Roaring Twenties, Farmers, Mechanization, Smoot-Hawley Tariff, Stock Market Crash, Great Depression and Taxi Medallions

Posted by PITHOCRATES - June 12th, 2012

History 101

The New Economic Reality of Farming was that we needed Fewer Farmers in the Age of Mechanization

The Roaring Twenties was a decade of solid, real economic growth.  The world modernized during the Twenties.  Electric power, telephone, radio, motion pictures, air travel, etc.  So much of what we take for granted today became a reality during the Roaring Twenties.  But there was a downside.  Farmers borrowed money to mechanize their farms.  As farms mechanized they produced great crop yields.  Bringing bumper crops to market.  There was so much food brought to market that prices plummeted.  Reducing farm incomes so much that they couldn’t service the debt they incurred to mechanize their farms.  They defaulted.  Causing banks to fail.

By the late Twenties all the European farmers who fought in World War I were back on the farm.  And were feeding Europe again.  So not only were the Americans producing bumper crops they were losing a large export market.  Forcing farm prices down further.  There were simply more farmers than the economy was demanding thanks to the new efficiencies in farming.  But because there were so many farmers they were an important political constituency.  They were still casting a lot of votes.  So the politicians stepped in.  With a complete disregard to economic principles.  And tried to help the farmers.  With rent-seeking policies.

The farmers were hurting.  So they wanted to transfer some wealth from the masses to the farmers.  As in rent-seeking.  As opposed to profit-seeking.  Instead of creating wealth (profit-seeking) they were transferring wealth (rent-seeking).  And they did this with price supports.  They raised the price of their crops above market value.  Forcing Americans to make sacrifices in their lives so they could afford to pay higher food prices to help the farmers.  So the farmers wouldn’t have to adjust to the new economic reality of farming.  We need fewer farmers in the age of mechanization.  But it just didn’t end with higher prices.  The government would buy excess food grown by these ‘too many farmers’ and destroy it.  Or pay farmers NOT to grow food.  Then they took it up a notch.  And slapped tariffs on imported food.  Further raising the price of food.

In an Effort to raise Farming Prices the Rent-Seekers caused the Great Deflation of the Great Depression

Food tariffs were just one part of the Smoot-Hawley Tariff Act.  This act pretty much raised the tariff on everything the U.S. imported.  Greatly increasing the cost of all imports.  To protect the domestic producers from cheap foreign competition.  But there was a problem with increasing the cost of all imports.  It increased the price of whatever we built with those imports.  So much so that when they were discussing this act in Congress businesses across America knew the boom of the Twenties would end.  As did investors investing in these companies.  So even before the bill became law it caused a huge stock selloff.  Which led to the stock market crash of 1929. 

At first the higher prices helped American businesses.  Their revenue increased.  Everyone thought the tariff act was a success.  But as prices went up costs went up throughout the manufacturing pipeline.  Prices grew so high that people stopped buying.  Inventories accumulated so they cut production.  And then laid people off en masse.  Causing a great recession.  Then further rent-seeking solutions (more governmental intervention into the free market) turned that recession into the Great Depression.  What started out as a problem for overly efficient farmers turned into a national crisis.  In an effort to raise farming prices they caused the great deflation of the Great Depression.  As prices fell so did revenues.  Making it very difficult to service debt.  More people defaulted on their debt.  And more banks failed.

When the Smoot-Hawley Tariff Act became law our trading partners answered in kind.  Leading to a great trade war.  So on top of everything else what limited export markets we had shut down as well.  As the trade barriers went up economic activity decreased.  David Ricardo’s Comparative Advantage worked in reverse.  Increasing opportunity costs.  When international markets closed less efficient domestic industries took their place.  Pulling resources from more efficient uses.  Raising the cost of those resources.  Adding these cost increases on top of the tariffs.  Which further increased prices.  And further lowered economic activity.  Adding further woe onto the Great Depression.

The Medallion System dates back to the Medieval Guilds and Restricts Entry into the Cabbie Market

As the Great Depression languished on few people filled the streets of New York City (NYC).  At least few people with money who had to go places.  There were more cabs than people needed.  Supply exceeded demand.  Putting a downward pressure on taxi fares.  And increasing the time a cabbie had to work to earn some decent money.  Usually the market steps in and corrects such a situation.  Forcing some cabbies out of the cabbie business.  But not in NYC.  There they used the power of government to address this surplus of supply.  And introduced the medallion system.

This was the kind of rent seeking that dated back to those medieval guilds.  The medallion restricted entry into the cabbie market.  By limiting the number of cabs in NYC.  Every cab (at least those who can pick up passengers who hail a cab at the curb) must have a medallion permanently affixed to their cab.  Which they must purchase from the city.  Or transfer from another cab.  Currently, if you want to drive a taxi cab in NYC you better have some deep pockets.  Or have the kind of credit that lets you get a very large mortgage.  For the medallion system exists to this day.  And that medallion may cost you close to a half million dollars.

If you ever wondered why it sometimes takes so long to hail a cab in NYC this is the reason.  Rent-seeking.  As in the medallion system.  Which works just like tariffs.  Reducing supply.  And increasing prices for consumers.  So the rent-seekers can use the power of government to transfer wealth.  Instead of using innovation to create wealth.  And bringing that wealth to the market place to trade.  Instead they choose to take more wealth from the market place than they bring to it.  With the help of government.  And their rent-seeking policies.  Thus reducing overall wealth in the economy.  Which reduces economic activity.  And does nothing to help lift an economy out of recession.  Or out of a Great Depression. 

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Obama wants a Millionaire Tax to Pay for his Political Stimulus Bill and Shrink his Deficit

Posted by PITHOCRATES - September 17th, 2011

Going Green is Just Another Excuse to Raise Taxes, Grow Government and Transfer more Wealth from the Private to the Public Sector

Big government has big ideas.  And big taxes to pay for them (see Crippling energy bills are YOUR fault, says Huhne as he claims families could treat themselves to a mini-break if they shopped around by Glen Owen and Jonathan Petre posted 9/17/2011 on the Daily Mail).

Utility price rises have pushed the average household energy bill to almost £1,300 a year, partly driven – as critics pointed out yesterday – by ‘green’ taxes imposed by Mr Huhne’s [Energy Secretary] department.

The stealth levies, introduced to fund Britain’s investment in wind and solar power, are costing families an average of £200 a year…

This represents an increase of between 15 and 20 per cent on the average domestic power bill. The money is being used to help fund the building of 10,000 wind turbines and the proposed installation of £7 billion worth of smart meters in homes.

To make your tomorrow better we will make your today worse.  You’re welcome.

Green energy may be good for the planet.  To combat ‘global warming’.  But it’s not good for your wallet.  Or purse.  And the kicker is this.  What kind of science is global warming based on?  Fraudulent science.  And if this doesn’t tell you why governments are pushing for green energy nothing will.

It’s about the money.  It always is.  And always was.  It’s another excuse to raise taxes.  To grow government.  And transfer more wealth from the private to the public sector.  So politicians can play god.  Which is something narcissists are wont to do.

Higher Tax Rates Discourage Growth, Deter Investment, Kill Jobs and Prolong Recessions

That was in the UK.  Over in the USA their government is going green, too.  Because there’s big money in going green.  They recently invested a half billion dollars in Solyndra.  President Obama visited the plant.  Vice President Joe Biden made a video clip praising those 1,000 new jobs.  That were permanent jobs.  And they were.  Right up to that mass layoff.  As the company went belly up this month.

But it was good while it lasted.  Throwing around such massive amounts of money.  Having the power to pick winners and losers.  It really strokes a narcissist’s ego.  Even if their winners turn out to be losers.  I mean, it’s not like they have to repay that half billion dollars.  They’ll just turn to the taxpayers for more taxes.  And blame the rich for not paying their fair share (see Obama Tax Plan Would Ask More of Millionaires by Jackie Calmes posted 9/17/2011 on The New York Times).

President Obama on Monday will call for a new minimum tax rate for individuals making more than $1 million a year to ensure that they pay at least the same percentage of their earnings as middle-income taxpayers, according to administration officials…

Mr. Obama, in a bit of political salesmanship, will call his proposal the “Buffett Rule,” in a reference to Warren E. Buffett, the billionaire investor who has complained repeatedly that the richest Americans generally pay a smaller share of their income in federal taxes than do middle-income workers, because investment gains are taxed at a lower rate than wages.

We should note, though, that it’s not the size of the rate that matters.  But the pile of money that it taxes.  Someone earning $60,000 a year with a top marginal tax rate of 25% may pay a puny $11,000 in taxes.  But someone with a 15% tax rate on an investment return of $40 million will pay an obscene $6 million in taxes.

Now, in case you’re not good with math.  Or you are a liberal Democrat.  Let me help.  $6 million is more than $11 thousand.  A lot more.  About 54,000% more.  The rich person may pay a lower tax rate.  But he or she pays more tax dollars.  Way more.

The rich pay more.  The less-rich pay less.  The rich pay for benefits.  The less-rich consume benefits.  We take money from the rich.  And give to the less-rich.  Sounds like redistribution of wealth, doesn’t it?  So you can see this is less about paying your fair share of taxes then it is about redistributing wealth.  To garner more votes come election time.

The Obama proposal has little chance of becoming law unless Republican lawmakers bend. But by focusing on the wealthiest Americans, the president is sharpening the contrast between Republicans and Democrats with a theme he can carry into his bid for re-election in 2012…

Mr. Obama’s proposed Buffett Rule puts a new spin on that pitch, as he tries to put Republicans in Congress and in the presidential race on the defensive for their rigid stand against higher taxes.

Using class warfare for the 2012 election.  Why?  Because he sure can’t run on his record.  For his record sucks.  His economic policies have been a disaster.  And are on track to put us back into recession.

So he will employ this ploy.  To make the Republicans look like heartless bastards.  Protecting their rich patrons.  While the rest of the nation suffers the ravishes of the Obama recession.  A recession Obama blames, of course, on George W. Bush.  That rich Texan oilman.  Despite that Recovery Summer in 2010.  When he, Barack Obama, ended the Bush recession.

Mr. Obama has been citing Mr. Buffett as he promotes his $447 billion job-creation plan. He proposes to offset the cost of that plan and reduce future budget deficits through higher taxes on the wealthy and on corporations after 2013, when the economy will presumably be healthier.

Ah, yes, his political stimulus bill.  That thing he calls the American Jobs Act.  Which no Congress person has yet to introduce into the House of Representatives.  Including no Democrat.  Which is telling.  Next year is an election year.  And the way this bill reeks of politics they want nothing to do with it.

Rich people invest their wealth.  They may buy corporate bonds.  Which will allow a business to grow.  Create jobs.  And you know nothing helps that process more than higher taxes.  You know, if you’re living in insanity land.

Higher tax rates don’t make economies healthier.  They make them sicker.  They discourage growth.  They deter investment.  They kill jobs.  And prolong recessions.  The economy will not be healthier in 2013.  Not with higher tax rates on the very people that can make it healthier.

Even Mr. Buffett probably paid a higher effective rate than he claimed, Mr. Mankiw [an economics professor at Harvard] added, because much of his income came from corporate income that had been taxed before it was paid out to individuals.

That’s right.  The money Mr. Buffet earns on his investment?  Uncle Sam already taxed it.  At the corporate income tax rate.  His tax is the second tax paid on those earnings.  Which begs the question how much is enough?  How much of our money is enough for the government?  And the answer is no matter what we pay it will never be enough.

The Danger of Raising Taxes on the Rich is that it doesn’t Address the Problem of Excessive Spending

We pay enough in taxes.  In fact, we pay too much.  The government is just spending too much.

The problem is baseline budgeting.  And tax and spend liberalism.  Not only are they spending a lot today but they will be spending even more tomorrow.  More programs.  More benefits.  Guaranteed.  At least they’re guaranteed as long as we continue to use baseline budgeting.  Where this year’s budget is last year’s budget plus more.  Automatically.

And this is the danger of raising taxes on the rich.  It doesn’t address the problem.  This excessive spending.  In fact it facilitates it.  Like an addiction.  Which means they will make this argument forever.  As they have forever.  The problem is this.  There will never be enough taxes.  Not to sustain continuous increases in spending.  Which we will always have.  As long as we continue to use baseline budgeting.  And continue to elect liberal Democrats.

If the current system favors the rich then here’s a novel idea.  Tax the less-rich at the rich tax rates.  Then everyone pays their ‘fair’ share.  But what about government you may ask.  How will they get by on less?  Well, that’s easy.  They can ask any one of us.  Because we’ve been doing it for years.

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Chinese Women outperforming American Women in the Corporate World

Posted by PITHOCRATES - August 28th, 2011

Women are Thriving in Emerging Markets because things don’t Cost that Much

Corporations are the big bad in today’s world.  Everyone hates them.  They’re evil inhuman pariahs sucking the marrow of humanity.  They should be punished.  Taxed to the hilt and then taxed some more.  Those filthy, rotten, greedy corporations.  You just can’t say anything good about them.  Never.  Except, of course, when women climb the corporate ladder (see The daughter also rises posted 8/27/2011 on The Economist).

The emerging world is home to many businesswomen like Ms Zhang. Seven of the 14 women identified on Forbes magazine’s list of self-made billionaires are Chinese. Many firms in emerging markets do a better job of promoting women than their Western rivals, some surveys suggest. In China, 32% of senior managers are female, compared with 23% in America and 19% in Britain. In India, 11% of chief executives of large companies are female, compared with 3% of Fortune 500 bosses in America and 3% of FTSE 100 bosses in Britain. Turkey and Brazil come third and joint fourth (behind Finland and Norway) in the World Economic Forum’s ranking of countries by the proportion of CEOs who are women. In Brazil, 11% of chief executives and 30% of senior executives are women.

I wonder if these women are the ones Mitt Romney was referring to when he said corporations are people.  Or are these women just soulless scum of the earth, too?

Funny.  Corporations are evil.  But women climbing the corporate ladder is good.  Even though they’re climbing the ladder of evil.  As if there was something good about being in high places in these evil inhuman pariahs.  Perhaps people think that women will do away with the profit motive in business once they’re in charge.  Instead paying everything they earn beyond the cost of sales as income taxes.  They could.  But they will fall off of that ladder pretty darn quick if they do.

So why China?  Why is it there that feminism is flourishing?  Where women can bring home the bacon?  And fry it in the pan?  Is it because of the one-child policy giving them more time to work in a corporation?  Is it a greater drive due to all of the girls aborted because parents wanted their one child to be a son?  Or is child care just cheaper in China?

Living in emerging markets offers many advantages for female professionals. Most obviously, there are plenty of cheap hands to cook and take care of children.

So in other words women are thriving in emerging markets because things don’t cost that much.  Child care.  Parent care (it’s the daughters who take care of aging parents in China).  There’s a lesson here.  If you want a smoking hot economy with opportunity for everyone, don’t make it so expensive to live there.  And that’s what high taxes and costly regulatory compliance costs do. 

Democrats feel our Pain and want to do Everything they can do to Help Us

A lot of women vote Democrat.  For they feel that Democrats care about women’s issues.  Unlike the out of touch old white men in the Republican Party who just care about profits.  Everything is just too logical with them.  They don’t feel.  Democrats feel.  They feel our pain.  And want to do everything they can do to help us.  Give us that which we crave.  Love.  Understanding.  And a job.  So you’d think they hit the mother lode with Obama.  The media loved him.  But it’s been almost three years and he hasn’t really done anything substantial to help us in the here and now (see Obama’s Enablers by Fred Barnes posted 8/28/2011 from the 9/5/2011 issue of the weekly Standard).

It’s counterintuitive, but Obama has been hurt by the media’s leniency. Both his presidency and reelection prospects have suffered. He’s grown lazy and complacent. The media have encouraged him to believe his speeches are irresistible political catnip, though they aren’t. His overreliance on words hasn’t helped.

The kind of media pressure that can cause a president to sharpen his game, act with urgency, or take bolder steps—that has never been applied to Obama. If it had, I suspect he’d be a more effective, disciplined, energetic, and popular president today. Ronald Reagan is a good role model in this regard. When the media attacked him over gaffes in the 1980 campaign, “Reagan responded like all competitive men by working to improve himself,” says Reagan historian Craig Shirley. “Experience taught him to be better and try harder.” He took this lesson into the White House…

Absent pushing and prodding by the press, the Obama presidency has atrophied. His speeches are defensive and repetitive and filled with excuses. He passes the buck. With persistently high unemployment and a weak economy, Obama recently declared, in effect, “I have a plan. See you after my vacation.” The press doesn’t goad him to lead.

Three years.  Almost.  And we still have high unemployment.  And a weak economy.  Despite all those speeches about focusing on jobs.  With a laser-like focus.  Instead we get higher taxes.  And more costly regulations.  Nothing like those women in China have to deal with.

“Private sector job growth is good,” he said in Alpha, Illinois. In reality, it’s bad and getting worse. “The economy is now growing again,” he said. Barely. Obama said trade deals and patent reform would promote hiring, if only Congress would approve them. But it’s the president who has delayed the trade treaties, and both houses of Congress have passed patent reform measures.

The media routinely give Obama a pass on such stuff. On the tour, Obama insisted, as he has many times before, that he saved the nation from a “Great Depression.” So far as I know, the press has never challenged this dubious claim. But it is belied by the fact the recession came to an official end in June 2009, months before Obama’s policies could have played more than a minimal role.

This reminds me of an episode of Scrubs.  The Janitor was making some ridiculous claims.  So Carla asked the janitor if he is familiar with the term ‘delusions of grandeur’.  He replied, “I believe I coined that term.”

If you can’t Raise Revenue via Income Taxes because of a Bad Economy, go after Wealth

So what if anything is the Obama administration doing to address the problems of this nation?  Well, for one, they’re doing a pretty good job of transferring wealth from the private sector to the public sector (see Banks seeking relief from regulators as deposits swell by Bradley Keoun, Dakin Campbell and Dawn Kopecki posted 8/26/2011 on The Washington Post).

Deposits are flooding into the biggest U.S. banks as customers seek shelter from Europe’s debt crisis and falling stock prices. That forces lenders to raise capital for a growing balance sheet and saddles them with the higher deposit insurance payments. With short-term interest rates so low, it’s hard for financial firms to reinvest the new money profitably…

The extra deposits are problematic because they’re subject to withdrawal, so banks have to park the money in low-yielding short-term investments, Litan said. With few other choices available, banks have stashed their excess deposits at the Fed, which means the cash gets counted as assets.

Do you have a 401(k)?  If so, how did you pick your funds?  Well, if you’re young you probably leaned towards high-yield risky growth funds.  If you’re close to retirement, you probably leaned towards low-yield ‘safe’ income preservation funds.  Young people can ride a few boom and bust cycles and not lose money in the long run.  When you’re close to retirement you can’t.  So you park that money where it’s safe.  Knowing it will be there when you need to withdraw it.

In a volatile world, people and corporations with money act like people who are close to retirement.  They will sacrifice yield to keep their money safe.  Even pay a small fee.  For they don’t want to see their wealth disappear in a crashing stock market.  Or a collapsing bond market.

Now Keynesians attack this ‘hoarding’ of money.  This is the reason why there is no demand.  Which is keeping the economy weak.  Because no one is taking any chances with their money.  So what is a government to do?  Get rich.

If the FDIC agreed to forgive some fees, it would have to give up some of the extra premiums that it’s counting upon to rebuild the Deposit Insurance Fund, which covers customers for $250,000 per account in the event of a failure. That makes the agency unlikely to grant a waiver, one of the people said, adding that the existence of the insurance is one of the reasons banks are able to attract the deposits.

The FDIC’s fund, which fell into a deficit of almost $21 billion after a wave of bank failures, turned positive during the second quarter for the first time in two years, the agency reported this week. On April 1, the FDIC changed its formula for assessing premiums, increasing the cost for most large banks and adding to their deposit expenses.

Yes.  They saw all that money and said I’ll take some of that.  They increased their FDIC fees.  Which is ridiculous because the money is just sitting in the bank.  As if there was no such thing as fractional reserve banking.  Which is the very reason why they created FDIC.  In case banks loaned out too much money when faced with a lot of depositors demanding their money back.  At the same time. 

FDIC was a way to prevent a bank run.  If you know your money is insured even if a bank is going under, you won’t run to the bank to get your money.  But with virtually 100% of these deposits held in reserve, everyone could run to the bank and demand their money back.  And the bank could repay every depositor. 

So why raise the FDIC fee?  Why not?  If you can’t raise revenue via income taxes because of a bad economy, go after wealth.  Especially if it’s just sitting there.  For all intents and purposes, the FDIC fee on funds that a bank does not lend out is little more than a wealth tax.

A Growing Public Sector Oppresses Women whereas Capitalism Unleashes their Potential 

So women are climbing the corporate ladder in emerging countries.  While the world’s number one economy sputters and spits along.  Despite nearly three years of applying a laser-like focus on job creation.  Which in Washington-speak means writing more job-killing regulations.  And thinking of creative new ways to transfer wealth from the private sector to the public sector.

So what’s the big difference between the U.S. and these emerging markets?  Legacy costs.  The U.S. was once an emerging country.  But now it’s a Big Government social democracy like in Europe.  China doesn’t have long established entitlements growing greater than the government can ever hope to fund.  And it doesn’t have an established environmentalist movement choking the life out of free enterprise.  China doesn’t have these.  And their economy is booming.  And women are shattering the glass ceiling.

The lesson is a simple one.  A growing public sector oppresses women.  Whereas capitalism unleashes their potential.  And that is the lesson of the booming emerging markets.

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