probably wouldn’t be the same with alcohol.  It would probably be worse.

THE LESSER OF EVILS

Often the choice comes down to a lesser of evils.  So, to do what is best for the common good, we just need to determine which is the lesser evil.  So which is worse?  The violence from trying to keep something illegal?  Or the social costs of decriminalizing something that is already causing a lot of harm while being illegal?  It comes down to what you, as an individual, think.  And that is, must be, a subjective decision.  And therein lays the problem of choosing what is best for the common good.  It’s an opinion.  Choices aren’t right or wrong.  There’re just different opinions.

And that’s why so few can agree on what is best for the common good.  Different people think different things are better.  And different things are worse.  And, at best, they can agree to disagree.

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LESSONS LEARNED #28: “Politicians love failure because no one ever asked government to fix something that was working.” -Old Pithy

Posted by PITHOCRATES - August 26th, 2010

THE TELEVISION SHOW Gomer Pyle, U.S.M.C. aired from 1964-1969.  It was a spinoff from the Andy Griffith Show.  Gomer, a naive country bumpkin who worked at Wally’s filling station, joined the Marines Corps.  And there was much mirth and merriment.  To the chagrin of Sergeant Carter, Pyle’s drill instructor (DI).  Think of Gunny Sergeant R. Lee Ermey’s Sergeant Hartman in the movie Full Metal Jacket only with no profanity or mature subject matter.  Sergeant Carter was a tough DI like Sergeant Hartman.  But more suitable for the family hour on prime time television.

Gunny sergeants are tough as nails.  And good leaders.  They take pride in this.  But sometimes a gunny starts to feel that he’s not himself anymore.  This was the subject of an episode.  And Gomer, seeing that Sergeant Carter was feeling down, wanted to help.  So he stuffed Sergeant Carter’s backpack with hay before a long march.  While the platoon was worn and tired, Sergeant Carter was not.  He was feeling good.  Like his old self.  Until he found out he was not carrying the same load his men were.  He asked Pyle, “why hay?”  He could understand rocks, but hay?  Because if he outlasted his men while carrying a heavier load, he would feel strong.  But knowing he had carried a lighter load only made him feel weak.

This is human nature.  People take pride in their achievements.  They don’t take pride in any achievement attained by an unfair advantage.  Self-esteem matters.  And you can’t feel good about yourself if you need help to do what others can do without help. 

AN OLD CHINESE proverb goes, “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”  Let’s say I am a fisherman in a small village.  I catch fish to feed my family and sell/trade for other family needs.  There’s a man in my village who asks me for a fish each day so he can eat.  I’m a caring person.  So I give him a fish each day.  So a pattern develops.  Each day he shows up when I come in from my fishing.  He takes the fish and goes away.  It works out well for him.  He doesn’t have to work.  He can live off of my kind charity.  Then I move.  Without me being there to give him a fish each day, he no longer can eat.  And dies.  If I only had taught that man to fish. 

Kindness can lead to dependency.  And once dependent, you become lazy.  Why develop marketable skills to provide for yourself when someone else will provide for you?  The problem is, of course, what happens when that charity ends?  If you’re unable to provide for yourself and there is no longer someone providing for you, what do you do?  Steal?

Dependency and a lack of self-esteem are a dangerous combination.  And they feed off of each other.  This combination can lead to depression.  Behavioral problems.  Resentment.  Bitterness.  Envy.  Or a defeatist attitude.

These are often unintended consequences of government programs.  A failed program, then, has far reaching consequences beyond the initial economic costs of a program.

LIQUIDITY CRISES CAUSE a lot of economic damage.  If capital is not available for businesses to borrow, businesses can’t grow.  Or create jobs.  And we need jobs.  People have to work.  To support themselves.  And to pay taxes to fund the government.  So everyone is in favor of businesses growing to create jobs.  We all would like to see money being easy and cheap to borrow if it creates jobs.

But there is a downside to easy money.  Inflation.  Too much borrowing can create inflation.  By increasing the money supply (via fractional reserve banking).  More money means higher prices.  Because each additional dollar is worth a little less. This can lead to overvalued assets as prices are ‘bid’ up with less valuable dollars.  And higher prices can inflate business profits.  Looks good on paper.  But too much of this creates a bubble.  Because those high asset values and business profits are not real.  They’re inflated.  Like a bubble.  And just as fragile.  When bubbles burst, asset values and business profits drop.  To real values.  People are no longer ‘bidding’ up prices.  They stop buying until they think prices have sunk to their lowest.  We call this deflation.  A little bit of inflation or deflation is normal.  Too much can be painful economically.  Like in the Panic of 1907.

Without going into details, there was a speculative bubble that burst in 1907.  This led to a liquidity crisis as banks failed.  Defaults on loans left banks owing more money than they had (i.e., they became illiquid).  They tried to borrow money and recall loans to restore their liquidity.  Borrowers grew concerned that their bank may fail.  So they withdrew their money.  This compounded the banks problems.  This caused deflation.  Money was unavailable.  Causing bank runs.  And bank failures.  Business failures.  And unemployment grew. So government passed the Federal Reserve Act of 1913 to prevent a crisis like this from ever happening again.  The government gave the Federal Reserve System (the Fed) great powers to tweak the monetary system.  The smartest people at the time had figured out what had gone wrong in 1907.  And they created a system that made it impossible for it to happen again.

The worst liquidity crisis of all time happened from 1929-1933.  It’s part of what we call the Great Depression.  The 1920s had a booming economy.  Real income was rising.  Until the Fed took action.  Concerned that people were borrowing money for speculative purposes (in paper investments instead of labor, plant and material), they put on the brakes.  Made it harder and more expensive to borrow money.  Then a whole series of things happened along the way that turned a recession into a depression.  When people needed money, they made it harder to get it, causing a deflationary spiral.  The Great Depression was the result of bad decisions made by too few men with too much power.  It made a crisis far worse than the one in 1907.  And the Roosevelt administration made good use of this new crisis.  FDR exploded the size of government to respond to the unprecedented crisis they found themselves in.  The New Deal changed America from a nation of limited government to a country where Big Government reigns supreme.

ONE PROGRAM OF the New Deal was Social Security.  Unemployment in the 1930s ran at or above 14%.  This is for one whole decade.  Never before nor since has this happened.  Older workers generally earn more than younger ones.  Their experience commands a higher pay rate.  Which allows them to buy more things.  Resulting in more bills.  Therefore, the Great Depression hit older workers especially hard.  A decade of unemployment would have eaten through any life savings of even the most prudent savers.  And what does this get you?  A great crisis.

The government took a very atypical moment of history and changed the life of every American.  The government forced people to save for retirement.  In a very poor savings plan.  That paid poorly by comparison to private pensions or annuities.  And gave the government control over vast amounts of money.  It was a pervasive program.  They say FDR quipped, “Let them try to undo this.” 

With government taking care of you in retirement, more people stopped providing for themselves.  When they retired, they scrimped by on their ‘fixed’ incomes.  And because Social Security became law before widespread use of birth control and abortion, the actuaries of the day were very optimistic.  They used the birth rate then throughout their projections.  But with birth control and abortion came a huge baby bust.  The bottom fell out of the birth rate.  A baby bust generation followed a baby boom generation.  Actually, all succeeding generations were of the bust kind.  The trend is growing where fewer and fewer people pay for more and more people collecting benefits.  And these people were living longer.  To stay solvent, the system has to raise taxes on those working and reduce benefits on those who are not.  Or raise the retirement age.  All these factors have made it more difficult on our aged population.  Making them working longer than they planned.  Or by making that fixed income grow smaller.

FDR used a crisis to create Social Security.  Now our elderly people are dependent on that system.  It may suck when they compare it to private pensions or annuities, but it may be all they have.  If so, they’ll quake in their shoes anytime anyone mentions reforming Social Security.  Because of this it has become the 3rd rail of politics.  A politician does not touch it lest he or she wishes to die politically.  But it’s not all bad.  For the politician.  Because government forced the elderly to rely on them for their retirement, it has made the Social Security recipient dependent on government.  In particular, the party of government who favors Big Government.  The Democrats.  And with a declining birth rate and growing aged population, this has turned into a large and loyal voting bloc indeed.  Out of fear.

A PROGRAM THAT straddled the New Deal and LBJ’s Great Society was Aid to Families with Dependent Children (AFDC).  Its original New Deal purpose was to help widows take care of their children.  When program outlays peaked in the 1970s, the majority of recipients were unmarried women and divorced women.  Because this was a program based on need, the more need you had the more you got.  Hence more children meant more money.  It also reduced the importance of marriage as the government could replace the support typically provided by a husband/father.  Noted economist Dr. Thomas Sowell blames AFDC as greatly contributing to the breakdown of the black family (which has the highest incidence of single-parent households).

With the women’s liberation movement, women have come to depend less on men.  Some affluent women conceive and raise children without a husband.  Or they adopt.  And the affluent no doubt can provide all the material needs their children will ever need.  Without a husband.  Or a father for their children.  But is that enough?

The existence of ‘big brother’ programs would appear to prove otherwise.  Troubled children are often the products of broken families.  Mothers search for big brothers to mentor these fatherless sons.  To be role models.  To show an interest in these children’s lives.  To care.  When no such role models are available, some of these troubled children turn to other sources of acceptance and guidance.  Like gangs.

AFDC has compounded this problem by providing the environment that fosters fatherless children.  And another government program compounds that problem.  Public housing.

POOR HOUSING CONDITIONS hurt families.  They especially hurt broken families.  Without a working husband, these families are destined to live in the cheapest housing available.  These are often in the worst of neighborhoods.  This is an unfair advantage to the children raised in those families.  For it wasn’t their fault they were born into those conditions.  So, to solve that problem, government would build good public housing for these poorest of the poor to move into.  Problem solved.

Well, not exactly.  Public housing concentrates these broken families together.  Usually in large apartment buildings.  This, then, concentrates large numbers of troubled children together.  So, instead of having these children dispersed in a community, public housing gathers them together.  Where bad behavior reinforces bad behavior.  It becomes the rule, not the exception.  Making a mother’s job that much more difficult.  And because these children live together, they also go to school together.  And this extends the bad behavior problem to the school.  Is it any wonder that public housing (i.e., the projects) have the worst living conditions?  And some of the highest gang activity? 

Government didn’t plan it this way.  It’s just the unintended consequences of their actions.  And those consequences are devastating.  To the poor in general.  To the black family in particular.  AFDC and public housing enabled irresponsible/bad behavior.  That behavior destroyed families.  As well as a generation or two.  But it wasn’t all bad.  For the politicians.  It made a very large constituency dependent on government.

THERE ARE SO many more examples.  But the story is almost always the same.  Dependency and a lack of self-esteem will beat down a person’s will.  Like an addict, it will make the dependent accept poorer and poorer living standards in exchange for their fix of dependency.  Eventually, the dependency will reach the point where they will not know how to provide for themselves.  The dependency will become permanent.  As will the lack of self-esteem.  Conscious or not of their actions, Big Government benefits from the wretched state they give these constituencies.  With no choice but continued dependence, they vote for the party that promises to give the most.  Which is typically the Democrat Party.

But how can you fault these politicians?  They acted with the best of intentions.  And they can fix these new problems.  They’ll gather the brightest minds.  They’ll study these problems.  And they will produce the best programs to solve these problems.  All it will take is more government spending.  And how can you refuse?  When people are hungry.  Or homeless.  Or have children that they can’t care for.  How can anyone not want to help the children?  How can anyone not have compassion?

Well, compassion is one thing.  When the innocent suffer.  But when government manufactures that suffering, it’s a different story.  Planned or not the result is the same whenever government tries to fix things.  The cost is high.  The solution is typically worse than the original problem.  And the poorest of the poor are pawns.  To be used by Big Government in the name of compassion. 

Of course, if Big Government were successful in fixing these problems, they would fix themselves right out of existence.  So as long as they want to run Big Government programs, they’ll need a stock of wretched, suffering masses that need their help.  And, of course, lots of crises.

www.PITHOCRATES.com

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