Kim Jong Un turns to Adolf Hitler’s Mein Kampf for Advice for North Korea’s Economic Ills

Posted by PITHOCRATES - June 22nd, 2013

Week in Review

President Bill Clinton entered into an agreement to help them build two nuclear reactors to produce electric power if the North Koreans agreed to give up their nuclear weapons program.   But they went ahead and built nuclear weapons anywhere.  President Clinton also gave them some satellite knowledge.  Navigational black boxes.  Allowing them to launch a satellite into space.  Which upon launching crashed in the ocean.   Which the North Koreans salvaged.  And got the navigational black box.  Giving them not only nuclear weapons but the knowledge to create an ICBM to deliver that nuclear weapon.  And ever since they’ve threatened us with nuclear belligerency to get what they want.  They agree to stand down on their nuclear weapon program in exchange for food or energy aid.  And when that aid runs out they threaten us with nuclear belligerency again.

President George W. Bush included North Korea in the Axis of Evil.  And was not as friendly to Kim Jong Il as his predecessor was.  But Kim Jong Il is dead now.  And his son Kim Jong Un has taken over.  So how much better did things get with the new Kim?  Not much.  In fact, they may have gotten worse (see Report: Kim Jong Un handing out copies of ‘Mein Kampf’ to senior North Korean officials by Max Fisher posted 6/17/2013 on The Washington Post).

Senior North Korean officials received copies of “Mein Kampf,” Adolf Hitler’s rambling prison memoir, as gifts for Kim Jong Un’s birthday this January, according to a report by New Focus International, a North Korean news organization that sources from defectors and volunteer citizens within the country…

The book was apparently not distributed to endorse Nazism so much as to draw attention to Germany’s economic and military reconstruction after World War One…

“Kim Jong Un gave a lecture to high-ranking officials, stressing that we must pursue the policy of Byungjin in terms of nuclear and economic development,” New Focus’s North Korean source told them by phone. “Byungjin” translates literally to “in tandem” and refers to official policy of developing the nuclear program and economy simultaneously.

The nuclear program is still front and center in national policy.  Some things never change.

So they’re going to take some economic lessons from Adolf Hitler’s Mein Kampf?  To recreate the economic miracle Hitler had following World War I?  It’s a little too late for that.  For a lot of the things Hitler did North Korea already has done.  Seize private property.  Limit imports.  Abolish trade unions.  Cut wages.  Force people to work longer hours.  Default on debt.  Print money to pay for public works projects.  And military rearmament.  Then plan on using the proceeds from world conquest to fix their balance sheet.

A lot of these are non-options for Kim Jong Un.  For there is no private property to seize.  They don’t have any trade unions demanding higher wages or better working conditions to abolish.  Public work projects?  If they haven’t been able to light up the night after all of these years with a grand public works project chances are they never will.  They already have a military-first national policy like the Nazis did.  They have one of the largest land armies in the world.  And already have nuclear weapons.  Yet they still have a horrible economy.  Proving again Keynesian economics doesn’t work.  For that was basically what Hitler had.  An economic system somewhere between the Soviet Union and the United States.  State capitalism.  Heavy on the state.

But for state capitalism to work you need a large private sector economy to interfere in.  And North Korea just doesn’t have that.  What they have is nothing but state spending.  And state spending just doesn’t work.  If it did North Korea’s economy would be greater and stronger than South Korea’s economy.  But it’s not.  For South Korea has lit up their night.  And they are doing quite well.  So well that they are one of the four Asian Tigers.  Because they embraced free market capitalism.  And when they do stray into state capitalism theirs is a kind that is very heavy on the capitalism.  Not the state.

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Entrepreneurs Fail not because they are Stupid but because of an Anti-Business Environment

Posted by PITHOCRATES - June 16th, 2013

Week in Review

The ‘capitalism’ we have today isn’t our Founding Father’s capitalism.  Yet critics of today’s ‘capitalism’ act as if it is.  And point to the inherent flaws of this ‘capitalism’.  As an excuse to bring in more governmental regulations to fix the problems of ‘capitalism’.  Which is the reason why today’s ‘capitalism’ isn’t capitalism.  It’s not the same economic system that made the United States the number one economic power in the world.  No.  It’s moved more towards European social democracy.  The system that gave the European nations their sovereign debt crises.  But those learned intellectuals speaking from their ivory towers still talk about fixing the problems of ‘capitalism’.  Without really understanding what the real problem is.  And it ain’t capitalism.  It’s the interference of capitalism and free markets.  This is the source of all our problems today.  And unless you address these problems you’re just wasting your time (see How to Reduce ‘Infant Entrepreneur Mortality’ by Sramana Mitra posted 6/10/2013 on the Harvard Business Review Blog).

Ever since the 2008 financial crisis, intellectuals have had to ask themselves, ‘Does Capitalism Still Work..?’

Two particular problems stand out. First, Capitalism has been hijacked by speculators. Second, the system enables amassing wealth at the tip of the pyramid, leaving most of society high and dry. Both problems have resulted in a highly unstable, volatile world order that jitters and shocks markets periodically, leaving financial carnage and mass scale human suffering.

The first problem with ‘capitalism’ today is that intellectuals are trying to fix it.  There isn’t anything wrong with capitalism.  The problems we have today have nothing to do with capitalism.  Because what we have today is state capitalism.  Crony capitalism.  European social democracy.  We have too much government in capitalism.  Who are favoring their big corporate friends in exchange for big corporate campaign donations.  And the only reason we have these speculators is because of the government.  Who is pumping so much cheap money into the economy for the speculators to speculate with.  And when their crony capitalist friends fail the government bails them out with tax dollars.  Because there is no downside to speculation when you have friends in government speculators will speculate.

People like to blame the banks and Wall Street for the subprime mortgage crisis.  But they didn’t create that crisis.  They just played their part.  The government created it.  By pumping cheap money into the economy to keep interest rates artificially low.  To encourage people to buy houses.  Even those who weren’t even considering buying a house.  Or those who simply couldn’t afford to buy a house.  These people changed their behavior based on the government’s manipulation of the interest rates.  As the government intended to do.  And they made everything worse with policies to encourage more and more home ownership.  The big one being Bill Clinton’s Policy Statement on Discrimination in Lending.  Where the government threatened lenders to lend to the unqualified or else.  So they did.  Using the subprime mortgage to qualify the unqualified.  And then the government-sponsored enterprises, Fannie May and Freddie Mac, bought those toxic subprime mortgages from these lenders, chopped and diced them into investments called collateralized debt obligations.  And sold them to unsuspecting investors as high-yield, low-risk investments.  Because they were backed by the safest investment of all time.  The home mortgage.  Only they didn’t tell these investors that these mortgages were toxic subprime mortgages being paid by people who couldn’t qualify for a conventional mortgage.  The safest investment of all time.  The conventional home mortgage.  So these lenders were able to clear these toxic mortgages off of their balance sheets.  Allowing them to issue more toxic subprime mortgages.  They were making money by writing these risky subprime mortgages.  But incurred no risk.  So they kept qualifying the unqualified for more and more mortgages.  Which was profitable.  Safe.  And kept the government off of their backs as threatened in Bill Clinton’s Policy Statement on Discrimination in Lending.

This isn’t capitalism.  This is government and their crony capitalist friends using their power, privilege and influence to game the system.  To enrich themselves.  This is what caused the mess we have today.  Where speculators and those in government get richer.  While Main Street America sees its median income fall.  And entrepreneurs struggle to stay in business.

Everybody talks about the role small businesses play in growing economies and creating jobs. However, as it stands, in America alone, 600,000 businesses die in the vine every year. This colossal infant entrepreneur mortality is a product of colossal levels of ignorance about how to build and sustain businesses.

And a myriad of governmental regulations, taxes and a litigious society.  Entrepreneurs today have to spend a lot of money and time protecting their money and time.  They need accountants and tax lawyers to help them comply with an ever growing regulatory environment.  And a boatload of insurances to keep the sharks at bay who all want a piece of their wealth and will sue if given the least opportunity.  It’s so complex that if they try to navigate their own way through these enormous burdens places on business they often make mistakes.  Or simply overlook something that they shouldn’t have.  Often times they just don’t charge enough to cover all of these costs they never expected when starting their businesses.  So when, say, a tax bill comes due they simply don’t have the cash on hand to pay it.  And then the downward death spiral begins.  This is why restaurants and construction companies are the number one and number two business to fail.  Where we have brilliant chefs and trades people who can cook or build something better than anyone else.  But are so out of their element when dealing with the business side of their trade.  The regulatory costs, taxes, insurance, etc.  And find they spend more of their time not doing what they love—cooking or building—but pushing paper through a labyrinth of red tape.  And often don’t find out they are not charging enough to cover all of the regulatory costs, taxes, insurance, etc., until it’s too late.

There is actually a method to the madness of entrepreneurship. And while the ‘character traits’ that support entrepreneurship — courage, tolerance for risk, resilience, persistence — cannot be taught, the method of building businesses can and should be taught.

In fact, it should be taught not just at elite institutions, but at every level of society, en masse.

If we can democratize the education and incubation of entrepreneurs on a global scale, I believe that it would not only check the infant entrepreneur mortality, it would create a much more stable economic system.

No.  That’s not the answer.  The reason why a lot of people remain employees instead of going into business themselves is that these people don’t want to deal with all the regulatory headaches their bosses have to deal with.  A tradesperson would rather work their 8-hour shift and go home.  They don’t want to deal with payroll taxes, workers’ compensation insurance, liability insurance, vehicular insurances, health insurance, real property taxes, personal property taxes, quarterly tax filings, business income tax, use tax, OSHA requirements, environmental requirements, city and state inspections, permits and licenses, etc.  If a tradesperson could just throw his or her tools in a truck and go into business they would.  But they can’t.  So they won’t.  Because it’s just so much easier being an employee than an employer.  Who are always guaranteed a paycheck if they work.  While an employer only gets paid after everyone, and everything, else gets paid.

You want to reduce infant entrepreneur mortality rates?  Get the government out of the private sector.  And give these entrepreneurs a chance.  You’d be surprised at what they can do if the government just leaves them alone.  Just like Andrew Carnegie, John Rockefeller, Henry Ford, etc., did.  Who probably couldn’t do what they did today.  Not in today’s anti-business environment.

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President Obama and his Keynesian Policies are Working on a Lost Decade just like Japan’s

Posted by PITHOCRATES - May 19th, 2013

Week in Review

In the Eighties Japan Inc. was going strong.  The Japanese economy roared.  And the Nikkei soared.  The Japanese had more money than they knew what to do with it.  So they started buying U.S. assets.  People feared that Japan would one day own America.  And urged that we had to follow their lead before it was too late.  The American government should partner with business like in Japan.  So smart bureaucrats could maximize economic output.  Instead of leaving it to inefficient market forces.

But Japan Inc. was state capitalism at its worse.  Instead of letting the market determine the allocations of scarce resources that have alternate uses the government stepped in with their crony capitalist friends.  Leading to corruption.  And a lot of malinvestments.  Money invested poorly.  Causing great asset bubbles.  That burst in the Nineties.  Where Japan Inc. was replaced by the Lost Decade.  A decade or more of deflation.  To wring out all the inflation the government fueled with their artificially low interest rates that caused all of that malinvestment.  And those asset bubbles.  If you’re too young to have lived during this you can still see it in action.  This time in the United States (see The U.S. looks like Japan: Investors rejoice by Paul R. La Monica posted 5/16/2013 on CNNMoney).

The U.S. economy is still not close to being fully recovered from the Great Recession, but investors could give a mouse’s posterior about this sad fact…

…Consumer prices fell for the second straight month. The absence of runaway inflation is of course a good thing, especially when you consider that the Federal Reserve has pumped an inordinate amount of money into the system with its asset purchase programs. But if prices continue to dip, that’s a big problem. Deflation is much worse than mild inflation. Just ask Japan.

Ah yes, Japan! It has taken steps to combat deflation with a vengeance this year. The Bank of Japan’s stimulus, dubbed Abenomics in honor of the country’s prime minister, is like the Fed’s quantitative easing…on steroids.

There’s the rub. The longer that the U.S. stays in tepid growth mode — what I’ve been calling the “low and slow barbecue recovery” since 2010 — the comparisons to Japan will only increase. After all, the U.S. also has an aging population and a large government debt load. The Great Recession ended in June 2009 and here we are in May 2013 still with a lackluster recovery. So we’re almost halfway to our own Lost Decade…

The problem here is Keynesian economics.  It was Keynesian economics that got Japan into the mess they’re in by playing with interest rates to stimulate artificial economic activity.  But Keynesians are like drunks.  They think a little hair of the dog can cure their hangover.  So they binge again on artificially low interest rates to create more artificial economic activity.  Which will end the same way.  As it ended in the Nineties.  A long painful deflation to wring out all of that inflation they pumped into the economy.  Just as the Americans will go through.  Because Keynesians dominate their monetary policy, too.

Even though there are many smart people, including members of the Fed, who are worried that QE ∞ will eventually cause a huge inflation headache and create more nasty asset bubbles down the road, the market doesn’t expect the Fed to pull back on its easing anytime soon…

That’s why stocks could keep climbing. It doesn’t matter that the economy is not healthy enough to make most average consumers feel better. Wall Street only cares about the Fed.

This can’t last forever, of course. Sooner or later, the economy is either going to slow so much that we have to start worrying about another recession (and no amount of stimulus will help prevent a market pullback if that happens) or the economy will start showing signs of a legitimate, sustainable and robust recovery. In that latter case, the Fed will have no choice but to end QE and start raising interest rates.

But for now, at least, investors can enjoy the fact that the United States is basically morphing into Japan Lite. Who cares about the health of the economy as long as central banks keep those printing presses running 24/7/365? Joy.

The selling point of Keynesian economics was eliminating the recessionary side of the business cycle.  So it is interesting that some of our worse recessions have been in the era of Keynesian economics.  I mean, that’s what the New Deal was.  Keynesian.  And what did it give us?  The Great Depression.  Why?  Why are the recessions so painful in the era when they were supposed to be less painful?  Because all Keynesian economics does is to delay economic corrections.  By delaying the onset of recessions.  And because it delays the correction it allows a bubble to grow greater.  So when the correction comes prices have farther to fall.  Which makes a recovery in the Keynesian era more drawn out.  And more painful.  Unless you like your recessions to last a decade.  Or more.

So while Main Street America continues to suffer under President Obama’s Keynesian policies Wall Street is doing just fine.  As rich people always do when partnering with government.  Only Main Street suffers the fallout of their Lost Decades.

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Hong Kong’s Free Market Capitalism makes Safer Baby Formula than China’s State Capitalism

Posted by PITHOCRATES - May 11th, 2013

Week in Review

Kids coming out of American schools learn that capitalism is unfair.  And that greedy businesses will put their customers at great risk to make a buck.  For capitalism puts profits before people.  Which is why we need a government with expanding regulatory powers.  For government puts people before profits.  Like they do in China.  A favorite of those on the left who urge more government intervention into the private sector economy.  Like they do in China.  Where they have a booming economy thanks to wise government bureaucrats.  And safe and happy people because the government prevents those nasty profit-seeking businesses from ever harming a soul (see China’s Parents Crave Illegally Imported Baby Formula by Liza Lin and Julie Cruz posted 5/2/2013 on Bloomberg Businessweek).

For Hong Kong customs agents, baby formula is the new heroin. On March 1 a law went into effect limiting the amount of powdered milk travelers can carry out of Hong Kong to two 2-pound cans each. Since then, more people have been arrested for smuggling baby formula than were caught all of last year with heroin and cocaine…

Many Chinese parents are desperate to get their hands on foreign-made baby formula after numerous food safety scandals in recent years. In 2008 at least 22 Chinese companies were found to have sold dairy products containing melamine, a toxic chemical that can make diluted milk appear to have a higher protein content. Six babies died as a result. In 2011, China’s largest milk producer, China Mengniu Dairy, said in a statement that moldy cattle feed led to excessive toxin levels in its milk. Last year another large milk producer, Inner Mongolia Yili Industrial Group, recalled formula tainted with mercury. “Chinese consumers are so frightened and so sensitive to safety issues with milk powder that they are willing to pay a higher premium than consumers anywhere else,” says James Roy, a Shanghai-based senior analyst at China Market Research Group.

That willingness to pay has led to baby formula shortages in Hong Kong, where food safety standards are higher. The surge in Chinese demand has even hit foreign markets, where baby formula is often cheaper than in China. Over the past year, stores in Germany, the U.K., and New Zealand have put limits on all bulk purchases of formula, such as Danone’s (BN) Aptamil and Mead Johnson Nutrition’s (MJN) Enfamil.

Hong Kong favors free market capitalism.  While China prefers state capitalism.  Where the state regulates the private sector economy with the heavy hand of the government.  So, in Hong Kong you have the economic system that American schools teach students is bad.  Because they put profits before people.  While China has the economic system that the American schools teach is good.  Because they put people before profits.  And which one is better?  Well, food safety standards are higher in High Kong than in China.  Despite putting profits before people.

Or you could say that food safety standards are higher in High Kong BECAUSE they put profits before people.  Because if babies start dying after drinking a company’s baby formula people will exercise their free choice and buy another company’s baby formula.  A very strong incentive NOT to kill babies.  Because it would be bad for business.  And bad for profits.

Whereas in the ‘people before profits’ state capitalism of China if a company kills babies with its baby formula it’s no big deal.  For the state will just force their people to buy the tainted baby formula by putting import restrictions on safe baby formula.  So there is no incentive NOT to kill babies in China.

So which system is better?  If you base it on which protects their people better you have to go with Hong Kong.  For they’re not killing babies with their baby formula.  While the Chinese are.  Which is a lesson the American schools should be teaching.  Instead of the anti-capitalistic curriculum written by those Sixties’ radicals who actually preferred China the way it was under Chairman Mao.  Before state capitalism.  A time of true communist collectivism.  Where tainted baby formula was the least of their problems.  As they were busy setting famine records with their agricultural policies of forced collectivism.  Where they really put people before profits.  For there were no profits.  So things are better in China today.  For they do allow some profits.  But things aren’t as good as they are in Hong Kong.  Where they allow all the profit you can make.  And by putting profits before people the people come out ahead.  As do their babies.

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The Economic Prognosis is Not Good in the U.S., China or Europe

Posted by PITHOCRATES - April 22nd, 2012

Week in Review

For those of you who think the U.S. economy is picking up don’t get your hopes up.  The same goes for the Europeans.  And anywhere governments actively interfere with market forces.  They can provide a little succor.  But their efforts provide only temporary relief from reality.  And what is that reality?  That Keynesian economics and state capitalism do not work.  And that government meddling makes things worse in the long run.  Which is no secret.  Investors know what’s going on.  And aren’t fooled by the self-congratulatory praise the politicians heap upon themselves (see Analysis: Spluttering economies to curtail earnings horizon by Mike Dolan posted 4/18/2012 on Reuters).

Exuberant global markets have taken a reality check this month on chronic U.S., Chinese and European growth concerns, and investors should hold companies’ relatively rosy profit outlooks up for scrutiny too…

Macroeconomic hopes hinge on a U.S. recovery gaining more traction, a soft landing of Chinese growth to about 7.5 percent from the double digits of the past decade and a resolution of euro zone’s systemic sovereign debt and banking problems.

All three of these, however, were in doubt again in April and the anxiety knocked some 5 percent off MSCI’s world equity index from their March peaks. That leaves stocks still up 8 percent on the year but, just like last year, the price momentum and direction seems to have stalled.

Even though bouts of central bank money-printing and cheap lending in the United States, Europe and elsewhere periodically offer a fillip, as the European Central Bank’s money flood did again spectacularly in the first quarter, the effect on the real economy and market prices tends to fade fast…

What’s more, ThomsonReuters data shows that margin gains from cost-cutting in jobs, pay and other expenses was a significant part of the U.S. profit recovery since 2009 but that this route to bottom-line improvement is reaching its limits.

The major economies aren’t improving.  All of those government fixes didn’t fix anything.  Printing money just put more inflation into the pipeline.  And increased prices.  You ever notice the boxes of cereal getting smaller?  The bags of chips getting smaller?  They’re getting smaller because of inflation.  Unable to raise prices anymore because people can’t afford them they’ve held prices steady.  And shrunk the portion size.  Making consumers spend more in the long run to buy the same quantities as before.  Or simply go with less.  This is the result of all that money printing.

In business you don’t solve problems on the cost side.  You solve them on the revenue side.  For healthy revenue can pay for anything.  Even the worst cost management.  That’s why during good economic times the focus is on revenue.  Not cost cutting.  During good times companies hire people and expand production.  To grow revenue.  It’s during recessions when they lay off people and cut costs.  Temporary provisions to make it through the recession.  And when they emerge from these recessions they start hiring people and expanding production again.  To grow revenue.  So when margin gains are due to cost-cutting and NOT revenue growth you’re still in a recession.  No matter what the numbers say.  And no one is optimistic about the future economy.  Businesses.  Or investors.

Now would be a good time for governments everywhere to acknowledge their failures.  And let the Invisible Hand take control of the economy again.  For the longer they wait the harder it will be for the Invisible Hand to do its magic.  And the longer and more painful the recovery.  It’s time we drop the ‘state’ from capitalism.  And replace it with ‘free market’.  And trust in the free market.  Like we did during the Industrial Revolution.  Like we did when we abandoned FDR’s New Deal during World War II.  And like Margaret Thatcher and Ronald Reagan did during the Eighties.  All periods of incredible economic growth.  That no period of state capitalism ever equaled.

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The Reforms of Manmohan Singh are Eroding and Threatening India’s Economic Growth with a Return to a Welfare State

Posted by PITHOCRATES - April 22nd, 2012

Week in Review

The BRICS economies are doing pretty well.  Well, better than Europe and the United States at the moment.  Which is saying something.  But it’s not all rosy.  China is struggling to get housing prices under control while at the same time not hindering economic growth.  Not easy to do.  When inflationary policy gives you both that growth and those high home prices.  And now people in India are worrying about sustaining their economic growth.  Which appears to be making a transition from free market capitalism to state capitalism.  Putting the brakes on economic growth much as it has in Europe and in the United States.  Where policies now are turning (or returning) to be more anti-business than pro-growth.  And a rise in public spending that would seem to indicate a return to a welfare state.  For which Manmohan Singh, India’s prime minister, was hammered for at a recent event (see Now finish the job posted 4/15/2012 on The Economist).

The event, in Delhi, was billed as a discussion of India’s economic reforms, hosted by a prominent and respected economics think-tank, ICRIER, along with Oxford University Press. The idea was to celebrate Mr Singh and the launch of an updated version of a book marking his momentous economic reforms of the early 1990s. These, everyone agrees, did more than anything else to usher in sustained and rapid economic growth which has helped to lift millions out of absolute poverty.

As ever, Mr Singh sat twinkly-eyed and almost entirely silent, as a series of speakers took turns to address the room. Yet rather than waste time celebrating his work of two decades ago, everyone pushed on with far more urgent business: trying to get India’s prime minister to understand that, without a second round of economic reforms, and soon, India’s economic prospects will look far grimmer in the next few years than they have recently. In turn, Mr Singh may not be remembered as the man who reformed India’s economy, but the man who only got the job half done…

Then a blunt-speaking economics professor from the University of Chicago, Raghuram G. Rajan, pointed out that things are looking bad when “domestic industry prefers to invest abroad” rather than brave the hassles and uncertainty of India today. Nor did he shy away from identifying who was at fault: “paralysis in growth-enhancing reforms” is a blunt way for an economist to speak; it means Mr Singh and his cabinet have done almost nothing to promote growth, devoting energy instead to ways to dish the proceeds of growth as welfare and other public spending…

He frets, too, that India’s middle class has no clue how high economic growth was first brought about, and instead is deeply, and increasingly, suspicious of capitalism and liberalisation. The result, as another speaker eloquently pointed out, is that there is no political constituency for reform. He saved his most explicit attacks for the budget passed last month, which came with a baffling mix of anti-business measures, especially over retrospective tax, and which is now scaring away the foreign investors that India desperately needs.

Those economic reforms replaced India’s socialism with free market capitalism.  And the subsequent burst in economic activity lifted millions out of “absolute poverty.”  Something their kind and caring socialism never could.  Yet another example of how capitalism helps those least able to help themselves.  But with robust economic activity comes great tax revenue.  And the temptation is to spend that tax revenue instead of cutting taxes further.  Because that excess tax revenue is not needed.  But politicians being politicians are weak.  And they will spend that excess tax revenue.  As Ronald Reagan learned in the Eighties.  His cut in tax rates created so much economic activity and tax revenue (nearly twice what it was before the cut in tax rates) the politicians increased their spending faster than the money came into Washington.  Which is why Ronald Reagan had great budget deficits.  It had nothing to do with the tax cuts.  For they increased tax revenue.  It was the massive increase in spending.  As it always is.

This is the danger of any democracy.  Once the people get a taste of this government largess they want more.  And will vote anyone out of office who doesn’t give them more.  Or, worse, takes some of it away.  Which leads to some problems.  As in chronic deficits.  And sovereign debt crises.  Like they currently have in Europe.  And are getting dangerously close to having in the United States.  All made worse by the fact that during the good times voters become blissfully ignorant about the economic policies that made those good times so good.  All they know is that they like getting a lot of free stuff.  And want to keep getting a lot of free stuff.  So they vote for the politician that promises to give them more free stuff.  Even when they can no longer sustain that level of public spending.

So when the people are blissfully ignorant it us up to the politicians to be responsible.  And not give in to pandering for votes.  They need to do the right thing.  To continue the good times.  By cutting taxes.  Cutting spending.  And cutting regulations.  The proven way to lift people out of poverty.   A particularly difficult task when many in the population have only known the good times.  And have no idea how quickly those good times can turn bad.  But unless the Indians want to slip back to their impoverished socialist past Mr. Singh should take stock of this wise counsel and keep the miracle going in India.  The miracle of free market capitalism.

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The Chinese reject the Obamacare Model, Prefer Private Health Care over State-Provided Health Care

Posted by PITHOCRATES - April 14th, 2012

Week in Review

When Adam Smith wrote The Wealth of Nations it set the Western World on the path to dominance.  It’s why the British and the Americans led the world into the Industrial Revolution.  It defeated the Axis Powers in World War II as no one could match America’s Arsenal of Democracy.  And it’s the weapon that Ronald Reagan used to win the Cold War.  For the Soviet Union could not even feed her own people without food aid from her arch nemesis.  The United States.  It’s no contest.  Capitalism wins.  And even while the Americans drift further away from it one of her communist nemesis embraces it more ever day.  China.  And of all places China is now embracing to fix their ailing national health care system (see The good midwife of Sichuan posted 4/7/2012 on The Economist).

The Angel hospital in Sichuan’s capital is part of a wave of privately owned hospitals, catering to patients fleeing crowded state clinics.

The patients here are well-off locals, paying from 20,000 yuan ($3,200) for a Caesarean delivery and the latest drugs…

The roots of private health care in Communist China go back to clinics that treated venereal disease. In other respects, the taint of private care has gone, and foreign investment is encouraged. Over 30 joint ventures have been approved; many more are in the pipeline. The country’s new five-year plan endorses private-sector investors as part of the solution to the country’s shortage of affordable health care. Health spending has soared in recent years and is set to top 700 billion yuan by 2015.

The authorities also think the private sector can serve as a model for public hospitals dogged by poor administration, demands for patients to pay cash up front, and bribes by pharmaceutical companies to prescribe their drugs. Liu Shuyan, the Angel’s chief doctor, talks of “patient pathways” and “mother-centred care”: the kind of jargon that accompanied the drive for health reform in Britain a decade ago…

The population over 65 will rise by 8m a year for the next five years, so nursing homes will become an increasingly tempting business. For all the constraints, China looks set for a larger dose of healthful capitalism.

Well, well, well, what’s all this, then?  For those on the American left China can do no wrong when it comes to state-capitalism.  With the emphasis on the ‘state’ and not the ‘capitalism’.  Their only beef is that they’ve veered too far from their communist past.  Back in the good old days when they put capitalism in its place.  Making it a crime against the state.  And, instead, having the state provide tender and compassionate care only a government can give.  And the occasional famine (thank you Chairman Mao).  But here they are, that communist bastion, embracing capitalism to fix what ails her.  Again.

So, state-provided health care has overcrowding, long waits and soaring costs.  Huh.  Who’d a guess?  Except, of course, every critic of Obamacare.  And yet we’re heading down that path.  And, interestingly, the Chinese communists are passing us by going the other way.  You know if the Chinese communist embrace private health care that something has to be wrong with the state-provided variety.  In fact, they’re trying to reform their health care system.  As are the British.  The Canadians, too.  I think there’s a message here.  And if I were to hazard a guess of what that message is from our state-provided health care friends I think it would go something like this.  “Don’t do it.”  And, “Obamacare is a mistake.”

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China’s State Capitalism Export Economy fueled by Cheap Labor, Oppression, Kidnapping, Torture and Asset Seizing

Posted by PITHOCRATES - March 10th, 2012

Week in Review

For those on the left that think China’s state capitalism (aka, crony capitalism, socialism, thugocracy, etc.)  is the way to go should live under their state capitalism for awhile.  To get a fist hand account of just how wonderful it is.  Because, frankly, it’s not that wonderful.  At least for those who live under it (see China: toils of communist boss give insight into workings of the party by Tania Branigan posted 3/9/2012 on The Guardian).

The political drama surrounding an ambitious Chinese Communist party leader, his former ally a “robocop” police chief who apparently tried to defect to the west, a missing businessman, and another who claims to have been tortured, has uncovered bitter tensions in the Communist party as a new generation of leaders prepares to take power…

Meanwhile, a Chongqing businessman appears to have vanished in Beijing shortly after publishing a microblog message saying “the jigsaw puzzle around Wang Lijun” would soon become clear. Zhang Mingyu had claimed to have a recording of Wang warning him to stop accusing another businessman of corruption. Zang’s lawyer, Pu Zhiqiang, said Zhang had been visited by police and other officials who wanted him to return to Chongqing, and was now out of contact. Questioning their jurisdiction, Pu added: “Chongqing police came to Beijing to take him. This is more like a kidnapping.” Chongqing police said they had no information on Zhang.

Earlier this week fugitive Chinese businessman Li Jun described Bo’s anti-crime campaign as a “red terror”. He alleged in interviews with the Financial Times and Washington Post that Chongqing security officials had tortured him and seized his assets. Chongqing officials declined to comment…

Bo also indicated inequality in China had hit a high level, saying the gini coefficient – the most commonly used measure of inequality – had exceeded 0.46, a similar level to the United States and well past the 0.4 figure often seen as an indicator of growing social tension. China’s statistics bureau has said it cannot produce a single national figure because of problems with the survey method. Bo said reducing the wealth gap was a major task for Chongqing, adding: “If only a few people are rich then we’ll slide into capitalism. We’ve failed.”

It is precisely because they don’t have capitalism that there are only a few rich people.  And why they have cheap labor for their export economy.  Because the only rich people are the ruling elite.  The people connected to the ruling elite.  And those connected to the ‘businesses’ that are connected to the ruling elite.  Sure, they fear capitalism.  And don’t want to slip into capitalism.  For a national export economy driven by cheap labor needs the power of the state to keep that labor cheap.  And tools like kidnap, torture and seizing the assets of anyone they deem an enemy of the state are most invaluable in subduing a people.  And keeping their wages cheap.  That’s the big fear of slipping into capitalism.  For if they did they wouldn’t be able to oppress their people anymore.

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North Koreans hate Socialism and Try to Escape what some in the West call a Socialist Paradise

Posted by PITHOCRATES - March 10th, 2012

Week in Review

You know who really hates North Korea?  I mean, really, really hates it?  Not just a little.  But a lot.  No, not President Obama.  Not even George W. Bush hated North Korea that much.  No.  The people who really, really hate North Korea are the North Koreans.  Who have to live under tyranny, poverty and famine.  So they try to escape their socialist ‘paradise’ by escaping across the border (see N.Koreans Keep Fleeing Despite Tough Border Controls posted 3/11/2012 on The Chosunilbo).

The group said a five-member family from Musan, North Hamgyong Province suddenly disappeared on Feb. 17. Although the entire border nearby was shut down and searched, nobody was able to find them. Five days later, a worker at a cooperative farm in Onsong, North Hamgyong Province was arrested for crossing the river, and another person was arrested in China after making it across. On Feb. 23, two women who tried to cross the river from Hoeryong, North Hamgyong Province were arrested as well…

One defector who held a senior position in the North said, “The North Korean regime is pushing people to construction sites and robbing them of their hard-earned foreign currency” in order to prepare for the centenary of regime founder Kim Il-sung in April.

A researcher at a state-run research institute said, “Poverty is a major factor pushing people out of the country. The underground economy is booming and disparity in wealth has intensified in North Korea. The poorest of the poor, who had a glimmer of hope after the death of Kim Jong-il, now see their hopes thwarted and eventually decide to leave.”

Good Friends said the food shortage is getting worse, with some people saying it is even worse than the famine of the late 1990s. North Korea needs 5 million tons of food a year but only manages to produce 4 million tons. During the famine, food production fell below 3 million tons due to poor harvests and mismanagement.

The Stalinist regime of North Korea is the logical extreme of socialism.  The more the state gets involved in the private sector the worse life gets for those who must live in the private sector.  And when you reach full-blown communism the only way the state can survive is by enslaving their people.  Like in North Korea.  Where they prevent anyone from escaping their socialist ‘paradise’. 

The social democracies in Europe still cling to some vestiges of capitalism.  Why?  Because as of now their people can still escape their social-democracy paradises.  But once they cross the Rubicon and their state capitalism collapses under the weight of their massive debt burdens, they’ll have to arm their borders.  To keep their taxpayers from escaping.  So they can continue to fund the ruling class.  And the ever shrinking middle class who survive only because of their connections to the ruling class.  Sort of like it was back in the days of feudalism.  Only with nicer toys.  For those connected enough to have them.

Communists are anti-capitalists.  Just like all those people on the left who attack capitalism in America.  So what’s the difference between the anti-capitalists in oppressive communist regimes and those in the United States?  Protesting is a lot more fun in the United States than in oppressive communist regimes.  Because of capitalism.  It is capitalism that lets the anti-capitalists take a break from their protesting and enjoy a frothy cappuccino at a conveniently located coffee shop.  While protestors in communist regimes are arrested and sent to prison camps.  Or worse.  Why, capitalism even makes protesting capitalism better.  Something the protestors don’t really think about.  Because for them protesting is all about the fun.  Not the ideology.  And they have no desire to live under what they claim to want.  For anyone who enjoys a frothy cappuccino during a nice outdoor protest will have a rude awakening to see how a communist regime responds to their ‘difference of opinion’.

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Higher Labor Costs are squeezing Margins for Chinese Export Manufacturers

Posted by PITHOCRATES - March 4th, 2012

Week in Review

China is still able to exploit their cheap labor to maintain a healthy export market.  But for how long (see China exports may stay strong despite weak Europe by Zhou Xin and Nick Edwards posted 3/1/2012 on Reuters)?

An estimated 200 million jobs — a quarter of China’s workforce — are directly dependent upon the external sector, hiking the political risks of an export slowdown to a leadership hypersensitive to any hint of social instability that might threaten the one-party rule of the Communist Party…

Ye Dingsong is an exporter who has relied on sales to Europe, but his primary headache is pricing, not falling orders.

“There are orders, but the problem is that it’s hard to get good prices. European buyers have become sensitive to prices, but costs are rising quickly so I have to ask for higher prices,” said Ye, the owner of Dadong Shoes in Wenzhou.

His shoe factory, which at its peak employed more than 100 people, currently has only half as many after workers walked out for better wages elsewhere when Ye said he could manage only a 10 percent rise…

Wenzhou exported 265 million pairs of shoes to the EU last year, roughly one pair for every two EU residents, according to data from the local customs office. But total sales were just $1.6 billion, or $6.04 per pair, meaning margins are very narrow even as a starter’s monthly wage can easily exceed 2,000 yuan ($320).

Ye is one of the many exporters Beijing is trying to help through tough times with tax rebates and easier bank credit.

The state capitalists in America look to China with awe and admiration.  They would love to expand state control of the economy in America to the level in China.  So they, too, can produce those magnificent GDP growth rates.  Which they think they can do.  With a union work force.  Even with the high wages and generous benefits of union workers.  Which, of course, they cannot do.  For the only thing maintaining China’s export market is that cheap labor.  Which is far below the union wages and benefits in America. 

In America a Chinese type state capitalism will not result in higher GDP growth rates.  Only in higher wages and benefits for union workers.  Along with a collapsing GDP growth rate.  Thanks to an uncompetitive American work force becoming even more uncompetitive.

But even in Communist China they are having problems keeping their labor cheap.  But they will do everything they can.  Including brutal state oppression.  And Keynesian economic policies.  Urging businesses to borrow money and expand production.  Even in the face of rising prices.  Which one day will lead to falling sales.  Leaving the Chinese with some nasty asset bubbles in their economy.  The kind the Japanese had in the Nineties.  And the kind the U.S. just recently had in the housing market.  Both bubbles popped.  And a horrible deflation set in to undo all the Keynesian mischief that caused the bubbles in the first place.

There is no way for the Americans to do what the Chinese are doing.  Unless the state capitalists do like the Chinese.  And outlaw all unions.  And that’s about as likely to happen as Keynesian economics policies actually working without causing inflation and asset bubbles.

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