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

Posted by PITHOCRATES - February 25th, 2014

 History 101

(Originally published May 8th, 2012)

Capitalism allows Entrepreneurs to bring their Great Ideas to Life

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

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

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

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

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

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

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

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

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

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

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

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

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Free Trade, the Corn Laws and The Economist

Posted by PITHOCRATES - September 8th, 2013

Week in Review

Today the political left attacks capitalism as being unfair.  And mean.  Whereas they laud government intervention into the free market.  To level the playing field.  And to redistribute income.  To help those who can’t be as successful as others.  They support unions.  And oppose free trade.  Because free trade lowers prices for consumers.  By breaking up monopolies.  And giving them choice.  Free trade is an essential element of capitalism.  But the fight to make people’s lives better with free trade wasn’t easy.  As people who got rich with government-protected high prices opposed free trade (see Why did The Economist favour free trade? by C.R. posted 9/6/2013 on The Economist).

IN NINETEENTH century Europe and America, debates over whether tariffs or free trade produced the most economic growth dominated the political scene. Up until the early 1840s, protection appeared to be winning the argument. In Britain, high tariffs were imposed on agricultural imports in 1819, by legislation known as the Corn Laws. The ideas of Friedrich List, a German economist who argued that tariffs boosted industrial development through the protection of infant industries, were gaining ground, particularly in the United States. One Pennsylvanian legislator even joked in 1833 that the dictionary definition of man should be changed to “an animal that makes tariff speeches” so frequently were they heard.

Against this atmosphere, James Wilson founded The Economist in 1843 to campaign for free trade. His first target was to repeal the Corns Laws in Britain. He argued:

They are, in fact, laws passed by the seller to compel the buyer to give him more for his article than it is worth. They are laws enacted by the noble shopkeepers who rule us, to compel the nation to deal at their shop alone.”

The UAW got very generous contracts with the Big Three during the Fifties and the Sixties.  Raising the price of cars.  Which wasn’t a problem when they were the only ones making cars.  But then came the imports.  Which told the people how much more they were paying than these articles were worth.  And started buying the imports.  As they did those generous pay and benefit packages became more difficult to pay.  So the Big Three lobbied for tariffs on those less costly imports.  And got them.  Raising the price of the imports.  Forcing Americans to deal with the Big Three alone.  And buy their more costly cars.

More people bought cars than made them, though.  And the people who made the cars were better paid than most Americans.  So these tariffs forced poorer people to spend more on a car leaving them less for their families.  So richer people could have more.  This is what tariffs do.  They allow fewer people to have more.  While more people have to do with less.  So fewer buy more.  While more buy less.  Because there are more people who buy cars than make them these tariffs, then, reduce economic activity.  And because the Big Three didn’t have to figure out how to give more for less to their customers they didn’t.  Giving their customers ‘rust buckets’ in the Seventies.  Something else that tariffs do.  Lead to inferior goods.  Because if the government forces people to buy from you then the quality of what you sell doesn’t matter.

Wilson believed that protectionism caused “war among the material interests of the world”, in other words, war between nations and classes. A high tariff regime was no longer economically “productive”; Britain was stuck in an economic depression in the early 1840s. In contrast, free trade produced “abundance and employment”. It was appropriate for Britain’s economy where “a large proportion of the population and property depended on commerce and industry alone”. On the other hand, List’s ideas about protection were dismissed as unnecessary “swaddling clothes” for a mature economy, such as Britain’s.

The Economist’s early views on free trade were strongly influenced by the classical economists Adam Smith and David Ricardo, as Ruth Dudley Edwards, a historian, has pointed out. Wilson, like Smith, realised that trade was a two way exchange. Countries needed to “increase imports to increase exports” to boost economic growth. Consumers, Smith argued in the Wealth of Nations, should buy products from where they were cheapest. All protection did was create monopolies, which were “a great enemy to good management”. Ricardo took Smith’s ideas further, arguing that all countries benefit from free trade by producing what they were best at relative to other countries.

That’s what the Big Three wanted.  A monopoly on cars sold in America.  And there is only one way to get one.  The government has to create them.  Hence the Big Three’s request for tariff protection.

David Ricardo’s comparative advantage said nations should make what they can make best and trade for those things they can’t.  For example, if two countries can both make one thing but one can do so at lower costs they can make more of them for the same costs.  Giving them a larger surplus to trade for other things.  While the other nation will consume more resources to build the same quantity leaving less to make the other things they need.  While having fewer things available for export.  So if you try to make things you can’t make efficiently you end up consuming more resources to have less.  Whereas the nation that makes only what it can make best ends up consuming fewer resources that are then available to make other things.  And they have more things to trade.  Leading to a higher standard of living.  And if their trading partners do likewise they, too, experience a higher standard of living.

Free trade leads to greater economic activity.  Which made Britain wealthy.  Allowing them to extend their empire for another 70 years or so.  Despite the warnings of the rich landowners who said repealing the Corn Laws would cause harm.  Instead, repealing the Corn Laws led to greater economic activity.  And less costly food. Allowing people to feed their families more easily.  The only harm suffered was to the profits of the big landowners.  Who lost their monopoly.  And could no longer charge more than their food was worth.

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FT181: “Slavery in America is the best thing that ever happened for today’s black Americans.” —Old Pithy

Posted by PITHOCRATES - August 2nd, 2013

Fundamental Truth

To become the Father, the Son and the Holy Spirit the Man Jesus had to Die

There are some Christians who still have bad feelings towards Jews.  Who they blame for killing their Lord and Savior.  Jesus Christ.  Even though Christ died for man’s sins.  He knew the state was going to execute Him.  But He did not try to save Himself.  He accepted His fate.  Because His death was preordained.  It was all part of God’s plan.  For Jesus’ ascension into heaven.  To become the Father, the Son and the Holy Spirit He had to die.  And He had to be crucified.  As horrible as that was.  To give the religion that would follow their most sacred icon.  The crucifix.  Or cross for the non-Catholics.

God’s will was done.  And because of it the Christians got a new religion.  Based on the life and death of a Jew.  The Rabbi Jesus of Nazareth.  Which is why the Christian Bible includes the Old Testament.  To include the Mosaic teachings that Christ Himself taught.  So for Christians to hold a grudge against Judaism is illogical.  Especially when the ultimate instrument of Jesus’ death was politics.  Not religion.

The Jews lived under a Roman occupation.  An uneasy Roman occupation.  The Jews were a thorn in Rome’s side.  As they were quite burdensome.  With their not knuckling under as willingly as others.  So to keep the peace they allowed the Jews to keep their religion.  Or rather, they tolerated it.  Something the high priests and Pharisees were very conscious of.  And they didn’t want any trouble that would cause them to lose their privileges.  Like this young whippersnapper coming around and riling up the masses.  For they knew it wouldn’t take much for the Romans to lose their tolerance of them.  And they especially didn’t like His way of not revering them.  That especially cheesed them off.  So the high priests and Pharisees went to the Romans and said this guy, Jesus, is calling Himself king of the Jews.  Something they were sure would not please Caesar.  Emperor of them all.  Well, one thing led to another and they crucified Christ.  Because of politics.  Not Judaism.

Some of the Countries today enjoying the Greatest Liberties and Highest Standards of Living have a Christian Past

Jesus has done more to bring peace to the world than anyone else.  The golden rule?  It has done more to let people live peacefully together than any government law.  It made people kind to each other.  Instead of the brutes we once were.  Religion civilized us.  And Jesus did more than most to make that happen.  Would that have happened if the Romans hadn’t crucified Him?  Of course this is a moot question.  For it was God’s will.  What happened had to happen.  And we are better off because it happened.  (When people use religion to justify violence it’s a different story.  The horrific wars between Catholics and Protestants had nothing to do with the golden rule.  But people who in their zealotry forget the golden rule.)

Death by crucifixion was a long, painful death.  People hung by their arms until they could hang no longer.  Then they transferred their weight to their legs.  Standing up.  And this went on until death mercifully came.  So Jesus hung by His arms with His weight pulling His tissue and tendons against the nails through His hands.  And when He stood the weight of his body forced His tissues and tendons against the nail through his feet.  And up and down he went.  Forcing those nails through His flesh.  A horrible death.  But a death He did not try to avoid.  People make Him out as some hippy peacenik.  But He had guts.  Though it’s easy for a God to have that kind of guts.  Jesus was just a man when He died.

So something good came from something horrible.  The world became a better place.  Yes, there were a lot of religious wars when some bastardized Jesus’ teachings.  But some of the countries today enjoying the greatest liberties and highest standards of living have a Christian past (and are still predominantly Christian).  Like those that were once part of the Christian British Empire.  Where the rule of law and the respect for the individual—not the ruling powers—rule supreme.  And that would not have happened without Christ.  For even the atheist among the Founding Fathers—Thomas Jefferson—thought that Jesus’ teachings were the greatest in the world.  So good things can come from bad things.  Like another good thing that came from one of the worst things there ever was.  Slavery.

There’s a Prosperous Black Middle Class and Black Millionaires in America thanks to Slavery

Africa is a horrible place.  Sadly.  In any metric you use Africa measures horribly.  More people live in poverty in Africa than they do anywhere else in the world.  Africa has the world’s highest infant mortality rates.  Africa has the lowest life expectancy rates in the world.  Africa has the highest homicide rates in the world.  Africa has the lowest per capita GDP in the world.  And Africa has the lowest Human Development Index in the world.  Which basically says that Africa is the worst place in the world to live.  Whereas Europe and the countries that were once part of the Christian British Empire consistently have the best numbers in all of these metrics.  Making them some of the best places to live.  Unlike Africa.

Of course, the slaves who traveled in the hellish conditions of the slave ships to the New World would have preferred to have remained in Africa.  In the world they knew.  With the family they knew.  Without suffering the horrors of that Atlantic crossing.  The slave markets.  And their brutal overseers.  But something good came from all that suffering.  Unfortunately it was not for them.  But their distant ancestors.  Who today can live in a prosperous black middle class.  Where they don’t have to live in poverty.  Where their children are likely to survive their childhood.  And grow up to live a full life.  Where they have a lesser chance of being murdered.  Where they can have a much higher standard of living.  And a higher Human Development Index.  Unlike in Africa.

Slavery in America is the best thing that ever happened for today’s black Americans.  Ironically, the ancestors of those who were lucky enough to escape the slave traders don’t live as good a life as those who did not.  Today blacks in America are CEOs.  Athletes.  Movie stars.  Hip hop-stars.  Doctors.  Lawyers.  Even president of the United States.  So in addition to a prosperous black middle class there are black millionaires in America.  Blacks who started with nothing.  And earned a champagne and caviar life.  Something that just isn’t happening in Africa.  Sadly.

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FT164: “If the poor ever stopped being poor the Democrats would have trouble winning elections.” —Old Pithy

Posted by PITHOCRATES - April 5th, 2013

Fundamental Truth

There is no Greater Killer of Poverty than a Job-Creating Free Market Economy

A lot of people vote Democrat because of the perception that the Democrats are for the little guy.  The working man.  The poor.  The disenfranchised.  The sick.  The maimed.  Children.  Women.  Minorities.  Gays.  Lesbians.  Etc.  While Republicans are for rich white men, bankers, corporate executives, Wall Street investors, etc.  Democrats care about people.  While Republicans care about profits.  Democrats good.  Republicans bad.  At least, that’s the common perception in much of America.

The working man.  That’s who the Democrats are for.  The working man.  And what exactly does ‘the working man’ mean?  It means men who are working.  Obviously.  (We’re using the term ‘working man’ because it’s long been part of the lexicon of the Democrat Party.  But we include both men and women when using the expression ‘the working man’.)  The Democrats champion unions to protect the working man.  And to show their gratitude the unions put all their financial support behind Democrat candidates.  So putting people into good jobs is a very important mission for the Democrat Party.  At least that is the perception.

Jobs.  They are important.  For there is no greater killer of poverty than a job.  Countries that have advanced free market economies have plenty of good-paying jobs.  Where much of the populace lives well above poverty.  Like in Chile.  After Milton Friedman and the Chilean economists known as the ‘Chicago Boys’ ignited free market principles in Chile starting in 1973.  Countries that don’t have advanced free market economies have few good-paying jobs.  Where much of their populace lives in abject poverty.  Such as in Haiti.  And these prosperity/poverty levels impact more than just day-to-day life.

The United States has a High Standard of Living because of a Business-Friendly Environment

Chile suffered a magnitude 8.8 earthquake in 2011.  One of the largest earthquakes ever to be recorded in history.  It claimed approximately 525 lives.  Haiti suffered a magnitude 7.0 earthquake in 2010.  Less powerful than the Chilean earthquake.  Yet the Haitian earthquake claimed approximately 220,000 lives.  The difference between these two death tolls?  More people have good-paying jobs in Chile than they do in Haiti.  Giving Chile a more advanced free market economy.  And better building codes and standards.  Allowing them to survive a stronger earthquake with less loss of life.

This is what jobs give you.  Working people have money to spend.  And working people have money to pay taxes.  Which can lift people out of poverty.  And lift nations out of poverty.  Which is why the United States has such a high standard of living.  Their economy became the number one economy in the world because they had so many jobs.  Thanks to a very business-friendly environment.  The Americans encouraged entrepreneurship.  And supported it with a sound banking system that encouraged capital formation.  Thanks to all those workers saving some of their earnings for the future.  Savings that provided the capital that built America.

So jobs are good.  And providing jobs for the working man is even better.  Because that’s what a working man wants.  A job.  So the Democrats, then, should be all about job creation.  If they are for the working man.  As is the perception.  But is this perception correct?  Well, if you determine that by the number of jobs they’ve created, no.

The Obama Policies are Business Unfriendly to Keep People Poor so the Democrats have Someone to Champion

Before George W. Bush became president in 2001 there were 210,743,000 in the civilian non-institutional population (see Employment Situation Archived News Releases).  Basically those who could have a job.  Of those who could have a job there were 141,489,000 in the civilian labor force.  By the time Bush left office there were 154,587,000 in the civilian labor force.  An increase of 13,098,000 to the civilian labor force.  Which is an increase of 1,637,240 annually.  Or 136,438 monthly.  So this is what a Republican did for the working man.  Now let’s see what a Democrat did.

Before Barack Obama became president in 2009 there were 154,687,000 in the civilian labor force.  At the end of March 2013 there were 155,028,000 in the civilian labor force.  An increase of 441,000.  Which is an increase of 103,765 annually.  Or 8,647 monthly.  The Bush economy created more jobs in a month that the Obama economy created in a year.  In fact, for every job the Obama economy created the Bush economy created 15.8 jobs.  So if you determine who is for the working many by who gives the working man more of what he wants, jobs, it is clear that the Republican is for the working man.  Not the Democrat.

No, President Obama’s economic policies are not business-friendly.  They are decidedly unfriendly to business.  Even punitive.  Which is why there has been no real job creation with the Obama economic policies.  Wall Street may be doing well.  The stock market may be doing well.  But the working man sure isn’t.  In fact, those who are doing well in the Obama economy are rich white men, bankers, corporate executives, Wall Street investors, etc.  So if the Democrats are not for the working man who are they for?  Poor people.  In fact, they love poor people so much that they work hard at keeping them poor.  Giving them a meager government handout instead of a job.  Which is how they win elections.  By giving poor people free stuff.  And if the poor ever stopped being poor the Democrats would have trouble winning elections.  Which is why the Obama economic policies are so business unfriendly.  So there are always poor and impoverished people they can champion.

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Banking, Lending Standards, Dot-Com, Subprime Mortgage and Bill Clinton’s Recessions

Posted by PITHOCRATES - March 19th, 2013

History 101

Lending more made Banks more Profitable as long as they Maintained Good Lending Standards

Money is a commodity.  And like any commodity the laws of supply and demand affect it.  If a lot of people want to borrow money interest rates rise.  This helps to make sure the people who want to borrow money the most can.  As they are willing to pay the higher interest rates.  While those who don’t want the money bad enough to pay the higher interest rates will let someone else borrow that money.  If few people want to borrow money interest rates fall.  To entice those people back into the credit markets who had decided not to borrow money when interest rates were higher.

Okay, but who is out there who wants people to borrow their money?  And why do they want this?  The key to any advanced civilization and the path to a higher standard of living is a good banking system.  Because if ordinary people can borrow money ordinary people can buy a house.  Or start a business.  Not just the rich.  For a good banking system allows a thriving middle class.  As people earn money they pay their bills.  And put a little away in the bank.  When a lot of people do this all of those little amounts add up to a large sum.  Which converts small change into capital.  Allowing us to build factories, automobiles, airplanes, cell towers, etc.  Giving us the modern world.  As banks are the intermediary between left over disposable cash and investment capital.

Banks are businesses.  They provide a service for a fee.  And they make their money by loaning money to people who want to borrow it.  The more money they lend the more money they make.  They pay people to use their deposits.  By paying interest to people who deposit their money with them.  They then loan this money at a higher interest rate.  The difference between what they pay to depositors and what they collect from borrowers pays their bills.  Covers bad loans.  And gives them a little profit.   Which can be a lot of profit if they do a lot of lending.  However, the more they lend the more loans can go bad.  So they have to be very careful in qualifying those they lend money to.  Making sure they will have the ability to pay their interest payments.  And repay the loan.

With the Federal Reserve keeping Interest Rates low Investors Borrowed Money and Poured it into the Dot-Coms

Just as a good banking system is necessary for an advanced civilization, a higher standard of living and a thriving middle class so is good lending standards necessary for a good banking system.  And when banks follow good lending standards economic growth is more real and less of a bubble.  For when money is too easy to borrow some people may borrow it to make unwise investments.  Or malinvestments as those in the Austrian school of economics call it.  Like buying an expensive car they don’t need.  A house bigger than their needs.  Building more houses than there are people to buy them.  Or investing in an unproven business in the hopes that it will be the next Microsoft.

America became the number one economic power in the world because of a good banking system that maintained good lending standards.  Which provided investment capital for wise and prudent investments.  Then the Keynesians in government changed that.  By giving us the Federal Reserve System.  America’s central bank.  And bad monetary policy.  The Keynesians believe in an active government intervening in the private economy.  That can manipulate interest rates to create artificial economic activity.  By keeping interest rates artificially low.  To make it easier for anyone to borrow money.  No matter their ability to repay it.  Or how poor the investment they plan to make.

The Internet entered our lives in the Nineties.  Shortly after Bill Gates became a billionaire with his Microsoft.  And investors were looking for the next tech geek billionaire.  Hoping to get in on the next Microsoft.  So they poured money into dot-com companies.  Companies that had no profits.  And nothing to sell.  And with the Federal Reserve keeping interest rates artificially low investors borrowed money and poured even more into these dot-coms.  Classic malinvestments.  The stock prices for these companies that had no profits or anything to sell soared.  As investors everywhere were betting that they had found the next Microsoft.  The surging stock market made the Federal Reserve chief, Alan Greenspan, nervous.  Such overvalued stocks were likely to fall.  And fall hard.  It wasn’t so much a question of ‘if’ but of ‘when’.  He tried to warn investors to cool their profit lust.  Warning them of their irrational exuberance.  But they didn’t listen.  And once that investment capital ran out the dot-com bubble burst.  Putting all those newly graduated computer programmers out of a job.  And everyone else in all of those dot-com businesses.  Causing a painful recession in 2000.

Based on the Labor Force Participation Rate we are in one of the Worse and Longest Recession in U.S. History

Encouraging malinvestments in dot-coms was not the only mismanagement Bill Clinton did in the Nineties.  For he also destroyed the banking system.  With his Policy Statement on Discrimination in Lending.  Where he fixed nonexistent discriminatory lending practices by forcing banks to abandon good lending standards.  And to qualify the unqualified.  Putting a lot of people into houses they could not afford.  Their weapon of choice for the destruction of good lending practices?  Subprime lending.  And pressure from the Clinton Justice Department.  Warning banks to approve more loans in poor areas or else.  So if they wanted to stay in business they had to start making risky loans.  But the government helped them.  By having Fannie Mae and Freddie Mac buying those risky, toxic loans from those banks.  Getting them off the banks’ balance sheets so they would make more toxic subprime loans.  And as they did Fannie Mae and Freddie Mac passed these mortgages on to Wall Street.  Who chopped and diced them into new investment vehicles.  The collateralized debt obligation (CDO).  High-yield but low-risk investments.  Because they were backed by the safest investment in the world.  A stream of mortgage payments.  Of course what they failed to tell investors was that these were not conventional mortgages with 20% down payments.  But toxic subprime mortgages where the borrowers put little if anything down.  Making it easy for them to walk away from these mortgages.  Which they did.  Giving us the subprime mortgage crisis.  And the Great Recession.

So Bill Clinton and his Keynesian cohorts caused some of the greatest economic damage this nation had ever seen.  For Keynesian policies don’t create real economic activity.  They only create bubbles.  And bubbles eventually burst.  As those highly inflated asset prices (stocks, houses, etc.) have to come back down from the stratosphere.  The higher they rise the farther they fall.   And the more painful the recession.  For this government intrusion into the private economy caused a lot of malinvestments.  A tragic misuse of investment capital.  Directing it into investments it wouldn’t have gone into had it not been for the government’s interference with market forces.  And when the bubble can no longer be kept aloft market forces reenter the picture and begin clearing away the damage of those malinvestments.  Getting rid of the irrational exuberance.  Resetting asset prices to their true market value.  And in the process eliminating hundreds of thousands of jobs.  Jobs the market would have created elsewhere had it not been for the Keynesian interference.  We can see the extent of the damage of these two Clinton recessions if we graph the growth of gross domestic product (GDP) along with the labor force participation rate (the percentage of those who are able to work who are actually working).  As can be seen here (see Percent change from preceding period and Employment Situation Archived News Releases):

Labor Force Participation Rate and GDP Growth

The first Clinton recession caused a decline in the labor force participation rate (LFPR) that didn’t level out until after 2004.  Even though there were not two consecutive quarters of negative GDP growth during this time.  Usually what it takes to call an economic slump a recession.  But the falling LFPR clearly showed very bad economic times.  That began with the dot-com bubble bursting.  And was made worse after the terrorist attacks on 9/11.  Eventually George W. Bush pulled us out of that recession with tax cuts.  The much maligned Bush tax cuts.  Which not only caused a return to positive GDP growth.  But it arrested the decline of the LFPR.  But the good times did not last.  For the second Clinton recession was just around the corner.  The subprime mortgage crisis.  Created with President Clinton’s Policy Statement on Discrimination in Lending.  That unleashed real economic woe.  Woe so bad we call it the Great Recession.  The little brother of the Great Depression.

This recession not only had two consecutive quarters of negative GDP growth but five of six consecutive quarters showed negative growth.  And one of those quarters nearly reached a negative ten percent.  Which is when a recession becomes a depression.  This recession was so long and so painful because those artificially low interest rates and the pressure on bankers to lower their lending standards created a huge housing bubble.  Pushing housing prices so high that when the housing bubble burst those prices had a very long way to fall.  Worse, President Obama kept to the Keynesian policies that caused the recession.  Trying to spend the economy out of recession.  Instead of cutting taxes.  Like George W. Bush did to pull the economy out of the first Clinton recession.  Worse, anti-business policies and regulations stifled any recovery.  And then there was Obamacare.  The great job killer.  Which he helped pass into law instead of trying to end the Great Recession.  GDP growth eventually returned to positive growth.  And the official unemployment fell.  A little.  But the president’s policies did nothing to reverse one of the greatest declines in the LFPR.  More people than ever have disappeared from the labor force.  That will take a lot of time and a lot of new, real economic activity to bring them back into the labor force.  And no matter what the current GDP growth rate or the official unemployment rate are it doesn’t change the reality of the economy.  Based on the LFPR it is in one of the worse and longest recession in U.S. history.  And the worse recovery since the Great Depression.  Because of President Obama’s embrace of Keynesian policies.  Which do more to increase the size of government than help the economy.

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Disposable Income and GDP Growth

Posted by PITHOCRATES - February 25th, 2013

Economics 101

With less Disposable Income there will be less New Economic Activity Created

The key to economic growth is disposable income.  For when we live from paycheck to paycheck economic growth is flat.  It’s when we have disposable income that we can spend money beyond our basic needs.  Such as on a vacation.  A new car.  A television.  New windows, carpeting, appliances, furniture, etc.  Movies, ball games, dinners, the theater, etc.  New clothes, jewelry, shoes, accessories, etc.  Tennis rackets, skis, baseball gloves, hiking boots, fishing gear, etc.  Smart phones, MP3 players, iPads, laptops, etc.  Jet skis, boats, motorcycles, mountain bikes, etc.  Radio-controlled cars/helicopters/planes, Game Boys, Xboxes, Wiis, PlayStations, multiplayer role-playing computer games, etc.

Buying these things creates a lot of economic activity.  But we can’t buy any of these things unless we have disposable income.  So the only way to increase economic activity is to increase disposable income.  Which means there is a direct relationship between GDP and disposable income.

There’s been a lot of talk about real incomes being flat.  Even falling during the Obama presidency.  Which is bad.  For if median incomes are falling people will have less disposable income.  And with less disposable income they will be buying less of all those things that create new economic activity.  The things we enjoy.  That make our lives more fun.  More enjoyable.  And less miserable.  Those things that increase our standard of living.  And the quality of life.  So a flat and falling median income reduces our standard of living.  And our quality of life.  As we live from paycheck to paycheck.  Making barely enough to meet our living expenses.  And sometimes not even making enough for that.  Having to turn to government assistance to make up the difference.

We add Disposable Income and Discounted Government Spending to get the Net Add to GDP

The key to disposable income and GDP growth is jobs.  And the more jobs the better.  So job creation is very important.  Which means we need a business-friendly environment.  With a minimum of costly regulations.  And low taxes.  To encourage employers to hire more people.  So more people have jobs.  Those who do use their income to meet their living expenses.  And use their disposable income to create new economic activity.  The more disposable income they have the more new economic activity they can create.  So what’s the best way to increase their disposable income?  The same way we encourage employers to hire more people.  Low taxes.  We can illustrate this in the following table which is based on assumptions and approximations.

GDP Discounted Required and Average Calculations

The effective tax rate a person pays includes all taxes he or she will pay.  Property tax, sales tax, gas tax, telecommunication tax, liquor tax, cigarette tax, import tariff, dog license tax, fishing license tax, luxury tax, watercraft registration tax, vehicle sales tax, state income tax, federal income tax, Social Security tax, Medicare tax, capital gains tax, etc.   Median income and living expenses are constants.  We subtract taxes from median income to get net income.  Subtracting living expenses from net income gives us disposable income.  We then calculate these numbers for additional effective tax rates that are multiples of 4%.

We add disposable income and stimulus together to get the net add to GDP.  What we call ‘stimulus’ is a percentage of all those taxes reentering the economy through government spending.  In our example 80% of those taxes find their way back into the economy.  While 20% is lost through waste and inefficiency.  This stimulus can pay for a government worker, a government contractor or a direct government benefit that helps people meet their living expenses.  This redistributed income is money that the income earner would have spent had it not been taxed away.  Instead, someone else will spend it.  But not as efficiently.  As it must first pass through an inefficient government bureaucracy.

Giving People Benefits does not Replace Disposable Income

We extend the table out to an effective tax rate of 52% and graph the results.  We see that as the effective tax rate increases disposable income falls.  As does GDP growth.  Showing that increasing taxation reduces GDP.  That said, average GDP growth has been approximately 3% during the latter half of the 20th Century.  Despite increasing taxation reducing GDP.  So how do we reconcile a falling GDP and a 3% GDP growth?  With aggressive increases in productivity.  And investments in capital equipment.  Allowing business to produce more with less.  Resulting in a rising real GDP growth rate.  As shown in the following graph.

GDP Discounted Required and Average

In order to maintain a 3% growth rate in GDP we need a rising real GDP growth rate (in one America doing very well despite government) to offset the falling discounted GDP growth rate due to falling disposable income (in another America not doing well because of government).  When we add the real and the discounted GDP growth rates together we get the constant 3% of average GDP growth.  Which is why businesses have never been more profitable despite stagnant economic growth during President Obama’s time in office.  They’re doing well because they’re producing more with less by exchanging people for new capital equipment.  Hence the higher profitability along with chronic high unemployment.  With more unemployed workers than available jobs there is a downward pressure on median income.  That combined with higher personal effective taxes has greatly reduced disposable income.  And new economic growth.  Which subtracts a lot away from that real GDP growth.

Giving people benefits does not replace disposable income.  For government assistance helps people meet basic living expenses.  While having a job offers the ability to earn disposable income.  Which is key for new economic growth.  If we bring the effective tax rate down the discounted GDP growth graph will flatten out.  As this happens the gains in productivity would remain.  Leaving real GDP growth unchanged.  With real GDP growth unchanged and discounted GDP growth decreasing the average annual GDP growth would therefore increase.  And approach real GDP growth.  With double digit GDP growth tax revenues would soar even at lower effective tax rates.  Requiring less borrowing.  Which would give us smaller deficits.  While reducing the growth in the federal debt.  Perhaps even reducing the debt.  Solving all of our financial problems.  By simply cutting taxes.  And the spending those taxes fund.

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Britain’s High Cost of Government raises the Cost of Living despite having the NHS

Posted by PITHOCRATES - November 3rd, 2012

Week in Review

One of the arguments for national health care is to relieve employers from paying the high cost of health insurance.  Allowing them to pay their employees more.  Also, without the need to find a job that offers good health care people could do whatever they wanted for a living.  It would allow them to make employment decisions less on what they have to do to pay their bills but more on what they want to do.  Because the great fear of losing or not having health insurance is no longer there.

During the Obamacare debate Nancy Pelosi (then Speaker of the House) said just think about how many could chose a career as an artist now that they didn’t have to worry about health insurance.  Wouldn’t that be wonderful?  Instead of working for corporate America they could do something more meaningful.  Well, the UK has national health care.  Provided by the National Health Service (NHS).  And yet both employers and employees are still having the same problems (see Five million paid less than Living Wage, says KPMG posted 10/29/2012 on BBC News Business).

One in five workers in the UK is paid less than required for a basic standard of living, a report has said…

The rate stands at £8.30 [$13.30] an hour in London and £7.21 [$11.56] in the rest of the UK.

This rate is voluntary, unlike the National Minimum Wage – the amount that employers must pay by law, which is set at £6.19 [$9.92] an hour for those aged 21 and over.

The higher the minimum wage the higher the costs for business.  In wages and salaries.  And all the taxes and insurances that are calculated based on those wages and salaries each payroll.  So the higher the minimum wage the greater the cost of doing business.  And the less money left for a business to invest into the business to expand and hire additional workers.  The fewer people working the fewer people pay taxes to fund government.  Requiring higher tax rates on those who do work.  In part to pay the unemployment compensation for those who can’t find a job.  Which increases payroll tax rates.  Further discouraging employers from hiring new workers.  Further reducing the tax base.  And so on.

“Times are difficult for many people, but of course those on the lowest pay are suffering the most,” said Marianne Fallon, head of corporate affairs at KPMG, which has itself signed up to pay the living wage…

“The living wage is not a luxury, and means that low-paid workers do not have to make tough choices over whether they can afford the everyday things that most of us take for granted, such as their fuel bill or a winter coat for their children.

But Mike Cherry, policy chairman for the Federation of Small Businesses, said: “Every employer would want to be as reasonable as they possibly can, but in the current economic climate it is not going to be possible for those sectors that have traditionally been unable to pay the national minimum wage.”

He said rent and rates were becoming more expensive, and so were energy costs, so the living wage was an aspiration but not affordable for some employers…

However, one 23-year-old care worker told the BBC News website that life was tough financially – even when on the living wage.

She said that the cost of petrol, when driving between the homes of the people she cared for, took a big chunk out of her pay which totals £7.21 an hour.

Could it be that it’s not that these people aren’t earning a living wage?  That it is the high taxes and high regulatory compliance costs that are pushing the cost of living beyond people’s incomes?  I mean, why is it that gasoline costs so much more in Europe than it does in the United States?  Gasoline in Britain is currently selling for approximately £1.35 per liter.  Converting liters to gallons and pounds to dollars that comes to about $8.20 per gallon.  Why is it so much more in Britain than in the US?  When it comes from the same oil?  Taxes.  And regulatory compliance costs.  This is the cost of European social democracy.  And green energy.  The only reason they need a living wage is because government makes it so costly to live.

Employees want the highest pay they can get.  While employers want to pay the absolute minimum it takes to get good workers.  When times are good people can leave and find a higher paying job.  When times are bad the business owner struggles to pay their bills.  They pay their vendors slower.  They cut back on investments into the company.  Spend money repairing equipment instead of replacing equipment.  They do everything they can to conserve their cash so they can pay their bills.  Which is why they don’t like being too generous with the employee pay and benefits.  Because once you give it you can never really take it back.  Unless you want to make a lot of surly employees.  So when the economy goes south they don’t cut pay and benefits so much as lay off people.  So they can pay their bills based on their reduced revenue.  And keep the remaining employees less surly.

These are the realities of business.  And national health won’t change any of this.  For national health care isn’t free health care.  National health care is taxpayer-financed health care.  So it will give us higher taxes.  Raising the cost of business.  Forcing people to struggle in their lives.  Such as in Britain.  Where costs are high.  For if they’re paying $8.20 for a gallon of gasoline just imagine how much everything else costs.  Especially groceries.  They deliver food with trucks.  Trucks that use those expensive petroleum products.  Which raises the cost of food.  This is the future of Obamacare.  High taxes.  High gasoline prices.  High food prices.  Just high prices.  Because the cost of Obamacare will raise taxes like we haven’t seen yet.  Taxes that every price will include.  Which will make it just so costly to live.

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Singapore and Great Britain affirm their Good Relations

Posted by PITHOCRATES - July 28th, 2012

Week in Review

Singapore is doing very well.  It has one of the strongest economies in the world.  And has one of the highest per capita wealth.  Not surprisingly it was one of the original Four Asian Tigers.  Along with Hong Kong.  South Korea.  And Taiwan.  Singapore and the United States have something in common.  Besides bustling economies (well, it was once bustling in the United States).  They were both once part of the British Empire.  And remain on good relations with Britain (see President Tony Tan underlines warmth of longstanding S’pore-UK ties posted 7/28/2012 on Channel News Asia).

President Tony Tan Keng Yam underlined the warmth of longstanding relations between the United Kingdom and Singapore, during a reception at Buckingham Palace hosted by Queen Elizabeth II on Friday.

Just something else to think about as you watch the 2012 Olympics in Great Britain.  Just how much Britain gave the world.  A lot of people like to pick on Britain.  But just look at some of the best places in the world in terms of individual liberty and the standard of living.  The United States of America.  Canada.  Australia.  Hong Kong.  And, of course, Singapore.  To name a few.  And what do they have in common?  They were all once part of the British Empire.  All achieved greatness in large part due to their British heritage.  And grew into nations based on the rule of law.  Representative government.  Free trade.  And free market capitalism.  Giving us our individual liberty.  And our high standards of living.  All in all not a bad trade for a little colonial imperialism.

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FT125: “Welfare states fail because economic systems based on slavery don’t create enough stuff.” -Old Pithy

Posted by PITHOCRATES - July 6th, 2012

Fundamental Truth

In the Barter System the Only Way to Get Something you Wanted was to create Something of Value Yourself

What’s more important?  Money?  Or stuff?  Stuff, of course.  Because people work to earn money to buy stuff.  They don’t work just for the money.  Because you can’t eat money.  You can’t drink money.  You can’t smoke money.  You can drive money.  You can’t watch or listen to money.  You can’t live in money.  You can’t surf the Internet with money.  No.  The only thing money is good for is buying stuff.  It’s the stuff we buy that makes our lives more enjoyable.  Having money helps.  But it is only a means to an end.  That end being stuff.  And someone has to make that stuff.  For if no one does then all the money in the world is worthless.

Early economies were barter economies.  People traded stuff.  Stuff they created, dug up, grew, manufactured, etc.  Instead of working to earn money to buy stuff they created stuff and traded it for other stuff.  So the only way to get something you wanted was to create something of value yourself.  Money didn’t change this.  Money just made trading with other people more efficient.  By being a temporary storage of wealth.  Because the barter system had a serious flaw.  High search costs. 

It took time to bring two people together to trade their stuff.  If a toolmaker wanted a pottery vase he had to find a potter who wanted a tool the toolmaker made.  This could take awhile.  Hence the high search costs.  Because while these people were seeking each other out they couldn’t make anything else of value.  With money, though, you could accept money in trade.  And then go and trade that money for what you wanted.  This greatly reduced search costs.  Because all you had to do was find the things you wanted.  And trade your temporary storage of wealth (i.e., money) for them.  Allowing them to spend more time creating value.  And less time searching.

The North won the American Civil War because the North practiced Free Market Capitalism while the South Didn’t

Advances in agriculture allowed larger and larger food surpluses.  Which, in turn, allowed more and more people to do something other than farm.  This unleashed human capital.  Allowed people to think about other things.  Create new things.  And improve existing things.  This created a middle class of artisans.  Craftspeople.  The people that created goods and services and brought them to the market place.  Creating the complex economy.  These people became entrepreneurs.  They efficiently used resources and sold things in the market place the people were demanding.  Not out of the goodness of their hearts.  But because they were pursuing profits.

This is free market capitalism.  The economic system that ushered in the modern world.  Free people thinking freely.  Creating.  Bringing their bold new ideas into reality.  Giving us the steam engine.  The railroad.  Machine tools.  Electric power.  The assembly line.  Free market capitalism brought us these things and improved our standard of living.  Because they were free to enter the market place.  And make profits.  Providing a powerful incentive to make the world a better place for everyone else.  Because when they took risks and worked hard to make the world a better place they could get rich in the process.

This is why the North won the American Civil War.  Because the North practiced free market capitalism.  While the South did not.  Their economy was a slave economy.  Instead of an expanding middle class working and contributing to the economy they had an expanding slave population.  That didn’t contribute to the economy.  They worked in the fields.  With all the proceeds from their labors going to a few plantation owners.  Slaves in general didn’t tinker or bring new things to market to enrich their masters.  For they had no incentive to do so.  They did have an incentive to do as they were told and work the fields.  To avoid punishment.  And they had no wages to spend in the market.  So there was less demand for manufactured goods in the South (in some states of the Deep South slaves made up to a third to half of the population).  So there was less manufacturing in the South.  Far less.  This is why the North exploded in manufacturing.  Entrepreneurs could bring things to market.  And the manufacturing workers earned wages they could use to buy those things.  As well as mass-produce the implements of war.  Unlike they could in the South.  Because of the economic superiority of the North it was just a matter of time before the South was overwhelmed.  And lost. 

When the Roman Empire turned into a Welfare State they had to Force People to Make Stuff Against their Will

Governments can print money.  They can tax people.  They can borrow money.  But the one thing they can’t do is create stuff.  If they could create stuff (i.e., economic activity) simply by printing money then the South would have matched the North in economic output.  But they did not.  Which is why they ultimately lost the war.  Because they could print Confederate dollars.  But that didn’t make muskets, bullets, canon, shoes, food, ships, steam locomotives or railroad track.  Creative people had to make these things first before the Confederate government could procure them.  Which is why the government didn’t procure them.  Because no one made them.

This is why governments just can’t print money and give it to the people.  They could.  But it would be pointless.  Let’s say they gave everyone $100,000 a year.  So no one would ever have to work again.  A lot of people would vote for the politician that promised that.  Of course if no one works who will create all the stuff to buy with that $100,000?  Having money is one thing.  But if there is nothing to buy with it then that money is worthless.

This is why the welfare state will ultimately fail.  As more people collect welfare benefits instead of creating stuff there will be less stuff to buy.  When supply shrinks while demand increases prices rise.  Higher prices that everyone has to pay.  People who create.  And people who don’t.  So they will raise taxes on those who work to pay for the benefits for those who don’t.  So those who don’t work can afford the higher prices, too.  Higher taxes are a great disincentive to create.  Or to become an entrepreneur.  Some may just choose the easier path.  Stop creating.  And start collecting that government money, too.  Further reducing supply and increasing demand.  Raising prices further.  Reducing overall economic activity.  And reducing the standard of living.

This happened in the Roman Empire as they kept raising taxes and debasing their coin to pay for their excessive government spending.  It got so bad that people quit their jobs because they couldn’t make any money.  Creating great shortages of goods.  And food.  So the Romans passed laws forbidding people from leaving their jobs.  Even tied people and their descendants to the land they farmed.  Which grew into European feudalism.  And Russian serfdom.  Economic systems little better than the slavery of the Deep South.  Which stunted innovation.  Lowered the standard of living.  And led to the fall of the Western Roman Empire.  But it was the only way the Romans could get the stuff they needed.  By forcing people to make it against their will.  Which is what they had to do when the Roman Empire turned into a welfare state.  And the creators quit creating.

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FT121: “As liberals gain knowledge and experience they become conservatives.” -Old Pithy

Posted by PITHOCRATES - June 8th, 2012

Fundamental Truth

Carnegie and Rockefeller were able to make the World Better because of Capitalism and Free Markets

Liberals campaign hard to get the youth vote.  Before the young grow up and become responsible adults.  Lose their youthful idealism.  And their ignorance of rudimentary economics.  Kids graduating from high school don’t know much about economics.  They don’t know that JFK was a tax cutter just like Ronal Reagan.  And that those tax cuts stimulated real economic growth.  They don’t know any of this.  But they know who Al Gore is.  And will read you the riot act whenever you do anything that will increase your carbon footprint on this planet. 

Those who go on to college build on their liberal high school education.  Where they don’t learn about how Andrew Carnegie and John D. Rockefeller created the modern nation we know today.  Carnegie made steel plentiful and inexpensive.  Allowing us to build the skyscrapers in our cities.  Rockefeller made kerosene so plentiful and inexpensive that he put the whale oil industry out of business.  Saving the whales.  And gave us plentiful and inexpensive gasoline for our automobiles.  Providing fuel for our trains and planes.  Giving us the freedom to travel anywhere.  Visiting big cities like New York.  Where many of the great skyscrapers built with Carnegie steel are still standing today.

Carnegie and Rockefeller are just two entrepreneurs who changed the world.  And greatly increased our standard of living.  Who were free to make the world a better place because of capitalism and free markets.  Instead of working for a paycheck like most people do they took risks and created things.  Better steel.  And better fuel.  As well as jobs.  Lots and lots of jobs.  So people could work for a paycheck.  Why did they take these great risks?  Because the possibility of getting rich is a great incentive.  Which is why aspiring actors go to Los Angeles and starve.  Hoping to get a break.  Get discovered.  So they can become rich.   Which is why people buy lotto tickets.  To become rich.  For it appears everyone wants to get rich.  But there is a difference when people like Carnegie and Rockefeller get rich.  Everyone lives a better life when they do.  Not just the movie star or the lotto winner.

Students live College Life to the Fullest and Pursue Degrees that won’t take up too much of their Time

So what do they learn in college?  That capitalism isn’t fair.  Corporations are evil.  But communism and socialism are good.  Government intervention into the free markets is good.  And, of course, those who do learn economics only learn Keynesian economics.  The school of economics that favors government interventionism into private markets.  And that great industrialists like Carnegie and Rockefeller were greedy and exploited their workers.  While communism and socialism protected their workers.  Which is another failing of our educational system.  Students don’t learn what an abject failure communism was.  Both as an economic system.  And on human rights.  They don’t learn that.  Or that a lot of rich industrialists like Carnegie and Rockefeller spent the last years of their lives giving away the wealth they amassed.  Like some of America’s rich continue to do today.  As exemplified by Bill Gates.

No.  Their education is a poor one.  Which explains why the Indians and Chinese are passing American students by.  The goal of American public education is not to produce high test scores.  But to indoctrinate students into being good Democrat voters.  So those in the public sector unions can continue to earn more in pay and benefits than their counterparts in the private sector.  Another fact they don’t teach these young students.  They keep these students young and dumb as long as possible.  And the government helps.  By focusing on the things important to these students.  Lenient drug laws.  Birth control.  And abortion.  To make sure their first time living away from their parents is a good time.  A fun time.  And to make sure that they understand that Democrat political candidates aren’t like their parents.  Those buzz kills.  Whose favorite word in their vocabulary is ‘no’.  Not the Democrats.  They like the word ‘yes’.  As in “yes we can.”  And yes you can.  Do whatever young people with raging sex drives like to do.  And they do. 

They live college life to the fullest.  Many pursuing degrees that won’t take up too much of their time.  Taking less science and math like the Indians and the Chinese.  Because those are hard and require a lot of homework.  Instead they pursue degrees in women’s studies.  Minority studies.  Family studies.  American studies.  Communications.  Film.  Psychology.  Philosophy.  Things that are fun and have no math.  Allowing a lot of fun when outside of the classroom.  But are absolutely worthless in the high-tech economy.  The only employment opportunities for these degrees is to become a professor and teach other students these worthless degrees.

It turns out Liberalism is a Lie used to maintain a Privileged Class

So when these college graduates can’t get a job that’ll make them rich overnight they get angry.  And struggle to pay down the mountain of debt that paid for those worthless degrees.  Of course it’s not their fault.  Or the universities who sold them those worthless degrees.  It’s Wall Street’s fault.  Those evil rich people who don’t pay their fair share in taxes.  That somehow if they only paid more in taxes they could find gainful employment.

And when the young start working for a living they discover taxes.  From property taxes to payroll taxes to income taxes.  Which are a lot of taxes.  And when they start raising a family they start paying attention to what’s on television.  Which was fine when they were partying in their youth.  But somehow isn’t right now that they are parents.  They start thinking about the things they did in their youth.  And how to hide it from their kids.

And when there are ballot initiates to raise taxes to pay for budget deficits at the city and state level they pay attention to what caused these deficits.  And they don’t like what they learn.  Public sector pensions and health care benefits that are far greater than theirs.  Worse, they are not only paying for theirs (through a payroll deduction and/or lower pay) they’re paying for these generous public sector benefits via ever increasing taxes.  And they will be paying these taxes for a long time as few will be able to retire until they’re well into their sixties.  Working some 40-50 years.  While public sector retirees can enjoy their more generous benefits after only working some 20-30 years.

Which is why as liberals gain knowledge and experience they become conservatives.  Because young and dumb was fun in their youth.  But everyone has to grow up.  And learn that their parents were right.  Which is why a lot of people grow up to become conservative like their parents.  But few conservatives become liberals.  Because as it turns out liberalism is a lie.  It is just a means to maintain a privileged class.  Where life is great within the privileged class.  Where you can retire after 20-30 years and receive generous pensions and health care benefits.  But it sucks for those outside that privileged class who have to pay for it.  Which is why public education is not about test scores.  But producing good Democrat voters.  To maintain that privileged class.  Because education is in that privileged class.

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