Used Cars put a Crimp in Venezuela’s Inflationary Policies

Posted by PITHOCRATES - January 27th, 2013

Week in Review

The American Left attacks capitalism for being unfair and evil because it puts profits before people.  Whereas socialism puts people before profits.  Where people give according to ability and take according to need.  Fair, yes?  In the way it makes people want to link arms and sing Kumbaya.  Because everyone has everything they need.  Thanks to that redistribution of wealth.  And exactly how does that work?  Something like this.

An unemployed man with 8 children will get more from the government than a single woman with no children working 12-hour days 6 days a week.  She will have a lot of income the state can tax.  So she has a lot of ability.  While he will get a lot of state benefits.  Because he has a lot of need.  A smart person will look at this and quickly come to the understanding that working hard sucks.  While being a lay-about means you live comfortably on state benefits.  Paid for by people like that woman working 12-hour days 6 days a week.  So in true socialism it’s a contest to show as little ability and as much need as possible.

Sometimes there aren’t enough people to tax.  So to keep the people happy the state spends money it doesn’t have.  By printing more and more money.  Which is what Hugo Chavez did in Venezuela.  Actions which the American Left applaud.  As they applaud Hugo Chavez for putting people before profits.  For unabashedly embracing socialism.  And condemning capitalism.  So Venezuela should be a socialist utopia.  So is it?  Let’s take a look (see Venezuela Ready to Crack Down on Clunker Car Inflation Refuge by Corina Pons & Nathan Crooks posted 1/24/2013 on Bloomberg).

Automobiles purchased in Venezuela, South America’s largest oil exporter, typically gain in value the moment they are driven off the dealership lot. Facing 20.1 percent inflation and capital controls introduced in 2003 that limit the amount of bolivars citizens may take out of the country, Venezuelans invest in durable goods…

Venezuela’s consumer prices last month rose 3.5 percent, the fastest pace in 32 months, the central bank said Jan. 11. Venezuela has the third-highest inflation rate worldwide.

Chavez in 2012 ordered companies to cut prices of shampoo, soap and other personal care products to contain inflationary pressures…

Inflation rose after Chavez restricted dollar supplies in a bid to close a fiscal gap widened by spending before elections in October, in which he defeated challenger Henrique Capriles Radonski by more than 10 percentage points.

The lack of dollars has created shortages of goods that range from toilet paper to detergent and extend to automobiles. Suvinca, a Venezuelan state distributor of Chinese-made cars, posted a notice on its website yesterday that said it had run out of cars and suspended sales…

“The law won’t solve the problem, because it doesn’t resolve the fact that there is still little supply. It won’t reduce demand, either,” Garcia said. “A black market will be created very fast. Instead of solving the problem, it will make it worse…”

“With this law, it will not be permissible to sell a car above the maximum suggested price, and a used car can never cost more than a new one,” Amoroso said. “Notaries will be prohibited from legalizing any transaction that is above the suggested price.”

When you print a lot of money it just makes your money worthless.  Which is why governments frown on people using their computer printers to make money.  If everyone did this money would lose its value.  For it would be as common place as leaves on the ground in autumn.  In countries with high inflation rates people want to spend their money as fast as they get it before it loses too much of its purchasing power.  For the real goods they buy will hold their value.  So it’s a safer place to put your savings.  Instead of in a bank.

The more bolivars (the Venezuelan currency) they print the less each bolivar is worth.  The more they depreciate the bolivar the faster people want to convert them into something that will hold its value.  Like cars.  If the bolivar loses half of its value it will take twice as many of them to buy a car.  So if you own a car its value in bolivars will soar the more of them they print.  Not that people want bolivars.  But they do want dollars.  And getting dollars by selling real goods avoids the inflation problem of the bolivar.  But it also helps to undermine the currency as no one wants to use it.  Or accept it in exchange for valuable goods.

Of course an easy solution to this problem is simply implementing price controls.  If you legally prevent prices from rising in response to runaway inflation problem solved, yes?  No.  Because if prices are held at artificially low levels people will buy so many of these items while the buying is good that these things will disappear from store shelves.  And if the store shelves are empty it doesn’t matter what prices are.  This is why there were gas lines in the Seventies.  Gas sales were so strong that gas stations ran out of gas.  And with prices below real market prices there wasn’t new supply coming on market to meet that excessive demand.  Because having to sell below your costs doesn’t encourage anyone to sell.  Except on the black market.  Where black market prices adjust market supply to market demand.  And everything is available for a price.

This is the socialist utopia that is Venezuela.  Only it’s not a utopia.  It just converts as many people with ability into people with need.  And when there are no longer enough people to tax to provide for those in need societies break down.  And governments collapse.  Unless you have a strong police state.  Which has been the hallmark of all social utopias that put people before profits.  Places like Nazi Germany, the Soviet Union, the People’s Republic of China, North Korea, the communist countries of Eastern Europe, Cuba, etc.  Venezuela, too.

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The Solution to Europe’s Debt Crisis may be as ‘simple’ as the Eurozone Nations surrendering their Sovereignty

Posted by PITHOCRATES - June 24th, 2012

Week in Review

The solution to the Eurozone debt crisis is easy.  All the European nations have to do is surrender their sovereignty (see The eurozone’s long reform wishlist by Laurence Knight posted 6/24/2012 on BBC News Business).

A US-style federal budget may be needed to cover the cost of recessions, so that individual governments don’t risk going bust when their national economies get into trouble. For example, the cost of a minimum level of social security – especially unemployment benefits – could be permanently shared across the eurozone, paid for by a common income tax.

Welcome to the new world order.  At least the new country of Europe.  Made up from the former European nations.  And, unsurprisingly, the answer to all their problems is a new tax.  Not just any tax.  But a European income tax paid to a distant central power.  The kind of thing that embroiled Europe in wars to prevent going as far back as the Roman Empire.  And beyond.

The European Central Bank may need to have its mandate changed so that it has an explicit dual target to support employment as well as price stability, just like the US Federal Reserve does, as proposed by the new French President Francois Hollande.

Because it has worked so well in the United States.  The Fed was in charge during the Great Depression.  The Fed was in charge during the stagflation of the Seventies.  The Fed was in charge during the irrational exuberance of the Nineties.  And the Fed was in charge during the great housing bubble that gave us the subprime mortgage crisis.  Few people in the US think the Fed should be supporting anything these days.  For they feel they’ve done enough damage.

All Europeans (and especially southerners) are having to implement structural reforms that will increase their long-term growth and strengthen government finances, including removing restrictions on market competition, raising the retirement age, laying off (over many years) a lot of state employees, and making it much easier to hire and fire employees.

Really?  Something the individual European nations couldn’t do (cut back generous state benefits) a European country can?  Students in France took to the streets when they added a year or so to the retirement age.  Students took to the streets in Britain when they tried to make students pay for a part of their college education.  And Greece’s answer to austerity?  Riots.  It is easy to say what they must do.  Getting them to do it is another thing.  And they’ve clearly shown they don’t like doing it.  And so far have chosen not to.

In the same way that Washington has helped out struggling US states, the southern European governments may need to be given money (given, not lent) by the rest of the eurozone via direct fiscal transfers, so that they can afford to prop up their economies until they have regained competitiveness. These transfers could end up taking the form of bailout loans that are never repaid.

The US government can’t afford to bailout any states.  The state of California is in trouble.  As are some of our big cities.  Such as Chicago.  And New York City.  They have the same problem Greece has.  They have far more spending obligations than they can afford to pay.  As did the state of Wisconsin.  Whose governor implemented the kind of structural reforms suggested for the new European country.  And the opposition party and the federal government attacked them for it.  Organized a recall drive to kick out the governor.  And undo those structural reforms.  But the recall failed.  The governor won the recall election by a large margin.  Showing the people are no longer going to pay for other people’s irresponsible spending.  As the European people probably won’t want to either.

To make a full banking, fiscal and monetary union work, the eurozone governments would need to hand power to a central authority (the European Commission) that can pay for and supervise all of the above, while national governments accept that in future they have to keep their own spending strictly within their limited means.

 As most of the above reforms involve Germany sharing its wealth with the rest of Europe (and all European nations handing power to Brussels), Berlin is insisting on the principle of no taxation without representation – in other words a move towards full federalism, with spending and regulation controlled by a directly elected presidency of the European Commission.

Few European governments like hearing Germany tell them to implement structural reforms.  They’re not going to like it any better coming from Brussels.  Federalism wasn’t easy in the US.  We had to fight a civil war.  Go through reconstruction.  To this day we’re still fighting regional conflicts.  The Midwest is strongly union while the southern states are not.  And the federal government recently intervened on the side of the unions when Boeing tried to build a new aircraft manufacturing plant in the South.  In fact, those in the federal government refer to those states as flyover country.  Which is all they want to see of that country.  Flying overhead as they go between the east and west coasts.  Where the big government people live.

The 13 original American states had only about 200 years of history before they joined the federal union.  The European people have over 2,000 years of history.  It is unlikely that they will willingly choose to become flyover country.  No, there isn’t any easy solution to their problem.  If there was they would have already done it.  A currency union without a political union may just prove to have been a bad idea.  A political union isn’t likely.  Unless the people of Europe are more willing to give up their 2,000 years or so of history than the Americans were willing to give up their 200 years or so of history.  And if they’re not they should really think long and hard about creating something even bigger than the Eurozone.  That may be even more difficult to fix.  Should it follow US history too closely.  Where that first hundred years proved to be a bitch.

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Japan’s Future is Bleak thanks to their Welfare State and their Aging Population

Posted by PITHOCRATES - April 28th, 2012

Week in Review

Japan made two great mistakes since World War II.  Establishing a great welfare state.  And interfering into the private sector economy during the Eighties.  Causing a great asset bubble.  And a deflationary spiral lasting a decade or two.  Which has compounded their first mistake (see As Japan strains to care for elderly, sacrifices begin by Chico Harlan posted 4/28/2012 on The Washington Post).

In recent months, Prime Minister Yoshihiko Noda has staked his job and bet his support on a tax increase designed to fund Japan’s soaring social security costs.

And the potential tax hike is only a sneak preview of the burdens to come as Japan grows into the world’s grayest society, a nation where two decades from now seniors will outnumber children 15 and younger by nearly 4 to 1.

Economists and government officials say that Japan, in the coming years, will probably raise the retirement age, again increase taxes and trim spending on everything from education to defense, all to care for its elderly.

Young Japanese — those entering the workforce amid two decades of stagnation — will face the greatest burden: They will earn less in real terms than their parents, pay higher pension premiums, receive fewer social services and, eventually, retire with a less-generous pension package.

Talk about inverting the pyramid.  Which is what social security is.  A pyramid scheme.  Which will work as long as those entering the scheme outnumber those collecting benefits from the scheme.  Because everyone pays a little to support the big consumers at the top.  But what happens when the big consumers at the top outnumber those paying into the system 4 to 1?  You suffer.  And sacrifice.  With a capital ‘s’.  Especially those at the bottom.  Who will pay in more than those at the top ever did.  While only collecting a fraction of their benefits.  If they collect anything at all.

This is the problem an aging population causes a spendthrift government.  You simply can’t spend at a greater rate than the rate your population is growing.  Because all government spending has to be financed by the taxpayers.  Those with jobs.  In the private sector.  So if the population growth rate falls (i.e., the population is aging) the tax contributions from the individual taxpayers must increase.  Basically enslaving the younger generation to the older generation.  The lesson of Japan should be a cautionary tale to governments everywhere.  For it will happen to you if you try to be too generous with your state benefits.

As it rose into an economic power after World War II, Japan created a generous social security net, with a universal health-care system and a universal pension system in which people were covered as employees or via a basic national program. But since the collapse two decades ago of the real estate and stock market bubble, the foundation of that system has started to crack. Tax revenue has dropped amid deflation, forcing Japan, whose debt-to-GDP ratio is highest among developed countries, to fund its social programs with more and more borrowing…

Kakuta [a 20-year-old college student] said he didn’t think the cutbacks to the current system were coming fast enough. And he doubted the ability of Japanese politicians to draft the right policies.

“To me,” he said, “it sounds more and more like we’re passing this on to the younger people. . . . I feel especially bad for the generation after mine. And that certainly doesn’t motivate me to have more children.”

Who would want to burden their children with a life of near-subsistence?  So it is not surprising that the younger generation may not have the same number of children that their parents did.  Which is the worst thing possible for the government.  For there will be fewer people entering the workforce.  While the population of those leaving the workforce will grow ever larger.  Making the burden on the young even greater.  For each individual will have to support more retirees.  The retirees will, in effect, become their children.

The U.S. is following the Japanese.  For we already know Social Security and Medicare are going bankrupt.  And now with Obamacare thrown in the mix the U.S. will run to catch up with Japan.  As the Europeans are trying to do as well.  Perhaps heralding the end of Western Civilization.  As we turn the hands of time back.  To when there was a ruling elite and impoverished masses.  Who will work for no one but the state.  In exchange for their meager state allowance.

Marx and Engels had it all wrong.  You don’t destroy the middle class with a revolution of the working class.  You do it with the welfare state.  And let the middle class destroy themselves.  By demanding ever more from the welfare state.  It may take a little longer.  But it is so much easier to do.  All you have to do is give people lots of free stuff.  And the people will take it from there.  To the European sovereign debt crisis.  Or to something worse.  To something like that lurking in Japan’s future.

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FUNDAMENTAL TRUTH #83: “Those who don’t pay taxes will always approve higher tax rates on those who do.” -Old Pithy

Posted by PITHOCRATES - September 13th, 2011

The Allies were Commanded by an American because they had the Greatest Skin in the Game

During World War II, SHAEF stood for the Supreme Headquarters, Allied Expeditionary Forces. This was the top command of the Allies fighting on the Western Front during World War II. In the European Theater of Operations (ETO). The Soviet Union fought on the Eastern Front. Neither front was subordinate to the other in the command structure.

The supreme allied commander of SHAEF was General Eisenhower. An American. Why? Well the Nazis conquered France early in the war. Thanks to blitzkrieg. Which the Allies weren’t ready yet to battle. So the SHAEF commander wasn’t French. But the British were in the war from the beginning. They and their commonwealth put some 11 million into the field of battle. And suffered about a million killed and wounded. But the SHAEF commander wasn’t British either. Even though we couldn’t have defeated Nazi Germany without the British.

No, the SHAEF commander was an American because they put some 16 million into the field of battle. So excluding the Soviets, the Americans had the greatest skin in the game. Literally. And figuratively. It was the American Arsenal of Democracy that furnished the implements of war. Financed by the American taxpayer. Via bonds. Rationing. And inflation.

Those who Risk their Wealth should have a Say in How it is Risked

There were a lot of service flags hanging in American windows during World War II. And far too many of them had gold stars on them. One gold star represented the loss of a son or daughter in the war. There were about 417,000 gold stars in American windows. Not quite as many as the approximately 580,000 British dead. And a long way from the approximately 8,600,000 Soviet dead. But as America entered the war, the sheer numbers of man and material America provided made it America’s war. Which is why there was an American commanding SHAEF. Because even though Nazi Germany didn’t attack America, it was her blood and treasure leading the war against Nazi Germany.

So an American general would lead the Allies. Because the Americans had the most skin in the game. They were now bearing the greatest costs for the war. So they had the ultimate say in how the Allies waged war. I mean, no one would expect a Belgian general to command those 16 million Americans. No offense to the Belgians. I mean, I like their waffles and all. It’s just that Belgium wasn’t America. They didn’t have the resources. Nor the distance from the Third Reich.

Risk and wealth. Those who risk their wealth should have a say in how it is risked. Because it takes wealth (blood and treasure) to wage war. And this goes back to the birth of limited government. The Magna Carta. When the feudal barons of England met King John on the fields of Runnymede. And said, “Look, yeah you’re king and all but that doesn’t give you the right to do as you bloody well please.” I’m paraphrasing, of course. You see, the king was being rather oppressive. And fighting a lot of wars. Costly wars. And the funny thing about kings? They don’t have wealth. They get it from the landowners. The landed aristocracy. Those feudal barons. The men and material to fight wars, and the money to pay for them, came from them. So these barons were saying, “In the future, you clear things with us first, okay?” And constitutional monarchy was born.

Thanks to the Magna Carta those Paying the Taxes would have a Say in How the King Spent those Taxes

In the days of feudalism we defined wealth by land holdings. Because back then the most important industry was growing food. To prevent famine. And you needed land to grow food. So wealth concentrated to the land owners. The landed aristocracy. Who provided the food for the realm. Soldiers. And taxes.

Thanks to the Magna Carta, things changed. Those paying the taxes would have a say in how the king spent those taxes. He couldn’t wage endless war anymore. Or spend it all on royal accouterments. No. From then on, spending would have to be responsible. We take it for granted in the West today. And call it taxation with representation. But it was a BIG deal back then. And mostly only in England. France had an absolute monarchy. And the king did whatever he bloody well pleased. And you see how well that turned out for King Louis XVI. Ask Marie Antoinette. Of course you can’t. Because they were both executed by the people during the French Revolution.

The British took their representative government to the New World. And after the American Revolution, that was one of the British things the Americans kept. At the heart of the American populace was a hatred of taxation. And arbitrary rule. So they kept a tight grip on the government. And their wealth. There were no kings in the new United States of America. But there was still government. And a strong distrust of government power. So they were going to write their constitutions very carefully. And restrict the vote only to those who had skin in the game. Land owners. Who were paying the taxes.

Figuring out how to Amass Power despite the Inconvenience of Elections

Of course this changed over time. Nowadays, people who pay no taxes whatsoever can vote. We’ve come a long way from Runnymede. And returned a lot of power to government. In America, about half of all people pay no federal income tax. Yet they can vote. And they do. For the party that promises them more free stuff. By taxing ‘the rich’ to pay for it. And you know what these non-taxpayers say? “Raise tax rates? Absolutely. I mean, what do I care? It’s not like I’m paying them.” I’m paraphrasing, of course. But you can see the problem.

They have no skin in the game. And the only reason they don’t is because ‘the rich’ have been keeping them down. At least that’s what they believe. Because those in power told them this. So they can keep raising taxes. And keep increasing the power of government.

It’s nothing new. There are those who just want power. Kings often took power by force. When it was clear that the rich barons were more important to the king than the king was to them, though, things changed. There were limits on absolute power. So those who coveted power had to be creative. And figure out how to amass power despite the inconvenience of elections.

Politics Today: Buy Votes with State Benefits and scare the Bejesus out of Old People

The answer was the welfare state. And class warfare. Buy votes. And demonize ‘the rich’. Get the people dependent on government. And anytime there is political opposition, tell the people that the opposition wants to cut your state benefits. To scare the people into voting for you.

We call Social Security and Medicare third-rail issues in America. Because if you threaten to cut them (i.e., touch them), you will die politically. As you would die if you touched the electrified third rail in the subway. Because the recipients of those programs live in fear of losing their benefits. And will always vote for the candidate who promises not to cut them.

And this is how you amass power when saddled with the inconvenience of elections. Buy votes with state benefits. And scare the bejesus out of old people. Telling them the political opposition wants to take your benefits away. Attack the rich. And tax them. To pay for the ever bloating welfare state.

And if at least half of the people pay no taxes, you’re golden. Because when that many people have no skin in the game, you can get away with just about anything you want.

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The UK is Burning because they have too much Socialism and Class Warfare

Posted by PITHOCRATES - August 10th, 2011

You Simply can’t Keep Increasing the Burden on the Productive Class Forever 

The UK is burning.  Thanks to socialism.  And class warfare.  For people are rioting because they’re not getting enough stuff.  So they’re correcting that inequity by stealing stuff from others (see As rioting spreads UK’s Cameron vows crackdown by Stefano Ambrogi and Angus MacSwan posted 8/10/2011 on Reuters).

Youths fought running battles with police in the northern cities of Manchester and Liverpool as well as in the Midlands.

They smashed shop windows, carted off televisions and designer clothes, and torched buildings as police armed with shields and batons struggled to maintain control…

Gangs of youths in hooded tops battled police in Manchester, smashing windows and looting shops, and setting fire to a clothes shop.

In nearby Salford, rioters threw bricks at police and set fire to buildings. TV pictures showed flames leaping from shops and cars, and plumes of black smoke billowing across roads…

In Liverpool’s Toxteth district, rioters attacked two fire engines and a fire officer’s car, police said. Earlier, some 200 youths throwing missiles wrecked and looted shops…

Cars were burned and stores looted in West Bromwich and Wolverhampton in central England; and in Nottingham a gang of young men set fire to a police station. There were also disturbances in Birmingham and Leicester in central England, and Milton Keynes north of London…

In Birmingham, police launched a murder inquiry after three Muslim men died after being run over by a car in the mayhem there. A friend of the men told BBC radio they had been part of a group of British Asians protecting their area from looters after attending Ramadan prayers at a mosque.

“The car swerved toward them. It was cold-blooded murder,” the friend said. The father of one of the men tried to save his dying son with CPR.

They’re not doing this in the US.  Yet.  Because the US is not quite the social welfare state the UK is.  Yet. 

These UK riots illustrate the problem with socialism.  ‘From those according to ability to those according to need’.  The youths rioting have no ability.  And have shown no effort to learn any ability.  Content to remain on the dole.  And it’s a very generous dole in the UK.  Well, it used to be.  Hence the rioting. 

The rioters have needs.  Great needs.  Widescreen televisions.  Designer clothes.  Seeing buildings and cars burn.  So they attended to their own needs.  Took from those having ability.  And burned the mother up.  Destroyed the property of the very people who pay taxes and fund the welfare state.  And provide jobs.  So it looks like the rioters haven’t helped their employment prospects in the community.

Getting a permanent underclass dependent on government benefits provides loyal voters at election time.  But it comes with a price.  The spending required to maintain this underclass eventually becomes unsustainable.  Because you simply can’t keep increasing the burden on the productive class forever.  They may just say screw this and go on the dole, too.  And let someone else put up with the high taxes.  And the looters.

“This disturbing phenomenon has to be understood as a conflagration of aggression from a socially and economically excluded underclass,” the liberal Independent newspaper said.

“These youths live in the heart of British cities but they do not feel part of them. Far too little has been done by successive generations of politicians and public servants to integrate these individuals into normal society. The fuse for this explosion has been burning down for many years.”

Oh, society’s to blame.  Not the people smashing windows and stealing stuff.  Or the people setting fires.  It’s the people who have been living by the rules, the law-abiding people, who are to blame.

Critics say government policies of chopping public spending and raising taxes to cut a huge budget deficit have aggravated the plight of urban youth as the economy struggles to grow and unemployment rises.

The awarding of huge bonuses to bankers has become emblematic of a culture of flashy consumption for the elite.

Corruption scandals within London’s police force and a 2009 scandal over parliamentarians’ expenses have also fueled the notion that greed is a motivating factor across the spectrum of British society.

“Everyone’s heard about the police taking bribes, the members of parliament stealing thousands with their expenses. They set the example. It’s time to loot,” a youth in the riot-torn London district of Hackney told Reuters.

“It’s time to loot.”  That says it all.  They don’t want to sit down and discuss socioeconomic issues.  They just want to get stuff while the getting is good.  I mean, there are protests.  And there is theft.  Labor standing in a picket line is a protest.  Smashing windows and stealing stuff is theft.

Is State Welfare so Generous that People don’t want to get off of State Benefits? 

Of course, some are politicizing this violence.  To make the case for more social spending.  Because if you don’t pay these thugs off they’ll come and smash your windows and take your stuff (see Do Budget Cuts Cause More Riots? by Bouree Lam posted 8/10/2011 on Freakonomics).

A couple weeks ago, Jacopo Ponticelli and Hans-Joachim Voth put out their working paper “Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2009.” It uses cross-country data in the 90-year period to examine whether riots and civil unrest increase as governments cut spending. They found a positive correlation between social instability and budget cuts.

I think the real question is this.  Is state welfare too generous?  Is it so generous that people don’t want to get off of state benefits?  And when said benefits are cut they riot?  Are they so lazy and have such a state-induced entitlement mentality that the thought of having to provide for themselves is so disagreeable that they prefer burning their own neighborhoods? 

And so they riot.  They torch their oppressors.  Probably drive these stores out of their neighborhoods.  And discourage anyone from opening a new store in such a violent and riot-prone neighborhood.  Now what?  Where are they going to shop with no stores?  Who will they riot against then?

The Balance of Power has always Determined whether there will be Peace or War 

As bad as all of this is, some are saying the US should follow the UK’s example.  Stop being a world superpower.  And enjoy harmonious bliss at home.  Like they have in the UK.  When they’re not rioting and burning the place down (see Three Cheers for Decline by Charles Kenny posted 8/9/2011 on Foreign Policy).

Of course, the United States still possesses greater military strength than any other country in the world. But what good has being the world’s policeman done for Americans? Wielding that might meant the United States saw more combat deaths overseas last year than any other country, according to data from Uppsala University. Beyond the blood is the treasure: U.S. military spending increased 81 percent between 2001 and 2010 and now accounts for 43 percent of the global total — six times its nearest rival, China. The U.S. military burden is equivalent to 4.8 percent of GDP, the largest economic burden of any OECD country.

Everyone attacks U.S. defense spending.  Something, by the way, called for in the Constitution.  Unlike entitlements.  Now 4.8% of GDP is too high and should be cut.  Whereas entitlement spending is twice that amount and yet no one calls for any spending cuts there.  So it’s not a money thing.  It’s a ‘let’s weaken the U.S. thing’.

Freed from the distractions of colonial oversight and global leadership, it could retire its planet-spanning chain of military bases, shrink the Royal Navy, and devalue the pound without fears that the world would come to an end. And the country learned to collaborate without feeling equal status was a slight to its dignity — joining the European Union, for example, and signing the Kyoto Protocol.

Could the United States go down the same track toward contented (well, most of the time), pretty-good-power status?

But let’s not forget something.  When the sun never set on the British Empire the world was a more peaceful place.  We call it Pax Britannica.  Latin for British peace.  The British Empire was a benign one as far as empires go.  There was prosperity and peace.  And little war.  Something only a powerful military can give you.  When in British or American hands, at least.

The world is a dangerous place.  Always has been.  And the balance of power has always determined whether there will be peace.  Or war.  When the Nazis had it there was war.  When the British had it during the Pax Britannica there was peace.  Yes, the US and UK have made some mistakes.  But ask yourself this.  Who would you feel more comfortable having the kind of military might the US has?  China?  Iran?  Russia?  I think not.

So the US should give up its national security interests.  And take that money and spend it on more state benefits.  Like the UK did following the end of her empire.  So the permanent underclass can grow larger.  And more restive.  Demanding ever more benefits.  And rioting when they don’t get what they want.  Not a very good tradeoff for living in a less safe world if you ask me.

People Dependent on Government Benefits tend to vote for Candidates who Promise more of the Same

The rise of the welfare state has created a permanent underclass dependent on government.  Because overly generous benefits made it attractive to remain in the underclass.  Happy not to be productive.  Living off the labors of those who are.  It’s good politics.  People dependent on government benefits tend to vote for candidates who promise more of the same.

But there is a limit to how much wealth you can transfer from the productive class to the nonproductive.  If you take too much away the productive class may just join the ranks of the nonproductive.  Because that’s where the incentive is.  So the government can only tax up to a certain point.  Then they have to start borrowing.  Until the borrowing creates deficits too great to borrow anymore.  So then the spending cuts begin.  And, of course, the rioting.

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FUNDAMENTAL TRUTH #69: “Democrats bank on the youth vote because they’ve lost the wise vote.” -Old Pithy

Posted by PITHOCRATES - June 7th, 2011

Republicans are Greedy, Stuffy Old Farts

The perception is that the Democrats are for the working man.  Or woman.  And the Republicans are for the rich.  Which isn’t exactly true.  For there are a lot of wealthy who vote Democrat.  And a lot of working men and women who vote Republican.  But in politics perception is key.  Like it is in real estate.  I’m sure you’ve heard the one about the small agent who people perceived as the biggest agent in town.  Of the few properties listed, the agent had one on the road into town.  And one on the road out of town.  The agent owned two signs.  Each property got one.  And everyone saw these signs as they drove in and out of that town.  And thought, “I see these signs everywhere.  That agent must be the biggest agent in town.”  The agent isn’t.  But people perceive this because of the signs.

And there is a perception in politics.  It starts out when we are young.  In school.  And see our favorite teachers go on strike.  We love them so much we want to help them.  So we stand in picket lines with them.  Hold signs.  Blissfully ignorant of the underlying issues.  But teachers are good.  They’re not rich corporate types.  Some even have to buy their own school supplies because the school is so impoverished.  They deserve better.  Even though they get the summer off.  And don’t pay a dime for their health care or retirement.  If your parents had the same deal when you were a kid, they would have given you a lot more presents on your birthday and at Christmas.  Gone to Disney World a few more times.  And bought you that bike you always wanted.  But kids don’t understand this.  And the perception is that people are greedy because they don’t want to pay more in taxes to help their favorite teachers.

As these kids grow people hammer this message into them again and again.  On television.  In the movies.  In books.  In college.  Republicans are greedy.  Democrats care for the little people.  They don’t explain how.  It is just an article of faith.  Which the kids accept.  Without question.  Especially when they start getting politically aware.  And they feel special when people start initiating them into the political process.  They don’t understand anything yet.  They’re still self-centered kids.  But they like the attention.  It makes them feel good.  And when they learn that the Democrats are for fun, why, that’s even better.  For it is the Republicans that are against fun.  They disapprove of sexual promiscuity.  Drugs.  Birth control.  Abortion.  The greedy, stuffy old farts that they are.

Democrats are Enlightened and Care about People

It’s all part of the generation gap.  The kids against their parents.  Who don’t know anything.  In the sitcom Happy Days, ‘enlightened’ high school kids campaign for the Democrat candidate Adlai Stevenson while the parents support Dwight Eisenhower.  In the sitcom All in the Family, the ‘enlightened’ Meathead supports George McGovern while the bigoted Archie Bunker supports Richard Nixon.  In the sitcom Family Ties, the parents are caring liberals while Alex Keaton is a greedy, unfeeling young Republican who worships money, Ronald Reagan and Richard Nixon. 

Since the Seventies the message has been clear for kids watching television.  Bigoted, greedy, unfeeling, dishonest, out-of-touch people are Republicans.  Enlightened people who care about other people are Democrats.  That’s a powerful perception.  And it works.  The majority of young people typically vote Democrat.  Mostly for the social issues.  Which they believe are enlightened on the Democrat side.  Which is all they really care about at their age.  When their hormones are raging out of control.  They’re not thinking about economic or foreign policy.  They’re thinking about the weekend. 

I mean, let’s face it.  Kids aren’t that smart.  They’re young.  Have little experience.  Which is why they do a lot of stupid things.  Smoke.  Work on deep sun tans.  Drive recklessly.  Drink before they’re of legal age.  Do drugs.  Drive under the influence of alcohol and/or drugs.  Have unprotected sex.  Catch a sexually transmitted disease.  Give a sexually transmitted disease.  Accidentally get pregnant.  And the list goes on.  Their concerns are not long term.  Their interests are not long term.  It’s all about having fun now.  So despite this poor judgment we need to get out the vote and get these kids into the voting booth.   Why?  Simply because they will vote Democrat.

The Problem with Young Voters is that they Grow Up

So who votes Democrat these days?  Besides ignorant kids?  Mostly people who benefit from a large and growing government.  The poor who want more welfare benefits.  The elderly who want more Social Security and Medicare benefits.  Unions who get favorable legislation restricting lower-cost competition.  Public sector unions who we pay directly with our taxes.  And the smattering of single-issue people.  Environmentalists.  The anti-nuke crowd.  Gays and lesbians (rejected by some religious groups).  Feminists.  The pro-choice people.  Etc.

It’s a lot of people.  But America is still a center-right country.  Which leans conservative.  Which makes the youth vote so critical.  That’s why they get them while they’re young.  It’s the whole point of public education.  To make good Democrat voters.  That’s why they focus on things like environmentalism.  The theory of evolution.  Multiculturalism.  Sex education.  Birth control.  Things that will drive wedges between kids and their parents.  Should their parents be Republicans.  So after graduation they understand some fundamental truths of life.  Republicans bad.  Democrats good.  Until they start working and raising a family of their own.  At which time they will start complaining about the school curriculum at their own kids’ school.

Again, this is why the youth vote is so important.  For the youth have one fatal flaw.  They grow up.  A large part of that center-right America was once far left.  Kids who voted Democrat.  For the social issues.  Who then grew.  And stopped being ignorant.  Stopped thinking about short term fun.  And started thinking about long term consequences.  About their kids.  And their kids’ future.  A lot of these people changed their views on the social issues.  And started paying attention to economic and foreign policy issues.  Even went back to church.  Because they wanted their kids to go to church.  And they didn’t do these things because they became a bunch of greedy, stuffy old farts.  It’s called being responsible.  Which is what happens when kids grow up.  And have kids of their own. 

Indoctrinating and Dumbing Down

Once they do grow up the Democrats have to replace them with the next batch of kids coming of age.  And they take this seriously.  First it was 12 years of public school.  Then they added kindergarten.  And now there’s been talk about state-paid pre-school.  So the state can get to these kids sooner to start driving that wedge between them and their parents.  And they’re virulently opposed to school vouchers.  The ability to use your school tax dollars on the school of your choice.  For a couple of reason.  It thins the classes at the public schools.  Worst, private and charter schools often make smarter kids.  Who may think for themselves instead of just becoming good Democrat voters.

This attacks the primary mission of public education.  Indoctrinating kids into the Democratic Party.  And dumbing them down.  Teaching them things like global warming and multiculturalism.  While the Chinese and Indians are teaching their kids science and engineering.  So is it any surprise that the Chinese may soon surpass the United States as the world’s largest economy?

This is another reason why America is a center-right country.  Jobs in the private sector are important.  And pay for all those state benefits people vote Democrat for.  The costs of these programs are huge.  Too huge.  And we can’t sustain this kind of government spending anymore.  Grownups with jobs understand this.  Kids don’t.  So they may lose more of the grownup vote if they cut these benefits.  Which makes the youth vote even more important.  Because they are losing more and more of the wise vote.  The responsible ones with jobs.

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The Costs of European Socialism Bankrupting the EU?

Posted by PITHOCRATES - December 6th, 2010

European Socialism – Voting yourself the Treasury

The Left loves European Socialism.  They want it here.  They’ve been trying to get here.  All the while the Europeans are trying to move away from it there.

Socialism doesn’t work.  Once people learn they can vote themselves the treasury, they do.  It’s been the death knell of all democracies.  As those state benefits get bigger, they entice more people.  They say, “Work?  But why?”  Because many can live comfortably without working, many do.  And they sign up for those generous state benefits.

The problem is that there is no ‘secret stash’ of government money.  Everything they spend they take from us.  Those who work.  So taxes go up.  Working people get less.  And the government-dependent grows and becomes an important voting demographic.  And they vote.  They vote themselves the treasury.  And why not?  It’s not their money.  Not yet, at least.

The EU, the Euro and the ECB cannot Fix the Fundamental Flaw of Socialism

Eventually, the number of working people decrease.  And the number of those not working increase.  More and more people receive benefits.  And fewer and fewer people pay taxes to fund those benefits.  So they keep raising the taxes on those who work.  To pay those who don’t.  But they can only raise them so far.  Because people simply won’t work for free so their neighbor can live a better life.

And how is that European Socialism working?  Much like the people collecting those generous benefits.  It ain’t working either.  To compete against the economic power of the United States, they’re trying to become like the United States.  They created the European Union (EU).  A European Central Bank (ECB).  And a common currency (the Euro).  Because they thought bigger was better.  Because the United States is a big economic zone.

But the Europeans have a problem.  They’re still social democracies.  And the trends continued after the union and the Euro.  More people collecting benefits.  Fewer people paying taxes.  Some of these countries are going through debt crisis.  And as these countries implode in their financial crises, the affects are felt throughout the European Union (see Euro’s Worst to Come as Trichet Fails to Calm Crisis, Top Forecasters Say by Anchalee Worrachate posted 12/5/2010 on Bloomberg). 

The 16-nation currency’s [the Euro] first weekly gain against the dollar since Nov. 5 may prove short-lived amid mounting concern that more nations will need rescues. European Central Bank President Jean-Claude Trichet delayed the end of emergency stimulus measures last week and stepped up government-debt purchases as “acute” market tensions drove yields on Spanish and Italian bonds to the highest levels relative to German bunds since the euro started in 1999.

“We’re going to get a continuation of the problems that Ireland, Portugal, Spain and others are suffering,” said Callum Henderson, Standard Chartered’s global head of foreign-exchange research in Singapore. “The fundamental issue is these are countries that have relatively large debts, large budget deficits, large current-account deficits, they don’t have their own currency and they can’t cut interest rates. The only way they can get out of this is to have significant recessions.”

Once upon a time Europe was ablaze in war. The growth of nationalism brought nations into conflict with each other over land, food and resources.  They redrew their borders in blood.  Nations did not give up their national sovereignty without a fight.  Which makes the European Union that much remarkable.  What they fought to the death to prevent they now give up voluntarily.  Of course, when your nation is on the brink of bankruptcy, what have you got to lose?  Having someone else bail you out of your financial mess?

Can the Euro and the ECB Survive European Socialism?

A weak currency helps a nation to export goods.  The more they export the more economic activity they have.  And the more jobs.  And the more people to tax.  So a weak currency can be a good thing.

But a weak currency also carries some baggage.  If a nation is ‘printing money’ to pay for excessive state benefits, that will not only make the currency weak, it will also increase prices; it’ll take more of those weak dollars (or Euros, or Pounds, or Yen, etc.) to buy things.  Even government benefits.  This is counterproductive.  People have less purchasing power.  And the government has to tax, borrow or print more because they, too, have less purchasing power.

The United States debased its currency.  Which helped the Euro gain some strength.

Just a month ago the euro reached $1.4282, the strongest level since January, as traders sold the dollar on speculation the Federal Reserve would debase the greenback by printing more cash to purchase $600 billion of Treasuries in so-called quantitative easing.

But the Euro wasn’t getting stronger.  The dollar was just getting weaker.  Both currencies are losing value.  And with more member nations in the EU getting weaker, the stronger ones may bail to save themselves.

Taylor [chairman of FX Concepts LLC, the world’s biggest currency hedge fund] predicted some nations may leave the common currency. Stronger members “have to say ‘enough, you guys, get out of the euro,’” he said. “The risk that Spain and Italy will get into trouble is going to cause the euro to get quite weak.”

Spain and Italy follows Ireland.  Which followed France.  Which followed Greece.  Nations are struggling under the weight of their debts.  Is there a limit to how much the ECB can help?

The ECB will keep offering banks as much cash as they want through the first quarter over periods of as long as three months at a fixed interest rate, Trichet said. That marks a shift from last month, when he said that the ECB could start limiting access to its funds.

Time will tell.  The trends are going the wrong way, though.  And there are more countries that can fail.  And they don’t have their own currencies.  So they need the ECB.  And the ECB needs to save them.  To save European Socialism.  Much like the Soviet Union tried to save Soviet communism.  Which, of course, they didn’t.

The problem with the Soviet Union was Soviet communism.  And the problem with the EC is European Socialism.  Great big governmental bureaucracies fail.  Always have.  And always will.

The Europeans know what they need to do, though.  And they are doing it.  Cutting their spending.  Despite the rioting and the burning of some of their cities.  Even with all of that, they are NOT increasing their spending.  Or trying to reduce their deficits by increasing taxes.

As the euro region’s most-indebted nations cut spending to bring their deficits under control, a weaker euro will be needed to cushion their economies, said Ian Stannard, a senior currency strategist in London at BNP Paribas SA, the fifth most accurate forecaster.

Of course, they want a weaker Euro for their exports.  So the EU can sell their export products cheaper than the domestic products of the import countries.  Which those import countries will not welcome with open arms.  Because they’re trying to grow their economies, too.  But that’s a whole other story (if you’re interested you can read about how international trade wars brought about the Great Depression).

It’s European

Meanwhile, on the other side of the pond, we’re having our own financial problems.  Large debts, large budget deficits, large current-account deficits.  Just like the Europeans.  Only difference is that the Obama administration is trying increase taxes and spending to fix our problems.  The Left calls this economic stimulus.  Rational people just call it stupid.

The political Left likes all things European.  In fact, they want to be European.  So I say let’s be European.  Let’s cut our spending like the Europeans.  I mean, if the Europeans don’t want to be like us (tax and spend), perhaps we should be like them (cut spending).  After all, if it’s European, even the Left should find it the fashionable thing to do.

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