Rising Debt and Higher Net Worth portend a Housing Bubble in Canada

Posted by PITHOCRATES - December 15th, 2013

Week in Review

The Canadians like to think of themselves as kinder and gentler than their neighbors south of the border.  For they have a generous welfare state.  Including single-payer health care.  Unlike those Americans who put profits before people.  But it comes at a price.  High taxes.  And they do pay a lot.  But they get a lot.  Those high taxes, though, lower take-home pay.  Giving Canadians less disposable income than their neighbors south of the border.  Which means they have to borrow more to make up for that smaller disposable income (see Personal debt ratio hits record high of 163.7% posted 12/13/2013 on CBC News).

Statistics Canada reported Friday that the level of household credit market debt to disposable income increased to 163.7 per cent in the third quarter from 163.1 per cent in the second quarter.

That means Canadians owe nearly $1.64 for every $1 in disposable income they earn in a year.

Policymakers are fixated on the debt ratio in part because it was at above 160 per cent that households in the United States and Britain ran into trouble about five years ago, contributing to defaults and the financial crisis that triggered the 2008-09 recession…

Indeed, while they are borrowing more, Canadians are also worth more as their assets increase by a similar amount. The national net worth increased to $7.5 trillion in the third quarter, up 2.1 per cent from the previous quarter.

On a per capita basis, that works out to $212,700 for every Canadian. The previous quarter, that figure was $208,300.

Rising net worth and rising debt?  Gee, what could that mean?  Well, most people’s wealth is determined by the price of their home.  As the value of their homes rise so does their net worth.  That is, their net worth rises as the price of their home (if they were to sell) rises.  And as their home price rises so do other home prices.  Which increases mortgage amounts.  As people borrow more to buy these more expensive homes.  And the lower the interest rates the more they will borrow and the bigger the house they will buy.  And this creates a what?  That’s right.  A housing bubble (see Is There a Canadian Housing Bubble? by Carrie Rossenfeld posted 11/13/2013 on GlobeSt.com).

GlobeSt.com: What factors lead experts to think there may be a Canadian housing bubble?

Muoio: For us, the biggest sign there is a housing bubble is how far prices have appreciated without a corresponding rise in income. This means housing affordability is falling rapidly and will eventually reach a tipping point. Additionally, if lenders are underwriting against an expectation of rising prices, this could result in loosening standards and too much leverage in the system.

GlobeSt.com: How similar are these factors to what happened to the US housing market before the recession?

C.M.: Very similar. US home prices kept appreciating while incomes saw only modest growth in the final years before the bubble burst. This led to a situation where eventually housing just became entirely unaffordable and the market’s liquidity completely dried up. With people over-levered due to the loose lending standards (which were enabled by the expectation of rising prices), this led to a massive unwind and foreclosure mess we are still working through. Additionally, Canada, just like us at the time, is building an extreme amount of homes that could lead to oversupply issues.

A rising debt level and higher net worth probably is more bad news than good.  For it is likely a sign of a housing bubble.  Just like these very things were a sign of a housing bubble in the U.S. just before the subprime mortgage crisis.  Or is it a sign that Canadians are just taxed too much leaving them with less disposable income?  Forcing them to borrow more as they cannot save enough for a sizeable down payment to reduce the amount they have to finance?   Or is it both?

It appears the Canadians can’t learn from the Americans.  And when the Canadian bubble bursts the Americans won’t learn anything from the Canadians.  For governments today want to keep interest rates low to encourage home ownership.  Which they do.  Taking us from bubble to bubble.  And from recession to recession.



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Eating Healthy is More Expensive than Eating Fast Food

Posted by PITHOCRATES - December 7th, 2013

Week in Review

Fast food workers recently picketed to raise the minimum wage. To a ‘living’ wage.  Saying they can’t afford to live without a ‘living’ wage.  Even though they have been ‘living’ on the wages they have now.  For however low their wages may be they have been able to put food on the table.  In large part because of fast food.  Because of those low wages.  Making fast food a great value for the money.  Of course if they raised everyone’s wages they would have to raise the price of their food to cover the higher labor cost.  Making fast food less of a value for the money.  Raising the prices such that some families will have no choice but to buy less.  And go hungry more often.

It may not be the healthiest food out there.  But it is the most affordable food out there.  Allowing people to eat until they’re full and then some.  But there are some who want to raise the cost of fast food.  Such as those picketing minimum wage workers.  And Canadians concerned about healthy diets (see Eating healthy adds $2,000 a year to family grocery bill by CBC News posted 12/5/2013 on CBC).

A family on a healthy diet can expect to pay $2,000 more a year for food than one having less nutritious meals, say researchers who recommend that the cost gap be closed…

“Our results indicate that lowering the price of healthier diet patterns — on average about $1.50/day more expensive — should be a goal of public health and policy efforts, and some studies suggest that this intervention can indeed reduce consumption of unhealthy foods,” Dariush Mozaffarian, the study’s senior author and a professor at the Harvard School of Public Health and his co-authors concluded.

Eating a healthier diet rich in fruits, vegetables, fish, and nuts would increase food costs for one person by about $550 a year, the researchers said. Diets rich in processed foods, meats and refined grains were considered unhealthy…

Previously, Mozaffarian’s team suggested taxing less healthy foods together with subsidies for healthier foods would balance price differences.

Does anyone see the failed logic in this taxing scheme?  Poorer people tend to eat fast food and richer people tend to eat the healthier fruits, vegetables, fish, and nuts.  So they are advocating raising the taxes on the poorer to make the food of the richer less costly.  In hopes of getting the poorer to eat the food of the richer.  But if they do just who will pay the tax on the bad food to subsidize the good food?  On the one hand the poorest people will pay more for their food.  On the other hand if the taxing scheme works the source of the subsidies will vanish.  Either way this taxing scheme will force the poorer to pay more for their food.  Or it will simply require higher taxes to replace the lost subsidies.  Which is Canada’s problem in the first place.

Why are people struggling to buy food?  Because of high taxes.  And a weakened economy those higher taxes bring about.  For adding a ‘bad food’ tax on fast food will surely reduce sales.  As is the goal.  But with fewer sales you need fewer people.  So some people will lose their job.

If you want people to eat healthier just let them get a decent job so they can afford to.  Cut taxes and regulations to spur economic activity.  Let the demand for workers increase.  Which will increase wages.  And make it easier for everyone to put healthier fruits, vegetables, fish, and nuts on the table.



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The High Cost of Living in Toronto forces Both Parents to work and forces their Children into Daycare

Posted by PITHOCRATES - November 24th, 2013

Week in Review

Once upon a time we worked so we could raise our families.  Now we find someone to raise our children so we can work (see Daycare in Toronto: ‘Parent summit’ participants tell of vastly different experiences by Marco Chown Oved posted 11/22/2013 on the star).

Diana Tarango is worried. Her 4-year-old daughter is in all-day kindergarten, but because she can’t find before- and after-school care, she can’t go back to work.

Perry Wong and Nalini Nankoo are frustrated. They have been looking for a daycare space for their 2-year-old son and have put down non-refundable deposits to get on the waiting list at a half-dozen daycares. They can’t afford to keep wasting money, and their son still doesn’t have a space.

Cynthia Zhu and Kenny Ji couldn’t be happier. They’ve been in Canada for less than a year and they’ve got both their kids in subsidized daycare spots near their home.

These stories show how ineffective our patchwork daycare system is, said Councillor Shelley Carroll.

“Child care is an issue that affects us all in different ways,” she said. “That’s why we need these meetings and why we need to get people talking across generations, too.”

Parents, grandparents and even childless adults are all affected by the high cost of daycare, said Carroll, and a better system won’t just be better for families with young children, it will be good for the economy as well.

There are 57,000 daycare spaces in Toronto, only enough for 21 per cent of the city’s children under 12. The city subsidizes 24,264 of those spaces, which only covers about 28 per cent of children in low-income families.

Making matters worse, the wait-list for a subsidized spot is more than 18,500 people long…

Tarango, newly arrived from Hungary, looked into putting her younger son into daycare, but can’t believe how much it would cost.

“I was amazed when I asked the price: $1,500 per kid (per month)!” she said. “In Hungary, after one and a half years, everything is free. The daycare even provides food free, too.”

If 21% of the total number of children under 12 equals 57,000 then the total number of children under 12 in Toronto equals 271,429 (57,000/0.21).  The total number of children who need daycare is 75,500 (57,000+18,500).   Subtracting this number from the total number of children under 12 equals 195,929 (271,429-75,500).  So the percentage of children under 12 who are raised in Toronto without daycare equals 72.2% (195,929/271,429).  In other words, the vast majority of children of daycare age DON’T use daycare.  Which is a good thing.  And one would hope that’s because they have a stay-at-home parent raising their child in a loving household.  Instead of dumping these inconvenient pains in the ass at daycare so they can do something more rewarding than parenting.

There may be many reasons why parents need daycare for their children.  Single mothers may need daycare so they can work.  There could be a married parent that prizes a career over raising children and prefers to work instead of being a stay-at-home parent.  But perhaps the greatest reason is that parents can’t raise a family on a single income because of high taxes.  Some of which are going to subsidize daycare at $1,500 per child per month.  Which creates a death spiral for daycare.

Daycare isn’t cheap.  So it takes a lot of tax dollars to subsidize.  The high unmet demand for daycare spaces requires more tax dollars to subsidize.  Which require higher tax rates.  Leaving people with less take-home pay.  Making it more difficult for parents to raise a family on a single income.  Requiring more two-income households.  And a greater demand for daycare.  Requiring more tax dollars.  And higher tax rates.  Leaving families with less take-home pay.  And so on.

The best way to provide for these children?  Tax cuts.  Allowing families to keep more of their take-home pay.  So much that they can raise a family on a single income.  Like they used to do.  Before the welfare state.  That provided cradle-to–grave benefits.  Which, ironically, leaves working people with less.  And forces their children to spend more time growing up with strangers.  And less time with their parents.



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The Soft Tyranny of National Health Care

Posted by PITHOCRATES - November 14th, 2013

Politics 101

Nazis and Communists acquired Power by Promising their People a Generous Welfare State

Adolf Hitler did not tell the German people that he wanted to wage world war.  Install an oppressive police state.  Or commit genocide.  Joseph Stalin did not tell the Russian people that he wanted to install an oppressive police state.  Starve millions of his people to death.  Or export communist revolution around the world.  Fidel Castro did not tell the Cuban people that he would make life so unbearable for them that they would rather risk dying in the ocean to reach America than staying in Cuba.

These dictators did not say these things.  And if anyone ever asked them of their true intentions they lied.  Especially to their people.  They lied about wanting to brutally oppress their people so they could expand their power.  Instead they told them they were going to take care of the people.  Unlike the evil capitalists.  Hitler’s National Socialism was going to give the people everything they could possibly want.  A job.  Mandatory vacations.  And national health care.  A person would be a fool not to want to give Hitler more power as he was going to make their lives so much better.  Freer.  And more pleasant.  Like a welfare state is supposed to be.

The communist promised that there would be no bourgeoisies exploiting the working man.  Instead everyone would be equal.  A utopia where everyone was each other’s brother.  Or comrade.  There would be no private property.  The people would own everything.  And there would be national health care.  This is the communist utopia Stalin promised his people.  And what Castro promised his people.  Neither meant it.  As no communist dictator meant it.  But by promising the people these things they were able to acquire power.  And the more power they acquired the more the people suffered.  This is why dictators and dictator wannabes lie.  To get the people to give them things the people would never give them if they told the truth.

The Affordable Care Act is a Pathway to the Soft Tyranny of National Health Care

The American left has always wanted the Holy Grail of the socialist state.  National health care.  For it gives them massive power.  As a person’s health is the most important thing in their life.  And once dependent on the state for their health care there is no new tax they won’t approve.  If it’s for their health.  This is why the left wants national health care.  This is why all dictators give their people national health care.  It makes people dependent on government.  And it makes people fear their government.  For if the government doesn’t get what it wants they could withhold health care.  Which could result in their death.

Now the Hitlers, Stalins and the Castros of the world don’t need to withhold health care to kill their people.  Their people feared them because they know their leaders could kill them outright.  The kind of thing that just doesn’t happen in Western democracies.  Which is what makes national health care so attractive.  For it offers a soft tyranny.  For you heard the left’s dire predictions of what would happen if the Republicans shut down the government.  But national health care?  Imagine the fear they could put into the people the next time the Republicans talked about tax cuts. 

The Affordable Care Act (i.e., Obamacare) is a pathway to this soft tyranny.  National health care.  While Canada and the United Kingdom struggle under the weight of their state health care systems the American left thought long and carefully of how to bring that same failed system to the American people.  With the health care industry totaling one-sixth of the U.S. economy that was just too great a tax hike to impose on the American people.  Even Democrats would be reluctant to impose such high taxes on people they needed to vote for them.  So they couldn’t go that route.  At least, not yet.

President Obama breaks the Law Again as he Tells Insurers they can still Sell Policies the People Liked

There is one thing standing in their way.  The private health insurance industry.  For with this there is an alternative to massive new taxes.  Which makes massive new taxes politically unattractive.  So they have to destroy the private health insurance industry first.  By lying to them.  Teasing them with government mandates that will give the health insurers a lucrative windfall of business.  While actually sealing their demise.

If you like your health insurance plan you can keep it.  Period.  That was the big lie.  Because you can’t.  Secretary Sebelius quickly wrote out the grandfather clause in the Affordable Care Act.  Especially for the individual market.  Where a lot of young and healthy people had only catastrophic policies.  Because they are young and healthy.  If the government was going to mandate the insurers pay for everything under the sun from free birth control to senior care they needed these young and healthy to lose their current policies and replace them with more costly policies with higher deductibles.  Basically forcing them to pay for costly health insurance but never using it because of those high deductibles.  Which transferred the cost of senior care to the young and healthy.  Something the young and healthy would never have been onboard with if the Democrats had told the truth.  Which is why the Democrats lied to them.

With the implementation of Obamacare the lies have become real.  They’re touching people’s lives.  And not in a good way.  Millions of individual policy holders are losing their insurance.  And those with employer-provided insurance will start losing theirs next year.  They’d be feeling the pain today but President Obama broke the law and ordered his administration not to enforce the employer mandate of the Affordable Care Act.  Giving the employers a year reprieve until they, too, have to drop their non-compliant health insurance policies.  But being caught in the lie the year before the 2014 midterm elections has caused the president and the Democrats a lot of heartburn.  So much that the president is once again breaking the law.  And telling health insurers that they can still offer the health insurance policies the people liked.  When it is virtually impossible for them to do.  For they spent 3 years preparing for Obamacare and calculating insurance premiums based on the mandates bringing in enough money in premiums to pay for everything under the sun they now must cover. 

If they reinstate the old ‘substandard’ policies the young and healthy will buy these instead of buying the more costly Obamacare policies.  While the old and sick will buy the far more generous Obamacare policies.  Which will be a bargain for them as they will consume far more health care dollars than they pay in premiums.  But without the young and healthy subsidizing these policies the insurers will go bankrupt quickly as their benefits paid will far exceed their premiums collected.  Forcing them to increase their premiums to pay for the higher than expected benefits paid.  Until health insurance is so costly no one is buying it.  Putting them out of business.  So they can’t do this and hope to remain in business.  And, therefore, they will not reinstate the old ‘substandard’ policies.  Which is what the president wants.  For he gets to blame the insurers.  While accelerating the demise of the private health insurance industry.  By bankrupting them as planned.  AND getting the people to hate them even more.  A win-win for the Obama administration.  As they lie that they care about the people they are harming to expand their power.  Just like every other tyrant and tin-pot dictator has done throughout history.



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Cheap Consumers force Airlines to Charge Fees

Posted by PITHOCRATES - November 10th, 2013

Week in Review

It is very difficult to get people to complain about high taxes these days.  They’ll just keep voting in Big Government candidates who just keep raising taxes to pay for more and more government.  When it comes to the huge tax burden on Americans you hear nothing but crickets from the American left and center.  But impose a transaction fee on using an ATM and holy hell breaks out.  And don’t get me started on airline fees (see Where Did Airline Fees Come From, and How Did They Get So Bad? by Derek Thompson posted 11/5/2013 on The Atlantic).

In the 1960s, the airlines were regulated and practically nobody could afford to fly. But in the last few decades, the real cost of flying has fallen by 50 percent, even after you include the most annoying charges. Intense competition and the quiet power of comparison shopping online have devastated profits, and the airlines have turned to fees to rescue their business.

People will complain about airline fees despite the cost of flying falling by 50% in the last few decades.  Taxes have only gone up and yet no one bitches about that.  But airline fees?  That’s just highway robbery.

There is a reason why so many airlines go through the revolving door of bankruptcy.  Between fuel costs, union labor and customers squeezing every dime they can out of the price of a ticket it is very difficult NOT to operate at a loss.  More people than ever are flying.  Because flying has never been cheaper.  Or safer.  But people can’t appreciate that.  All they see are the fees above the cost of their ticket.

If only these people would turn their anger over ATM fees and airline fees onto those high taxes.  Maybe we could make government work on the thin margins we force airlines to operate on.  So we can keep more of our money.  Which is why we’re probably bitching about ATM fees and airline fees in the first place.  As we have so little money left after all the taxes we pay that we can’t afford ATM fees and airline fees.



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Even the French feel they are Taxed too Much

Posted by PITHOCRATES - September 28th, 2013

Week in Review

President Obama is sick and tired of the Republicans, conservatives and the people who don’t give him everything he wants.   The fiscal year ends Monday so he has to fight with the Republican controlled House of Representatives to get them to pay for his increased spending.  And because he’s spending so much we have to raise the debt limit again so we can borrow the money to pay for his out of control spending.  How he wished the United States was more like France.  They don’t have these problems.  Why, the French will even elect a socialist president.  While President Obama has to veil his contempt for capitalism France can just tax and tax and then tax again.  And no one bitches about high taxes.  Well, that may be changing (see Why do the French tolerate such high taxes? by S.P. posted 9/24/2013 on The Economist).

The government is planning an extra €3 billion ($4 billion) of taxes next year, which will push up the overall tax take in the economy to 46.5% and make 2014 the fifth consecutive year that the tax burden in France has grown. François Hollande, the Socialist president, was elected last year on a promise to tax the rich, with a scheme for a top income-tax rate of 75%. But the tax bill is now wearing holes in the pockets of not just the rich but the rest, too. Why do the French put up with paying so much tax..?

Historically, the French have tolerated high taxes as the price of decent public services and a proper universal safety-net. All those fast trains, first-rate hospitals and public crèches do not come for nothing, and the French are the first to defend a way of life subsidised by the public purse that can often only be bought privately in Britain or America. Moreover, the French make a firm distinction between taxes and social-insurance contributions. Only half of households have to pay income tax, but everybody pays social charges… Indeed, the longstanding tolerance for taxes has underpinned the solidity of French sovereign debt, since it is a fair bet that France’s government can efficiently collect the taxes it needs…

This social contract, however, could be on the verge of breaking down. Over the past year, as taxes on beer and cigarettes have risen, tax-free overtime abolished, tax deductions squeezed and tax-band thresholds frozen, even the French have started to grumble. Polls suggest that tax increases have become the top worry among voters, and chief reason for Mr Hollande’s calamitous popularity ratings. The sharp rise in taxes, which began under Nicolas Sarkozy, the previous president, as part of an effort to reduce the government’s budget deficit, is all the more resented at a time when the French are no longer convinced that their public services—underperforming state schools, overcrowded commuter trains—are so much better than those that cost less in other countries. What is the point of paying Swedish-style taxes (or more) if you do not receive Scandinavian-style public services in return?

The new mood has not passed the politicians by. Mr Moscovici acknowledged recently that the French are “fed up” with taxes. Mr Hollande even conceded in a television interview that tax increases have been “too much”. Most of the effort to reduce the budget deficit in 2014 will now fall not on tax increases but public-spending cuts. Mr Hollande has promised a “tax pause”, which will be part of the message in the 2014 budget.

Yes, even the French are tiring of constantly rising taxes.  Especially when they keep paying more for less.  Which is what happens with socialism.  High taxes are a disincentive.  When you have “decent public services and a proper universal safety-net” it takes away a person’s ambition to do more and achieve more.  They may want to.  But if half of their income from this extra effort goes to taxes why put in any extra effort?  After all, there are already “decent public services and a proper universal safety-net” available.  Why work twice as hard to have virtually the same things?

This is the price of the welfare state.  It makes people less willing to take risks.  To start a business.  To create something new that everyone will want to have.  Socialism kills the entrepreneurial spirit.  And stalls the engine of job creation.  With all those small businesses going uncreated huge amounts of wealth goes uncreated.  Wealth that they can never tax.  Tax revenue doesn’t grow to keep up with the growth in spending.  So they increase tax rates.  And find other ways to make people pay more taxes.  While the quality of services fall.  Just like they are in France.  Just as they are in the United States.

And they will only get worse in the United States with the addition of Obamacare.  Which will explode the deficit while throwing the country back into recession.  With a corresponding fall in tax revenue the government will look for other ways to make people pay more taxes.  It’s happening in France.  As it has happened in every other socialist country.  And will happen in the United States.  Because of President Obama’s veiled contempt of capitalism.  The kind of contempt for capitalism shown by socialist President François Hollande.



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President Obama’s Bad Economic Policies are Pushing the Economy Underground

Posted by PITHOCRATES - April 28th, 2013

Week in Review

Proponents of cuts in tax rates and less costly regulatory policies say it will encourage rich people to keep their money in the country.  Investing in plant and equipment.  Instead of investing it overseas.  Giving business the capital they need.  And the profits investors seek.  And history has proven this theory.  Proving that tax and regulatory policies drive the decision making process.  For investors.  Employers.  And workers (see $2 Trillion Underground Economy May Be Recovery’s Savior by Mark Koba posted 4/24/2013 on CNBC).

The shadow economy is a system composed of those who can’t find a full-time or regular job. Workers turn to anything that pays them under the table, with no income reported and no taxes paid — especially with an uneven job picture.

“I think the underground economy is quite big in the U.S.,” said Alexandre Padilla, associate professor of economics at Metropolitan State University of Denver. “Whether it’s using undocumented workers or those here legally, it’s pretty large.”

“You normally see underground economies in places like Brazil or in southern Europe,” said Laura Gonzalez, professor of personal finance at Fordham University. “But with the job situation and the uncertainty in the economy, it’s not all that surprising to have it growing here in the United States.”

Estimates are that underground activity last year totaled as much as $2 trillion, according to a study by Edgar Feige, an economist at the University of Wisconsin-Madison.

That’s double the amount in 2009, according to a study by Friedrich Schneider, a professor at Johannes Kepler University in Linz, Austria. The study said the shadow economy amounts to nearly 8 percent of U.S. gross domestic product.

Some workers in the construction industry prefer doing side-work rather than going into business themselves.  Because they don’t want to deal with all the taxes and regulatory costs.  So they do work through word of mouth.  At discount prices.  Because they aren’t paying union wages, health care, payroll taxes, insurances, etc.  They get their buddies to work for them under the table at discount wages.  Which they don’t mind.  Because they keep every cent they earn.  Paying no payroll taxes.  Or income taxes.  Money under the table is pure profit.  Gross pay that remains gross pay.  Allowing them a lot of purchasing power at a reduced wage.

Working under the table means people earn little compared to other jobs.  But because it’s tax-free and regulatory-cost-free employer and employee can both earn less and still have enough purchasing power to make it worth their time.  And during bad economic times everyone is trying to get by on less.  Which they can do if they cut out the taxman.

“The jobs are in service industries from small food establishments to landscaping.” said David Fiorenza, an economy professor at Villanova University. “Even the arts and culture industry is not immune to working off the books in areas of music and entertainment.”

It also includes firms that hire hourly or day construction labor, information technology specialists and Web designers. Many who have a job that doesn’t pay enough take another one that pays under the table…

A report from ADP Research Institute states that many employers, especially in low-wage businesses such as retail and food service, plan to reduce workers’ hours to less than 30 a week to avoid having to offer health benefits through Obamacare (or pay a fine).

“This type of regulation could put more people out of work and into an underground economy,” McHenry said…

“Those working and not paying the taxes puts the burden on those who pay the tax,” added Fiorenza. “Taxes could be lower if the government where able to capture the underground economy instead of raising taxes on those currently paying the various income and payroll taxes…”

“People are running out of patience when it comes to finding a job and losing income,” Gonzalez said. “So it’s not that surprising to have workers take jobs that are in the shadow economy. But it’s a sign of how bad things are and how we have to get the real economy moving again.”

It was the high taxes and regulatory costs that pushed these people into the underground economy.  If the Obama administration would cut taxes and reduce costly regulations—especially Obamacare—people would move back into the regular economy.  For the regular economy will have pay and benefit packages that workers can’t get working under the table.  And if they can get that working a normal 40-hour week they’re not going to want to spend their nights and weekends doing side work.  For life is too short.  And all work and no play isn’t good for our wellbeing.

People don’t like paying high taxes.  They don’t like having to work a second job under the table because of the tax bite out of their primary paycheck.  Or because that’s the only work they can find because of bad economic policy.  That makes hiring people bad business because of the costs.  This is why we have an underground economy.  Because of the redistributive policies of the Obama administration.  That President Obama is using to change America into a European-style social democracy.

Europe is rife with shadow economies.  As employers and employees try to escape confiscatory tax rates.  And brutal workplace rules.  That have pushed the economy underground in many areas.  So it is no surprise that when we adopt European policies that we should get European results.  The whole point of the European Union and the Eurozone was to replicate the American economy.  A large free-trade zone that fostered great economic activity.   Making the United States the number one economic power in the world.  And here we are.  Adopting the worst Europe has to offer.  The same policies that have plunged the Eurozone into a sovereign debt crisis.



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People sign Petitions to Secede from the United States following President Obama’s Reelection

Posted by PITHOCRATES - November 15th, 2012

Politics 101

Wealth Redistribution requires High Taxes to get the Wealth from those who Create It which reduces Economic Activity

President Obama’s reelection has left the nation bitterly divided.  President Obama won only 50% of the popular vote.  Down from 53% in 2008.  So the president has become less popular with the American people.  No surprise, really, with one of the worst economic recoveries in history.  Despite the trillions in new spending to stimulate economic activity.  Which didn’t stimulate economic activity.  People concerned about this anemic economy are in the other 50%.  Those who didn’t vote for keeping Obamacare law.  Those who didn’t vote for a massive increase in regulatory powers over the private sector economy.  Those who didn’t vote to raise taxes.  Those who didn’t vote for continued record deficits.

With every contentious election some people will say they will move out of the country if their candidate loses.  Few do.  Although some rich people are doing that now.  As they feel they have a bulls-eye on their back.  With the whole Occupy Wall Street thing.  The 99% against the 1%.  The clarion call to get the wealthy to pay their fare share.  Even though the top 10% income earners are already paying some 70% of all income taxes.  So no doubt the wealthy are concerned.  Wondering where this will all end.  Higher income tax rates?  A higher capital gains tax?  A wealth tax?  Confiscation of all earnings over a ‘fair’ amount?  Who knows?  The sad thing is that these things don’t really seem farfetched.  For there is an angry mob out there.  Stirred up by those on the far Left.  Who is telling them that the only reason why they don’t have everything they want in life is because these rich people have taken it away from them.  And that these oppressed should rise up and demand egalitarianism.  Wealth redistribution.  From those according to ability to those according to need.  Which they are.  Because it’s only fair.

Of course wealth redistribution requires high taxes to get the wealth from those who create it.  Higher taxes, though, are a drag on the economy.  And leads to higher unemployment.  So it’s just not the wealthy worried about where this advance of liberal, anti-business policies will end.  Up to 50% of the population voted in favor of the wealth creators creating wealth.  And jobs.  Something most of the people want.  As already high unemployment will only get worse with another 4 years of anti-business policies.  As well as leading this country closer to a European-style social democracy.  That economic system favored by European countries currently wallowing in a sovereign debt crisis that appears to have no end.

If the Nation broke down into Two Confederacies Steve Jobs would probably have moved to Conservative America

So people are concerned about the direction the country is going.  So concerned that there are actually secessionist movements popping up across the nation.  Where people are signing petitions to advance the secession of their state from the union.  For the growth of federal power has far exceeded the limits envisioned by the Founding Fathers.  And the federal government is only going to get bigger.  European big.  So big that even Alexander Hamilton would have joined his sworn enemy, Thomas Jefferson, in opposing this federal power grab.  For Jefferson’s greatest fear appears to be coming true.  The federal government has reduced the states to little more than federal districts of a consolidated federal nation.  Where all power is consolidating in Washington.  In the hands of a few people.  Who rule over the masses.  Much like a monarchy.  The kind the Founding Fathers fought against to win their independence.  Something this other 50% understands.  Which is helping fuel these secessionist movements.

So people in some states with a historical understanding of our Founding are concerned.  And they’re signing petitions for secession.  While the Left mocks them as whiny sore losers.  When they threaten to leave the union Jon Stewart on the Daily Show mocked them with a line from Willy Wonka & the Chocolate Factory:  Stop, don’t, come back.  That Gene Wilder delivered in a tone of voice that basically said, “Go and good riddance.”  Much to the delight of the Daily Show audience.  Not fully understanding what that would mean.  For it wouldn’t just mean that they would get a country of free health care, birth control, abortion, legal marijuana, gay marriage, open borders, etc.  The Liberal utopian dream.  No, succession would probably result in regional confederacies.  The Northeast, the Midwest and the West Coast would probably join together in a liberal confederacy (Liberal America) where they pass all their liberal policies.  While the remaining states would probably join together in a conservative confederacy (Conservative America).  Which would pose a great problem for the Liberal America.  How?  In a word, egalitarianism.

Business owners who oppose excessive regulations and taxes would probably pack up shop and move to Conservative America.  If they weren’t there already.  So you would have a net movement of businesses, and jobs, from Liberal America to Conservative America.  Where government policies are less anti-business.  Even the liberals would admit this would happen.  As they blame business for outsourcing jobs to foreign countries to escape the high cost of regulatory policies and taxes.  So businesses will move.  Leaving a reduced tax base behind.  Where fewer workers would be paying all those taxes to give everyone all of those free government benefits.  And the best and brightest of our entrepreneurs would head to Conservative America, too.  For they will go where it is easier to realize their dream.  If the nation broke apart into these two confederacies it would be highly probably that if he were alive Steve Jobs would move to Conservative America.  Just as he outsourced his manufacturing to more business-friendly China.  Don’t think this would happen?  Well, it would.  Because it has always happened in the past.

If America divides into Two Confederacies People will flee the Liberal Paradise for Jobs in Conservative America

At the end of World War II the German capital, Berlin, lay in Soviet occupied Germany.  What became East Germany.  Berlin, however, was occupied by the Soviets, the French, the British and the Americans.  Giving those living in Berlin access to the West.  As long as they got to the French, British or American sectors.  Which became a real sore spot for the Soviet Union.  Because East Berlin was a communist paradise.  Located in East Germany.  Also a communist paradise.  The height of egalitarianism where the state provided everything for the people.  It was everything the American Left wanted.  But nothing those living there wanted.  East Germans headed to Berlin en masse to escape to the West.  Especially the best and brightest.  It was a brain drain of the East.  So the Soviets did the only thing they could do.  They built the Berlin Wall.  To prevent their people from escaping their Communist paradise.

West Berlin bounced back after the war quickly.  Becoming a rich and exciting city to live in.  Because they had free market capitalism.  Providing a business-friendly environment.  That created jobs.   While across the Berlin Wall people were stuck in time.  In a dark and dreary existence.  Where they waited in line for their basic needs.  Often hungry.  And cold.  With nothing to look forward to.  For the government didn’t allow anyone to leave their paradise.  Why?  Because the few who did rarely went back.  So they worked.  And sat at home.  Dreaming of how to get past that wall.  To freedom.  And a better life.

If America divides into two confederacies people will flee the Liberal paradise.  For jobs in Conservative America.  Leaving Liberal America with a reduced tax base.  Making it harder to pay for all of those government benefits.  As the benefit-consumers will flock to Liberal America for all that free stuff.  But the people who pay for all of that free stuff will be going the other way.  So fewer people will be paying for more stuff.  Which, of course, will make it impossible to provide all of that free stuff.  Unless Liberal America also builds walls to keep their people from fleeing their utopia.  Keeping the wealth creators on their side of the wall.  So they can tax them.  To pay for their Liberal paradise.  Which will have a close resemblance to East Berlin.  So the liberals should be careful what they wish for.  For if these states secede life will get worse for those dependent on government benefits.  How worse?  Behind the Iron Curtain worse.



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Tax Cuts, Roaring Twenties, Farm Prices, Smoot-Hawley Tariff, Stock Market Crash, New Deal, Great Depression and the Great Recession

Posted by PITHOCRATES - November 6th, 2012

History 101

(Originally published March 20, 2012)

Tax Cuts and the Small Government Policies of Harding and Coolidge gave us the Roaring Twenties

Keynesians blame the long duration of the Great Depression (1929-1939) on the government clinging to the gold standard.  Even renowned monetarist economist Milton Friedman agrees.  Though that’s about the only agreement between Keynesians and Friedman.   Their arguments are that the US could have reduced the length and severity of the Great Depression if they had only abandoned the gold standard.  And adopted Keynesian policies.  Deficit spending.  Just like they did in the Seventies.  The decade where we had both high unemployment and high inflation.  Stagflation.  Something that’s not supposed to happen under Keynesian economics.  So when it did they blamed the oil shocks of the Seventies.  Not their orgy of spending.  Or their high taxes.  And they feel the same way about the Great Depression.

Funny.  How one price shock (oil) can devastate all businesses in the US economy.  So much so that it stalled job creation.  And caused high unemployment.  Despite the government printing and spending money to create jobs.  And to provide government benefits so recipients could use those benefits to stimulate economic activity.  All of that government spending failed to pull the country out of one bad recession.  Because of that one price shock on the cost of doing business.  Yet no one talks about the all out assault on business starting in the Hoover administration that continued and expanded through the Roosevelt administration.

Herbert Hoover may have been a Republican.  But he was no conservative.  He was a big government progressive.  And believed that the federal government should interfere into the free market.  To make things better.  Unlike Warren Harding.  And Calvin Coolidge.  Who believed in a small government, hands-off policy when it came to the economy.  They passed tax cuts.  Following the advice of their treasury secretary.  Andrew Mellon.  Which gave business confidence of what the future would hold.  So they invested.  Expanded production.  And created jobs.  It was these small government policies that gave us the Roaring Twenties.  An economic boom that electrified and modernized the world.  With real economic growth.

If an Oil Shock can prevent Businesses from Responding to Keynesian Policies then so can FDR’s all out War on Business

The Roaring Twenties was a great time to live if you wanted a job.  And wanted to live in the modern era.  Electric power was spreading across the country.  People had electric appliances in their homes.  Radios.  They went to the movies.  Drove cars.  Flew in airplanes.  The Roaring Twenties was a giant leap forward in the standard of living.  Factories with electric power driving electric motors increased productivity.  And reduced air pollution as they replaced coal-fired steam boilers that up to then powered the Industrial Revolution.  This modernization even made it to the farm.  Farmers borrowed heavily to mechanize their farms.  Allowing them to grow more food than ever.  Bumper crops caused farm prices to fall.  Good for consumers.  But not those farmers who borrowed heavily.

Enter Herbert Hoover.  Who wanted to use the power of government to help the farmers.  By forcing Americans to pay higher food prices.  Meanwhile, the Federal Reserve raised interest rates.  Thinking that a boom in the stock market was from speculation and not the real economic growth of the Twenties.  So they contracted the money supply.  Cooling that real economic growth.  And making it very hard to borrow money.  Causing farmers to default on their loans.  Small rural banks that loaned to these farmers failed.  These bank failures spread to other banks.  Weakening the banking system.  Then came the Smoot-Hawley Tariff.  Passed in 1930.  But it was causing business uncertainty as early as 1928.  As the Smoot-Hawley Tariff was going to increase tariffs on just about everything by 30%.  Basically adding a 30% tax on the cost of doing business.  That the businesses would, of course, pass on to consumers.  By raising prices.  Because consumers weren’t getting a corresponding 30% pay hike they, of course, could not buy as much after the Smoot-Hawley Tariff.  Putting a big cramp in sales revenue.  Perhaps even starting an international trade war.  Further cramping sales.  Something investors no doubt took notice of.  Seeing that real economic growth would soon come to a screeching halt.  And when the bill moved through committees in the autumn of 1929 the die was cast.  Investors began the massive selloff on Wall Street.  The Stock Market Crash of 1929.  The so-called starting point of the Great Depression.  Then the Smoot-Hawley Tariff became law.  And the trade war began.  As anticipated.

Of course, the Keynesians ignore this lead up to the Great Depression.  This massive government intrusion into the free market.  And the next president would build on this intrusion into the free market.  Ignoring the success of the small-government and tax cuts of Harding and Coolidge.  As well as ignoring the big-government free-market-intrusion failures of Herbert Hoover.  The New Deal programs of FDR were going to explode government spending to heights never before seen in peace time.  Causing uncertainty like never seen before in the business community.  It was an all out assault on business.  Taxes and regulation that increased the cost of business.  And massive government spending for new benefits and make-work programs.  All paid for by the people who normally create jobs.  Which there wasn’t a lot of during the great Depression.  Thanks to programs like Reconstruction Finance Corporation, Federal Emergency Relief Administration, Civilian Conservation Corps, Homeowners Loan Corporation, Tennessee Valley Authority, Agricultural Adjustment Act, National Industrial Recovery Act, Public Works Administration, Federal Deposit Insurance Corporation, Glass–Steagall Act, Securities Act of 1933, Civil Works Administration, Indian Reorganization Act, Social Security Act, Works Progress Administration, National Labor Relations Act, Federal Crop Insurance Corporation, Surplus Commodities Program, Fair Labor Standards Act, Rural Electrification Administration, Resettlement Administration and Farm Security Administration, etc.  Oil shocks of the Seventies?  If an oil shock can prevent businesses from responding to Keynesian policies then an all out war on business in the Thirties could do the same.  And worse.  Far, far worse.  Which is why the Great Depression lasted 10 years.  Because the government turned what would have been a normal recession into a world-wide calamity.  By trying to interfere with market forces.

Only Real Economic Growth creates Jobs, not Government Programs

The unemployment rate in 1929 was 3.1%.  In 1933 it was 24.9%.  It stayed above 20% until 1936.  Where it fell as low as 14.3% in 1937.  It then went to 19.0%, 17.2% and 14.6% in the next three years.  These numbers stayed horrible throughout the Thirties because the government wouldn’t stop meddling.  Or spending money.  None of the New Deal programs had a significant effect on unemployment.  The New Deal failed to fix the economy the way the New Dealers said it would.  Despite the massive price tag.  So much for super smart government bureaucrats.

What finally pulled us out of the Great Depression?  Adolf Hitler’s conquering of France in 1940.  When American industry received great orders for real economic growth.  From foreign countries.  To build the war material they needed to fight Adolf Hitler.  And the New Deal programs be damned.  There was no time for any more of that nonsense.  So during World War II businesses had a little less uncertainty.  And a backlog of orders.  All the incentive they needed to ramp up American industry.  To make it hum like it once did under Harding and Coolidge.  And they won World War II.  For there was no way Adolf Hitler could match that economic output.  Which made all the difference on the battlefield.

Still there are those who want to blame the gold standard for the Great Depression.  And still support Keynesian policies to tax and spend.  Even today.  Even after 8 years of Ronald Reagan that proved the policies of Harding and Coolidge.  We’re right back to those failed policies of the past.  Massive government spending to stimulate economic activity.  To pull us out of the Great Recession.  And utterly failing.  Where the unemployment rate struggles to get below 9%.  The U-3 unemployment rate, that is.  The rate that doesn’t count everyone who wants full time work.  The rate that counts everyone, the U-6 unemployment rate, currently stands at 14.9%.  Which is above the lowest unemployment rate during the Great Depression.  Proving once again only real economic growth creates jobs.  Not government programs.  No matter how many trillions of dollars the government spends.

So much for super smart government bureaucrats.



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Filmmakers don’t like the High Cost of Making Movies in California so they Film Elsewhere

Posted by PITHOCRATES - September 22nd, 2012

Week in Review

California provides a good example of what not to do.  That’s because they are a very liberal/progressive state.  Who like to live in a fantasyland of what could be.  Passing active, interventionist policies to try and change the way people think and act.  Unleashing a wave of unintended consequences.  And chasing filmmakers out from the film capital of the world (see California lost $3 billion in film crew wages from 2004 to 2011, report says by Richard Verrier posted 9/18/2012 on the Los Angeles Times).

California lost $3 billion in wages from 2004 to 2011 because of film and TV production flocking to other states and countries, a new study concludes.

Burbank-based Entertainment Partners, the industry’s largest payroll service company, which specializes in advising companies on how they can take advantage of film tax credits around the world, says its own research has found that California lost 90,000 jobs and saw its share of overall production wages in the U.S. decline 10% during the period as film producers took their business elsewhere.

About half the lost wages went to New York, Louisiana, New Mexico, North Carolina and other U.S. states that offer film tax credits and rebates — states that added 45,000 production jobs during the same period. The other half of the lost $3 billion went to Canada, Britain and other foreign countries, according to the report.

Wow.  They lost 90,000 jobs to states and countries that were more movie-making-friendly than California.  The movie-making capital of the world.  Which has cost the state of California taxes on $3 billion in wages.  No wonder California is going broke.  Their high taxes and high regulatory costs chase their own movie-making people out of their state.  So the very tax rates and regulatory policies that were supposed to increase tax revenue have decreased tax revenue.  Who’d a thunk it?  Well, pretty much everyone but a tax & spend, Keynesian, liberal Democrat.

They call these results unintended consequences despite having the best of intentions.  We simply call it causality.  If you implement anti-business policies you will get less business activity.  And filmmakers will go elsewhere to make their movies.

The findings were recently shared with representatives of the Motion Picture Assn. of America, the state’s finance department and the office of Gov. Jerry Brown, who is weighing whether to approve bills that would extend funding for California’s film program two more years. The state sets aside $100 million annually to qualified productions under a program that is due to expire next year.

Goldstein noted that his company’s research also shows the California tax credit has had some effect in slowing the job losses and migration of film work since it took effect in 2009 and that California would see an increase in employment if the credit was expanded.

“If California does not extend the credit, there will be more lost productions to other states and jurisdictions,” he said.

So some admit that California is not business-friendly.  That if they don’t offer special ways to avoid their punishing taxes and regulatory policies even more film business will leave the state.  Of course, if it’s happening in the film industry it’s happening in other businesses.  Which again explains why California is going bankrupt.  Their anti-business policies are chasing taxpayers (i.e., employees) out of the state.  By chasing business out of the state.

The MPAA, industry groups and labor unions have argued that tax credits should not be judged by short-term revenues alone, and that the state program is necessary to keep California competitive with at least 40 other states that offer incentives.

Vans Stevenson, senior vice president for state legislative affairs for the Motion Picture Assn. of America, said Entertainment Partners’ findings underscored the need for preserving California’s film incentive.

“Entertainment Partners’ data shows definitively that the production tax incentives have helped to stem the flow of jobs and wages out of California, and that the incentives are vital to California’s competitiveness,” he said.

Apparently it’s just not just the high taxes and high cost of regulatory policies chasing business out of the state.  It’s also the high cost of union labor.  For the unions are admitting that they make the state of California uncompetitive in the film industry.  And want tax credits to offset their high costs to bring the film business back.  That is, they want the taxpayers to subsidize that portion of their pay and benefits that chases business out of the state.  So they can keep their jobs.  They want taxpayers to take a pay cut (by paying higher taxes) so they don’t have to.  That’s fair, right?

California is a liberal state.  They like to run and regulate business the way they want to.  Not how business would like.  And when these policies chase business away they want higher taxes to subsidize the high cost of their anti-business policies.  To help business escape their punishing policies.  And bring that business back.  Which further raises taxes.  And chases more business away.  In effect killing the golden goose that pays for their generous public sector pay and benefits.  Which are currently bankrupting the state of California.

We need to learn from California even if California cannot learn from their own mistakes.  Anti-business policies are bad.  And will encourage businesses to leave the state.  Businesses hire people.  Who become taxpayers.  Taxpayers pay all the government’s bills.  Governments need to understand this connection between businesses and paying the bills.  For there is no other way to pay the bills without businesses and their private sector jobs.



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