How Economic Disinformation Works: A Modest Case Study

How Economic Disinformation Works: A Modest Case Study

Daily Bell Staff

Fears grow of repeat of 2008 financial crash as investors run for cover... As leaders gathered in Davos, FTSE 100 was gripped by panic selling and entered bear market with Dow Jones also plunging. – UK Guardian

Dominant Social Theme: Fears are growing as the world's economic system trembles on the verge. What to do?

Free-Market Analysis: Let us recall how long ago we were misled and what techniques were used. This Guardian article provides us with a proverbial "teachable moment."

In broadest terms, the article, like others of its type, is written to engage our emotions and excite our fears. Then, toward the end of the article, we are exposed to various solutions and soothing words that seem to indicate that all will be well sooner or later if we just trust the correct authorities. In other words, first the article excites and then it calms.

More:

The Dow Jones Industrial Average slid more than 450 points, or 2.9% in morning trading. The Dow Jones Industrial Average slid more than 450 points, or 2.9% in morning trading ... Earlier this week, China recorded the slowest rate of economic growth for 25 years.

You see? The drumbeat begins immediately. The statistics lend credence. Then there is this, the crux paragraph:

Fears that the global economy could be heading for a repeat of the 2008 financial crash have sent shockwaves through financial markets – prompting a rush to safe havens by investors. Oil prices fell to a fresh 12-year low on Wednesday and metal prices tumbled in response to warnings that China's slowdown could derail the global recovery at a time when central banks, which came to the rescue in the credit crunch, have only limited firepower.

First we are terrified and then, quietly, an oboe sounds – the first tentative notes of salvation couched in skepticism ... "Central banks, which came to the rescue in the credit crunch, have only limited firepower ..."

Some more:

William White, a former chief economist of the Bank for International Settlements (BIS), the central bankers club, who now chairs the OECD's review committee warned that central bankers had "used up all their ammunition"... "The situation is worse than it was in 2007.

If central banks cannot help us, what can? Cleverly, the article suggests a sub-meme: the wisdom of the bankers of Davos. First we are reminded that White's pedigree is derived from the awesome power of the BIS and then this:

The BIS was one of the few organizations to warn during 2006 and 2007 about the unstable levels of bank lending that eventually led to the Lehman Brothers crash.

Okay, maybe the BIS did warn, but we can count on our fingers, toes and teeth, the many alternative media blogs and websites that were sounding the alarm about central bank low-rate profligacy throughout the 2000s. Of course, why let inconvenient facts spoil the music.

The head of the Swiss banking giant UBS, Axel Weber, turned the screw by warning that the world was stuck in an era of low growth ... His comments came after the chancellor, George Osborne, warned in a new year speech of a "cocktail of threats" to the UK's prospects from an increasingly uncertain world economy.

Minor chords are now being presented. Important people at the heart of business and finance are sounding the alarm. (Never mind that the alternative media has been doing the same thing far longer.)

Importantly, none of the imminent catastrophes we face are truly explained. We are apparently in the grip of a disaster that has no face or real explanation.

Toward the end of the article (a fairly long one), the themes repeat and expand as the notion of a solution begins to be presented. There is the always-quotable Nouriel Roubini:

[Roubini said] the crash was overplayed: "It is not going to be like 2008-09. There is not the excessive leverage in the financial system that there was last time."

Roubini also contributes to the meme of central banker omnipotence, saying that 2016 is going to be a difficult year and that "central banks [should] respond with extra stimulus."

Now the "finale" ... a triumphant one. We learn from Pierre Moscovici, the European economics commissioner, that "central banks retained some firepower to prevent another crisis" after all.

"I don't feel that the financial crisis is coming back. We don't feel that we are facing the risk of a breakdown in world growth, but there are downsides that we need to address," he said.

Maurice Obstfeld, the chief economist at the IMF, adds to the uplift, saying that central banks should be more relaxed about printing money and keeping rates low. Sure, they may "overshoot" inflation targets but he believes they should be more concerned about deflationary pressures.

It sounds like it will be okay after all. In fact, if you haven't taken the time to learn about alternative (non-mainstream) financial realities, it is easy to come away from an article like this with two main impressions.

First, the world is in a terrible state and second – one way or another – government and banking "experts" will figure out how to combat the multiple, looming catastrophes.

The article succeeds partially by omission because it does not explain fundamental economic truths. We never learn, for instance, that central banking is price-fixing and price-fixing inevitably distorts and then ruins economies.

The article never concerns itself with marginal utility, the idea that the market itself creates prices and that nothing else but the Invisible Hand can do so. It gives us almost no frame of reference (well, there is one brief allusion to overly low interest rates) as to why these market disasters occur over and over again. It maintains that economic growth can be summoned via monetary (Keynesian) debasement.

Somehow, flooding the market with debt-based notes creates prosperity. It's simply not so. One can argue, of course, as to whether such articles are premeditated. We have long since concluded that they probably are.

The antidote is education and access to credible information. Fortunately, there is the Internet, a miraculous device that like binoculars, allows us to look at the "big picture" and then at the details.

We will still need to learn where to look, of course. But one should keep in mind that information that stresses competitive forces is to be preferred over theories that emphasize a concentration of power among a handful of "chosen" controllers. Austrian economics is perhaps the best theoretical construct in this regard.

Internalize this harsh reality: Government won't protect you. Central bankers will only make things worse. Internalize, as well, the idea that the market provides us with results ... always. Human beings cannot control the Invisible Hand that will write as it wills.

Most everything we read in the mainstream media is propaganda. (Of course, one must be careful about the alternative media as well.)

Conclusion: 

Don't be seduced by the mainstream media. Its memes are easy to absorb, which is why they are convenient to swallow. But the problems with the world's economy are getting worse and will not end well. It behooves us to work hard to learn the truth. There is no other way.

Why Government Can't Manage Society

Why Government Can't Manage Society

By Richard Ebeling

This year marks the seventieth anniversary of the end of the Second World War. On May 8th, Nazi Germany surrendered to the Allied Powers in Europe. On September 2nd, Imperial Japan surrendered to the Allies on the deck of the U.S.S. Missouri in Tokyo Bay, thus ending a global conflict that is estimated to have cost the lives of upwards of 50 million people.

In autumn of 1945, everyone was looking forward, finally, to a world at peace that could recover from the destruction of a catastrophic war and move towards a bright new future. But what kind of world was it to be?

Nazism and fascism had been militarily and ideologically pulverized in the conflict. No one wanted to goose-step to Hitler and Mussolini's grandiose dreams of a world-ruling master race or a war-worshipping aggressive nationalism to which innocent human beings were to be sacrificed.

The Postwar Hope for a Better World Through Soviet Socialism

Instead, many looked East to the Soviet Union that stood as the new colossus that had bore the brunt of the Nazi war machine; Soviet socialism seemed to offer a vision of a "better world" free from economic exploitation or class distinction.

Before the war, under Comrade Stalin's bigger-than-life leadership, socialist central planning and a spirit of serving the "common good" of humanity seemed to be creating a colossal industrial society in what had been the backwards agricultural nation of Russia a mere handful of years before. This was all being done, Soviet propaganda assured, for the benefit of the mass of the workers, and not a handful of greedy plundering capitalists. A people's utopia was in the making.

The German invasion had destroyed many of the industrial centers in European Soviet Russia. But beyond the Ural Mountains, Stalin had directed the reconstruction of new industrial centers that had ground out vast amounts of military hardware and equipment that stopped the Nazi onslaught, and had brought the Soviet Army to the central of Europe, with the red flag raised over Warsaw, Budapest, Vienna, Berlin and Prague.

Marxian ideology (and prophecy) asserted the inevitability of the coming socialist society. Communist parties both within the orbit of Stalin's new empire in Eastern Europe and in the Western democracies outside of Stalin's grasp were all at work to bring the totalitarian collectivist future to pass.

Western Socialists Wanted Socialism with a Democratic Face

Of course, not all socialists in the West were slavish servants to the Soviet Master in Moscow the way the communist parties were so bound. Many Social Democrats believed that democracy was both compatible with and an essential complement to a humane socialism, a socialism that did not reduce humanity to obedient cogs in a giant collectivist wheel directed by a "dictatorship of the proletariat." They wanted socialism with traditional civil liberties, personal freedom and democratic politics.

It is important to remember, however, that at a fundamental level the conflict between Western European democratic socialists and Moscow-managed single-party communists on opposite sides of the European divide was a dispute over means and not desired ends.

Soviet Communists and Social Democrats All Wanted Central Planning

In the years before, during, and immediately after the war, the dispute and debate between "communists" and "socialists" was over two things: How shall the collectivist society come about: through ballots or bullets – through democratic elections or violent revolution? And once in power, would collectivist rule and control be maintained through multi-party democratic choice or on the basis of one-party dictatorship with the suppression of civil liberties and political freedom?

But both Western socialists and Soviet-style communists, nonetheless, still agreed about the end or goal to be attained: near or full abolition of private ownership of the means of production and the implementation of government central planning of production and distribution in the place of decentralized and competitive private enterprise.

Capitalism was the enemy for both Soviet-oriented communists and those desiring a hoped for "democratic" socialism. Private enterprise was considered the root of "exploitation" of the workers, "social injustice," and economic inequality of income and wealth. Both communists and socialists believed in government central planning of a society's economic activity over virtually all facets of life.

Most American Leftists Pushed for Interventionist-Welfare Statism

The United States, of course, was noticeably different. The socialist ideal of nationalization of the means of production and central planning had never caught the imagination or the political traction the way they did in Europe. In spite of America's flirtation with economic fascism during FDR's early New Deal days and the wartime planning under which virtually the entire U.S. economy was put into the straightjacket of government control, the postwar direction was for the freeing of the market from direct and total government planning.

In America, outside of the more consistent and vocal voices on "the left," the debates focused on the degree to which U.S. industry needed to be regulated by the government to tame tendencies toward supposed monopolistic and oligopolistic inefficiencies and distortions in the market; the extent to which New Deal-introduced welfare state programs should be enlarged and extended; and, of course, the requirements for "activist" fiscal and monetary policies to assure and maintain "full employment" inspired by the virtual monopoly dominance of Keynesian ideas over the thinking of economists and government policy-makers in all matters of macroeconomic theory and policy.

F. A. Hayek was Critic of Keynes and Author of The Road to Serfdom

But in that same September of 1945, now seventy years ago, there appeared a lead article in the American Economic Review, the leading journal of the American economics profession, on "The Use of Knowledge in Society," by an "Austrian" economist named Friedrich A. Hayek who had been teaching at the London School of Economics for almost a decade and a half.

Born in Austria and having graduated from the University of Vienna, in the 1930s Hayek was recognized as the leading opponent and contender against the ideas of the Cambridge University economist John Maynard Keynes and his emerging "Keynesian" economics. Hayek was also acquiring an international name recognition from a book he had published a year earlier in 1944, The Road to Serfdom.

The theme of The Road to Serfdom is that while socialism had been promised as a "new world" of freedom and prosperity for all with an abolition of capitalist exploitation, in reality the inescapable concentration of power and control in the hands of a socialist government so to centrally plan the economic affairs of the society would lead to the threatened loss of not just economic freedom with the end of private property, but the loss of personal and civil liberties as well.

In spite of the dreams and promises of the "democratic" socialists, when the government owns all the means of production, then the only books and magazines published, including their content, is what the government wants printed. When the government owns all the resources, factors and machines, the only things produced and made available are those consumer goods the central planners considered "good" and desirable for "the people." When the government is the monopoly manufacturer, then the only employment opportunities are those the political authorities make available and assign you to fulfill.

You, as an individual, are at the mercy of an all-powerful, single provider of all things from which you have no escape because there is nothing outside of what the government owns, controls and plans. There is virtually no "private space," to live in and freedom over outside of the centrally planning hands of the State.

Running through his damning indictment of the political and personal consequences from imposing full socialist planning on society is a defense of the dignity and sanctity of the individual as a human being. The importance of private property is argued to be essential to secure and protect any and all freedom for the grasping hand of political power.

Hayek also pointed to the crucial role of the existence, practice and respect for an impartial rule of law for any protection from arbitrary government control. Without a delineation and enforcement of the rights of the individual and constitutional limits on the size and scope of government, political tyranny always threatens a society.

Hayek's "Use of Knowledge in Society" and the Un-workability of Planning

There are several concise and suggestive passages in The Road to Serfdom in which Hayek points out fundamental weaknesses in the practical ability of a central planning system to effectively replace a functioning competitive market order for solving the "economic problems" of society. But it is only in his 1945 article on "The Use of Knowledge in Society" that Hayek details what he considers to be the essential difficulty with any comprehensive system of economic planning.

If central planning were to work, it would be necessary for the central planners to possess complete and comprehensive knowledge of all the relevant "data" to decide how best to use and allocate all the diverse physical resources, human labor skills and technical possibilities so to produce those goods best serving the wants of the members of society, and in the most efficient manner to get the most out of the scarce means available to satisfy people's ends.

Hayek's starting point was to emphasize that all of that meaningfully relevant "data" exists in no one place and in no one mind or group of minds. The "knowledge of the world" is dispersed and divided up in the minds of all the members of society, with each knowing and understanding only a small part relative to all the knowledge that exists in everybody's minds, combined.

Furthermore, while people often think of knowledge in the textbook or "scientific" sense, there are other types of knowledge no less relevant or important that must be utilized and brought to bear if production is to proceed effectively and efficiently and if what is supplied tends to match what members of society want to demand.

Decentralized Knowledge and Need to Coordinate All that People Know

Hayek called this other type of knowledge the "local knowledge of time and place." This is the knowledge that is only acquired working and interacting within a particular corner of the social system of division of labor. This knowledge comes from working in a particular trade, in a specific firm or enterprise, working with a distinct group of other people, in which particular machines and tools are used as the means to satisfy specific consumers and demanders in the attempt to gain and keep their business in a competitive market.

But if knowledge is decentralized in a complex system of division of labor in which people are invariably separated from each other by both time and space, how shall information be communicated among people so their choices and actions on the production side of the economy can be tending to match and coordinated with the consumption side of the market?

Hayek forcefully argued that it is not necessary for all the multitudes of millions (now billions) of participants in the division of labor to directly know each other and each other's planned actions and desires to interpersonally coordinate all that they do. And it is certainly impossible for a handful of central planners to know enough of all that there is to know to successfully perform such an intricate and ever-changing task.

The Role of Market-Based Prices to Solve Society's Knowledge Problem

The market solves the "economic problem," which Hayek emphasized was really the problem of how to utilize all the knowledge in the world when all that knowledge can never be coordinated for effective use other than through the competitive price system.

Through the prices they offer to pay, demanders from one corner of the globe to another register their interest and their degree of willingness to pay others to supply them with the various goods, services and resources they are interested in obtaining from those willing and able to supply.

At the same time, every producer anywhere in the world is saved the necessity of needing to know all the other competing producers and enterprisers who also may have investment goals in mind involving the acquisition and use of various types of labor, capital equipment and raw materials.

It is sufficient that those rival demanders for the means of production on the producer-side of the market indicate and register their interest, willingness and ability to demand those factors of production through the prices they offer to purchase, hire or employ them.

These input prices inform producers anywhere in the world what the relative costs shall be to use those factors of production in their own line of activity, and therefore which combination of them would incur the least monetary expense to employ relative to the anticipated price they think consumers might be willing to pay for the finished product they could assist in producing.

These prices on the demand side of the market enable everyone in their own corner of the society to decide how best to allocate their limited income among alternative consumer goods they might purchase; and those prices on the supply side of the market assist each and every producer in deciding whether production of some product might earn a profit or suffer a loss, and if possibly profitable, with what combination of inputs to minimize expenses given other desired uses for them in other parts of the market.

Markets Enable Both Freedom and Use of Knowledge

The advantage of using a market-generated network of competitively established prices is that they not only inform everyone about the demand and supply potentials of others in society. It also means that every individual may be left free to make his own decisions about how best to use that knowledge of his local time and place in the most effective manner, so all may benefit from what each knows and can do what no central planner could ever know or do better than the decentralized decision-makers themselves.

Thus, individual liberty and social coordination through prices – personal freedom and market order – become not only possible, but can be shown to be indispensible if the "knowledge of the world" is to be brought into play for the mutual benefit and advantage of all.

If personal freedom is considered to be a desirable human condition and if human cooperation for mutual improvement is considered of value for the material and cultural betterment of mankind, then it can be shown, Hayek concluded, that only free markets – competitive capitalism – can solve the "economic problem" of the use of knowledge in society.

Socialist central planning, therefore, with its concentration of control over the means of human existence in the hands of the political authority, is not only a threat to human freedom and dignity – a "road to serfdom" – but also could be shown to be an economic dead end offering neither productive efficiency nor the practical utilization of the division of knowledge that accompanies a system of division of labor.

Abolition of private property in the means of production not only results in the personal loss of the means for existence and betterment outside of the power of government, with its danger of tyranny. It limits mankind's opportunities and progress to what a small number of finite minds can master and know, who are assigned the task of centrally planning and commanding the productive activities of the society.

Hayek's argument on the essential limits of the human mind to know enough to reconstruct and plan society according to a crafted central design was and is a powerful critique against the socialist ideal of the last one hundred years.

Which one of us, if we spoke with all honesty and truthfulness, can assert that they know enough to plan the economic and related social activities of the over 320 million distinct individuals living in the United States, or the more than 7.2 billion people who live on our planet?

But it might be said that "socialism" in his older and original form is now dead. It died with the fall of the Berlin Wall in 1989 and the collapse of the Soviet Union in 1991. Except, maybe, in North Korea, the case for and the practice of central planning has become something of the past, a tragic historical curiosity that historians will analyze and try to understand for a long time.

Today around the world practically every country operates with forms of a market economy. Some may be more free and competitive while others less so, but "the market" as the broad institutional framework in which economic affairs go on in daily life is now virtually universal. Therefore, is Hayek's message in both The Road to Serfdom and his article on "The Use of Knowledge in Society" still meaningful and relevant in our world today?

(The text is based on a talk given on a panel session devoted to "Friedrich Hayek as Defender of Liberty" at the Tenth Annual Moral Foundations of Capitalism Conference sponsored by the Clemson Institute for the Study of Capitalism at Clemson University in South Carolina, May 29, 2015)

Dr. Richard Ebeling is the BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina. He was professor of economics at Northwood University in Midland, Michigan (2009-2014). He served as president of the Foundation for Economic Education (2003-2008) and held the Ludwig von Mises Chair in Economics at Hillsdale College in Hillsdale, Michigan (1988-2003).

Left wing twisted thinking on display

Left wing twisted thinking on display

From a Letter to The Editor, Ohio Paper

The delusion: Corporate greed, high poverty are related

The Narrative: On March 16 there were several articles in the Enquirer related to poverty. One reported almost half of Ohioans live near or below the poverty level. Another article, questioning who speaks for the black community, pointed out that blacks have a disproportionate number of health problems, such as infant mortality, and suggested that where people live and work can affect their health. On the very same day there was an article that reported an Apple smart watch could cost more than $10,000 for the gold-plated version. There was an article about GE working harder to compete globally and how large they can grow will partially depend on how many pesky regulations they have to follow. In other words, fewer rules equals more profits for its CEO. There was also an article that suggested the Veterans Administration may have steered contracts worth millions to special friends.

The Twisted Thinking: Thinking critically, as instructed by the Common Core standards, I understand that there may be some connections and some cause-effect relationships between all of these seemingly isolated reports. Could capitalism on steroids and income inequality be related to high poverty levels? Could fraud and corruption in government also be related in some way to how the 1 percent continues to get richer than all the rest of us? [Making the case against Common Core?]

The Solution: Here’s a novel idea! What if we closed loopholes for huge corporations and asked the wealthy to pay their fair share of taxes? What if big companies started to put people ahead of profits? What if the wealthy could no longer make huge donations that corrupt our politicians? Just daydreaming here, but what if the middle class united, organized and demanded change? One simple thing we can do is vote only for leaders who want to fix America’s problems in the next election. 

The Analysis: This is an actual letter to the editor in my local paper. It took three paragraphs for the writer to proffer the old worn out mantra of the left.  His claim of critical thinking is clever by half, the wrong half.

• There are not "loop holes" all individuals and corporations are compelled to follow the tax code or pay the consequences.  In short, what corporations are doing is legal according to the tax law.
• Compare any country that is ravaged by poverty.  They have a system other than capitalism.  They have no liberty, freedom or choice.
• The middle class voting for a leader that puts America first has been the goal since our founding.  However, we have people that continue to vote for career politicians that are well known for putting themselves first. Ask yourself why millions of people voted for Obama twice. Notice the writer did not raise that question!

Greed is not the basis of business decisions

Greed is not the basis of business decisions

By Walter E. Williams
When gasoline sold at record prices, Sen. Bernie Sanders, I-Vt., said, “I think it’s time to say to these people, ‘Stop ripping off the American people.’” When the average price of regular gas was close to $4 a gallon, Sen. Chuck Schumer, D-N.Y., called for Congress to look into breaking up giant oil companies. The claim was that “Wall Street greed (was) fueling high gas prices.”

Today in some places, gasoline is selling for less than $2 a gallon, less than half of its peak price in 2008. The idiotic explanation that attributed high oil prices to greed might now be adjusted to argue that big oil executives have been morally rejuvenated. They are no longer greedy and no longer want to rip off the American people. My guess is that everyone in the oil business would like to charge higher prices. Plus, there’s no legal prohibition against big and powerful Exxon Mobil’s selling its regular gas today for $4 a gallon. Exxon stations don’t do so because the market wouldn’t bear that price.

The attempt to explain human behavior by greed is foolhardy. If we define greed as people wanting much more than what they have, then everyone is greedy. Show me someone who doesn’t want more of something, be it cars, houses, clothing, food, peace, admiration, love or war. The fact that people want more is responsible for most of the good things that get done. You’ll see Texas cattle ranchers this winter making the personal sacrifice of going out in blizzards to care for their herds. As a result of their sacrifice, New Yorkers will have beef on their grocery shelves. Which do you think best explains cattlemen’s behavior, concern about New Yorkers or their wanting more for themselves?

This year’s congressional efforts to reduce corporate income tax will create great opportunities for demagogues. The United States has the highest corporate income tax rate among the 34 industrialized nations of the Organisation for Economic Cooperation and Development. The effect of high corporate taxes gives corporations incentives to lower their effective tax rates by engaging in activities that lower their competitiveness and to shift profits to foreign subsidiaries.

Demagogues will claim that corporations should pay their fair share of taxes. The fact of the matter, which even MIT economists understand but might not publicly admit, is corporations do not pay taxes. An important subject area in economics, called tax incidence, says the entity upon whom a tax is levied does not necessarily bear the full burden of the tax. Some of the tax burden is shifted to another party. If a tax is levied on a corporation – and if the corporation is to survive – it will have one of three responses or some combination thereof. It will raise the price of its product, lower dividends or lay off workers. 

The important point is that only people, not some legal fiction called a corporation, bear the burden of any tax. Corporations are merely government tax collectors. Here’s a tax-related question: Which worker receives the higher pay, a worker on a road construction project moving dirt with a shovel or a worker moving dirt atop a giant earthmover? If you said the guy on the earthmover, go to the head of the class. But why? It’s not because he’s unionized or that employers just love earthmover operators. It’s because he is more productive; he has more physical capital with which to work.

It’s not rocket science to conclude that whatever lowers the cost of capital formation will enable companies to buy more capital, such as earthmovers. The result is that workers will be more productive and earn higher wages. Policies that raise the cost of capital formation – such as capital gains taxes, low depreciation allowances and high corporate income taxes – reduce capital formation and do not serve the interests of workers, investors or consumers.

The greatest tool in the arsenal of demagogues is economic ignorance, which my colleagues in George Mason University’s economics department battle against tooth and nail.

The Most Insidious Line In The State Of The Union Address?

The Most Insidious Line In The State Of The Union Address?

by George Leef

President Obama’s penultimate SOTU was notable for its audacity in demanding an even more expansive role for the federal government. Although trust in government has plummeted during his relentlessly statist administration, the president wants Americans to rally behind his belief that more federal mandates and spending will “turn the page” and make the country great.

I would like to single out one especially wrong-headed idea – that Congress should amend the Fair Labor Standards Act, requiring employers to pay many workers more.

Obama supports increasing the federal minimum wage to $10.10 per hour. In his speech, he argued for it this way: “And to everyone in this Congress who still refuses to raise the minimum wage, I say this: If you truly believe you could work full time and support a family on less than $15,000 a year, go try it. If not, vote to give millions of the hardest-working people in America a raise.”

There is much to be said against raising the minimum wage, or even having such a law at all.

No business has an unlimited fountain of money, so trade-offs are inevitable. If some workers must be paid more by political mandate, then firms will respond in ways that make others worse off. As George Mason University economics professor Donald Boudreaux wrote in an open letter to the president, “Because the policy you propose would price many workers out of jobs, that policy would indeed change these workers’ incomes: it would drop them to $0.”

The truth is that the minimum wage increase would cause many low-wage workers to lose their current jobs and have trouble ever finding another one. More people will never land their first job because they’re unable to produce enough value to earn the mandated wage.

Pretending that their supposedly compassionate programs have no adverse effects is a well-worn part of the political playbook,  Barack Obama can look you straight in the eye and say that everyone gains from following him on the minimum wage. Just as he asserted that passage of the “Affordable Care Act” would help millions and hurt nobody.

But what I want to focus on is the way Obama made his pitch: It’s hard to support a family on less than $15,000 per year, therefore politicians should give them a raise.

Those seven words illuminate the appeal of minimum wage laws to “progressives.” They build support in the minds of voters for their true goal – getting them to think of the government as a source of free benefits.

In the days before the minimum wage, everyone understood that if you wanted a better standard of living, getting it was up to you.  This worked just fine until Big Government figured out it could buy votes buy granting you free stuff.

If you worked for yourself (in agriculture, perhaps), improving your lot in life depended on finding more efficient ways of producing. If you worked for someone else, you could raise your skill level to make yourself more valuable, then bargain for a wage increase, or else take your labor elsewhere.

Americans knew that if they wanted more, earning it was their responsibility. Most accomplished that through industry and ingenuity.

The cancerous effect of minimum wage laws is to cause people to look instead to politics as a way of fulfilling their desires. Want a raise? Vote for the right politicians and they’ll give it to you.

With government in the “free stuff” business, campaigns start revolving around who can promise the most to the various groups clamoring for benefits. Rather than working and cooperating with others to solve their problems, people increasingly waste their energy on political wrangling.

Want free medical care? Vote for the right politicians and they will make sure you’ll be cared for.

Want guaranteed retirement income? Vote for the right politicians and they’ll mandate a program for that.

Want education or training for your children? Vote for the right politicians and they’ll create entitlements to serve you.

Progressives don’t want a society of independent, self-reliant, forward-thinking individuals. They want subservient people who look upward to government, beseeching the rulers for sustenance and favors. Minimum wage laws help engender that mindset.

Writing in Democracy in America, Alexis de Tocqueville foresaw the impact of Nanny State laws and regulations, which turn the people into “nothing but a flock of timid and industrious animals, with the government as its shepherd.”

Indeed so, except that many of the animals are no longer industrious.

Something to think about while you listen to the POTUS State of the Union Speech

What to do about taxes?

Tomorrow night, the nation will hear another speech by the President advocating for more redistribution of wealth.  He will cloak this in the name of taxing those that can pay and giving the middle class a "raise".  This will undoubtedly be a attractive to the populist vote (progressive) while being a nonstarter for conservatives.  It will be more division and class warfare.  Exactly what the President wants to put on the table for the 2016 Election cycle.

Being a student of Federal Taxes for over 30 years, it is become relatively obvious to many that the tax codes are and have been used for more that 50 years to manipulate public policy without much notice of the voting public.  Tax something and the money will flow "from and to...." what the politicians wish.  This is deceitful and simply wrong.

The most courageous thing the Congress can do is take the Tax Code and make it politically neutral and off limits to politicians and lobbyist.  How, you might say? 

Throw out the complete tax code and replace it with a simple tax.  There have been many proposed and none adopted.  Why? Because it takes away a useful tool from the political class, that's why.

It is widely known that having a tax system (tiered of otherwise) where everyone pays some tax will create more revenue that the progressive 16,000 page tax system we have today.  It takes away the divisiveness that is tearing the country apart (one the politicians actually benefit from).  Equally, it allows the government to get rid of the IRS and its draconian behaviors.  This alone will save billions of dollars for the government and likely more for the private sector.

So, as you listen to the State of the Union speech and the GOP Nembutal, keep the above in mind.  Ask yourself the question "Will this really solve the problem and bring the country together at the same time?"

The time is now, not later.  We cannot afford to wait.

Politics in permanent state of Armageddon Excerpts from E.J. Dionne article with comments

Politics in permanent state of Armageddon

Excerpts from E.J. Dionne article with comments

We now seem to be living in the Age of High C, a period when every fight is Armageddon, every foe is a monster, and every issue is either the key to national survival or the doorway to ruin. [ high C is a euphemism for screechy editorials]

This habit seems especially pronounced in the way President Barack Obama’s adversaries treat him. It’s odd that so many continue to see Obama as a radical and a socialist even as the Dow hits record levels and the wealthy continue to do very nicely. If he is a socialist, he is surely the most incompetent practitioner in the history of Marxism.

[Obama's behavior is demonstrative of his ideology.  His failures are demonstrative this remains a conservative nation.]

The reaction to Obama is part of a larger difficulty that involves pretending we are philosophically far more divided than we are. In all of the well-off democracies, even people who actually call themselves socialists no longer claim to have an alternative to the market as the primary creator and distributor of goods and services. The boundaries on the left end of what’s permissible in the public debate have been pushed well toward the center. This makes the hysteria and hyperbole all the more incomprehensible.

[Simply not true. The left has moved further left and that creates an equal reaction from conservatives.]

But let’s dream a little and assume that the American left signed on to the proposals put forward by Lane Kenworthy of the University of California- San Diego in his challenging (and, by the way, very pro-market) book “Social Democratic America,” published this year. Kenworthy’s argument is that we can “successfully embrace both flexibility and security, both competition and social justice.”

[History has proven that giving our government more power in the areas named by Kenworthy has put us on the road to fiscal insolvency. Social programs are consuming over 60% of our spending]

His wish list is a straightforward set of progressive initiatives. A few of them: universal health insurance and early education, extensive new help on job searches and training, a year of paid parental leave, an increased minimum wage indexed to prices, expansions of efforts that supplement wages such as the Earned Income Tax Credit, and the government as an employer of last resort.

[Substitute the word Socialism for Progressive.  This is still a massive transfer of wealth in our economy. One the Kenworthy nor Dionne can explain away]

His program, he says, would cost around 10 percent of our GDP. Now that’s a lot of money and the debate about whether we should spend it would be anything but phony. Yet would such a level of expenditure signal the death of our constitutional system? Would it make us like, say, Cuba? No, and no. It might make us a little more like Germany, the Netherlands or the Scandinavian countries. These market democracies happen to share with us an affection for freedom and enterprise. And when it comes to High C, there’s nothing quite like our culture wars in which disagreements about social issues are seen as battles between libertines and bigots. When I look around, I see a lot of liberals who live quite traditional family lives and even go regularly to churches, synagogues and mosques. I see a lot of conservatives who are feminists when it comes to their daughters’ opportunities and oppose bigotry against gays and lesbians.

[Another liberal seeing the world he wants to see, rather than the world as it is.  Liberals are not Conservatives and visa versa. Period!]

The ideological resolution I’d suggest for the new year is that all sides stop fighting and pool their energies to easing the marriage and family crisis that is engulfing working-class Americans. This would require liberals to acknowledge what the vast majority of them already practice in their own lives: that, all things being equal, kids are better off with two loving and engaged parents. It would require conservatives to acknowledge that many of the pressures on families are economic and that the decline of well-paying blue-collar work is causing huge disruptions in family formation. I’d make a case that Kenworthy’s ideas for a more social democratic America would be good for families, but let’s argue it out in the spirit of a shared quest for remedies.

[Do you recognize the disguised Keynesian Economics? The liberal Democrats created the issues Dionne complains about and now he advocates tired old liberal strategies to deal with them: More and bigger government with even higher taxes!]

Maybe it’s asking too much, but might social conservatives also consider my friend Jonathan Rauch’s idea that they abandon their campaign against gay marriage in favor of a new campaign on the value of committed relationships for all of us?

[Notice how he slips this non sequitur in? Disregard this and don't let it distract you]

Disagreement is one of the joys of freedom, so I am all for boisterous debate and tough political and philosophical competition. It’s how I make my living. But our democratic system would be healthier if it followed the Greenfield rule and reserved the harshest invective for things that are genuinely monstrous.

[So the world that Dionne lives in would have conservatives agree with liberal socialism in the U.S. as long as it is not an "in your face" move away from capitalism.  Oh! notice he never talked about that.]

The Big Lie: "The economy is improving in every measurable way" - Barack Obama

The Big Lie: "The economy is improving in every measurable way" - Barack Obama

1.     The median U.S. income this year was $53,385, according to Sentier Research. That's down 4 percent from the $55,446 people earned in 2009.

2.     The median net worth in America fell to $81,400 in 2013 from $85,100 in 1989, the report said. Meanwhile, all of the economic gains during the recovery that have followed the housing crash have gone to top-income earners, statistics show.

3.     The bottom 90 percent of families -- already facing stagnant wages and salaries -- are suffering under a crushing debt load. Many of them have higher mortgages to pay and higher credit card and student loan balances.

4.     A vibrant middle class is the cornerstone of a strong national economy. America's middle class is getting weaker, however, with those on the lower rungs sliding into poverty. The middle class -- defined by the middle 60 percent of households -- collects about 45.7 percent of national income. That's down significantly from 53.2 percent in 1968, according to U.S. Census figures analyzed by the left-leaning Center for American Progress Action Fund.

5.     In the numbers released today, covering the month of June, the seasonally adjusted unemployment rate for black Americans age 16 and over was 10.7%, reported the BLS. The unemployment rate for white Americans in the same age group and time-frame was 5.3%, said the BLS. 10.7% is more than double 5.3%.

6.     Low-wage jobs have dominated the economic recovery, placing people into fast-food and other service-sector positions that offer few benefits or opportunities for promotion. Since the recession, there are 1.2 million fewer jobs in mid- and higher-wage industries, while lower-wage industries have grown by 2.3 million jobs, according to a study from the National Employment Law Project.

7.     The share of first-time buyers has fallen to its lowest point in nearly three decades, according to a recent survey from the National Association of Realtors. Only about a third of people buying homes now are first-timers, down from the historical average of 40 percent.

8.     No one will be able to afford college in the future. Wrestling with college costs can tank a family's finances. Parents and grandparents have taken out loans to foot the bill, only to put their retirement nest eggs at risk. Students shoulder the burden as well, and more than two-thirds of college seniors graduate with student debt, some of which could take decades to pay off.

9.     Meanwhile, the median wealth of non-Hispanic black households fell 33.7%, from $16,600 in 2010 to $11,000 in 2013. Among Hispanics, median wealth decreased by 14.3%, from $16,000 to $13,700. For all families — white, black and Hispanic — median wealth is still less than its pre-recession level.

10.  At the median, black families made $39,715 in 2010, down from about $44,000 in 2000. As a percentage of white median family income, blacks made 61 percent in 2010, down from 63.5 percent in 2000.

11.  The Great Recession wreaked havoc on household incomes for blacks. From 2007–2010, the median black household’s income fell 10.1 percent, compared to 5.4 percent for white households

12.  Despite the significant decrease in the official U.S. Bureau of Labor Statistics (BLS) unemployment rate, the real unemployment rate is over double that at 12.6%. This number reflects the government’s “U-6” report, which accounts for the full unemployment picture including those “marginally attached to the labor force,” plus those “employed part time for economic reasons.”

Unemployment: Keynesians and Warmists Are Identical

Unemployment: Keynesians and Warmists Are Identical

By Louis Woodhill

Science consists of theories that can be falsified (proved wrong) by evidence. In fact, a single inconsistent data point will (and should) invalidate even the most cherished and long-standing scientific theory. By this standard, both the current computer-model-based theory of global warming and Keynesian economics fall into the domain of religion, not science. The adherents of these theories cling to them, even though they have both been disproved by evidence.

Friday's "Employment Situation" report from the Bureau of Labor Statistics (BLS) and the most recent GDP report from the Bureau of Economic Analysis (BEA) drove more nails into the coffin of Keynesian economics.

Keynesians believe that GDP growth and jobs growth are driven by "demand," and that demand is driven by fiscal and monetary "stimulus." So, to Keynesians, the answer to almost any economic problem is for the federal government to run bigger deficits, and for the Federal Reserve to print more money. For the Keynesians, as for the global warming crowd, the data has not been cooperating lately.

Fiscal stimulus is created by growing government deficits, while increasing the size of the monetary base generates monetary stimulus. Let's look at the data.

 During the 12 months ending with November 2014, the economy created 2.8 million FTE* (full-time-equivalent) jobs, with the "help" of $571 billion in total stimulus ($425 billion fiscal and $146 billion monetary). During the prior 12 months, $1,875 billion in total stimulus ($837 billion fiscal and $1,038 billion monetary) yielded only 1.2 million new FTE jobs. In other words, the evidence says, "less stimulus = more jobs."

The same appears to hold true for GDP (specifically, nominal GDP, or NGDP). Fiscal and monetary stimulus is supposed to boost NGDP, but the data from the most recent two fiscal years (FYs, which run 4Q to 3Q) suggests an inverse correlation between stimulus and economic growth.

During FY2013, $1,573 billion in total stimulus ($486 billion fiscal and $563 billion monetary) produced a $603.4 billion increase in annualized NGDP. For FY2014, $1,049 billion in total stimulus ($680 billion fiscal and $893 billion monetary) produced a $682.9 billion increase in annualized NGDP.

The data over the past 6 years has left Keynesians with no way to defend their theories other than to create imaginary "counterfactuals," compared against which the observed results are consistent with their models. In other words, they run their models in reverse, back-calculate "what would have happened in the absence of our stimulus policies," and then declare that this circular exercise supports Keynesianism. This gambit would be laughed off the stage in any true science.

The sad fact is that the economics profession has failed the nation on an epic scale. Nobel prizes are awarded in economics every year, but mainstream economic theory has been of no help toward getting America back on the road to prosperity.

The reported 321,000 rise in payroll employment for November seemed to get a lot of commentators excited, but the BLS Household Survey numbers were lackluster at best. Calculated to two decimal places, the unemployment rate actually increased, and the total number of FTE jobs fell by 25,000.

November's numbers left us 14.4 million FTE jobs short of full employment, which is actually 71,000 greater than when the current economic recovery started. In the meantime, our working age population has increased by 13.2 million.

A strong jobs market would reverse the alarming decline in labor force participation (LFP) that has occurred under President Obama. At 62.85%, November's LFP continued to bounce along at 36-year lows.

The financial markets were heartened by the sweeping Republican victory in the recent elections. From the end of June to the end of November, the Dow increased by 6.04%. However, because the real value of the dollar rose strongly during this period, this number greatly understates the market's assessment of the prospects for the economy.

Commodity prices are the only valid measure of the real value of the dollar. In a world populated by fiat currencies floating against each other, exchange rates tell us nothing about the real value of our currency. Neither do interest rates, which actually represent the rental price of capital, not the value of money. Price indexes like the CPI and the GDP deflator are useful, but they are based upon market baskets that are constantly changing qualitatively, and so do not provide a good indication of the real value of the dollar over time.

Over the most recent 5 months, the Gold Dow (the Dow divided by the COMEX price of gold) rose by 20.44%. At 15.26, the Gold Dow ended November at the highest level that it has seen since December 2007, although it was still a shocking 63.13% below its all-time high, which was reached in October 2000.

Interestingly enough, unlike the Gold Dow, the CRB Dow (the Dow divided by the CRB Index**) did end November at an all-time high. At 70.09, the CRB Dow was 40.08% above the level of October 2000.

Of course, the "real Dow" (whether measured against gold or the CRB Index) should increase with time, as the economy grows and businesses become more capital intensive. Recent government policies (especially our unstable dollar) have suppressed investment, and therefore the growth of GDP, jobs, and equity values.

The large recent increases in the Gold Dow and the CRB Dow reflect market hopes for improved government policies from the Republican-controlled 114th Congress. To deliver those improved policies, the Republicans will have to ignore the pleadings of Keynesians for more government spending, and thwart the efforts of global warming alarmists to cripple the economy with new regulations on energy production and use.

Meanwhile, it would help if the Federal Reserve would stop obsessing over interest rates, and simply stabilize the value of the dollar in terms of the CRB Index.