FT218: “The withholding tax is the greatest sin government ever perpetrated against the people.” —Old Pithy

Posted by PITHOCRATES - April 18th, 2014

Fundamental Truth

The tariff was the funding source for most of government for about a century.

Once upon a time there was no federal income tax.  No estate tax.  No gift tax.  No payroll tax.  No capital gains tax.  And no corporate tax.  Taxes we take for granted today didn’t exist a century or so ago.  The country was a lot leaner back then.  People kept most of their money.  And took care of their families.

The federal government used to fund everything thing they did with tariffs.  A tax on imports.  Paid in ports.  As ships unloaded their goods.  Far away from most people.  And few people complained.  Our first excise tax was a different story.  A 7 cent per gallon of whiskey incited the Whiskey Rebellion.  After fighting the Revolutionary War to escape the oppressive taxation policies of Great Britain the people were in no mood for a new tax.  The whiskey tax lasted for about a decade.  Then they repealed it.

This left tariffs as the funding source for most of government for about a century.  But even that grew controversial.  And began the divisions between North and South.  The North protected its industry with protective tariffs on iron products, textiles (wool and cotton) and agricultural goods.  Shipped from the more industrialized Britain.  Which Britain responded to with tariffs of their own.  On cotton and other agricultural products grown in the South.  So the more the North protected their industries the more difficult it made for the South to export their raw goods.

In 1913 the progressives reintroduced the income tax and taxed the rich at 1%.

This wasn’t the only difference of opinion the North and South had.  And their differences resulted in war.  The North was able to win the American Civil War with its expansive industry.  But the war devastated the country.  Especially the South.  Which lost about 8.6% of her population.  To get an idea of what an 8.6% population decline is consider this.  That percentage of the current U.S. population is approximately 27 million.  So the losses the South suffered were similar to what the Soviets lost on the Eastern Front during World War II.

The South may have lost more of its population.  But the North suffered nearly the same number of war dead.  She just had a larger population to begin with.  To run all of that industry that won the war.  America’s first modern war was a costly one.  And one that President Lincoln had to turn to a new source of revenue.  The federal income tax.  Which taxed the rich.  At 3%.  Then it taxed the super rich at 5%.  But after they paid down the war debt they repealed America’s first income tax.

Then came the progressives.  And their taxes.  In 1913 they reintroduced an income tax.  Taxing the rich at 1%.  And the super rich at 6%.  To fund an expanding federal government.  Then came World War I.  To fund the war they increased the tax rate on the rich to 15%.  And the super rich at 77%.  The top marginal rate fell during the Twenties.   But FDR raised it back up during the Great Depression.  Until it reached 94%.  Where for every dollar they earned in and above the top income bracket they got to keep only 6 cents.

Few would be able to write a check on tax day to pay their full tax bill.

Then came all the other taxes.  And they just kept coming. Our tax bill grew to staggering amounts.  Which posed a problem for the taxing authorities.  As people just didn’t keep that kind of money around.  They worked.  They raised their families.  And what little they had left they put into the bank for their retirement.  Making it very difficult for them to pay their tax bill when it came.  Especially when it was 30% or more of their entire income.  So what to do?

The Founding Fathers created a nation out of a tax rebellion.  And then when that nation levied its first excise tax they got a little rebellion of their own.  Being opposed to taxes is part of the American DNA.  So the taxing authorities had to somehow hide the large amount of taxes we were paying.  That is, they had to reduce the transparency of these taxes.  For if you don’t know what you’re paying in taxes you really can’t get mad at paying high taxes.

Enter the withholding tax.  The greatest sin government ever perpetrated against the people.  For it takes our money before we ever get it.  Conditioning us to accept ‘net’ pay as the norm.  And making ‘gross’ pay some meaningless payroll jargon.  Because you can’t spend ‘gross’ pay.  You can only spend ‘net’ pay.  Which is the only pay people care about.  Making it not only easier to hide the soaring amount of taxes people were paying.  But because it’s so easy to hide what we’re paying they could raise those taxes to confiscatory heights.  Because we never have that money in our hands.  We never see it.  It goes from our employer to the taxing authorities.  Which is the only way they could collect these soaring amounts.  For few would be able to write a check on tax day to pay their full tax bill.  As people just don’t keep that kind of money around.

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FT217: “If you want to know what it was like living under an absolute monarchy just think of the IRS.” —Old Pithy

Posted by PITHOCRATES - April 11th, 2014

Fundamental Truth

Thomas Jefferson wanted to keep the New Federal Government and Money Apart

Thomas Jefferson did not trust government.  And he didn’t trust moneyed men.  Because when the two come together they cause nothing but trouble.  That’s why he hated and distrusted Alexander Hamilton.  Hamilton wanted a strong central government.  A central bank.  And an economic system favoring merchants and bankers.  With big city moneyed men financing the government in return for special favors.

This is why the nation’s capital isn’t in New York City.  It once was.  But one of the first deals the Hamilton and Jefferson camps made was the relocation of the nation’s capital to a mosquito-infested swamp on the Potomac River.  A long, long way from the moneyed men in New York City.  To try to keep the new federal government and money apart.  To restrict the influence of the moneyed men on the government.  And to prevent the government from having easy access to big money.

Why did Jefferson want to do this?  Well, they fought for their independence from Great Britain.  Which was a constitutional monarchy.  Where some in Parliament were no friends of British America.  And got the king to agree with them rather than the pro-British America faction in Parliament.  Ironically, the Americans got help in their War of Independence from France.  Which had an absolute monarchy.  Whose king ruled with no check on his power.  Both governments were in the big cities.  London.  And Paris.  Where the moneyed men were.  In the big cities.  Allowing these monarchies to do a whole lot of mischief all around the world.  And a fair amount of mischief inside their own countries.  Because the money and the government were in the same city.

Government + Money = Corruption

Great Britain and France were forever at war with each other.  And with other countries.  Requiring a lot of money.  Which they got from the moneyed men.  In return for special privileges that allowed them to get ever richer.  Of course the mischief grew greater as they fought a world war or two.  Requiring ever more money.  Which they got from, of course, taxing the rest of the people.  Even those who could little afford it.  And once this starts, once the government starts accumulating debt, that taxation will only get greater.

This is what Jefferson was worried about.  And why he so distrusted Hamilton.  The Founding Fathers were all gentlemen of the Enlightenment.  Disinterested public servants.  Honorable men who would never take advantage of their position in government for personal gain.  Because for these men honor was everything.  Some even fought duels to protect their honor.  As Hamilton did.  And died.  Washington, Adams, Hamilton, Jefferson, Madison, Jay and Franklin were men of exceptional integrity.  Men who could be trusted.  But here is where Hamilton and Jefferson differed.  Hamilton believed only men like them would ever enter government.  While Jefferson believed that government service would one day attract mostly scoundrels and knaves.

Of course, Jefferson was right.  For as the nation grew so did the size of government.  And the need for great big piles of money.  Which the moneyed men provided.  In exchange for special privileges.  Patronage.  Lucrative government contracts.  Etc.  Big piles of money flowed into Washington.  And favors flowed out from Washington.  With many a politician getting rich in the process of getting rich moneyed men richer.  Politicians who used their position in government for personal gain.  Corrupted politicians.  As government + money = corruption.  Which is why politicians always leave office richer than when they entered office.

Power + Corruption = Tyranny

This is how it started.  As the size of government grew corruption grew.  Just as Jefferson feared.  All that money flowing into Washington corrupted ever more politicians.  Who were not gentlemen of the Enlightenment.  But the scoundrels and knaves Jefferson knew would come.  Who used their position in government for personal gain.  Whose corruption grew so great it exploded federal spending.  So great that taxes from the moneyed men AND the middle class were unable to fund it.  So the taxation grew more aggressive.

The government created by the Founding Fathers had no income taxes.  They funded the few things the new national government did with tariffs for the most part.  People lived from day to day without any fear of the taxman.  The United States even did away with debtors’ prison.  Prison where people were sent who could not pay their debts.  A relic of the 19th century.  Sort of.  For there is one debt people can still go to prison for not paying.  Past-due taxes.  For the IRS can take everything you have and imprison you if you don’t pay your taxes.  And those taxes have grown great as of late.  As the tax code has grown convoluted.  Requiring businesses to hire armies of accountants and lawyers to comply with.  So the government can help the moneyed men who help the government.  In return for special privileges, of course.  Leaving the masses dreading April 15.  As they dread opening any letter from the IRS.

If you want to know what it was like living under an absolute monarchy just think of the IRS.  People fear the IRS.  Just as people feared the arbitrary power of an absolute monarchy.  A king could take your property and lock you away.  Just like the IRS.  And if you spoke out against the monarchy the king could make your life really unpleasant.  Just like the IRS.  During the 2012 election the IRS targeted conservative political groups to stifle their free speech.  Delayed their tax-exempt status approval.  And harassed them with costly tax audits.  And now their tyranny has extended to people in the middle class.  Who unbeknownst to them had a family member owe the federal government.  Years earlier.  Even a generation earlier.  And the IRS is arbitrarily seizing the tax refunds from these debtors’ distant relatives to pay these debts.  Even though they are in no way responsible for these debts.  And the government has no documentation for this debt.  Doesn’t matter.  Because they have the power to do this.  And these people are powerless to stop them.  Just like people living under an absolute monarchy were powerless to stop their king from doing anything to them.  And this is what Jefferson feared.  For after corruption comes tyranny.  For power + corruption = tyranny.  (Just look at every tin-pot dictator that has oppressed his people).  Which is why people fear the IRS.  And the federal government the IRS is beholden to.  Because they have become everything Jefferson feared they would.

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FT213: “Rich liberals support a large welfare state to assuage their wealth guilt.” —Old Pithy

Posted by PITHOCRATES - March 14th, 2014

Fundamental Truth

Rich People become Liberals so People don’t Shame them for their Obscene Wealth

Rich people love being rich.  They love their mansions.  Their expensive cars.  Eating at the finest restaurants.  Drinking the finest wine.  Going on lavish vacations.  Going to the best parties.  Hanging with the beautiful people.  And rich men especially like the sex with beautiful young women their wealth can make happen.  To quote the Eagles song Life in the Fast Lane rich people love having everything all of the time.

Some of the richest people in the United States are liberals.  Yes, those same people who argue for income and wealth equality.  Hollywood stars.  Televisions stars.  Authors.  And music stars.  Who are everything they stand against.  They’re part of that evil 1%.   And they live very ostentatious lives.  Their wealth is over the top.  Bling.  Cars.  Cars with bling.  Nothing but the best.  And then some.  This wealth is okay, though.  But those in the 1% other than them?  Government should raise their taxes to take as much of it away as possible.  And we should all shame them for daring to have such obscene wealth.

Of course, rich liberals like their obscene wealth.  They want to keep it.  And they want to continue their lavish lives.  But they don’t want people shaming them.  They want people to love them and adore them.  So they buy whatever they’re selling.  Movies, televisions shows, books or music.  They don’t want anyone shaming them for their obscene wealth.  So they do something very simple to avoid that shame.  They become public liberals.

Only those Businesses that Continually Please their Customers Succeed

Liberals can have the most obscene amounts of wealth without anyone shaming them for that obscene wealth.  Why?  Because they belong to the ‘right’ political party.  The one that argues against income and wealth inequality.  So they get a pass.  Which is why so many rich people are liberals.  They want to be left alone.  And their call for higher taxes on rich people?  Well, they’re so rich that they can hire the best accountants and tax attorneys to help them shield their wealth from the taxman.  There’s a reason why the tax code is so convoluted and not a simple flat tax like conservatives want.  To help rich liberals keep their money.

Then there are rich liberals who have too much of a conscious.  And they feel guilty for having obscene wealth.  But not guilty enough to give their wealth away.  These liberals are vehemently pro big government.  They want a massive welfare state.  To assuage their wealth guilt.  So they can continue to enjoy their obscene wealth.  Their 1% wealth.  Without having to feel guilty about it.  Such as, presumably, The Daily Show’s Jon Stewart.

Jon Stewart is a very well-read and intelligent man.  He knows a lot of stuff.  Unfortunately, though, he draws many wrong conclusions with that knowledge.  He favors big government.  And a vast welfare state to help those in need.  He trusts government while distrusting corporations and businesses.  Because, as he has said, we have no vote with corporations and businesses like we do with government.  Via elections.  But he’s wrong.  We do have a vote with all corporations and businesses.  The moment they stop treating their customers right those customers go to other corporations and businesses.  Most new businesses fail within 5 years.  And some big companies that have been around for years fail and go out of business.  Why?  Because their customers DO have a large vote in whether they succeed or not.  And only those businesses that continually please their customers succeed.  Something you just can’t say about government.  For no matter how much they anger the people little ever changes.

Not only is there Income and Wealth Inequality there’s also Income Tax Inequality

Fox News has been talking about people scamming the welfare state.  Highlighting a surfer dude in California as a typical welfare cheat.  Stewart lambasted Fox News for that.  Saying one person (or two or three, etc.) does not mean all people on welfare are gaming the system.  Although he uses that very logic to point at corporations caught in wrong-doing.  Saying they represent all corporations and businesses.  And he joins the choir about how rich corporations and rich people are not paying their fair share of taxes.  And how some of these rich corporations and rich people are hiding their income and wealth from the taxman.  Despite their paying the lion’s share of all taxes.

According to the National Taxpayer’s Union, when it comes to income taxes it’s rich people paying the most.  So not only is there income and wealth inequality.  There’s also income tax inequality.  Through recent years the top 1% of income earners has paid approximately a third of all income taxes.  The top 5% has paid more than half of all income taxes.  And the top 10% of income earners has paid about 70% of all income taxes.  While the bottom 50% of income earners, the people rich liberals want to help, pay about 3% (or less) of all income taxes.

You don’t have to raise tax rates on the wealthy.  They’re already paying a disproportionate share of all income taxes.  In fact, if you cut tax rates and cut business regulations to help rich business and rich people get even richer more tax revenue would flow into the treasury.  This would be a good thing.  Rich people getting richer.  And more people becoming rich.  This should be what everyone wants.  Based on the amount of taxes rich people pay.  So we should stop trying to help the less fortunate by raising taxes on the rich.  And creating more onerous regulations for businesses that benefit the less fortunate.  Like Obamacare.  For it hurts the profit incentive.  Which prevents rich people from getting richer and paying more income taxes.  As well as dissuades people from becoming business owners or expanding their businesses.  Which means fewer jobs.  Fewer hours in those jobs.  And the replacement of costly people with machines.  It’s because of these things that median family income has fallen under the Obama administration.  Which is the last thing any good liberal should want.  This is why rich liberals have got to stop supporting a large welfare state to assuage their wealth guilt.  It’s killing the middle class.  And destroying the jobs that could pull the less fortunate into the middle class.  And beyond.

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Byzantine Empire, Bosporus, Silk Road, Dutch East India Company, English East India Company, Tea Act and Opium Wars

Posted by PITHOCRATES - March 11th, 2014

History 101

(Originally published May 15th, 2012)

To encourage Risk Takers to Travel Halfway around the World Mercantile States granted Monopoly Charters

The modern world began because Europeans had a penchant for silk and spices.  Something they enjoyed during Roman times.  When the Romans ruled the world.  And the Mediterranean Sea was nothing more than a Roman lake.  But when the empire stopped conquering new lands and sending the spoils of war home they had to turn to other means to pay for the cost of empire.  Taxes.  To pay for the Roman government and their public spending.  And the Roman legions.  This excessive government spending led to the fall of the western half of the empire.  But the eastern half lived on for another 1,000 years or so.  Why?  Because the capital of the Byzantine Empire was Constantinople.  On the Bosporus.  Trade crossroads of the world.

This city was so rich everybody wanted to conquer it.  So they could have all those riches.  For everything that came along the Silk Road from China crossed into Europe at the Bosporus.  Soon Muslims fought Christians in the Holy lands.  Then more Christians came.  The Crusaders.  Those who didn’t die went back to Europe with some of those Chinese luxuries.  Spices.  Silk.  Porcelain.  Etc.  Sparking a renewed interest in these finer things in Europe.  Especially the spices.  For European cooking was horribly bland at the time.  The Ottoman Turks eventually took Constantinople.  Renamed it Istanbul.  And controlled that lucrative trade.  Making those much sought after Asian goods rather expensive in Europe.  Which they had no choice but to pay.  Because if you wanted those luxuries you had to go through Istanbul.  Until the Portuguese sailed around Africa and found a direct route to those cherished goods, that is.

It was the Commercial Revolution.  A new age of international trade.  A trade even more profitable than what the Ottoman Turks controlled.  Because big ocean-going vessels can carry more cargo than anything coming over land on the Silk Road.  And these new European maritime powers wanted that wealth.  And the power it would provide.  To encourage risk takers to get into those wooden ships and travel halfway around the world they granted monopoly charters.  The Dutch East India Company (VOC) was one of the largest.  And one of the wealthiest.  But this was not your typical company.  The VOC established overseas colonies.  It waged war.  Established treaties.  Even coined its own money.  Because of this thousands of VOC ships stuffed full of valuable cargoes sailed to Antwerp and Amsterdam, making the Dutch very wealthy.  And powerful.

The Tea Act allowed the Company to Ship their Tea Directly to America and exempted them from any Duties

Of course the Dutch weren’t the only ones doing this.  They had competition.  Portugal.  Spain.  France.  And England.  Who would bump into each other numerous times fighting for control of this trade.  And those colonies.  The English and the Dutch would fight 4 wars.  Which is how Dutch-founded Manhattan became part of the British Empire and, subsequently, one of America’s greatest cities.  The English East India Company gave the VOC a run for its money.  Parliament even passed legislation to give the English a monopoly on all trade with their American colonies.  The Navigation Acts.  Which stated that all trade to and from America had to be on English ships.  And all trade had to go through an English port.  Where the ships were unloaded and the cargoes inspected.  And taxed.  Then they could reload their cargoes and continue on their journey.  All tenets of mercantilism.  This kept the lower-priced Dutch goods out of America.  And prevented the Americans from selling to the Dutch directly for higher prices.  So it shut down the Dutch from all American trade (except for a prosperous black market). And brought in some lucrative tax revenue for England.  While extending shipping times and increasing prices for the Americans.  Which they were not happy about in the least.

The English East India Company (the Company) was similar in structure to the VOC.  And soon made the Indian subcontinent a wholly owned subsidiary of the Company.  But it wasn’t cheap.  Waging war was costly.  As was managing those conquered territories (something the Romans had also learned).  Then a famine in Bengal in 1770 claimed about one-third of the local population.  Making laborers more scarce.  And more expensive.  All at a time when the sales of their imported goods were falling in Europe.  There were warehouses full of unsold Chinese tea that they couldn’t sell.  Making for a bad time for the Company.

Higher costs and lower sales spelled trouble.  And that’s what the Company had a lot of.  Trouble.  So the Company turned to Parliament for help.  And Parliament helped.  By allowing the Company to ship their tea directly to America without having to unload it in a British port.  Or pay a duty on that tea.  Which would greatly reduce their costs.  And allow them to sell it in America cheaper than they did before.  So Parliament passed the Tea Act in 1773.  Making life better for all involved.  But the Tea Act left in place another tax in the previous Townshend Acts.  Which was a bigger problem than getting cheaper tea (which they could get on the black market from the Dutch).  These taxes on the British subjects in America were unconstitutional.  Because there were no Americans sitting in Parliament.  This was taxation without representation.  A much bigger issue than cheap tea.  So they threw that first ‘cheap’ tea into Boston Harbor.  The Boston Tea Party being a major step towards war with the mother country.  And American independence.

Britain became the Lone Superpower after Abandoning their Protectionist Mercantile Policies and Adopting Free Trade

The American Revolutionary War was not the only headache the British got from their mercantile policies.  Part of those policies required maintaining a positive balance of trade.  So there was always a net inflow of bullion into the mother country.  That’s why raw materials shipped into Britain from America.  And finished goods shipped out to America.  Finished goods are more valuable than raw materials.  So the Americans had to make up for this balance of trade in bullion.  Resulting in a net inflow of bullion into the mother country.  Very simple.  As long as you can manufacture higher valued goods that other people want to buy.

And this is the problem they ran into with the Chinese.  For though the British wanted those Chinese spices, silk and porcelain the Chinese didn’t want anything the British manufactured.  Which meant Britain had to pay for those luxuries with bullion.  Including all that Chinese tea they craved.  Which resulted in a net outflow of bullion to the Chinese.  The British fixed this problem by finding the one thing that the Chinese people wanted.  Indian opium.  Grown in Bengal.  Of course, this turned a lot of Chinese into opium addicts.  The addiction problem was so bad that the Chinese banned opium.  But the British were able to smuggle it in.  They sold so much of it that they used the proceeds to buy their tea.  Thus reversing the bullion flow.

Not the finest hour in the British Empire.  The Chinese and the British would go on to fight a couple of wars over this opium trade.  The Opium Wars.  Which the British did all right in.  Even gaining Hong Kong in the bargain.  They didn’t build any long-lasting love with the Chinese people.  But Hong Kong turned out pretty nice under the British.  Especially after they abandoned their protectionist mercantile policies and adopted free trade.  Which made the British the lone superpower for about a century as they modernized the world by leading the way in the Industrial Revolution.  And the Chinese in Hong Kong were very happy indeed to be there when the communists took over the mainland.  And caused a famine or two.  For they lived comfortably.  In a state founded on mercantilism.  That achieved its greatest prosperity during the free trade of capitalism that followed Britain’s mercantile ways.

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Abenomics appears to have Failed in Japan just as Keynesian Economics has Failed everywhere it has been Tried

Posted by PITHOCRATES - March 9th, 2014

Week in Review

The Keynesians were applauding Shinzō Abe’s economic plans for Japan.  To end the never-ending deflationary spiral they’ve been in since the late Nineties.  His Abenomics included all the things Keynesians love to do.  And want to do in the United States.  Expand the money supply through inflationary monetary policy.  Devalue the yen to make their exports cheaper.  Lower interest rates into negative territory.  Quantitative easing.  And lots of government spending.  The kinds of things that just makes a Keynesian’s heart go pitter pat.

They kicked off Abenomics in 2013.  And how are things about a year later?  Not good (see Japan’s deficit hits record as economic growth slows posted 3/9/2014 on BBC News Business).

Japan’s current account deficit widened to a record 1.5tn yen ($15bn; £8.7bn) in January, the largest since records began in 1985.

In further bad news, the country’s economic growth figures were also revised downwards…

The sluggish growth and growing deficit come just before a planned sales tax increase, scheduled to take effect in April.

They did weaken the yen.  Making it worth less than other currencies so those currencies could get more yen when they exchanged their currencies to buy those Japanese exports.  Of course, when Japanese exchanged their yen for those other currencies they got less of those other currencies in return.  Requiring more yen to buy those now more expensive imports.  Thus increasing their trade deficit.

Japan is an island with a lot of people.  They have to import a lot of their food, energy and natural resources as they have little on their island.  So the weaker yen just made everything more expensive in Japan.  Which, of course, lowered GDP.  As those higher prices reduced the amount of buying their consumers could do.

Japan’s greatest problem is her aging population.  And they have just about the oldest population in the world.  As the youth have slammed the brakes on having children.  So you have massive waves of people leaving the workforce the government is supporting in retirement.  And fewer people entering the workforce to pay the taxes that support those retirees.  Which, of course, forces higher tax rates on those remaining in the workforce.  Further reducing the amount of buying their consumers can do.  And no amount of Abenomics can change that.

Abenomics did not deliver what the Keynesians thought it would.  Because Keynesian economics (aka demand-side economics) just doesn’t work.  If it did Japan never would have had a Lost Decade to begin with.  For it was Keynesian economics that gave Japan that asset price bubble in the first place.  Which burst and deflated into the Lost Decade.

What Japan needs is a return to classical economic principles.  Focusing more on the supply side.  Lower tax rates and reduce regulation.  Let the market set interest rates.  Restore the policies that introduced ‘Made in Japan’ to the world.  They need to make their capitalism more laissez-faire.  If they do they can create the kind of economic activity that just might be able to support the generation who created the ‘Made in Japan’ label in their retirement.  But you must have robust economic activity.  So robust that lower tax rates can produce greater tax revenue.  The supply-side economics way.

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Scotland wants to Keep the Pound in a (somewhat) Independent Scotland

Posted by PITHOCRATES - March 8th, 2014

Week in Review

The Greek crisis happened because there was a currency union without a political union.  The Eurozone set some pretty strict limits on deficits and debt to join.  Why?  Because people in the Eurozone would all be using the same Euro.  So they didn’t want one country running up deficits or their debt.  Because if they did they wouldn’t just be messing with their economy.  They would be messing with the entire Eurozone economy.

Well, that’s what Greece did.  They were spending so much money that they had large deficits that added to a large debt.  A euro-denominated debt.  Which meant a default would raise borrowing costs for other euro-denominated debt.  Raising the borrowing costs for the Eurozone.  So to avoid that required other Eurozone nations to help Greece with their debt.  Requiring higher taxes in the more responsible countries of the Eurozone to pay for the irresponsible spending of Greece.  Neither option (default or rescue package) being a popular option.  Especially for the Greek people.  For the rescue package came with strings.  And the big one was austerity.  They had to stop spending so much.  Which meant a lot of people lost some of their government benefits.  Making them very unhappy.  Leading to some rioting in the streets.

Had there been a political union this would not have happened.  For there would have been only one entity borrowing and spending Euros.  One entity taxing the Eurozone nations.  And one entity printing money.  Much like the federal government in the United States.  And London in the United Kingdom (see Scotland’s referendum: Salmond says independence will benefit whole UK posted 3/4/2014 on BBC News Scotland Politics).

An independent Scotland with a strong economy would benefit the whole of the UK, First Minister Alex Salmond has told a gathering in London…

“I believe George Osborne’s speech on sterling three weeks ago – his ‘sermon on the pound’ – will come to be seen as a monumental error.

“It encapsulates the diktats from on high which are not the strength of the Westminster elite, but rather their fundamental weakness.

“In contrast, we will seek to engage with the people of England on the case for progressive reform.”

But Tory MP Mr Mundell said that Mr Salmond was saying that a choice to leave the UK and become independent “means staying exactly the same as we are now”.

He added: “By definition, that simply cannot happen.

“No one should be under any illusion that voting for independence means getting independence, which means becoming a new country outside the UK.

If the Eurozone sovereign debt crisis has taught us anything it’s that a currency union without a political union is not a good thing.  An independent Scotland would eliminate the political union there is now.  And the reason why England does not want a currency union with an independent Scotland is because of what happened in the Eurozone.  It doesn’t work.  At least, it doesn’t work well.  Which begs the question why do they want independence but not complete independence (keeping the pound)?

One can only surmise so they can have more autonomy over their taxing, borrowing and, of course, spending.  Perhaps to spend more.  Creating larger deficits.  And a greater pound-denominated debt.  Which would be of great concern to other holders of pound-denominated debt.  The rest of the United Kingdom.

It is unlikely that independence would lead to a stronger Scottish economy.  Or a stronger UK economy.  If it did then the whole point of the Eurozone would be a lie.  To create a larger economic zone to compete with the large economic zone that is the United States.  Because bigger is better.  At least in terms of GDP.  The British Empire was bigger than the United Kingdom is now.  And the United Kingdom is bigger than a United Kingdom without Scotland.  And an independent Scotland would be smaller than all of the above.  So if you want to maximize GDP you would want to maximize the size of your economy.  Not shrink it.  Which leads one to believe that the reason for independence is something other than economic.  Because the UK is too English?  Perhaps.  Whatever the reason let’s just hope everything works out for the best.  For the United Kingdom did make the world a better place.  With great people like Adam Smith from Scotland.  And John Locke from England.  To name only two of the greats to come from the United Kingdom.

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The High Cost of Employing People has some replacing People with Technology

Posted by PITHOCRATES - March 8th, 2014

Week in Review

Self-serve checkouts at stores are reducing the number of cashiers in the economy.  As bar codes and credit cards make it easier to live in a world that isn’t served by people.  You can even pay with cash at these self-serve checkouts.  And people love them.  Why?  Shorter lines.  You can have 10 or more self-checkout lanes managed by one employee to fix problems and approve alcohol sales.  Whereas 10 checkout lanes with cashiers require 10 cashiers.  And these days full-time employees are expensive.  Especially in low-margin industries.  Like retail sales and grocery stores.

So stores don’t like to have a lot of checkout lanes with no lines with some cashiers getting paid for working part of the time.  They’d rather have 3 checkout lanes with long lines with 3 cashiers working all of the time.  Or one cashier overlooking 10 self-serve checkout lanes.  Because fewer people cost less.  Making it easier to survive in a world of thin margins.  And this concept may soon be coming to a restaurant near you (see Pizza Hut table lets you touch-screen your toppings by Amanda Kooser posted 3/4/2014 on cnet).

Touch-screen tables already exist. Pizza Hut restaurants already exist. Put the two together and you end up with a touch-screen table concept for ordering pizzas using your fingers…

The interactive table idea isn’t far-fetched at all. The technology to make it happen is already available. If this were to be rolled out, however, it would require a pretty hefty investment for the hardware, which would need to be rugged enough to stand up to countless greasy fingerprints, soda spills, and other abuse.

People love their gadgets.  There’re apps for everything these days.  To make our lives more efficient.  To speed things up in our lives.  In large part by removing those slow and time-consuming people.  This is the brave new world we live in.  A world where we even use that technology to communicate with each other.  Instead of meeting face-to-face.  It is clear we’re addicted to technology.  And losing our desire to interface with people.

Which is why it’s sad that costly government regulations (such as Obamacare) and higher taxes are squeezing margins so much for businesses that they prefer to invest in technology instead of hiring people.  Because with technology you don’t need to pay for unemployment insurance.  Workers’ compensation insurance.  Health insurance.  Mandated paid-leave.  Holidays.  Vacation days.  Drug testing.  Sexual harassment training.  Sexual harassment lawsuits.  A higher minimum wage.  Etc.  All of those things our liberal Democrats have burden our businesses with to make it better for employees.  But the costs are so great to comply with these regulations and taxes that businesses are now replacing employees with technology wherever they can.  Just so they can remain in business.

What’s next?  Restaurants where you sit down and select something from your touch-screen table?  And a pre-cooked dinner (appetizer, entrée and dessert) is warmed in an automated kitchen?  Only to be delivered to your table by an automated conveyance system?  Eliminating cooks, waitresses and even food-runners?  If you keep raising the cost of employing people this may be our brave new world in our not so distant future.  If you doubt this just think of the last time you went to the post office.  Did your banking face-to-face with a bank teller.  Dropped your film off to be developed into photographs.  Used a newspaper to find a movie to see.

Our love of technology, our impatience to wait for anything and the high cost of hiring people (especially low-skilled workers) has taken us far down the road to that people-less future.  You can’t stop the march of technology.  But you can stop making it so costly to hire people.  If we focused on this we wouldn’t have to worry about a people-less future.  Something we should think about the next time we enter a voting booth.

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FT212: “If liberals keep winning elections the United States will fall like the Roman Empire.” —Old Pithy

Posted by PITHOCRATES - March 7th, 2014

Fundamental Truth

The Roman Empire survived for about 1500 Years

The Roman Empire was one of the greatest empires of all time.  It lasted some 500 years in the West.  And another thousand years in the East.  Give or take.  As empires go they don’t come much bigger.  Or last longer.  The Romans ruled the world.  It stretched from Northern Africa to Britain.  And from Spain to the Middle East.  It was huge.

There have been bigger empires.  The British Empire.  The Mongol Empire.  The Russian Empire.  The Spanish Empire.  And others.  But none of them lasted as long as the 1500 years of the Roman Empire.  The British Empire lasted about 400 years.  The Mongol Empire lasted about 50 years.  The Russian Empire lasted about 200 years.  And the Spanish Empire lasted about 500 years.  Adolf Hitler said the Third Reich would last a thousand years.  But it lasted only 12.  Proving that empire building—and empire maintaining—are easier said than done.

Yet the Romans did it for 1500 years.  Give or take.  So they knew a thing or two about empire building.  And maintaining that empire.  Yet even this mighty empire fell.  Why?  Historians still debate this question today.  As do the laymen.  With a person’s political persuasion sometimes determining what they believe.

A Debased Coin and High Taxes made the Roman Citizenry very Unhappy

Empires are costly.  As Rome built her empire she paid for it by conquering new lands.  So as her borders pushed out treasure flowed back the other way to Rome.  Which paid for her massive military.  And her massive bureaucracy to govern that sprawling empire.  So the Roman people went about their business.  Shielded from the cost of empire.  Farming and taking their goods to market.  Safe within their empire.  For her enemies were outside the borders of the empire.  And those borders were pushed a very long way out.

But then something happened.  Those borders stopped moving.  They were not conquering new lands.  And there was no more treasure flowing back to Rome.  Which was a problem.  For the Roman Empire covered a lot of land that they had to govern.  And defend.  So the cost of the Roman Empire was never higher than when her borders stopped pushing out.  While her revenue to pay for that empire was never smaller.  So they had to do something.  And that something was taxes.  Lots of them.  All of a sudden the Roman citizenry was feeling the cost of their bloated bureaucratic state.  And the cost of that massive military that defended the frontier.

So taxes soared.  Making the Roman citizenry unhappy.  But the tax revenue proved to be insufficient.  So they started debasing their currency.  Adding more and more lead to their silver coins.  But not their gold coins.  For they used gold to pay the military and to pay the government bureaucrats.  So they only debased the silver coin.  The coin of the Roman citizenry.  Which, of course, resulted in inflation.  As the coins had less and less silver in them they bought less and less.  So prices soared.  As did taxes.  Making the Roman citizenry very unhappy.

The Cost of Mercenaries and the Roman Bureaucracy and Welfare State bankrupted the Roman Empire

So the Romans started building things to entertain the people.  And they grew a welfare state to help feed those who could not afford to buy food.  Public works and the new welfare state may have eased some of the animosity towards the state.  But it only increased the costs of the state.  Requiring higher taxes.  So high that people lost money on their farms and businesses.  So they quit.  Causing food and goods shortages.  So the Romans passed laws forcing them to stay in their jobs.  And forcing their children to do the same work their parents did.  Which eventually evolved into feudalism.

Eventually the Roman citizenry no longer wanted to serve the empire.  Leading to the use of mercenary armies.  Which were costly.  And only increased the cost of empire.  With the silver coin so debased the Roman government would not even accept it in payment of taxes.  So the government took a portion of the food grown and goods made.  Making it more difficult to pay for the welfare state (just imagine your employer paying you in food, toilet paper, soap, etc.).  And the mercenary armies guarding the frontier.  Which could prove troublesome.  As they had no loyalties to the Roman Empire.  They were just hired muscle.  Their blood loyalties were often to people on the other side of the border they were guarding.  Having come from those people.

So the massive cost of hired mercenaries and the massive cost of the Roman bureaucracy and welfare state basically bankrupted the Roman Empire.  Of course the American left prefers not to think about this.  As they are very fond of their large welfare state.  So some on the left often cite the decadence of the Roman Empire that caused her fall.  They talk about the feasts, the drink, the gladiators, the orgies and other acts of debauchery that caused a societal decay that eroded the empire from within.  Even while they are in the business of societal decay themselves.  Free birth control, abortion on demand, the decriminalization of marijuana, the rejection of virtue and morality, their extreme secularism to remove any vestige of restraint from their lives of excess, etc.  The kind of things a debauched Roman citizenry no doubt would have enjoyed.  So either way the Roman Empire fell because of principles the American left embraces.  Which means if liberals keep winning elections the United States will fall like the Roman Empire.

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Guns, Butter and Abortion

Posted by PITHOCRATES - February 24th, 2014

Economics 101

Democrats will cut Defense but not Entitlements because fewer People in Defense vote Democrat

A cornerstone of the Obama presidency is social justice.  Primarily through redistribution of wealth.  Raising taxes to fund a growing welfare state.  To help those not lucky enough to have won life’s lottery.  Such as expanding the food stamp program (Supplemental Nutrition Assistance Program).  Which has grown over 70% under President Obama.

Of course, this costs money.  A lot of it.  Added on top of an already costly welfare state.  Driven by entitlement spending.  Social Security.  And Medicare.  The biggest portions of federal spending.  And it only keeps growing.  Making the welfare state unsustainable without entitlement reform.  But the politicians won’t touch entitlements.  The third rail of politics.  Because they’re afraid of losing votes in the next election.  So they’d rather the country implode instead of reforming entitlements.  And hope that implosion comes after they’re dead and buried.  For as long as they get to enjoy their lives they could give a rat’s behind about future generations.

But they will touch defense spending.  And often do when they are looking for more money for the welfare state.  Even now.  The Obama administration is proposing spending cuts in defense spending.  That will shrink the size of the military.  And cut pay and benefits for some of the lowest paid people in the country.  The people who go in harm’s way for their country.  They won’t touch entitlement spending because it may hurt people that typically vote Democrat.  But they have no problem doing just that to those who wear a uniform to serve their country.  Who don’t always vote Democrat.  Just so they can have a generous welfare state like the European social democracies they so admire have.  Who can have them because they don’t have large defense budgets.  For the United States has been protecting them since World War II.

People can’t pay Taxes to fund a Welfare State without a Job that Provides an Income to Tax

If you watch television you’ve probably heard New York State’s commercials to attract new businesses to New York.  Where the state is promising that businesses will be “100% tax-free for 10 years.  No income tax, business, corporate, state or local taxes, sales and property taxes, or franchise fees.”  Which is a clear admission from the state with the second highest tax burden in the country that high taxes hurt business.

The tax burden is so great in New York that some businesses have moved their operations out of state.  And people with vacation homes in New York who only visit them a couple of weeks out of the year are selling them.  As the state is taxing their incomes as if they are permanent New York residents.  But despite these high taxes New York has suffered great budget deficits.

New York City is a Democrat city.  Their high taxes pay for a large welfare state.  A large public sector.  And the enormous costs of their public sector benefits.  In particular, health care and pension costs.  But their high tax rates have shrunk the tax base.  Because people can pack up and move out of state.  Just as businesses can.  Which is why they are doing a 180-degree turn on taxes.  In a desperate attempt to get businesses to come to New York.  For even if these businesses aren’t paying taxes their employees will.  Income taxes.  Sales taxes.  Property taxes.  Liquor taxes.  Cigarette taxes.  Etc.  None of which they can pay if there are no jobs to give them an income the state can tax.

The Number of Abortions is having a Direct Impact on the Economy and Tax Revenue

New York City released its SUMMARY OF VITAL STATISTICS 2012 THE CITY OF NEW YORK PREGNANCY OUTCOMES this month.  In it you can find why New York City, New York State and the federal government are having such a difficult time paying for their welfare states.  It’s because of liberal Democrat policies.  Not on the spending side of the equation.  But on the revenue side of the equation.

In 2012 there were 73,815 abortions.  Which are future taxpayers that weren’t allowed to be born.  That’s right, before anyone pays the high tax rates of a welfare state they have to be born first.  And when they are not born that’s future tax revenue the government cannot collect.  If we look at a 20 year period (about a generation) and assume 73,815 abortions each of those 20 years that’s 1,476,300 people that never will pay taxes.  If they earned on average $30,000 each that’s $44,289,000,000 of economic activity they never created.  And at a New York State tax rate of 11.7% that’s $5,181,813,000 in lost tax revenue for the state.

But it gets worse.  If you divide this number by two you get the total number of couples (a man and a woman) that could have started a family.  If each couple had 3 children this lost generation could have brought in another 2,214,450 taxpayers into New York City.  Adding them to their parent’s generation and assuming a median family income of $53,046 (an older generation established in their career earning more and a younger generation just starting their career earning less) brings the total lost economic activity for these two generations of possible New Yorkers to $195,779,524,500.  And lost tax revenue for the state of $22,906,204,367.  So the number of abortions is having a direct impact on the economy.  And tax revenue.  Making it necessary to cut guns to pay for more butter.  Whereas if these taxpayers were born we could have both our guns and butter.  And live in a world made safe by the most powerful military in the world.  Peace through strength.  The Ronald Reagan way.  And not a world where our enemies are constantly testing our resolve.  The Jimmy Carter and President Obama way.

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We are in the Worst Economic Recovery since that following the Great Depression because of Keynesian Economics

Posted by PITHOCRATES - February 15th, 2014

Week in Review

We are in the worst economic recovery since that following the Great Depression.  Why?  Because of Democrats.  Who are all Keynesians.  And that’s a big problem as all of our worst economic times were given to us by those who adhere dogmatically to Keynesian economics.  That school of economics that gave us the Great Depression.  The stagflation of the Seventies.  The dot-com bubble.  The bursting of the dot-com bubble.  And the dot-com recession.  As well as the subprime mortgage crisis and the Great Recession.  In all of these events the Keynesians in power followed Keynesian economic policies to avoid recessions.  And then to pull us out of recessions when their avoidance didn’t work.  Then doubling down on the things that didn’t work previously.  In particular artificially low interest rates.  Which have been around zero for the last 5 years.  And massive federal spending to stimulate the economy when the private sector wasn’t spending.  Two pillars of Keynesian economics.  Neither of which have done anything to help improve the worst economic recovery since that following the Great Depression.

This is the problem with all the ‘noted’ economists the government likes to cite.  They embrace poor economic principles.  Proven wrong over and over again.  They can come up with some impressive looking charts and graphs but their analysis is all wrong.  And the fact that we’re in the worst economic recovery since that following the Great Depression proves it better than any chart and graph.  They’re wrong.  And continue to be wrong.  Yet they provide the economic policies for our country.  Some of the greatest nonsense you will ever hear.  Things you wouldn’t do in your business.  Or in your personal life (see Student Loans Are A Drag On The Economy And Society by Josh Freedman posted 2/11/2014 on Forbes).

While loans are intended to expand college access to a broader population, the nature of risk that they entail also produces the opposite result. Low- and middle-income students worried about the consequences of taking out a loan will be more likely to decide that college attendance is not worth the risk…

Studies have found that high debt levels not only deter access at the beginning, but can also drive students away from completing college once they have already started… students who start college but do not graduate are stuck with loan repayments and no college degree. They still have to repay their loans but do not have the economic boost of a college degree to help them have enough income to cover this cost.

First of all, why is it when it comes to a college education no one ever demands that we lower the cost.  Like we do with greedy oil executives who keep the price of gasoline high.  Why is it no one attacks the greedy people in higher education that keep education so costly?

The problem is too many people are going to college for the wrong reason.  There is a reason why there is a list of the best party colleges every year.  Because a lot of these kids want to go to these schools.  Which explains why colleges in Colorado are seeing a spike in out-of-state applications.  Because these kids want to go to a college where they can party with legal marijuana.  And to make that partying easier they’re majoring in easier degree programs that the college assured these kids would provide them a comfortable living after graduation.  So they can get that profitable tuition out of these kids.  Often times paid for by these kids’ student loan borrowings.  So the colleges are misleading a lot of these kids to make a buck.  Leaving them saddled with a lot of student loan debt if they quit.  Or even more student loan debt if they stay in until graduation.  While getting a degree that can’t get them a job.

A second issue with increasing levels of student loan debt is the effect on the economy… Individuals with more student loan debt were less likely than individuals without student loan debt to purchase homes or cars.

Yes, having too much debt is a bad thing.  It reduces your disposable income.  Preventing you from purchasing a house or a car.  Yet these same economic advisors have no problem with raising taxes and devaluing the currency (i.e., printing money) to pay for all of the government’s stimulus spending.  Higher taxes reduce our paychecks.  And devaluing the currency raises real prices.  Reducing what we can buy with our smaller paychecks.  No, a Keynesian has no problem with debt at the federal level that affects everyone.  But student loan debt is just a terrible thing for those kids who dropped out of college or who didn’t get a degree that an employer could use.

In the wake of the financial crash, households have been trying to deleverage, or pay down their debt so they can have a healthier financial outlook, reduce the amount of their income that they use to service their debt, and begin investing and consuming again…

A look at the data suggests that student loans have slowed down households in the process of paying down debt. Since 2008 — the peak level of household debt — households lowered their levels every type of debt except student loan debt. Student loans have continued to grow throughout this process of deleveraging.

Of course the one thing missing from this analysis is the horrible economy President Obama’s Keynesian policies have given us.  Since he became president he has destroyed some 10,948,000 jobs.  Based on the number that were out of the labor force in the January 2014 BLS jobs report (91,455,000) and how many were out of the labor force when he entered office (80,507,000).  This is why people are struggling with debt levels.  There are no jobs.  If there was a robust economy flush with jobs people wouldn’t worry about taking on debt to invest in the future.  As long as they got a useful college degree in a high-tech economy.  And not something useless like women’s studies or poetry.

But aren’t people facing poor job prospects just taking out more loans to avoid working as baristas at coffee shops that drip the coffee super slowly for no apparent reason? This does not appear to be the case from the debt data. Student loan debt has grown at almost exactly the same rate since the crash as it had been the previous five years — i.e. steadily and without fail.

Student loan credit level has been steadily rising because the cost of a college education has been steadily rising.  Again, where is the outrage at our greedy educators getting rich by loading up these kids with student loan debt for a degree they can’t use in a high-tech economy?

…the loan system allows colleges to raise prices, which causes more students to take out loans. States, facing budget pressures, have also pulled back on investment, putting even more risk on students and further increasing the need for loans.

Again, where is the outrage at our greedy educators who keep raising tuition, forcing these kids to take out more and more student loan debt?

The risk and burdens that come from forcing students to take out debt up front and pay it back later is problematic from head to toe (tassel to hem, one might say). To create a better system of higher education, we need to look at alternatives to the current debt-financed model.

So the solution is for the taxpayer to foot the bill for these useless college degrees at these party colleges?  How is that going to solve any problem?  All that will do is allow more people to go to a college in Denver where they can get high for 4 years.  And then go to work as a barista at a coffee shop that requires no 4-year degree.  How does that make anything better?  Other than get more young people to vote Democrat.  Then again, perhaps that is the only objective of Keynesian economics.  Which is why those on the left embrace these failed policies with a religious fervor.  Because it helps them win elections.  Even while they’re destroying the economy.

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