I enjoyed the speech you gave recently in which you said there’s no question the administration’s economic recovery program is moving us in the right direction. In just the short time since the stimulus package was enacted, the country has gained nearly a half-million new government workers while jettisoning more than 2 million private-sector jobs. I hope we can continue this positive trend. I’ve said for years that the main problem with our economy is that it produces too many private-sector jobs and not enough government jobs.
Consider the compensation packages, for example. Our society has finally evolved to the point where the average salaries and benefits for government workers are nearly double what we find in the private sector. If we could just turn every job into a government job, those poor schmucks currently employed in the private sector would be a lot better off. Plus unemployment would become nothing more than a bad memory, since it’s impossible to dismiss government employees as long as they don’t open fire on their co-workers.
I am, however, a little concerned about the cost to the Treasury. I read in the newspaper that each job created or saved by the stimulus package so far has cost roughly $282,000. I’d consider that a bargain for life-long employment, but according to my somewhat limited understanding of economics, those jobs only exist because of the stimulus money and will continue to exist only if new stimulus money is spent to support them. I’m as willing as any other liberal to throw around a few trillion here and there to create federal jobs, but we may reach a point where the voters will refuse to foot the bill.
So I have an idea that may help. I recently spoke to a fellow programmer who was outraged to learn that his company spent a LOT of money on a badly-designed computer system, and is now paying someone $150,000 per year just to answer the phone and try to help people navigate the system. When he explained this to me, I smacked myself in the head and realized I’ve cost the country some jobs over the years. When I design software, I make sure it’s so intuitive, the users almost never need help. In retrospect, this was rather selfish on my part.
We can’t undo the past, but we can avoid making the same mistake in the future. So I propose that in addition to micro-managing the auto industry, the banking industry, the insurance industry, the health-care industry, the investment industry and the mortgage industry, the federal government should micro-manage the software industry. If a new federal department were created (lots of jobs there) to dictate the design and specifications for all future software projects, we could guarantee that all software will eventually be hopelessly confusing and difficult to navigate. I know IBM already attempted this strategy, but they faced competition from companies that were allowed to set their own standards. That’s what needs to change.
Once all software is ridiculously confusing, the administration can announce it’s going to solve the problem with a new Department of Software Support. Plenty of businesses will be happy to dump their help-desk costs on the taxpayers, and best of all, it will be a good deal for the federal government as well. If a private company is willing to pay someone $150,000 per year to answer the phone, I believe the federal government could fund the same job for as little as $200,000 per year, including benefits. That means you could create literally millions of new jobs, while saving $82,000 per year, per job, compared to the current stimulus.
These jobs would also be perfect for under-educated people with marginal skills. Training would consist of learning to say “Did you try re-booting the computer?” and then putting the caller on hold until he swears a few times and finally hangs up.
If this plan doesn’t create enough jobs to end unemployment and get the economy back on track, the administration could simply extend the concept elsewhere. I have an idea for that as well.
I recently saw that the federal government created 7,000 pages of new regulations in just the previous year. Added to all the existing regulations, the result is that most Americans commit at least a few crimes each month without knowing it. One poor fellow I saw interviewed on TV even went to prison for selling flowers he grew himself … something about an endangered species law.
Once again, the administration can ride to the rescue (and create millions of new jobs in the process) by establishing a federal “Am I Breaking The Law?” hotline. All citizens would be required to carry special cell phones that speed-dial a federal call center. The center would be manned by federal employees whose only job is to tell them whether or not they’re about to commit a crime.
Think of the benefits to the ordinary, hard-working Americans liberal politicians love. If only the flower-grower I mentioned above had been able to call someone and ask, “I’m about to sell some flowers I planted and grew here on my own property … is that against the law or anything?” his wife and kids wouldn’t have had to visit him in prison.
Given the huge number of regulations already on the books, the call center would of course require a gigantic computer system to enable employees to quickly find the regulation in question. That, naturally, ties in perfectly with my first suggestion: the federal government could micro-manage the development of the system, which would guarantee that when it goes online, we’ll need for several thousand help-desk employees to tell the users to try re-booting their computers. (I believe the term I’m looking for here is “synergy.”)
Anyway, those are my ideas. If you’d like me to brainstorm a little more, I’m willing to clear my schedule for the next year. All I’d need to get by is $282,000.
“Hi, honey. Sorry I was gone so long, but the PTA meeting went really long and– what the heck is THAT?!”
“That, my dear, is fifty-five inches of hi-definition TV heaven. Awesome, isn’t it?”
“Well, yeah, it’s a gorgeous picture, but …”
“But?”
“But … Tom, we can’t afford this.”
“Sure we can! No problem.”
“Oh. So you paid cash for it?”
“Of course not. I don’t have that kind of money lying around.”
“You mean you charged this thing to a credit card? For Pete’s sake, we’re already paying interest on all the other stuff we bought for the house. This is going to blow up our budget.”
“No, no, no. I moved the TV debt to a category called off-book.”
“And what does that mean?”
“I don’t know, but the government does it all the time, so it’s got to work. I’m pretty sure it means we never have to pay for it.”
“Of course we have to pay for it!”
“Well, maybe, but we don’t have to count it, and that’s the important thing. Here, I re-worked our monthly budget, and as you can see, there’s no entry for big-screen TV payments.”
“Why on earth would you obligate us to make a big payment every month and then just leave it out of the budget?”
“Because I was afraid if I included it, you’d be really mad.”
“I’m taking this thing back to the store.”
“You can’t!”
“Why not?”
“Because … uh … because it’s a health-care issue!”
“How can a new TV be a health-care issue?”
“Because football season starts in two weeks.”
“That has nothing do with–”
“Look, with that little TV, I have to sit two feet from the screen to enjoy a game. What if the Titans lose six in a row again and I have more convulsions? Remember those bruises on my forehead from colliding with the TV? Remember how I turned sort of stupid?”
“I assumed that was from watching too much football.”
“No, it was a serious medical condition related to small screen size. So if you think about it, this TV may seem outrageously expensive now, but it will actually save us money in the long run. Going to the doctor isn’t cheap, you know.”
“I still don’t see how that justifies–”
“Besides, I’m going to offset the cost by going through our cable bill every month and eliminating all the fraud and abuse.”
“Tell you what. Start eliminating the fraud and abuse right now, and put the savings in the bank. Then when you’ve saved up whatever this TV costs, you can buy it. In the meantime, it’s going back.”
“But it’s off-book! It doesn’t cost anything!”
“On-book, off-book, we’re still paying for it. And by the way, you reach retirement age in 14 years. Running up more debt now instead of saving for retirement isn’t a good idea.”
“Don’t worry about retirement. I put a huge chunk into our pension plan just last month.”
“You what? Where did you get the money to do that?”
“Well, I took a cash advance on the credit card, but–”
“And how are we supposed to pay for that?!”
“Out of our retirement income! Geez, you really don’t understand how any of this stuff works, do you?”
“Look, Tom, we sat down a year ago and wrote up a strict budget. We both agreed to it. You can’t just change it whenever you see something you want.”
“I can too!”
“Oh, really? And why is that?”
“Well … I see the budget as a living, breathing document. We couldn’t possibly have anticipated the situation we find ourselves in today, so we need to re-interpret the meaning of the budget to fit our present circumstances.”
“You CANNOT do that without my approval!”
“Sure, I can. I was wearing a very solemn-looking black robe when I did it.”
“You don’t even own a–”
“And while wearing the solemn-looking black robe, I solemnly declared that I have a right to a big-screen TV.”
“What the– how do you figure you have a right to a TV?”
“Because I really, really, really want one. That makes it part of the pursuit of happiness clause.”
“Riiiight. Excuse me for a moment. We’ll continue this after I make some tea.”
“You’re serving me tea?”
“No, but I think I’ll have a few people over for a tea party.”
(NOTE: I actually paid cash for the TV. But if the Titans lose six in a row, I might take it back anyway.)
My daughter picked up some books from the library a few weeks ago as part of her summer reading program. I was pleased to see she’d selected one book on the Revolutionary War and another on American history in general.
I was considerably less pleased when actually I took a peek at the American history book. That one included several Q & A sections, and one A to a Q nearly gave me a stroke:
Q: How did President Roosevelt put the people back to work during the Depression?
A: He created jobs for them.
AAAAAARRGGGHHH! Six years old, and my daughter is already being taught that 1) FDR saved the economy and 2) governments can create jobs. The book explained, in glowing terms, how FDR’s Works Progress Administration employed the unemployed. A few paragraphs later, the same book noted — without a trace of irony — that in spite of FDR’s jobs programs, unemployment remained high and the Depression lingered on for several years.
In spite of?! Try because of.
FDR was one of the biggest economic nincompoops ever to occupy the Oval Office — no surprise, since he knew nothing about business. He did poorly in business and economics classes at Harvard, then later proved how little he’d learned by starting or investing in several failed ventures. The job that kept him financially comfortable throughout his adulthood consisted of writing letters along the lines of “Dearest Mommy: I need more money in my accounts. Love, Franklin.”
So naturally, he decided he had the experience and know-how to fix the economy after the crash of 1929. What he promised on the campaign trail actually made sense: cut taxes and reduce federal spending. That is, after all, what lifted the country out of a nasty recession in 1920.
But once he was elected, Roosevelt made a huge mistake: he surrounded himself with egg-heads. They’d been itching to bring big-government socialism to the United States for decades, and the Depression gave them the opportunity they craved. (Echoes of Rahm Emanuel today: You never want a serious crisis to go waste.)
The egg-heads convinced FDR it was time for a “bold program of experimentation,” trying first this, then that, then something else. Roosevelt even bragged that he had no idea what they’d try next. Oddly enough, the business community interepreted this as “We have no idea what that @#$%ing idiot will do next,” and became skittish about investing in new equipment and hiring new employees.
As part of his bold experiments, Roosevelt ordered businesses to keep prices high — always a great way to bring in customers strapped for cash — and slapped sky-high taxes on “undistributed profits” … otherwise known as the money corporations might’ve used to employ more people in upcoming years. Then he was stunned and angry when unemployment refused to go down.
So by gosh, since the evil businesses wouldn’t hire anyone, FDR just created all those federal jobs out of thin air to fill the void. If only the WPA workers didn’t require taxpayer-funded paychecks, the plan might have worked, too. And if I could fill the left side of my bathtub by scooping in water from the right side, I’d have more water.
Roosevelt may have started out believing the WPA would prime the economic pump, but he wasn’t a stupid man and had to eventually realize it wasn’t working. No matter. The WPA became nothing more than a taxpayer-funded arm of the Democratic Party. Job applicants had their voter registrations checked. Registered Republicans were told to switch parties or look for work somewhere else. One WPA official in New Jersey with a sense of humor even answered his phone “Democratic Party Headquarters.”
Researchers who’ve tracked where the WPA money was spent found that local unemployment rates had nothing to do with it. Roosevelt spent little in the solidly-Democratic South, for example, despite high unemployment. He likewise spent little in solidly Republican districts. But he was a big ol’ Santa Claus in swing states and in districts where the Democrats hoped to pick up seats in upcoming elections.
As a means of forcing taxpayers to essentially provide campaign funds for Democrats, the WPA was a smashing success. As an engine for jobs and economic growth, it was a dismal failure. In 1938, after six years of “bold experimentation,” unemployment in the U.S. jumped to 19%.
But hey, it was a worldwide phenomenon and the U.S. was just caught up in it, right? Not exactly. In 1929, the United States ranked #1 in employment — the lowest unemployment rate in the industrial world. By 1938, we’d slipped to #13. Twelve countries had surpassed us. Some were even experiencing economic expansions as the U.S. slipped into a deeper Depression.
You can read to your heart’s content about the failure of FDR’s economic programs in books like New Deal or Raw Deal or The Forgotten Man. The point is, FDR didn’t “create” jobs. If anything, his punitive regulations and taxes destroyed them. And if you don’t want to believe me, you can take it from FDR’s own Treasury Secretary, Henry Morganthau, who said this to a group of Democrats in 1939:
We have tried spending money. We are spending more than we have ever spent before and it does not work. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this Administration we have just as much unemployment as when we started. … And an enormous debt to boot.
For some reason, that startling admission by a New Deal architect never makes it into the textbooks. So now, much sooner than I’d hoped, I have to start explaining to my daughter that not everything she reads in library books or is taught in school is necessarily true. I have to explain to her that authors have their own agendas and sometimes they finagle or misinterpret the facts.
Yes, yes, yes … we’re talking about ancient history as far as she’s concerned. But it matters. It matters because someday she’ll be old enough to vote. It matters because we had millions of voters in 2008 who weren’t horrified when politicians responded to the government-induced economic crash by suggesting it was time for a “New New Deal.” After all, we were all taught in school that the original New Deal put the country back to work.
And decades from now, after energetic American capitalists have once again pulled us out of the current mess (providing the federal government doesn’t stop them), I don’t want my granddaughter opening a library book and reading about how Barack Obama’s trillion-dollar stimulus plan saved the economy.
A web site chewed me out and insulted me a few days ago. I was surfing through reviews of hi-def TVs, happily reading away, when I clicked a link that brought me to a page with this message at the top:
This is an interactive site with a lot of graphics and video. But you wouldn’t know that because you’re still using Internet Explorer, so some of the graphic areas will appear blank. Yeah, yeah, yeah, I know, I’m supposed to include ALT graphics for older browsers. Well, guess what? I’m not going to design my site twice just because you insist on using ancient technology. Get your head out of your ass and download a REAL browser.
As you might’ve guessed, this site wasn’t selling any products. I’ll admit to quietly gritting my teeth while dealing with computer-illiterate customers, but I’ve never invited them to remove their heads from their colons. Seems like a bad marketing strategy.
I was more amused than insulted, but it occurred to me that among the young-hip-and-digital crowd, Internet Explorer is apparently becoming the Buick of Browsers: sure, it was okay for your parents, but nobody cool would drive one of those things now. (I mean, if you had to borrow Mom’s old Dell to get to Facebook on a Friday night, maybe … but you know.)
The Buick of Browsers was once considered the Unstoppable Behemoth, which led to one of the most idiotic lawsuits ever filed by the Justice Department: United States vs. Microsoft. As you probably recall, Janet Reno’s prosecutors claimed that Microsoft was abusing its “monopoly” in operating systems by bundling Internet Explorer with Windows and therefore (eeeeek!) giving it away for free — thus harming the sales of Netscape Navigator. In addition to the feds, twenty state attorneys general carefully considered the evidence, came to the legal opinion that they could suck a few billion dollars from Microsoft into their state’s coffers, and joined the lawsuit.
It was a classic case of the federal government trying to regulate an industry that doesn’t need regulating. When I first read in the newspaper that Microsoft had a monopoly on operating systems, I immediately ran to the local Apple store to see which business had taken its place. But wouldn’t you know it … it was still there, selling Macs. There was no monopoly.
Yes, pretty much every PC in the world runs Windows now, but that’s the result of consumer choice. My first PC ran something called CP/M. At various times in the 1970s and 1980s, consumers and businesses could buy hardware and operating systems from Wang, Atari, Commodore, Amiga, Digital Equipment Corporation and, of course, IBM — which tried like hell to dethrone Windows with IBM OS/2.
IBM’s OS/2 fiasco is an example of why the industry doesn’t need regulating. When I was a kid, IBM was the behemoth: a supposed monopoly, controlling both the hardware and the software, too big and too powerful to be stopped, able to dictate prices and crush all competitors, lions and tigers and bears oh my. The evil HAL computer in 2001: A Space Odyssey was named as a reference to IBM. (Each letter occurs one place earlier in the alphabet.) IBM was going to run the world … and beyond.
Then a young nerdy guy named Bill Gates came along. IBM offered him $1 million for the exclusive rights to his DOS operating system, but Gates insisted IBM could license it for $1 per copy, as long he retained ownership. Behind his back, the IBM bigwigs — who couldn’t imagine anything close to a million PCs ever being sold — snickered at his foolishness. Then the young nerdy guy spent the next several years kicking their blue-bottomed butts out of the software business. After a joint IBM-Microsoft venture to develop an operating system fell apart, IBM executives began referring to Gates as “The Bastard From Redmond.” The once-unstoppable behemoth tried to crush Windows. They couldn’t.
We ended up with one dominant operating system for PCs because it makes economic sense, not because Microsoft is Darth Vader. A business world with multiple operating systems is about as efficient as a train system with multiple track sizes. I worked in an office back when various businesses were still running CP/M, Windows, DOS, or OS/2 – not to mention Microsoft Word, WordPerfect, WordStar, or WordPro. Sending documents back and forth was a nightmare. We had to constantly run them through conversion programs. Features such as tables and footnotes rarely came through without serious injuries.
Microsoft won the PC-software wars because they sold the best products. Everyone then gravitated to the victor because standardization made sense. But to Janet Reno’s Justice Department, that made Microsoft an evil monopoly that had to be punished, especially when they dared to bundle a free browser into Windows. By gosh, that sneaky move would guarantee the Evil Empire would own the browser market forever.
Except it hasn’t exactly worked out that way. In 2002, Internet Explorer accounted for 95% of the browsers in use. Today it’s at 60% and falling. That means consumers are taking the time to download other browsers … exactly what the Justice Department said wouldn’t happen. It’s a bummer for Netscape that they can’t sell their product anymore, but Firefox, Safari and Google Chrome have all managed to make money while giving away their products for free. (Firefox earned $80 million in 2008.) Free markets and competition did what the Justice Department couldn’t do and shouldn’t have tried.
In a book I read on American history and economics, the author pointed out that depending on who’s running the federal government, these are the risks businesses face when setting prices:
Charge more than everyone else: prosecuted for monopoly pricing
Charge less than everyone else: prosecuted for predatory pricing (or during FDR’s reign, for ignoring NRA regulations).
Charge the same as everyone else: prosecuted for colluding on prices.
In United States vs. Microsoft, it was considered predatory to give away software for free. Which makes me wonder: why isn’t the Justice Department going after Firefox and Google? And why the heck didn’t they prosecute Linux in 1998 along with Microsoft? By offering a free operating system that became wildly popular for web servers, Linux undoubtedly squashed some other company’s market share.
Anti-trust laws are supposed to protect consumers. (I’m not saying they do, but that’s the rationale.) If companies that give me free software are causing me harm, I sure can’t spot the damage. It must be something at the cellular level.
Last week, I wrote about being a self-taught programmer. Here’s how much you’d have to spend on software to become one as well:
$0.00
Yup, zero … because Darth Vader Microsoft gives away Express editions of their programming languages for free. You can download Visual Basic Express, C# Express, SQL Server Express and Visual Web Developer without spending a dime. They don’t have all the bells and whistles of the Professional series, but you can build real applications with them — I recently built one with Visual Web Developer myself. I design SQL Server databases, but I’ve never bought a copy of SQL Server. The Express edition is fine for development.
You can also watch tutorials on the Microsoft site, read documents full of step-by-step written instructions, and download a ton of examples. Toss in a few books, or a membership to Virtual Training Company ($30 per month for online access to thousands of video tutorials), and you can become an entry-level programmer for less than you’d spend on three pairs of shoes. Just add elbow grease and intellect.
Yes, Microsoft does all this in hopes that budding programmers will learn their development tools and continue to prefer them over everything else. So what? They’re not harming me. I’ll happily take that deal. In fact, I did take that deal. That’s how I learned my trade.
I’m just glad the Justice Department didn’t stop me.
I watched an NBC news story tonight on the “historic” financial reform bill. In a nutshell, the bill gives the federal government the power to regulate darned near everything having to do with financial transactions. The bill even gives the feds the power to ensure that people who apply for home mortgages are qualified.
Think about that one for a moment. If you want to borrow money to buy a home, it’s not enough anymore that the bank believes you’re qualified. Now the federal government has to agree. I’m really looking forward to bribing my congressman when I buy my next house.
The excuse for this monstrosity is that the federal government needs to ensure that banks no longer make the kinds of risky loans that led to the financial meltdown. Just one little problem: it was the federal government that encouraged (and sometimes ordered) banks to make those loans in the first place.
As I’ve recounted before, when my best friend applied for home loan 25 years ago, he was turned down — in spite of having a 10% down payment and a job as an attorney with a major law firm in Nashville. The bank told him he’d have to come up with a 20% down payment. That’s how “greedy” bankers protected themselves in those days … by minimizing risk.
Fast-forward to 2003. People were obtaining mortgages with zero percent down. People without jobs were obtaining mortgages. Illegal immigrants were obtaining mortgages. People who would clearly end up spending 50% of their take-home pay on house payments were obtaining mortgages.
What the heck were those greedy bankers thinking?
Their greed didn’t change. Their incentives did, courtesy of the federal government. “Progressive” politicians decided bankers weren’t lending enough money to people with lower credit scores and ordered them to change their lending policies. Janet Reno threatened the banks that resisted with federal lawsuits. “Progressive” attorneys — including one named Barack Obama — sued banks to force them to make risky loans.
Of course, the banks were happy to be in the game once Fannie Mae and Freddie Mac started snapping up those risky loans. Now the banks could get their money up front. Anxious to see still more people buy homes, Andrew Cuomo, as head of HUD, told Fannie Mae and Freddie Mac to buy up even more risky loans.
The list goes on and on. You can learn what really caused the mortgage mess by reading Meltdown, Housing Boom and Bust, or Architects of Ruin. (I’ve read all three.) If you do, you’ll learn that two of the politicians who led the charge for more “affordable housing” policies were Barney Frank and Christopher Dodd. As much as any two people on earth, they helped create the financial mess we find ourselves in today. They not only encouraged risky loans, they slapped down efforts to apply the brakes to Fannie and Freddie.
So imagine my surprise when I learned that the “historic” legislation signed today by President Obama is known as the Dodd-Frank Financial Reform Bill. Yup, two of the morons who helped cause the meltdown are now the champions of financial reform. They ought to name this bill the Stop Doing What We Ordered You To Do Act.
In the spirit of the age, I’m going to suggest names for bills Congress might want to pass in the future:
The Bernie Madoff Ethical Investing Bill
The Osama bin Laden-Khalid Shiek Mohammed Anti-Terrorism Bill
The George W. Bush Grammar Education Bill
The Bush-Obama Balanced Budget Act
The Bonds-McGwire-Canseco Anti-Steroid Act
The Ted Kennedy Safe Driving Bill
The Ted Kennedy-Lindsay Lohan Responsible Drinking Act
The Mel Gibson-Louis Farrakhan Anti-Defamation Bill
The Mel Gibson-O.J. Simpson Anti-Domestic Violence Act
Feel free to send me your own suggestions, and I’ll put them a future post.
Here’s Barney, who refuses to admit any responsibility whatsoever for his actions, lying about his push for more home ownership:
The New York Times is upset about injustice and inequality in America again. (When aren’t they?) This time the outrage was prompted by a death that was unaccompanied by taxes:
A Texas pipeline tycoon who died two months ago may become the first American billionaire allowed to pass his fortune to his children and grandchildren tax-free.
Dan L. Duncan, a soft-spoken farm boy who started with $10,000 and two propane trucks, and built a network of natural gas processing plants and pipelines that made him the richest person in Houston, died in late March of a brain hemorrhage at 77.
Had his life ended three months earlier, Mr. Duncan’s riches - Forbes magazine estimated his worth at $9 billion, ranking him as the 74th wealthiest in the world - would have been subject to a federal tax of at least 45 percent. If he had lived past Jan. 1, 2011, the rate would be even higher - 55 percent.
The guy starts small, works his whole life to become a huge success, pays income taxes on what he earned for several decades, and now — horrors! — the federal government won’t be allowed to confiscate 55 percent of what they didn’t take in the first place. You can almost hear the New York Times editors tsk-tsking around the water cooler: “Man, if only the guy had hung on a few more months …”
The bonanza in tax savings for Mr. Duncan’s descendants is sure to be unsettling to those who have paid estate taxes on more modest wealth - until Jan. 1 of this year, it applied to any estate valued at more than $3.5 million, taxing only the money exceeding that threshold, or $7 million for a couple’s estate.
Funny how people at the New York Times believe if you’re allowed to keep what’s already yours, it’s a “bonanza” … you know, like winning a lottery. Of course, we’re talking about people who believe that if the IRS confiscates less of your income this year than in previous years, you’ve received a “giveaway” from the government. I haven’t stolen from any of my neighbors in years, and they constantly send me little notes thanking me for the gifts.
I’m sure seeing a billionaire’s estate go untaxed is indeed unsettling to those who paid death taxes on smaller estates. The smaller estates shouldn’t have been hit with death taxes, either. But to the left-wing dingbats at New York Times, the only fair solution is to continue the grave-robbing so everyone is victimized equally. Heaven forbid we just admit that estate taxes are a bad idea … which they are.
I’ve had people try to convince me that high taxes levied on the families of wealthy dead people are necessary to prevent the gap between rich and poor from becoming too wide. (These are people known as “boobs,” “economic illiterates,” or “Democrats.”)
First off, let’s tackle the whole notion that a “gap” is inherently bad. The New York Times certainly thinks so:
Advocates of the tax say it is unconscionable that Congressional leaders have allowed the richest Americans to reap a new tax break at a time when deficits are soaring and the income gap between wealthy and poor citizens remains near historic levels.
(Notice once again that if the federal government doesn’t take your money after you’re dead, your family is “reaping” as opposed to merely “keeping.”)
When my wife was in the Peace Corps, she spent two years living in a village where the income gap was pretty much non-existent. That’s because everyone was poor. If an industry had moved into the area, within years there would’ve been an income gap. Some of the villagers would’ve become employees and perhaps doubled or tripled their annual incomes. (In left-wing parlance, this is known as “being exploited.”) Others would’ve become managers with even higher incomes. Some of them might have eventually invested in other businesses, or even saved part of their salaries as capital to start their own businesses. They might have even become rich by local standards.
And at that point, the boobs, economic illiterates and Democrats would be outraged: Egads, look at the income gap! Something must be done! We don’t care if everyone is better off — some are doing way better than others, and that isn’t faaaaaaaaaair!
That’s exactly what happened in the 1980s, by the way. Remember all those media stories about how the rich got richer and the poor got poorer? They were pure hogwash. What the actual data show is that average income levels rose among all groups. The poor became moderately wealthier, while the wealthy became a lot wealthier.
How exactly is that a bad outcome? If my income goes up by 20% and my neighbor’s goes up by 200%, I am not worse off — despite what boobs, economic illiterates, Democrats and reporters for the New York Times believe. I may begin developing a serious case of pecuniary envy, but other than that, I’m better off.
The large increase in the supposed gap between rich and poor in the 1980s was partly an illusion anyway. Before Ronald Reagan’s tax cuts, the “rich” were subject to a tax rate of 70%. At that level, the smart thing to do is to avoid reporting a high income. So instead of investing in productive businesses, the rich invested in tax write-offs. But when tax rates were reduced to 28%, they went back to focusing on making money instead of hiding it. Boom … a sudden explosion in high incomes, at least as far IRS records were concerned. But much of that was simply income being reported instead of shielded.
So a “gap” is, in and of itself, meaningless. Reducing my neighbor’s income doesn’t increase mine. In fact, if my neighbor is a customer of the business that employs me, reducing his income could end up reducing mine as well. I don’t want my rich neighbor’s money going to the federal government. I want him to spend his money hiring me, buying my product, or investing in a business that will eventually do business with my business.
In professor Stephen Hicks’ lovely little book Explaining Postmodernism, he explains why there’s been so much emphasis on the “income gap” in recent decades: it’s because socialism failed to produce the wealth its early proponents predicted. A hundred years ago, the Marxist True Believers insisted that socialist and communist economies would out-produce capitalist economies — all those happy, empowered workers of the world united would really crank out the goods, you see — thus providing enormous increases in wealth to spread around.
Whoops. Didn’t exactly happen that way. Nobody in West Berlin was trying to escape to the East to enjoy a better life.
So the post-modern Marxists had to change tactics. They decided they’d best stop talking about how much wealth socialism would produce and instead accuse capitalism of creating a “gap,” then foment as much class resentment as possible. This strategy was hugely successful among boobs, economic illiterates, losers, Democrats and reporters for the New York Times.
Yes, we have a gap. But as my wife once noted as we were driving through a poor section of Los Angeles, if anyone from her village in Africa had been riding along with us, he would’ve thought he was looking at rich people. (”Look, they have televisions! They have more than one pair of shoes! THEY HAVE CARS!!”) In her village, you were “rich” if you owned a bigger a jug of cooking oil than your neighbors.
Even if you do find a large gap between rich and poor (or what we call “poor” in America) unacceptable, high estate taxes aren’t going to fix it. Check out the assets the billionaire’s family will inherit:
In addition to personal effects bequeathed to his descendants - boats, jewelry, automobiles, shotguns and a 5,500-acre Texas hunting ranch stocked with wild game - he passed on his holdings in EPCO and Dan Duncan L.L.P., two entities in the natural gas and pipeline empire he built. The stock involved includes more than 100 million shares in Enterprise GP Holdings, which closed at $43.23 the last trading day before Mr. Duncan died. That asset alone could have resulted in a $2 billion estate tax.
So thanks to what the New York Times characterizes as a “lapse” by Congress, the billionaire’s kids and grandkids won’t be paying $2 billion in estate taxes. Now … you just inherited all that stock, and the feds hand you a bill for $2 billion. How are you going to pay the IRS? Simple: sell off the stock. And who is going to buy $2 billion worth of stock? Poor people? I don’t think so. What was a family-owned business will no longer be a family-owned business. It’ll be owned by rich investors.
Maybe it doesn’t bother you when billionaires have to sell off the family business. So let’s try this scenario: Your parents established a furniture-making factory 50 years ago, which, because of the capital equipment and established market base, is now valued by the IRS at $12 million. When your parents die, you don’t have anything close to that amount in cash or annual income, but the IRS has handed you a death-tax bill for, say, $3 million. So, after crunching the numbers, you realize the smart move is to sell the business. Once again, who’s going buy a $12 million business? Probably a $100 million business. The estate tax didn’t reduce the income gap; it just pushed a family-owned business into the hands an even bigger business. (This is known in left-wing parlance as “recycling economic opportunity.”) Meanwhile, millions of dollars have left the private economy, which is based on voluntary interactions, and gone to the government economy, which is based on confiscation.
And as far as those soaring deficits … yes, they’re soaring. But it’s the deficits that are unconscionable, not the lapse in estate taxes. The federal deficit has tripled in the past two years. It’s now running at about $1.5 trillion. Does anyone actually believe estate taxes can ride to the rescue? Let’s see:
The Treasury collected more than $25 billion in estate taxes in 2008, the most recent year for which data is available.
Yeah, let’s tax the families of dead people a few billion more. That’ll put a serious dent in the deficit.
As you prepare to file your taxes so the federal government can continue spending wildly on “stimulus” projects to (supposedly) lift us out of the economic doldrums, here are some videos that might cheer you up. Well, not really. But they might clarify how we got into this mess and how we should be getting out of it. (Hint: huge government spending isn’t the answer.)
The first is a lecture by Peter Schiff, one of the few financial experts who saw the crash coming.
This one is by Thomas Woods. The topic is the Great Depression of 1920. What, you mean you’ve never heard of the Great Depression of 1920?! That’s because the government did almost nothing — except cut spending and taxes — and it was over in 18 months. That’s not something the people who write social studies books care to talk about.
If you pick up Woods’ excellent book Meltdown, you’ll learn how the Federal Reserve creates booms and busts. If you don’t know exactly what the Federal Reserve is, this video gives a brief summary. (Sorry, the pace is a little slow, but the information is good.)
Lender of Last Resort … ever wonder how the Federal Reserve “lends” money? If the federal government borrows a trillion dollars from the Federal Reserve for, say, a bailout or a stimulus bill (with health-care “reform” soon to follow), or if the Fed “injects” an extra trillions dollars into the economy, where exactly does the trillion dollars come from? Who has that kind of money in the bank? Who made all those deposits?
The answer is: nobody. The Federal Reserve “lends” money by creating it out of thin air. They write a check backed by nothing except a government IOU and deposit the check in a bank. We get to pay the interest on the loan through taxes, and meanwhile the magical new money devalues whatever savings we have through inflation, which means the government gets to spend our wealth without bothering to raise taxes.
The good news is, the big banking concerns — the Rockefellers, the Morgans, etc. — get to count the Federal Reserve checks as assets and write loans against them, thus earning millions in interest for the trouble of doing some paperwork. We get screwed; they get rich. (If you’ve ever wondered why super-rich families like the Rockefellers favor high taxes and big government, that’s why. Big government makes them even richer.)
Ain’t big government just grand? Yessir, the big-government crowd really sticks up for the little guy.
“Grace, not now. I’m trying to figure out how many of these loans could default in the next–”
“Sir, it’s the president.”
“Of what?”
“Of the United States, Mr. Hardwinkle.”
“Oh, my … okay, put him on.”
“Hardwinkle? It’s the president.”
“Yes, sir. How are you, sir?”
“I’m worried, that’s how I am. I just read in the newspaper that the banks in your state are still looking at a huge number of loans that could go bad.”
“Well, Mr. President, that’s why–”
“Here I am, trying to quit smoking before someone in the press decides to stop worshipping me and snaps a picture of me holding a Marlboro, and then I read this stuff. It’s not helping.”
“I know. I was just working on–”
“You people in the banking industry need to stop all this free-market recklessness. I’ve said that many times.”
“Yes, sir, I heard the speeches, but–”
“During the housing boom, you guys passed around loans like they were party favors, and then too many people couldn’t pay them back and created a big economic mess. Now I’ve got to clean it up. I need you to grab a mop with me, Hardwinkle. I’ve said that many times.”
“Yes, sir. A lot of loans went bad. But, uh … you do realize we were threatened with prosecution by the Justice Department if we didn’t lower our lending standards.”
“Dang that George Bush and his cowboy economics!”
“Actually, Mr. President, it was during the Clinton–”
“Enough ancient history. It’s time to look toward the future. I’ve said that many times.”
“The future. Yes, Mr. President.”
“No more reckless lending, you hear me?”
“We’re working on it, sir. We’re really tightening up the standards. Everybody is.”
“That’s the other thing I need to talk to you about. You guys need to start lending more money.”
“What?!”
“The American people bailed you out with their tax dollars, and now you greedy bankers aren’t giving them the loans they need. It’s shameful.”
“But … bad loans … uh … economic crash … the mop, and all that.”
“Yes, the mop. I’ve said that many times in the past.”
“I KNOW! I mean, sorry … uh … you see, Mr. President, we got into the mess because we made a lot of bad loans. And like I said, we were encouraged and even ordered to do that by the Clinton– uh, by people in Washington. So now we’re trying to just lend money to people we think can pay it back.”
“Look, Hardwinkle, we’ve got 10 percent unemployment out there. I tried spending a trillion dollars to prop up a lot of failing businesses and arts organizations, but let’s face it: it didn’t work. So now I need small businesses to expand and hire more people. But they can’t do that if you won’t lend them the capital.”
“Yes, Mr. President, I understand how it works. But you see, to lend more money, we’d have to lower our lending standards again.”
“Okay, do it. But no more reckless loans. I’ve said that many times.”
“Mr. President, you’ve never actually worked in the banking industry, so I realize you may not be, uh, conversant in how these things work, but–”
“I know all about banks. When I was an ACORN lawyer, I sued them.”
“Yes, I know. You forced us to make loans to people with marginal credit.”
“I believe the term you’re looking for is ‘encouraging more affordable housing.’ Careful there, Hardwinkle. You took the bailout money, so we can decide how much you get paid now.”
“Okay, sorry. Anyway, we’re perfectly happy to lend money to anyone who we believe can pay it back. Lending money is how we make a profit, after all.”
“So lend more of it. Bigger profits.”
“Sir, what I’m trying to say is, we lend money to people with the best credit ratings first. To lend more money, we have to start approving loans to people with not-so-good credit. And to lend even more money–”
“Yes, yes, I understand. Look, between you and me, I’d like to just spend another few trillion and make everyone who’s unemployed a government employee. Talk about your loyal voters. But we’ve got elections coming up in less than a year, and I’m afraid the rest of the voters don’t like that idea. So I need small businesses to step up. And that means you have to step up. I’ve said that many times.”
“But … Mr. President, if the loans go bad–”
“For Pete’s sake, man, get with the program! If that happens, we’ll bail you out again.”
“You mean after you blame our recklessness for creating a need for more bailouts?”
“Hey, that’s just politics. I’ve said that many– no, actually, I haven’t said that. But you know what I mean.”
“Yes, sir. You want us to lend a lot more money, but stop making any more bad loans, correct?”
“Exactly.”
“Yes, sir, Mr. President.”
“Now you’re talking. Bye now.”
BUZZ-BUZZ
“Grace? Can you bring in glass of water and some Tylenol, please?”
Remember the rationale behind the nearly $3 billion the federal government spent on the Cash For Clunkers program? It went something like this: we’ll boost the auto industry and save the environment by bribing people into trading in their gas guzzlers for more efficient vehicles. Such a deal. And as it turns out, the deal only cost the taxpayers around $24,000 per car.
What?! How can that be? The rebate for each car was only $4,500!
The average rebate was $4,000. But the overwhelming majority of sales would have taken place anyway at some time in the last half of 2009, according to Edmunds.com. That means the government ended up spending about $24,000 each for those 125,000 additional vehicle sales.
I’m just delighted to know my tax dollars helped so many of my fellow citizens buy cars they would’ve bought anyway. I expect to receive some thank-you cards any day now. Naturally, the geniuses in the federal government still insist the Cash For Clunkers program was a brilliant success:
“It is unfortunate that Edmunds.com has had nothing but negative things to say about a wildly successful program that sold nearly 250,000 cars in its first four days alone,” said Bill Adams, spokesman for the Department of Transportation. “There can be no doubt that CARS drummed up more business for car dealers at a time when they needed help the most.”
Well, of course the auto industry was boosted. The federal government can boost pretty much any industry by throwing taxpayer money at it. The only downside is that other industries are de-boosted at the same time. As I explained in a previous post, governments can’t create jobs. They can only transfer them across industries or from one generation to another. If you seize a chunk of my income to subsidize my neighbor’s purchase of a new car, the dealer is certainly happy. So is the manufacturer. But the people who make and sell the plasma television I would’ve otherwise bought with that income don’t make out so well, do they? Car dealer wins; TV dealer loses.
So what about all that improved gas mileage? Maybe a paltry $3 billion added to the national debt is worth it to help save the environment. Well, according to the Associated Press (not known for being big critics of the Obama Administration), that part of the plan didn’t work out so well:
The most common deals under the government’s $3 billion Cash for Clunkers program, aimed at putting more fuel-efficient cars on the road, replaced old Ford or Chevrolet pickups with new ones that got only marginally better gas mileage, according to an analysis of new federal data by The Associated Press.
The single most common swap - which occurred more than 8,200 times - involved Ford F150 pickup owners who took advantage of a government rebate to trade their old trucks for new Ford F150s. They were 17 times more likely to buy a new F150 than, say, a Toyota Prius. The fuel economy for the new trucks ranged from 15 mpg to 17 mpg based on engine size and other factors, an improvement of just 1 mpg to 3 mpg over the clunkers.
We already have a program in place to encourage people to swap gas hogs for more efficient vehicles, by the way. It’s called gasoline prices. The SUV market tanked a few years ago when pump prices topped $4 per gallon in some states. In fact, high gas prices naturally lead to pretty much everything the loony left insists government should mandate: people drive less, they choose more efficient vehicles, and alternative fuels become more economically viable and thus draw more investment.
So what was the loony left’s response to high gas prices? Just what you’d expect: they screamed that it was a Bush-Cheney-Exxon conspiracy. They sent emails encouraging people to refuse to buy gas on particular “gas out” days. (Yeah, that’ll do it … Exxon executives would fly into a panic if they thought you were going to wait until the next day to fill up.) Strangely, when gas prices plummeted a year or so later, they didn’t believe Bush or Cheney had anything to do with it. Apparently the dark wizards know how to push prices higher, but not how to keep them there.
Since Cash For Clunkers was basically a money-giveaway program, you’d at least expect the government to run it without too much fuss. And you’d be wrong:
Many dealers still aren’t getting paid. The bureaucratic maze is ridiculous: 156 pages of regulations governing 13 pages of forms are mated to a computer system that mostly is failing to accommodate demand from dealers across the country.
Brad Black, general manager of Downtown Ford, told me Monday his dealership has delivered 73 vehicles under the federal program but has received reimbursement for just one car.
The Car Allowance Rebate System (CARS) has been such a bureaucratic nightmare for new car dealers that paperwork sitting on desks waiting to be processed could exhaust the $3 billion program weeks before it was supposed to end.
“I talk to dealers around New Jersey who tell me that they might have only entered half of the deals they have so far because there are so many issues that have cropped up,” said James Appleton, executive director of the New Jersey Coalition of Automotive Retailers.
From the start, the program has been beset by administrative woes. Four of every five applications have been rejected, some for minor oversights in submitting the paperwork.
So far, dealers have been reimbursed for just 2 percent of the approved deals. But even those dealers complain the payments they receive from the government electronically do not indicate which particular transaction the reimbursement is for.
So, let’s add it up: Cash For Clunkers basically took money from one group of citizens to provide cheaper cars for another group of citizens, cost roughly $24,000 for each real additional auto sale, temporarily boosted the auto industry at the expense of other industries, didn’t achieve any meaningful gain in overall mileage, and created an administrative nightmare that was so painful, some dealers walked away from the program.
Isn’t is just swell that we’ve got this crowd navigating our path back to economic prosperity? I can’t wait to see the full effects of their efforts to fix the health-care system.
Our local paper has been annoying me for several weeks now by running a series titled Tracking the Stimulus. (Examples here and here.) Every damned article is a love letter to the federal government, regaling readers with stories of all the wonderful things that are happening in Tennessee thanks to the stimulus, and usually ending with an upbeat quote from some welfare — uh, I mean stimulus — recipient.
Some sample opening paragraphs:
If you want to see the stimulus in action, head into the classroom.
Thousands more Tennessee students next year will have access to online courses because of $6 million in stimulus funds being doled out to districts.
For three months Ian Abbott waited, his offer of employment with the Metro Police Department contingent on whether a federal stimulus grant was approved. Last month, Metro came calling for Abbott and 49 more future officers, all to begin training at the police academy next month and all paid for with stimulus money.
My goodness, isn’t the stimulus package the greatest thing ever? If we could just spend another five or ten trillion dollars the government doesn’t have, our society would probably be perfect.
Tired of merely gagging, I finally fired off a letter to the newspaper. I’m 99 percent sure they’ll never print it, so here it is:
TRACKING, BUT NOT UNDERSTANDING, THE STIMULUS
For the past several weeks, I’ve been reading the Tennessean’s series on Tracking the Stimulus, which I’ve mentally renamed Hooray For the Stimulus Package, Rah-Rah-Sis-Boom. Every other day or so, we’re treated to yet another fawning article. Isn’t the stimulus wonderful? Look at all the people being helped. Look at all those jobs being created.
There’s just one small problem: governments can’t create jobs, any more than you or I can sit in a bathtub and raise the water level by scooping water from one side to the other. All governments can do is transfer jobs from the private sector to the public sector, or from one industry to another, or from one generation to another.
Sure, governments can hire people. They do it all the time. And that would be a swell job-creating program if not for one minor detail: the people they hire have to be paid. The only way to pay them is to collect the money from other citizens. That’s money the other citizens can no longer spend – and spending is what creates and supports jobs.
To understand the economics involved, let’s create a couple of simple examples. Suppose I earn $80,000 per year, but my wife is unemployed. So, to create a “stimulus,” I hire my wife to watch my children and pay her $40,000 per year. Boy, we must be better off now; our combined income just went up to $120,000.
Pleased with the infusion of cash, my wife goes shopping. Reporters from the Tennessean tag along and write glowing stories about all the employment my wife is providing with her purchases of cosmetics, kitchen appliances, clothes, toys for the kids, and new furniture for the house. Hooray for the Stimulus Package, Rah-Rah-Sis-Boom.
Those are the effects of the stimulus that we can see. But in economics, there are always unseen effects as well, because economics is all about trade-offs. In this case, what the reporters don’t see is that because I had to pay for my wife’s shopping spree by taxing my own income, I can no longer buy fishing equipment, a big-screen TV, a new computer, or anything else on my shopping list. My stimulus package didn’t create any new jobs; it merely transferred employment from the industries I prefer to those my wife prefers.
But since our government is already in debt and running gigantic deficits, we’re not paying for the stimulus by taxing our own incomes; we’re borrowing the money from future generations, which brings us to our second example:
Worried about an economic downturn in my community, I take out a credit card in my son’s name and go shopping. Once again, reporters from the Tennessean tag along and write glowing stories about all the employment I’m providing with my purchases of a new entertainment center, a car, a trip to Disney World, and a boat. At least one of the articles will end with a grateful salesperson saying something like, “I just don’t know what I would’ve done if Mr. Naughton hadn’t come along.” Hooray for the Stimulus Package, Rah-Rah-Sis-Boom.
All is well until my son grows up and finds I’ve left him saddled with a mountain of debt. Now instead of creating and supporting employment in his adult years by buying his own car, boat, entertainment center and fishing equipment, he’s stuck paying my debts. Once again, my “stimulus” shopping spree didn’t create jobs; it merely transferred them from my son’s generation to mine. We can see the jobs I saved by spending his future earnings to benefit myself, but we don’t see the jobs that were never created because I reduced his disposable income ahead of time.
And that’s why politicians can get away with this economic hocus-pocus. We thank them for all those “new” jobs we can see. We rarely blame them for the jobs that are destroyed in other industries and in future generations, because that requires literacy in basic economics – which most of the public and, inexcusably, most media reporters lack. Perhaps we should spend some stimulus money to buy them a few books on the topic.
Entries (RSS)