Obama is still awesome, despite a few pesky scandals. (feel free to share!)
Wednesday, June 19, 2013
Monday, June 10, 2013
Thursday, May 30, 2013
The Next Big Scandal
The unfolding IRS scandal is chilling, historically so. As is the Justice Department’s spying
on journalists. But, we are likely
only seeing the tip of two icebergs, and there are other entire icebergs. One such iceberg concerns Barack Obama's use of myriad federal agencies to persecute, bully, and harass corporate symbols of non-union success. Federal government agencies as diverse
as The U.S. Fish and Wildlife Service, The Food and Drug Administration, The
National Labor Relations Board, the National Highway Traffic and Safety
Administration, and The FBI, have been thuggishly targeting corporations in support of Obama's big labor union agenda.
President Obama has redefined the “bully pulpit” and marshaled every
tentacle of federal power to do his bullying.
Labor unions are Obama’s largest support system. Unions supplied billions in the last three election cycles, practically all of it to Democrats. More importantly, unions supplied the boots-on-the-ground and the muscle for Obama’s vaunted ground-game (1). The labor union agenda is Obama’s agenda according to Obama himself (2). The most frequent visitors to the oval office are labor union bosses and labor union lobbyists. Government is unionized five times more than the private sector: 36% vs 7% and growing rapidly (3). In essence, when government agents knock down your door, union members are knocking down your door. When the IRS audits you or demands to know the "content of your prayers", those are union members doing that. The IRS’s own labor union boss, Colleen Kelly, was at the White House the day before the IRS abuses started. (This is particularly worth noting in the context of the cases below.)
These corporate/union bullying cases are similar to the IRS scandal in that government agencies were selectively targeting opponents of
Obama’s political agenda. But,
there are significant differences too.
The IRS scandals broke because the targeted parties,
non-profits and individuals, made a big stink. In these corporate cases, the targets are for-profit
corporations who will never make a stink.
Unlike individuals and non-profit groups, corporations have a huge
incentive to keep quiet when being targeted by their government. Corporations answer to their
shareholders, and shareholders care about one thing only - share value. Confronting abusive government is never
a shareholder priority. Corporations are also easily painted as villains. When corporations get unjustly targeted by governments, they
usually suck it up, pay their fines, settle the lawsuits, and quietly get
back to work.
Moreover, these corporations were occasionally bi-partisan targets. That’s
not surprising; The Code of Laws of the United States runs over 200,000 pages
making virtually every corporation, individual, or group in violation of
something and probably many things at any given time. According to author Harvey Silverglate, who wrote a book on
the subject, everyone in the US likely commits “Three Felonies A Day” (4). What
makes these corporate cases conspicuous is the over-the-top way they were
handled, the timing, and the symbolic existential threat they posed to Obama’s
labor union agenda. Taken
one at a time, each case is curious, puzzling; however, taken together and in
the light of the IRS cases, the picture becomes clear.
The
curious case of Tylenol and Johnson & Johnson:
In 2011, the FDA took over three J&J/McNeil/Tylenol plants, shut one of them down, recalled a bunch of products, and started a criminal investigation claiming poor quality on several fronts (5). The infractions cited were various: musty odors, poor quality, bacteria, imperfect doses, and dangerous containers. Headlines were written, criminal violations alleged, reputations shot, management shuffled, mea culpas issued, fines paid, and tons of money lost to J&J. How many people did these deficient products kill? How many were maimed? In all cases…none. Yet, to this day, it is difficult to find brand named Tylenol and many other J&J products in a store.
In 2011, the FDA took over three J&J/McNeil/Tylenol plants, shut one of them down, recalled a bunch of products, and started a criminal investigation claiming poor quality on several fronts (5). The infractions cited were various: musty odors, poor quality, bacteria, imperfect doses, and dangerous containers. Headlines were written, criminal violations alleged, reputations shot, management shuffled, mea culpas issued, fines paid, and tons of money lost to J&J. How many people did these deficient products kill? How many were maimed? In all cases…none. Yet, to this day, it is difficult to find brand named Tylenol and many other J&J products in a store.
This is not to say J&J products are perfect. No company, much less a pharmaceutical
company, can make that claim.
Every drug has side-effects, is prone to misuse, and has
impurities. But, J&J was
severely punished for routine issues. This all has the distinct air of a witch hunt. Why the harsh treatment?
J&J is one of the countries largest pharmaceutical
companies and one of its most revered workplaces. What makes J&J so successful, or any great company for
that matter, is its people. If you
want a great company, you need great people. If you want great people, you need a great workplace. On that score, J&J consistently gets
awards for being one of the best workplaces in the country (6). One reason J&J is such a great
place to work is its founding ideology, and that is precisely why Obama and the
unions have singled it out.
Robert Wood Johnson, a founding member of the company,
immortalized J&J’s ideology in 1943 in a document he called “Our
Credo” (7). Line two, paragraph
two, of the J&J Credo states:
“Everyone must be
considered as an individual.”
This is anathema, inimical, to the concept of a labor
union. A synonym for labor union
is “collective bargaining agreement”.
Unions seek to be considered as a collective, not as individuals. The J&J Credo is a symbolic
existential threat to the very idea of labor unions. Considering J&J’s perch at the top of the prestigious
pharmaceutical industry and their reputation as one of the best places to work,
it is easy to see how they were a symbolic threat to unions.
The Credo also made J&J vulnerable when the federal
government decided to bully them. The Credo states:
“…everything we do
must be of high quality.”
Barack Obama’s tactical bible, “Rules for Radicals” by Saul
Alinsky, teaches:
“Make the enemy
live up to its own book of rules.”
No company could endure the scrutiny of the FDA when
determined to find things like bacteria (which is everywhere), and odors (which
are everywhere). Whole J&J
plants have been shuttered for such nebulous infractions.
Today, J&J does employ union workers. Unionization at J&J runs about 5%
compared to 7% for the entire private sector (8). Public sector unionization is seven times higher averaging 36% (3). Not only was J&J a possible
target due to their prominence and Credo, they were also unionized at below
average rates.
Side bar: In
the 1980s, seven people died after ingesting cyanide tainted Tylenol. The case was never solved, but the
investigation did narrow the source of the cyanide to the Tylenol distribution
network around Chicago. Chicago in
the 1980s would have been the perfect place if a union had wanted to frame a
corporate enemy with poisonings and get away with it. Organized crime and organized labor controlled everything
including local law enforcement and politicians. (Not sure much has changed.) Moreover, unions in Chicago had control of the packaging and
distribution of Tylenol. Tylenol
was shipped from J&J’s plants in bulk containers to independently owned
distribution centers where it was put into capsules, then into jars, and
finally boxed and shipped to retailers.
The cyanide was introduced somewhere in that union distribution network (9).
One person, James Lewis, was convicted for extortion related
to the Tylenol case and is still considered a suspect, but he has never been
charged. Following the murders,
J&J took their packaging away from the independent contractors and the
unions and began doing it in-house.
Unions may have had nothing to do with those murders, but they did have
the means, the motive, and the opportunity.
The
curious case of Toyota and unintended acceleration:
On August 28, 2009, four people were tragically killed in a Lexus with a stuck accelerator. The tragedy properly led to further inquiry, and at the end of it all:
On August 28, 2009, four people were tragically killed in a Lexus with a stuck accelerator. The tragedy properly led to further inquiry, and at the end of it all:
· NHTSA
had taken several Toyota models off the market (an unprecedented move)
· Obama’s
Transportation Secretary, Ray LaHood, instructed Americans to not drive Toyotas
(also unprecedented)
· Toyota’s
top leadership, including President Akio Toyoda, was compelled to testify
before congress
· There
were numerous congressional hearings
· There
was a 1.1 billion dollar lawsuit settlement
· Toyota
was ordered to pay about $15 million in fines to the National Highway Traffic
and Safety Administration
· Millions
of cars were ordered recalled
· Toyota
lost its spot as the number one autmaker in the world
· Billions
were lost in value and profit.
· Toyota’s
reputation was seriously damaged.
What caused the unintended acceleration and what was the
fix? In the case of the tragic
Lexus accident that triggered it all, it turned out to be errant floor mats
installed by a dealer. No other
cause was ever definitively found (10). Toyota did eventually recall millions of cars and replace some
parts, but the whole issue faded with a whimper.
Unanticipated acceleration is a ubiquitous charge against
all automakers. It is nearly
impossible to prove or disprove.
In short, the case against Toyota was a giant witch-hunt which seriously
hurt Toyota and helped GM. Why
would the government want to hurt Toyota and help GM?
Not only is Toyota non-union while its rival GM is
unionized, the UAW union owns GM along with the federal government who is the
majority shareholder. That makes
Barack Obama the overlord of GM, Toyota’s main competitor.
Consider the following timeline:
2008 - Union support of Barack Obama helps him win the
Presidency of the US
Non-union Toyota surpassed
unionized GM as the world’s largest automaker
2009 - GM and
Chrysler go bankrupt and get bailed out by the US government, which hands a
huge chunk of GM to the UAW union
Toyota is accused of unanticipated
acceleration
Toyota cites floor mats and issues
warning.
2010 – The ubiquitous complaints persist and the US
government insists on recalls
Toyota is forced by the US
government to cease selling several models, unprecedented in automotive
history.
GM offers $1,000 checks to Toyota
owners who switch to GM cars
Toyota sales are flat for the year.
GM sales rise 21% for the year.
But there’s more. The unions had other reasons to have Toyota in the
crosshairs. While Toyota is
non-union, they did have one plant in California that was a joint venture with
GM staffed by UAW workers. The
partnership was called NUMMI, New United Motor Manufacturing, Inc. GM pulled out of that partnership in
2009 after the government take-over.
Obama and the unions apparently had no interest in a partnership with
non-union Toyota now that they owned GM.
Toyota was then stuck with UAW workers who had an inherent conflict of
interest; while they worked for Toyota, they were also part owners of its
largest competitor. Toyota chose
to close the plant and the unions responded with a fatwa:
"You are going to see an attack on Toyota that is
unprecedented." said Rome Aloise, a
top Teamsters official.
"We will take
this fight to every Toyota dealership in California." Richard
Trumka, president of the AFL-CIO, said via a videoconference link. "Our
message is that Toyota kills American jobs. This comes at a time when Toyota
can ill afford another black eye."
"If they close
the NUMMI plant, we union people will not buy another Toyota." said Bob King, UAW vice president.
The source of the above quotes is a definitive piece on the
subject, “Firestone Revisited: Was Toyota a takedown target in the name of
NUMMI?” by Mandy Nagy (11)
Despite all that and the tsunami in Japan, Toyota recently
regained their position as world’s largest automaker surpassing GM in global
sales. Their cars still do not
accelerate unexpectedly.
Side bar: If
you were around in the ‘80s when Audi was practically forced out of the US
based on a similar charge of unintended acceleration, this may all sound
familiar. In the Audi case, like the Toyota case, the whole thing turned out to
be nebulous at best, and at worst, a coordinated attempt to take-down
Audi complete with a scary "60 Minutes" story. At the time, Audi of Germany was having
unprecedented success in the US with its Audi 5000 model and eating into the
lucrative UAW made Cadillac and Lincoln markets.
The curious case of Gibson Guitar Corp:
On August 2nd, 2011, armed federal agents from The US Fish and Wildlife Service raided Gibson Guitar Corp. in Nashville Tennessee. They stormed-in like a swat team, frightening workers, shutting down production, and confiscating computers, raw materials, documents. This was the second time Gibson had been raided since Obama took office, the first having occurred in 2009. At the time, the reasons given had to do with some alleged violation of an obscure statute having to do with foreign laws and exotic wood. This made no sense. Other guitar makers were using the exact same wood, but they weren’t raided. Why Gibson?
On August 2nd, 2011, armed federal agents from The US Fish and Wildlife Service raided Gibson Guitar Corp. in Nashville Tennessee. They stormed-in like a swat team, frightening workers, shutting down production, and confiscating computers, raw materials, documents. This was the second time Gibson had been raided since Obama took office, the first having occurred in 2009. At the time, the reasons given had to do with some alleged violation of an obscure statute having to do with foreign laws and exotic wood. This made no sense. Other guitar makers were using the exact same wood, but they weren’t raided. Why Gibson?
Some suggested Gibson was targeted because CEO and owner,
Henry Juskiewicz, gave donations
to Republicans while Martin Guitars, Gibsons rival in the acoustic guitar
market, donated to Democrats. This
suggestion has re-emerged in the wake of the IRS scandal, but this also makes
no sense. Lots of CEOs give to
Republicans and don’t get raided by armed federal swat teams.
No, Gibson, like J&J and Toyota, symbolized an
existential threat to Obama’s union agenda: Gibson had relocated from a forced-union state to a
right-to-work state.
Gibson was founded in Kalamazoo, Michigan, right smack
in-between union strongholds Chicago and Detroit. But, Gibson moved production to Tennessee in the 80’s,
fleeing a forced-union state for a right-to-work state. This is a cardinal sin for Obama and
the unions. Obama has called the
right-to-work “the right to work for less money” (12). Unions hate right-to-work laws because
it makes future unionization less likely and less lucrative for them.
Side bar: Gibson’s two major competitors in the
domestic-made guitar market, Martin and Fender, both manufacture primarily in
forced-union blue states, Pennsylvania and California respectively. Fender Musical Instruments, Gibson’s
rival in the electric guitar market has historical ties to media giant CBS,
which owned the company until the mid ‘80s. (Meanwhile, Michigan became a right-to-work state in 2012,
and the conversion did not please Obama or the unions (13).)
The curious case of Boeing:
The curious case of Boeing:
Another curious case which relates to Gibson is the case
of Boeing’s South Carolina plant.
When Boeing tried to relocate some production to right-to-work South
Carolina, Obama and his NLRB tried to block Boeing from operating the plant
which had already been built at the cost of a billion dollars. The whole thing was an outrageous and
obvious attempt to both intimidate others from relocating to right-to-work
states, and blackmail to get Boeing to reach agreement with its machinists
union in Washington State. It
likely succeeded on both fronts (14). In light of the Gibson case and the question of motive, the Boeing case highlights the extent
to which Obama will go towards bullying corporations to achieve his ends.
Whenever Barack Obama acts in a puzzling way, it is best to
consult his tactical mentor, Saul Alinsky, for therein usually lies the
answer:
“The Radical may resort to the sword but when he does he is not filled with hatred against those individuals whom he attacks. He hates these individuals not as persons but as symbols representing ideas or interests which he believes to be inimical to the welfare of the people.” Saul Alinsky, 1946 (emphasis added)
The unifying theme in all the above cases is that
the targets are all “symbols representing ideas or interests” which Obama
believes to be inimical to his political agenda. All four companies are leaders in their industry and they
threaten unions in symbolic ways:
J&J because it is so successful and has a Credo to treat employees
as individuals, Toyota because it is non-union and is UAW/GM/Obama’s top rival,
Gibson because it fled Michigan’s forced-unionism to relocate in a
right-to-work state, and Boeing because it was a twofer: leverage for the machinists and a message about right-to-work.
Unfortunately, these are not the only cases. Unions have a long history of playing dirty and dangerous
when threatened. What makes all
this so remarkable and chilling is that, in Barack Obama, the unions have a new
thuggish partner capable and willing to use the full force of the federal
government to harass their mutual enemies.
Individually, each case could be dismissed as plausibly due to some
overzealous agency, but when taken as a whole, there can be no
benefit-of-the-doubt.
(8) According to sources at J&J. J&J declined to comment on their
labor relations or union relations.
Wednesday, May 22, 2013
Defund Obama
Impeach Obama? Ain't gonna happen. I don't care how bad these scandals are, and they are really bad, we are stuck with Obama for the duration. Practically everyone in media, entertainment, and academia voted for Obama, and if you voted for Obama you most likely: a) don't know about the scandals, b) would never admit you screwed-up, c) say, "what difference does it make?", d) think it's all Bush's fault, or e) all the above. This makes impeachment and removal impossible.
There is another way to act decisively; just avoid paying taxes. If you are among the informed and intelligent minority who believe Obama should be removed, if you believe he used the IRS like a Gestapo to kill dissent, if you believe he abused his power, if you believe he used the DOJ like a KGB to spy on his detractors, if you believe he lied when he knowingly blamed the Benghazi attack on an innocent videographer who still sits in jail to this day, then you should defund him. Go Galt, invest in tax free municipal bonds, barter, live off your assets, go off the grid, start a non-profit (you may want to think about that last one), tell your Congressman to defund him. Do everything you can to legally avoid federal taxes and defund Obama. That's the only way.
BTW, break no laws! We can defund Obama legally if we work together. You will never eliminate all your taxes, but you can certainly avoid a bunch if you make changes. Remember, GE pays no taxes and breaks no laws. Of course, you will never have the advantages of government access and legal advice that Obama's friend GE has, but you can probably cut your tax liability with some effort. Make the effort. Defund Obama. It's all you can do, unless you're content with just fuming.
There is another way to act decisively; just avoid paying taxes. If you are among the informed and intelligent minority who believe Obama should be removed, if you believe he used the IRS like a Gestapo to kill dissent, if you believe he abused his power, if you believe he used the DOJ like a KGB to spy on his detractors, if you believe he lied when he knowingly blamed the Benghazi attack on an innocent videographer who still sits in jail to this day, then you should defund him. Go Galt, invest in tax free municipal bonds, barter, live off your assets, go off the grid, start a non-profit (you may want to think about that last one), tell your Congressman to defund him. Do everything you can to legally avoid federal taxes and defund Obama. That's the only way.
BTW, break no laws! We can defund Obama legally if we work together. You will never eliminate all your taxes, but you can certainly avoid a bunch if you make changes. Remember, GE pays no taxes and breaks no laws. Of course, you will never have the advantages of government access and legal advice that Obama's friend GE has, but you can probably cut your tax liability with some effort. Make the effort. Defund Obama. It's all you can do, unless you're content with just fuming.
Thursday, May 16, 2013
Wednesday, May 15, 2013
Friday, May 10, 2013
IRS, Guns, Speech, and Tyranny
The Obama IRS has admitted targeting conservative groups. Yes, that really happened. Good thing they aren't in-charge of enforcing ObamaCare. Oh, wait...
Meanwhile, Obama has been mocking gun owners over "ginned-up" fears of tyranny and telling commencement audiences to reject voices that warn of government tyranny. That's kind-of ironic don't you think?
So, recapping recent events: Obama's version of Benghazi is an exposed lie, the blamed filmmaker is still in prison for hurting no one while exercising his first amendment rights, the IRS admits targeting conservatives, and Obama is going around mocking Americans who believe governments are capable of tyranny. That's two amendments down, eight to go in the bill of rights. Now we have another piece of what that "fundamental transformation" Obama promised is all about!
(Updated)
Wednesday, April 24, 2013
Why we do Redistribution all Wrong
Redistribution goes back a long time. The first undocumented case of
redistribution was back in caveman times when a particularly disciplined and
skilled hunter, let's call him Grok, managed to kill more food than he and his
family could immediately consume.
In stepped the tribal leaders who, realizing that others in the tribe
were hungry and somewhat envious, confiscated the bulk of Grok’s food and
redistributed it to the others. Of
course, in a tradition that would be forever etched in stone, the tribal
leaders took a huge chunk for themselves.
Redistribution, in one form or another, has gone on unabated ever
since.
Naturally, in the wake of this redistribution, Grok decided
to spend less time hunting and more time on his hobby, which was etching
pictures on cave walls. His family
was soon as hungry as the rest of the tribe, and as history has shown, such is
the fate of an artist’s family.
When tribal leaders redistributed Grok’s food, they were
doing more than just redistributing his wealth. They were redistributing his power, responsibility, and
rights too. Grok’s power to provide for his family's future was taken from him
as was his right to his own work.
Meanwhile, the responsibility to feed others was redistributed to
Grok. Anything can be
redistributed, and is in modern societies. Life, Liberty, and the Pursuit of Happiness included. Redistribution can be any coerced transfer
of wealth, power, or rights from individuals or groups, for the explicit
purpose of benefiting other individuals or groups.
Neither Karl Marx, Vlad Lenin, Mao Zedong, or even Barack
Obama are innovators in redistribution.
They just took it to relatively new levels in their societies. Every society, from the most democratic
to the most autocratic, does some kind of redistribution. No politician, particularly in a
democracy, can afford to oppose redistribution in its entirety, even though
many are philosophically opposed to coercing one person to give to
another. Blame it on the collective
will. Universally, the people
allow and desire some redistribution to satisfy needs and envy within the
society.
Yet, redistribution is our nemesis too. It is the opiate of the people. Free stuff paid for by others. Rights granted by denying others
theirs. Costs passed to the
unborn. It has led to deficits
unprecedented in human history. It
has ruined societies right in our lifetime. It kills incentive.
It was the primary cause of our recent financial collapse, which was
precipitated by a giant redistribution scheme that gave easy money to marginal
homebuyers. And yet, neither party
has satisfactorily figured out exactly where to draw the line. Both parties played roles, albeit
to varying degrees, in the recent crisis.
Amidst this confusion, the default position of the voters has been: redistribute more, and redistribute it
to me!
In the US, the two political parties are not far enough
apart on redistribution. It
is safe to say that one party advocates progressively more redistribution than
we have at any given time, while one party advocates less. But, that puts them both firmly in the
redistribution camp, only with varying degrees. This results in an arbitrary and nebulous difference between
the parties. Hence, the claim by
some that there’s not a “dimes worth of difference.” As one party just found out, this can result in voter
apathy. History has proven it
also leads to runaway deficits regardless of which party resides at 1600
Pennsylvania Avenue.
What I propose is a policy that will create a bold
distinction for politicians, win elections for them, and insure that
redistribution is done responsibly, all the while acknowledging the undeniable
human instinct to redistribute.
This can be done by opposing all redistribution at the federal level,
and at the same time recognizing that redistribution is essential at the state
level. This is not a
contradiction. In fact, the
Founders showed us how. The
problem is not redistribution per se.
The problem is only federal redistribution. State and local governments must be
free to redistribute as they please.
But states are not able to print money, and thus market
signals will ensure redistribution is done with discipline. This is essentially what the
constitution prescribes. By articulating
this distinction, responsible politicians can both side with voters, who want
redistribution, and be 180 degrees opposed to the irresponsible redistributors
who want to continue doing it the unsustainable way we have been doing it.
I believe separating redistribution from the federal sphere
is the system we were given in 1789.
For one, the constitution limits the power of the federal government to
a few things and redistribution is not one of them. For two, one of the things the constitution does grant to
the federal government is the power to create, borrow, and manage money. Redistribution combined with the power
to control money is a formula for disaster. This sets up a massive conflict of interest for politicians
who can use redistribution to endlessly buy votes with borrowed and printed
money.
Politicians who run nationally and vow to redistribute less
are seen as party-poopers who want to remove the punch bowl. The austerity approach has been, and
will continue to be, a losing one.
Nor has it been an effective one at stopping the problem. Fiscal conservatives (few though they
are) have only been able to slow the acceleration of the fiscal train wreck,
but the train has continued to accelerate. I don’t see voters voluntarily removing the punch bowl
either. They like the punch. It
makes them feel good. They
are not going to stop drinking because they have been shielded from the
hangover.
I have heard the argument that the constitution twice
mentions the term “general welfare” and thus the founders wanted the federal
government to be the provider of “welfare”, or redistribution. This is a canard. Both mentions of “general welfare” in
the constitution refer to the federal government, not to “the people”. Thus the phrase is not about
redistribution, but rather about having roofs over government buildings, paying
government workers salaries, arming soldiers, providing adequate courthouses,
and the like. It is about running
the government properly and seeing to its general welfare. General welfare was never intended to
mean satisfying the needs of individuals in society.
The constitution however, does enumerate the powers of
printing, borrowing, and managing money to the federal government. As the world’s current lone superpower
and issuer of the world’s main reserve currency, we are in a unique position to
print and borrow money at little or no present cost. But that’s just how it appears in the present. As Milton Friedman was fond of saying,
“There is no such thing as a free lunch”.
Someday, the real cost of borrowing $20 trillion and printing trillions
more will rear its ugly head.
What have we done with all those trillions? We used it to redistribute wealth from
future individuals to present ones, with the express purpose of obtaining votes
in the present. This is the “fatal
deceit”, to paraphrase a term, of our deadly mixture of federal redistribution
and federal borrowing and money printing.
We must separate these functions and eliminate the conflict of interest
if we hope to have a sustainable future.
No, we did not spend 20 trillion dollars on “unfunded
wars”. No war in history was ever
fought without being financed. In
other words, no wars are “funded” with current receipts. Our debt and printing issues are the
demographic result of the above conflict of interest. Politicians can only boost revenues temporarily to keep up with our runaway redistribution. But revenues always fall back to the average of 18% of GDP while the redistribution climbs ever upward. Even in the 90s, when many people claim the budget was balanced,
unfunded liabilities were never included and it was in the 90s when the seeds were sown for the recent
financial crisis. The high revenues in the 90s were short-lived and based on bubbles in technology, housing, and lowering of the capital gains rate.
Why is it that the party of less redistribution is more
successful at the state level (they currently hold 30 out of 50 governorships
and 27 legislatures to the other party’s 17), yet they have struggled at the
national level? I would
argue the key difference is the seemingly unlimited ability of the federal
government to print and borrow money and thus obscure the true costs of its
redistribution. States must
function in the real world of finance where choices have consequences and
redistribution must be paid for.
One argument would be, “Well, what about California,
Illinois, and New York, etc.?
States aren’t so good when it comes to managing their own finances! Why should we have them run all the
redistribution programs too?” To
that I would say, yes some states are a mess, but others are in good shape. It’s about 33% bad and 67% good for
states. The federal government is
a 100% mess! The states are way
better overall, and the ones in trouble are about to have to reckon with their
spending because they are bleeding population, businesses, high earners, and
cash. The market is giving them
signals, signals that do not exist at the federal level.
One reason a third of the states are a mess is that they
currently have a limited stake in managing their own redistribution. That’s because, although states manage
many of their own redistribution programs, one third of the money comes from
the federal government. The
incentive for state politicians is to be as generous as possible, kiss up to
the federal government, and tap federal taxpayers somewhere else to pay for
their largesse. But there are
limits, which is why a majority of states get it right. Every state has some form of balanced
budget law except tiny Vermont, which is small enough to have a bake sale to
make-up any shortfall!
Look at the European example: The Euro has only been in existence for 12 years, yet thanks
to the inability of the PIIGS (Portugal, Italy, Ireland, Greece, Spain) and
Cyprus to revert to the printing press, market signals have exposed their bad
habits. Discipline is sweeping the
Euro zone, not without some pain, but the result should be a sustainable
future. We in the US currently
have no such market signals warning us of our trajectory.
Again, I’m only talking about eliminating federal
redistribution. Politicians at the
national level should not oppose redistribution at the state or local
level. They should be consistent
with the constitution and the constitution leaves this up to the states and the
people. Societies want a safety
net. That much is axiomatic. Voters want a certain amount of
welfare, food stamps, subsidized healthcare, free contraception, subsidized
mortgages, etc. Politicians at the
national level must defer to the states and support the will of the
people. States and
individuals must decide the proper level of welfare and redistribution they
desire. But this can be done much
better by the states, with correct feedback signals, than it can at the federal
level without them. State taxpayers
will have to make the hard choices and decide the proper level of the safety
net they are willing to fund. No
magic money involved. They also
will be in a better position to eliminate fraud and abuse. (Did you know that the states
administer Medicaid, but the money comes from the federal government? Neither party has an interest in
stopping Medicaid fraud: the state because it costs them nothing, and the Feds
because it’s not theirs to administer!)
Of course, taking this stand will require transitional
details. How do we turn Social
Security, Medicare, ObamaCare, and Medicaid, over to the states? In fact, any federally coerced transfer
from individuals for the explicit purpose of benefiting other individuals would
have to be turned over to the states along with the revenue stream which funds
it. Federal taxes and spending would go way down, while state taxes and spending would
go up by a commensurate amount.
We would also need to address the backdoor redistribution
schemes. This is the type that got
us into the financial crisis in 2008.
The federal government mandated that banks lend money to anyone,
regardless of ability to make payments. My Labradoodle could have gotten a mortgage. Then the feds bought up many of the bad
mortgages through government-sponsored creations like Fannie Mae and Freddie
Mac (FNMA & FHMLC). No one's taxes went up. No wealth was redistributed initially. It was all done through the backdoor in the form of a "redistribution of risk". All of the
explicit redistribution, as well as this backdoor type must go to
the states.
The actual details of the transition are beyond the scope of
this proposal. I’m proposing this
as a policy stance for politicians and voters who agree that: a) Our current debt path is
unsustainable. b) Austerity is not a politically viable solution. c) The root
cause of our unsustainable path is a conflict of interest. d) The conflict is
the result of redistribution combined with our ability to print and borrow
money with little or no present cost. e) Voters and most politicians have
little incentive to fix this because it benefits them. f) There is, however, a
passionate group of politicians and voters who want to fix this. g) The above
proposal is a viable strategy to fix it.
Those that agree and know the system best can work out the details.
By standing against all federal redistribution, and
simultaneously standing for the rights of states to redistribute as they
choose, politicians can draw a clear ideological contrast with their opponents
and still be aligned with voters. The only reason politicians will oppose this
is because it will interfere with their ability to buy votes. Smart politicians will smoke them out, and put us on a sustainable fiscal course.
Tuesday, April 23, 2013
An Economic Lesson from the Boston Marathon Bombing
Looking at the events in Boston, between the bombing and the capture of the second suspect, an interesting economic analogy can be made and a lesson learned: The free market triumphed where socialism would have failed.
In every case, the key intelligence that ID'd the suspects, led to them, and eventually got them, came not from elite crime experts at the top, but rather from average people functioning in a free market of observations and feedback. Those that solved this crime were not endowed with special training or powers. They had no advanced degrees in criminology. They were simply closest to the action and in the largest possible numbers.
To review: A victim named Jeff Bauman woke-up minus two legs and the first thing he did was describe the bomber. Armed with that information, the investigation proceeded to the video cameras of Lord & Taylor, where the described suspects were clearly visible. Next the public was recruited to find them, and this paid off when a 7-11 clerk reported a robbery. Finally, a boat owner stepped outside for a smoke, noticed something amiss with his boat, and climbed up a ladder to take a peek. There he saw the semi-concious wounded bomber and alerted officials.
To draw an economic lesson from this, free market intelligence signals succeeded where a top-down socialist style intelligence model could not. The point is, as in socialism where there are impediments to economic market signals, the FBI could not have succeeded if they had shut out the public from this manhunt. In fact, the government was warned about these two terrorists by a foreign nation, and completely dropped the ball.
This is not to downplay the role of the FBI and local law enforcement in fighting crime. The armed guys and the intelligence guys who pulled all the threads together were essential to the eventual resolution. Just as in any functioning market economy, the government is essential to performing functions of law and order.
But under socialism, the government is not limited to roles of law and order. They either own or control a majority of the economic activity too. The socialists try to tweak their managed economy according to market signals, but they can never do so as efficiently, quickly, or accurately as a free market economy. All those non-experts, close to the action, making second-to-second decisions will outperform the elite experts trying to do so every time. That's what happened in Boston.
In every case, the key intelligence that ID'd the suspects, led to them, and eventually got them, came not from elite crime experts at the top, but rather from average people functioning in a free market of observations and feedback. Those that solved this crime were not endowed with special training or powers. They had no advanced degrees in criminology. They were simply closest to the action and in the largest possible numbers.
To review: A victim named Jeff Bauman woke-up minus two legs and the first thing he did was describe the bomber. Armed with that information, the investigation proceeded to the video cameras of Lord & Taylor, where the described suspects were clearly visible. Next the public was recruited to find them, and this paid off when a 7-11 clerk reported a robbery. Finally, a boat owner stepped outside for a smoke, noticed something amiss with his boat, and climbed up a ladder to take a peek. There he saw the semi-concious wounded bomber and alerted officials.
To draw an economic lesson from this, free market intelligence signals succeeded where a top-down socialist style intelligence model could not. The point is, as in socialism where there are impediments to economic market signals, the FBI could not have succeeded if they had shut out the public from this manhunt. In fact, the government was warned about these two terrorists by a foreign nation, and completely dropped the ball.
This is not to downplay the role of the FBI and local law enforcement in fighting crime. The armed guys and the intelligence guys who pulled all the threads together were essential to the eventual resolution. Just as in any functioning market economy, the government is essential to performing functions of law and order.
But under socialism, the government is not limited to roles of law and order. They either own or control a majority of the economic activity too. The socialists try to tweak their managed economy according to market signals, but they can never do so as efficiently, quickly, or accurately as a free market economy. All those non-experts, close to the action, making second-to-second decisions will outperform the elite experts trying to do so every time. That's what happened in Boston.
Monday, April 15, 2013
The True Tax Rate is 70%!
Almost every interesting economic proposition shares a confusing characteristic: what’s true for the individual is the opposite of what’s true for the country as a whole. To a consumer buying shoes, it appears as though the price is fixed and the supply is elastic. Consumers can buy as many shoes as they want as long as they are willing to pay the asking price. But to the country as a whole, it is the supply of shoes that is fixed and the price that is elastic depending on demand. This paradox permeates economics.
-- Milton Friedman - paraphrased from a speech titled “Money and Inflation” , 1980 (herein referred to as "Friedman's Paradox")On Nov. 29, 2012 the New York Times ran a piece by Binyamin Applebaum and Robert Gebeloff titled, “Tax Burden for Most Americans Is Lower Than in the 1980’s”. The authors cite New York Times research, which makes the case that taxes are historically low especially on the rich. They calculate rates for various income groups and come up with a top marginal tax rate, at all levels of government (federal, state, and local), of 42.1%, compared to the 1980’s when it was 49%.
A couple of weeks later, On Dec. 12, 2012, the Wall Street Journal ran an op-ed by Edward C. Prescott and Lee E. Ohanian with nearly the opposite title, "Taxes Are Much Higher Than You Think". After studying tax rates, again at all levels of government, Prescott arrived at an average marginal tax rate of 40%, while the authors contend that the perception is that taxes are much lower.
So, the New York Times pegs the top marginal rate at 42.1% and Prescott and Ohanian have the average marginal rate at 40%; not enough of a difference to get too excited about. Yet, the two pieces seem to ascribe opposite perceptions to the public, and seem to promote opposite policy prescriptions. Who’s right?
With all due respect to these esteemed authors, neither is right. Here’s why taxes are much higher than most people think, and much higher than even Prescott and Ohanian think. Here’s also why The New York Times piece is wrong about taxes being higher in the 1980’s.
Keep your eye on one thing and one thing only: how much government is spending, because that’s the true tax ... If you’re not paying for it in the form of explicit taxes, you’re paying for it indirectly in the form of inflation or in the form of borrowing. The thing you should keep your eye on is what government spends, and the real problem is to hold down government spending as a fraction of our income, and if you do that, you can stop worrying about the debt.
--Milton Friedman - from the same "Money & Inflation" speech, 1980 (herein referred to as "The True Tax")
Both studies above employ similar methodologies based on individual tax rates. But according to Friedman’s Paradox, what is true for the individual is often the opposite for the country as a whole. Instead of looking at individual rates in every jurisdiction and arriving at an average rate as both sets of authors appear to have done, the better way, the simpler way, the more inclusive way, and the Friedman "True Tax" way, is to find total government spending and compare that to Total Income. By doing that, we learn what is happening with taxes in the country as a whole, inclusive of all borrowing, printing, business taxes, and indirect taxes.
Here are the results when Friedman’s True Tax methodology is applied to 2012:
· Gross Domestic Product (GDP) was about $15.8 trillion*So the True Tax rate was 65% in 2012, when expressed as a percent of Total Income. But that doesn’t include money creation/printing by the Fed, which may or may not be considered spending. Since 2008, the Federal Reserve has created two trillion dollars in new money and that money is not included on any ledger of government spending. The Fed claims it isn’t actually spending money when it creates money because it is buying US bonds, which it can later sell. This is the exact same argument Fannie Mae and Freddie Mac were making about home mortgages - right before they went under. To settle this, let’s just say inflation has averaged about 5% since we dropped the gold standard in 1971. If we use that conservative figure, and add 5% to 65%, that yields a total True Tax rate of 70%!**
· Total govt. spending at all levels was about $6.2 trillion
· Total Income was about $9.6 trillion. ($15.8t - $6.2t = Total Income)
· True Tax rate is about 65%. (6.2t / $9.6t = True Tax Rate)
(Traditionally, tax rates are expressed as a percent of GDP, but GDP can be artificially inflated by money printing and borrowing. Since Friedman referred to “income”, subtracting govt. spending from GDP, makes sense. Government does not generate income, only the private sector does. Moreover, Total Income closely tracks AGI (Adjusted Gross Income) reported on 1040s. AGI is the basis on which income taxes are calculated.)
That is not the top marginal tax rate for high earners like the New York Times calculated. Nor is it an average marginal rate like Prescott arrives at. That’s the average tax rate on every single dollar of our Total Income. When Friedman’s Paradox is applied to tax rates, the illusion of progressive taxation goes away. Essentially, we are all in one big tax bracket, whether we know it or not. Our individual income tax rates vary, but there are enough taxes buried in everything we buy that it levels-out our average burden. We all pay roughly $.70 of every dollar we earn on taxes. You may think your lawyer, oil company, or banker just got a big tax hike, but their increased tax burden is passed right back to you in the form of higher fees. Their hike is your hike, and so it goes, ‘round and ‘round.
(Update: Having recently read some commentary and heard Robert Reich speak glowingly about the economics of the 1950's with its high wages, "high taxes", lots of unions, narrow income gap, etc., I thought I'd calculate the True Tax rate for 1950 and 1960. About those “high taxes”, eh, not so much...the rate in 1950 clocks in at 31.4% and 1960 at 40.3%. True Taxes today are double what they were in the 1950s. The 1950s are so beloved because Europe, Japan, the USSR, etc. were still smoldering from WWII, China was still in loincloths, and we had a brand new industrial infrastructure to unleash. The desire to return to the economics of the 1950s is a fantasy that could only be fulfilled by a third world war fought in Europe and China!)
Here’s a rough breakdown of the $.70 tax everyone pays on every dollar of Total Income: $.30 is paid in direct taxes. These are the explicit taxes everyone sees: Income taxes, employee’s portion of payroll taxes, sales taxes, property taxes, etc. $.25 is buried in the prices of things we buy. These are the stealth taxes: business income taxes, employer’s portion of payroll taxes, business property taxes, use taxes, fees, etc. $.10 is deferred onto future generations as borrowings, and $.05 is deferred and/or eaten by inflation due to money creation. ***
In 1985, the middle of that decade, we spent $1.5 trillion at all levels of government, reported GDP of $4.2 trillion, and had Total Income of $2.7 trillion resulting in a True Tax rate of 56%.* If we add 5% for inflation, as we did for 2012, that would yield 61%, but the Fed was not printing $.5 trillion a year in 1985!** In either case, whether we use 56% or 61% , taxes today at 70% are quite a bit higher than they were in 1985. Certainly not less, as The New York Times piece asserts.
Inflation is taxation without legislation.
--Milton Friedman
The differences between all these numbers and our perceptions are the result of our political and monetary systems. Politicians at all levels of government and The Federal Reserve are able to hide huge chunks of our True Tax burden from us. All we see is the $.30 in explicit taxes, while the remaining $.40 is buried and/or deferred on others.
Are voters stupid? They’re probably just human. The main reason voters do not realize they are being taxed $.70 of every dollar of Total Income is that $.40 is in the form of stealth, or indirect taxes, which are buried in everyday prices. All the taxes and fees paid by businesses, like payroll taxes, income taxes, property taxes, use taxes, and fees, are built into everyday prices. Take a simple MacDonald’s Big Mac hamburger: Before that hamburger gets to you, the farmer who grows the corn, the rancher who raises the beef, the farmers who grow the wheat, tomato, lettuce, onions, eggs, the trucking company, the oil companies, the restaurant owner, the advertising company, and many more, all pay taxes for their payrolls, income, land, fuel, and supplies. Those taxes are passed on to you when you buy that hamburger, but you have no way of measuring their cost!
Then there are the deferred taxes. The difference between what governments spend and what they collect in taxes must be acquired either by creating/printing, or borrowing money. Creating new money devalues the currency (all other things being equal) and will eventually cause inflation. Excessive inflation is politically dangerous and therefore avoided, except as a last resort. Borrowing is simply deferred taxation, or deferred money creation. Of the two, it is much easier to get away with. Both borrowing and creating money have a deferred negative impact, but an instantaneous positive one. Voters are simply acting like imperfect humans and choosing instant gratification while deferring pain. Unfortunately, they are also taking benefits for themselves in exchange for passing the costs onto future generations.
The two big disconnects confronting taxpayers are 1) The level of stealth taxes at all levels of government, and 2) The ability of the federal government to create and borrow money, and then spend it on benefits to buy votes.
1) Stealth taxes are surprisingly the biggest item in the gap between perceptions and reality. Voters should insist on eliminating hidden taxes. Every tax should be leveled at a voter. None at businesses. After all, businesses do not vote. We must go back to the idea of “no taxation without representation”. This is a loophole in our political system and has led to a huge economic disconnect. A hidden tax is a license for politicians to do what comes naturally: buy votes. All taxes, to use Milton Friedman’s word, should be made “explicit” to voters.
2) The Federal Government, due to its role as issuer of the currency, must not be the entity providing safety net and/or entitlement items. There is an inherent conflict of interest when politicians control the creation and borrowing of money and can lavish benefits on their constituents. State and local governments cannot print and borrow as the feds can. Therefore, they must be the ones handling safety net and/or entitlement items. If states want to increase payments, they must raise revenue. If they want to cut taxes, they must cut spending. States therefore should take-over things like Medicare, Medicaid, Obamacare, Social Security, etc. Voters should insist on this. Moreover, the constitution clearly intended these things be done by the people and the states, not the federal government.The way to align the needs of voters and politicians in the US is to get the states and local governments to handle all safety net and/or entitlements, and get voters to explicitly pay the True Tax. Of course, federal taxes would drop, federal business taxes would be eliminated, and a commensurate rise in state and local taxes would occur. But going forward, the whole system would be more responsive and visible to voters. If we did just those two things, we would quickly have a smaller, more efficient, less costly, and more responsive government at all levels.
And everyone including Prescott, Ohanian, Applebaum, and Gebeloff would know the True Tax rate.
This piece has been updated from the original which was titled "Taxing Logic" and was published on this site 1/14/13
*Spending figures are from usgovernmentspending.com, and GDP figures are from BEA . Various pages were used on all sites. 2012 numbers are estimates. All numbers were rounded.
**Inflation figures are from BLS.gov and numbers were rounded.
***Breakdown figures come from usgovernmentspending.com where each revenue line item was subjectively allocated to either direct taxes or indirect taxes. Numbers were rounded.
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