The Root of Money

Money, it’s a gas

Grab that cash with both hands and make a stash

         —Pink Floyd, Money

 

Have you ever asked yourself what money is?  I mean, what is it, really?

It’s not what you think, and you’re not going to like the truth.

As children (at least those of us who grew up before the ubiquitous use of credit and debit cards), we at some point gain an awareness of money as the metal coins and green paper rectangles our grandparents sometimes gave us to stick in our piggy banks.  But that’s not really “money”; that’s “cash,” or “currency,” which are only symbols or representations of money, but are not money in themselves.

In Ayn Rand’s Atlas Shrugged, copper baron Francisco d’Anconia gives an extended lecture on the nature of money as a means of exchange:

Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them.  Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. 

Conceptually, this is an excellent theoretical description of what money was supposed to be.  And in a system in which money is in fact a representation of value, Miss Rand’s instruction above would be accurate.  Unfortunately, that’s not the world in which we live.

If we were ever in a world where money represented actual value, I long ago accepted the fact that that was lost in 1933 when the U.S. government effectively severed the dollar from, and criminalized private ownership of, gold.  At that point, money ceased to be tied to any intrinsic value, and instead derived its worth merely from the say-so of the government. In other words, money no longer represented value, but represented nothing.

I’ve come to learn that it’s even worse than that. To understand this, you have to understand where money really comes from.

If you’re like me, you’ve believed that the problem with “fiat” money—money with no backing commodity—is that the government can and will devalue it by printing more cash.  While it’s true that the government does that, and it’s bad, that’s only a small fraction of the amount of money that “exists.”  The vast majority—95% or more—of money isn’t created by Treasury printing presses, or even by the government at all.

OK, Rusty, where does money come from?

Almost all money in existence is actually created by private banks, and “exists” only in the form of accounting entries of bank credit.  Here’s how it works.

Most of us are under the impression that what banks do is collect money from their depositors, and loan that money out to borrowers.  But because of the practice called “fractional reserve banking,” that’s not in fact how banks operate.  Under fractional reserve banking, banks need only actually hold a small portion of real assets—say, 10%—relative to the amount of loans they can grant.  So a bank with assets of $1 million in assets can make $9 million in loans, thus creating $9 million in “money” in the process.

Consider this example.  Barry goes to BankAmerica for a loan of $10,000.  Barry signs the loan contract, thus indebting himself to BankAmerica. BankAmerica does not then reach into a depositor’s safe deposit box and hand Barry $10,000 in cash.  Instead, it simply types $10,000 into a computer showing the data for Barry’s account.  Voila! $10,000 in money is created based on nothing but Barry’s debt to a bank.

But it doesn’t stop there.

Barry uses the $10,000 to buy a car from Bill, who deposits the money into his account at Citibank.  Under a 10% fractional reserve requirement, Citibank then sets aside $1,000, and now has $9,000 to give a home loan to Hillary, if she can qualify.  Citibank makes a computer entry of $9,000 in Hillary’s account, thus creating an additional $9,000 of money—remember, Bill still has the original $10,000—and she then writes a $9,000 check to Joe.  Joe deposits the $9,000 with Chase, which sets aside a reserve of $900, and then has $8,100 to loan to Paul, just because he likes debt.  Chase makes a computer entry of $8,100 in Paul’s account, thus creating an additional $8,100 of money; Bill still has the original $10,000, and Joe still has the secondary $9,000.

Thus far in our example, the banks have created $27,100 in money.  This process will repeat itself over and over, each time the bank retaining 10% and creating new money by loaning the remaining 90%. Ultimately, from Barry’s original debt of $10,000, the banks will create $100,000 in new money.  And every dime of it based on nothing but debt.

Some 95% of all money is created in this fashion: by private banks from debt.  Worse, what do you suppose the banks do with the 10% of assets they have to hold as reserves?  Most of it they invest in government bonds—debt.  Those bonds count as assets for purposes of the reserve requirement, thus enabling the bank to make even more loans, creating even more money out of debt.

So what the bankers have done is cleverly fashioned an industry where collect interest by loaning money they . . . do . . . not . . . have.

The ugly truth is, the money in your bank account isn’t based on value.  It’s not even based on nothing.  It’s based on debt—less than nothing.

But here’s the real punch line.  When BankAmerica makes its loan to Barry, it only creates the $10,000 it typed into his account.  It does not create the additional interest Barry has to pay back on top of the principal.  And that’s true on down the line as successive banks made subsequent loans and created additional debt-money.   This leaves us with a sobering mathematical reality:

There isn’t, and can never be, enough money in existence for everyone to be able to pay back everything owed to the banks. 

Necessarily, inherently, inevitably, some people will not be able to obtain enough money to repay all they owe the bank in both principal and interest.  At that point, the bank forecloses—the bank gets that person’s stuff.  Some will say that’s a bad deal for the bank, because the bank will then have to sell it at a loss, but at a loss of what?  All the bank is out is the remaining unpaid amount of principal, which was money the bank never had in the first place.  The bank makes less than it would had the borrower repaid the loan, but the bank still ends up with more money than it had before it made the loan.  And because essentially all money is based on debt owed to the banks with interest, over a long enough time horizon all the money and all the stuff ends up in the hands of the banks.

Even those who can manage to repay their debt are on the losing end of this proposition.  As the banks create more and more debt-money, the purchasing power of all money diminishes.  Since the creation of the Federal Reserve in 1913 the U.S. dollar has lost over 90% of its purchasing power.  Your ability to acquire goods and services is diminishing just as surely as if someone were physically taking dollars from you.  All by this fractional reserve system managed by the Federal Reserve, which—contrary to deliberately-deceived common belief—is in fact not a branch of the government, but an organization made up of private banks.

This doesn’t happen in a system where money is based on a value—like gold—and can only be created by the sovereign—as the Constitution requires.  But that’s not where we are.  Money is no longer based on value, and the sovereign has ceded the power of creating money to the private banks, which then create money based on debt owed to themselves through a system created and governed by themselves.

Give you one guess as to who, at the end of the day, gets to pass “Go” and collect $200, and who doesn’t.

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Truth And Consequences

“Hey, Howard, I thought you were a gentleman.  Sure it’s gone down a little bit, but you got the tip from your printer, I didn’t.  Yeah, you did.  That’s what you said.  I didn’t tell you to buy it, why would I tell you to sell it?  No, I can’t give it back.  Give it back to who?  You own it!”

      —Charlie Sheen as Bud Fox in Wall Street

 

Meet Mary Landrieu.

Ms. Landrieu is the senior Senator from Louisiana.  She’s a Democrat.  And she’s up for re-election in 2014 in what is otherwise normally a red state.

Back in 2009 she provided a pivotal late position change in favor of FUBARCare.  Recall that in order to get past a GOP filibuster to pass the thing, Senate Majority Leader Harry Reid (D-NV) needed every one of the 60 Democrats then in the Senate to be on board.  Landrieu was one of the last holdouts.  With time running out, Reid did what Leftists do: 

He bribed her.

Oh, I don’t mean he literally gave her cash (as far as either of us knows).  But in the seedy world of politics, money coming into one’s district—or, in the case of a Senator, state—is almost as good as money coming into your own pocket.  So, in a move that would make Machiavelli proud, Reid arranged for amendments to the FUBARCare bill that were to extend some $300 million in federal Medicaid assistance to Louisiana, originally given in response to Hurricane Katrina; in other words, in order to secure Landrieu’s Aye vote, Harry Reid and the Democrats took millions of dollars from taxpayers in other States and gave it to Louisiana (which, ironically, then joined 26 other States in suing the federal government in an effort to stop FUBARCare).  So if you’re in Ohio, or California, or Texas, you are subsidizing indigent medical care in Louisiana.

But it gets worse.

It turns out that Landrieu’s vote wasn’t bought for $300 million; the price tag was really over $4 billion.  That’s right.  Due to drafting errors in the bill amendment—What?  Drafting errors?  In the FUBARCare bill?  Get real.—instead of phasing out the additional federal subsidy, payments to the State of Louisiana actually increase, resulting in a total federal cost of about $4.3 billion.  All to give Senator Landrieu something about which she could boast to her constituents in exchange for changing her vote.

And to be clear: Senator Mary Landrieu voted for FUBARCare.  She owns it.

Fast forward to 2013.  FUBARCare launched in earnest on October 1.  Leave aside the side-tent freakshow that is the comically inept website rollout.  The real game is in the millions who are being kicked off their existing medical care insurance plans.  Many Democrats who bought into and repeated the President’s assurances (read: lies) that if you liked your insurance you’d be able to keep it are now shocked—shocked—to find out that it just ain’t so.  Of course, many of us have been warning for years, both before and after FUBARCare passed, that this would happen, and it turns out the Democrats really did know it all along.  But many among the more gullible and ignorant voting public are now finding out the hard way, and boy are they pissed.  And Democrats in reddish states who voted in favor of it—by the way, did I mention that Senator Landrieu voted for FUBARCare?—are feeling the heat.

But don’t worry, because Senator Landrieu is now sponsoring a brilliant fix to the problem.  She, along with people like Dianne Feinstein (D-CA) are pushing additional legislation that would require insurance companies to continue to offer the policies they’ve been canceling.  That’s right: the solution to an impossibly messed-up unconstitutional federal regulation is . . . yet more impossibly messed-up unconstitutional federal regulation.

Here’s just how perverse this whole thing is.  As we discussed in the last post, the insurance policies that are being canceled aren’t being canceled because rich, profitable insurance companies are mean.  They’re being canceled because under FUBARCare either (1) they don’t provide the requisite minimum coverage, or (2) they become financially unviable.  In other words, these policies are being canceled because they’re made illegal or unprofitable by the very law Senator Landrieu voted to pass.  Now she wants to avoid the political consequences of that action by requiring insurance companies to continue to offer those policies anyway.

The optics of this are silly—we’re going to require everyone to purchase policies with a certain minimum amount of coverage . . . except for everyone who has a policy that doesn’t meet that standard, which we first banned but now we’re going to mandate stay in effect—but the economics are worse.  As mentioned, many of the policies being canceled are being canceled because under FUBARCare they no longer make fiscal sense—that is, the insurance carrier would lose money if it continued the policy.  Senator Landrieu’s “fix” forces those companies to continue the policy anyway, despite the loss. 

The economics of the policies that do meet the FUBARCare minimums depend on the risk pool including all those people who were to be forced off non-qualifying plans.  That was the point of the minimum coverage requirement: to make the coverage proposition work for the insurance companies, they need to be collecting premiums from people who won’t claim benefits.  With Senator Landrieu’s “fix” allowing those people to avoid being forced into the risk pool for the more comprehensive coverage they do not want, the carriers either have to raise premiums even further, or operate at a loss.  The former prices some people out of the policy and forces them onto the publicly-subsidized exchanges or Medicaid, further reducing the insurance companies’ risk pool and thus starting the cycle all over.  The latter obviously has the insurance company losing money. 

Neither situation is sustainable long term, and all of the scenarios have the insurance companies being compelled by law to continue offering insurance at a loss. 

Now, Senator Landrieu may have a fairly astute strategy here from a short-term political point of view.  If Republicans oppose this move, they’ll be cast once again as obstructionists, placing extreme ideology before practical solutions.  Worse, it will effectively allow the Democrats to shift responsibility for the policy losses to the GOP—don’t blame us, we tried to keep you from losing your policy, but the Tea Party racists wouldn’t compromise—as the Republicans’ hopelessly inept messaging will fail to remind voters that Democrats like Senator Landrieu caused the losses in the first place, and will never be able to articulate the disastrous long term consequences of the proposed solution.  It’s potentially win-win for the Dems: Landrieu gets her life preserver, and the Progressives get one step closer to single-payer.

But this shouldn’t work if the GOP stands firm and refuses to bail them out.  Between the website rollout and the millions of lost policies, the Republicans have a tangible real-world story to tell that puts what to this point had only been an abstract theoretical lie into sharp relief.  If they can get their messaging together, this should be a winning issue in 2014.  And the stakes are significant.  In addition to Landrieu, two other Democrat Senators in States that subsequently sued to stop FUBARCare are also up for re-election in 2014: Mark Begich in Alaska, and Mark Warner in Virginia.  Both voted for FUBARCare.  Other Democrat Senators in otherwise red states are also up for re-election in 2014 or are retiring: Mark Pryor in Arkansas (up), Max Baucus in Montana (retiring), Kay Hagan in North Carolina (up), Tim Johnson in South Carolina (retiring), and Jay Rockefeller in West Virginia.  All five voted in favor of FUBARCare.  Together with Landrieu, that’s eight seats up where FUBARCare should be a major sore spot; six seats flips control of the Senate. 

The truth remains:  Senator Landrieu and the Democrats voted in favor of FUBARCare.  They passed it without a single GOP vote in either house of Congress.  They own it.

And in 2014, that should have consequences.

*****************

EDITOR’S NOTE:  FUBARCare was supposed to add some 27 million to the ranks of the insured.  After six weeks, HHS’ official enrollment figure—likely grossly inflated—is all of 106,000 and change.  At that pace, FUBARCare will reach the 27 million level . . . in 29 years.

FUBARCare, Rights, and Contracts

And everyone here’s to blame

Yeah well everyone here gets caught up in the pleasure of the pain

Yeah, everyone here hides shades of shame

But looking inside we’re the same, we’re the same

And we’re all grown now, but we don’t know how

To get it back to good

           —Matchbox Twenty, Back 2 Good

 

In an opinion piece Tuesday on foxnews.com, Juan Williams argues that all the uproar over the President’s lies about you getting to keep your coverage is much ado about nothing, because it’s not the fault of Obama or FUBARCare that people are losing their medical insurance coverage.  As an initial point, it’s interesting that Williams makes no effort to say that the President didn’t say you could keep your coverage, or that the promise was in fact not a lie, but simply that because it’s not Obama’s fault—according to Williams—it’s not a lie that matters.

Whatever.

The more aggravating part of his piece, however, is his central thesis that Americans’ anger over the loss of coverage is misdirected.  To begin with, Williams minimizes the issue, contending that “only” some 2 million Americans are losing their insurance this month, and some will get “better” coverage and government subsidies, which sort of begs the question why we didn’t just go to a subsidy model like food stamps in the first place.  But more to the point, 2 million people is a lot, and at present it’s a whole lot more than the number of people who have gained insurance, which is a more than significant fact when you’re talking about a piece of legislation the central purpose of which was to see to it that more people had medical insurance than did before; Williams conveniently leaves that tidbit out.

Williams nevertheless says anger aimed at Obama and FUBARCare is misdirected, and should really be aimed at the insurance companies for cancelling their policies.  It is no more correct, according to Williams, to say that under FUBARCare government is “forcing” those companies to cancel policies any more than it is to say that government “forces” chemical companies not to dump toxic waste, or that government “forces” people to fix broken windshields.  Well, in point of fact, to the extent that the government via the power of law requires proper disposal of chemical waste or proper repair of vehicles, it indeed does “force” that behavior.  But the real issue is that Williams’ analogy is inapposite, and it reflects his fundamental misunderstanding of the nature of insurance, rights, and obligations.

When government enacts a law relating to waste disposal or vehicle repair, it is doing so to prevent the entities being compelled from engaging in a behavior that harms people.  There is a pre-existing right/obligation relationship in both instances.  I have a right not to be poisoned by polluted water, and the chemical company has a corresponding obligation not to poison me; the anti-dumping regulation merely enforces that pre-existing relationship.  Similarly, I have a right not to be harmed on the road, and you have a corresponding obligation not to harm me; the repair regulation again simply enforces what already exists.    

But there is no similar right/obligation relationship with respect to medical insurance, and this is where Williams leaves the reservation.  He complains that the cancellations are due to insurance companies’ refusal to do what they should have done all along, and that is revise their policies to provide all the “common sense, humane” goodies he says should have been there in the first place; all FUBARCare did was right this “terrible wrong” and stop greedy insurance companies from taking advantage of people and making profits by using “loopholes” to deny coverage.

Williams’ argument presumes that you somehow have a “right” to have your medical insurance policy cover all the things FUBARCare requires, and that the insurance company simply by virtue of existing has a corresponding obligation to provide them to you.  But no such right/obligation exists, and contrary to Williams’ apparent worldview, the insurance industry does not represent some sort of collectively-held natural resource upon which all of society has some right to draw. 

Insurance is a contract—an agreement—and those “loopholes” to which Williams refers are what are otherwise known as the terms of that agreement.  The ONLY right you have, and the ONLY obligation the carrier owes you, is what the two of you have agreed to in your insurance contract.  It is—or was, before FUBARCare—a voluntary arrangement (and don’t bother with the whole I-can’t-help-what-coverage-my-employer-provides thing; individual insurance has long been available, and if it really mattered that much to you, nothing prevents you from changing jobs to one that provides insurance benefits more to your liking); if you want contraception coverage, or a different lifetime cap, those policies were always available.  

But here’s the thing.  If you didn’t want those things, those policies were available, too.  You and your insurance carrier could enter into an agreement that didn’t cover, say, contraception and abortion services, and if you were a 65-year old who’s had a hysterectomy, it may very well make sense for you to do just that.  But under FUBARCare you can’t do that even if you want to, because Progressive elites like Williams think they know better than you do what coverage is “better” for you.  And this, Mr. Williams, is what’s got people so pissed off:  to the extent you’re talking about people losing coverage they liked—and those are by definition the people to whom the President’s promises about keeping coverage were made, not those who didn’t have insurance, or were somehow being cheated via inadequate coverage—it’s because in closing those “loopholes” you’ve forced them and their insurance company to alter their agreement and add terms neither of them wanted. 

Insurance companies aren’t cancelling policies because they are too evil to live up to their “obligation” to provide all the additional benefits the Left says everyone should have whether they want them or not.  They’re cancelling policies because all those added benefits—benefits FUBARCare now forces them to provide—have a cost, and this is the point that gets lost on people like Williams.  Health care in general, and insurance in particular, aren’t a magic top hat into which you can just reach and pull out whatever benefit you want.  Someone has to provide the services, and someone has to pay for them, and insurance policies are carefully calibrated actuarial propositions—that’s math, Mr. Williams—that ensure that premiums are set at sufficient levels to cover the cost of those benefits over the entirety of the risk pool and afford the profit without which the insurance company would not exist.  When government intervenes to mandate the coverage of additional benefits, the actuarial balance is altered, and either the extra cost of the additional benefits has to be covered by increased premiums and deductibles—as many are seeing—or the policy becomes financially unviable.  

Ironically, it is this very phenomenon that Williams now can’t bring himself to recognize that is the central basis for FUBARCare’s individual mandate.  Because there are increased costs associated with adding these benefits—and all these people who will supposedly be added to the ranks of the insured, if they can ever get on the website—they need people who won’t claim benefits to be enrolled in plans that pay for them anyway.  They need the sterile sextogenerian who will never need The Pill or an abortion paying premiums for those services in order to subsidize providing those benefits for others who do.  And, of course, the only way to get there is to force her out of her existing plan into one she does not want (and more to the point does not want to pay for).

So if you are one of those who liked your prior policy but either got canceled, or now face increased premiums and deductibles—either of which means you didn’t get to keep what you had—that is not because your insurance company simply didn’t want to do the right thing.  It’s because FUBARCare, pushed by Obama and passed to the wild cheering of people like Williams, fundamentally altered the financial mathematics of the deal.

And one suspects Williams really does know this, and what he seeks to avoid is admitting that he’s as much responsible for the lie and the mess as Obama.

Can You Hear Me Now?

Edwards:       Drop the weapon and put your hands on your head.

K:                    I warned him.

Edwards:       Drop the weapon!

K:                    You warned him.

Edwards:       Don’t make me kill you.

Jeebs:              You insensitive prick!  Don’t you know how much that stings!

—Will Smith as Edwards, Tommy Lee Jones as K, and Tony Shalhoub as Jack Jeebs in Men In Black

OK, everybody who’s surprised by the colossal failure of the rollout of FUBARCare raise your hand.

Mr. Obama, you can put yours down.

Amazingly, the Progressives are still trying with a straight face to defend this thing, and some are even having the brass stones to blame Republicans for the problems.  But by now it is impossible for any remotely rational person not to see what a pack of lies this has been:

But the FUBARCare debacle over the last week is hardly surprising; to the contrary, it was utterly predictable, because it is merely the most recent illustration of this Administration’s consistent display of incompetence and deceit.  Indeed, is there anything this Administration has touched that hasn’t turned out to be a gigantic steaming pile of cow flop covered with (f)lies?

Afghanistan

The primary goal of our military involvement in Afghanistan was to “get” Osama Bin Laden.  That was achieved—in Pakistan—on May 2, 2011, over two and a half years ago, yet Americans are still dying in Afghanistan.  At last count, over 700 Americans—more than during the entire Bush administration—have been killed there since Bin Laden’s death.  Why?  Perhaps if Obama attended a security briefing once in awhile he’d be aware that our armed forces are still engaged in that theater.

Benghazi

On September 11, 2012, four Americans, including Ambassador Chris Stevens, were killed in a series of military-style assaults on our consulate—sovereign U.S. soil—in Benghazi, Libya.  Although Stevens had repeatedly warned of the deteriorating situation and requested additional security, although escalating incidents over the preceding several months had led the British to close their facility, and although the 9/11 anniversary posed an obvious symbolic targeting date, the Administration refused to bolster security and left the diplomatic personnel in place.  Although the President knew about the attacks less than 90 minutes after they began, and although they took place over a period of some nine hours as the President and his staff watched in real time via surveillance drone, the President did nothing.  That weekend, Obama sent U.N. Ambassador Susan Rice all over the Sunday talk shows with a series of talking points blaming a silly internet video when they knew it was an al-Qaeda affiliated terrorist assault, while he ran around to multiple campaign fundraisers.  Obama later pledged to hunt down those responsible and bring them to justice, yet to date the only person jailed as a result has been the producer of the irrelevant internet film (who just recently got out of prison); no one in Libya has been arrested, and the Benghazi raid isn’t even among the crimes for which the Administration is offering a reward for information.

Economy and Budget

We’ve been told for several years now that we’re in a “recovery” from the Bush recession.  Obama has repeatedly said that he was focused like a laser on jobs, and that he “will not rest” until everyone has one.  Yet as of September, a full ten million people have left the workforce since Obama took office.  Workforce participation is now at a paltry 63%.  A recent Census Bureau report counts more people receiving means-tested government benefits (read: welfare) than with full-time jobs.  Meanwhile the national debt now exceeds $17 trillion, nearly double what it was when Obama took office (just under $10 trillion), Obama is continuing to spend at around a $4 trillion/year clip, and Harry Reid says “everybody” wants to pay more in taxes.

This is some rescue.

Fast & Furious

On December 14, 2010, U.S. Border Patrol agent Brian Terry was killed in a gun battle with Mexican drug runners.  Guns used in the fight were traced back to Operation Fast & Furious, a Justice Department action in which illegal guns were deliberately permitted to be sold and transported outside the U.S. in an effort to track them to Mexican cartels.  Despite multiple memos and emails to Attorney General Eric Holder mentioning the program—including some from before Terry’s murder—Holder has steadfastly denied (read: lied) knowing anything about it.  Since then, he and the President have spent the better part of the last three years doing everything possible to avoid providing Congress, the American people, or the Terry family any information about it.

Government “Investments”

Obama the investment banker, in his infinite wisdom, illegally diverted $80 billion in TARP bailout money effectively to nationalize GM and Chrysler.  On the GM side alone, taxpayers are still out nearly $20 billion, and the GM stock still held by the government would have to triple in value for John Q. Public just to break even.  To put that in perspective, the first time in our entire history that the total federal budget reached $20 billion was 1942, and here we’re talking about the loss on a single piece of a single program.  Meanwhile as I have reported previously, Obama’s Energy Department has lost billions making high-risk loans to unproven “green energy” firms—many, not coincidentally, owned by huge Obama donors—that have gone belly-up.  And the few jobs “created” through the bailout and loans have in large part been overseas.  Not a particularly good rate of return.

IRS & NSA

When the IRS hasn’t been gearing up to serve as the jack-booted enforcers of FUBARCare, it turns out they’ve been selectively targeting conservative political groups to delay or deny them tax-exempt status.  Originally passed off as the isolated action of a couple of rogue low-level employees in Cincinnati, it is becoming increasingly clear that this was actually a deliberate program to weaponize the IRS as a political tool for the Left, overseen at the highest levels.  Meanwhile, we’re learning that the NSA has been—without a warrant—effectively spying on millions of innocent private U.S. citizens.  Once again, however, the Administration absolutely refuses to discuss either issue with Congress or the American people.

World Image

Obama took office pledging to restore America’s image in the world.  Then in his first official act, he embarked on a global apology tour, basically denouncing everything America has ever been or done.  Since then, he has displayed a breathtaking lack of leadership in the Middle East, he’s been horrifyingly weak in dealing with Russia, and he’s alienated and offended our European and Western Hemisphere allies by repeatedly getting caught spying on them (compounded by the fact that he never sits down with those leaders one-on-one to foster those relationships).  The Saudis have recently severed diplomatic ties.  And Obama’s relationship with Israel is so deteriorated that one suspects the only circumstance in which he wouldn’t piss on Benjamin Netanyahu is if the Prime Minister were on fire.  If there is left any nation that would count us as a friend, or at least acknowledge any respect for us, I don’t know who that would be.

At this point the grim reality has to be inescapable.  Even the true believers on the Left can’t avoid recognizing—without engaging in an unconscionable self-fraud—that this President is an embarrassingly epic failure.  He has accomplished exactly nothing positive, and the level of arrogance, ignorance, incompetence, and paranoia that permeates this Administration is unlike anything we’ve ever seen.  At the end of the day, we’re left with nothing but angry lectures, empty platitudes, cheesy staged political stunts, fundraisers, and golf.

And lies.  Upon lies.  Upon lies.

This is what you get when you elect a community organizer with literally zero real-world experience, whose sole drivers are a blind adherence to radical ideology, and a limitless thirst to erect a monument to his own ego, real-world results and consequences be damned.

Some of us tried to tell you . . .

The Evil Among Us

“All I want is what I . . . I have coming to me.  All I want is my fair share.”

            —Kathy Steinberg as the voice of Sally Brown in A Charlie Brown Christmas

 

We are surrounded by an unspeakable evil.

Seventy-one members of the House (16%) have been in Congress twenty years or longer; 46 Democrats, 25 Republicans.  Sixteen of them (9 Democrats, 7 Republicans) have more than thirty years.  Many of the names are familiar:  Waters, Boehner, Pelosi, Hoyer, Waxman, Rangel, Conyers. Similarly, on the other side of the Capitol, sixteen Senators have more than twenty years’ tenure (and several of them served previously in the House).  You know many of their names as well:  Boxer, Feinstein, Reid, McCain, McConnell, Baucus, Hatch, Leahy.

That’s a lot of people who have been in the District a LOOOOONG time.  And I don’t for one second buy that anyone stays in office that long out of some unquenchable thirst to serve their fellow citizens.  The job comes with an enormous amount of cushy perks, prestige (or at least faux respect), and benefits.  Pensions, lots of taxpayer-funded travel under the guise of “fact-finding,” and as I’ve reported previously, more than a few somehow manage to accumulate substantial fortunes while spending a lifetime in office.  And as 60 Minutes reported over the weekend, some are dipping their personal snouts into their campaign troughs, as well. 

And, of course, there’s also power.  Naked power.  No, they are not interested in serving you; they’re interested in serving themselves.  They are motivated by two things, and two things only:  (1) living well at your expense, and (2) ruling you.

Life is good for the ruling class in the District, and it’s a huge part of why you see a lot of the insanity there that you do.  To maintain that sweet life, they have to keep getting themselves re-elected, and the easiest way to do that is to promise (and deliver) as much free stuff to as many people as possible.  That’s why our national debt now stands at in excess of $17 trillion.    That’s why the two single largest categories of federal spending (comprising nearly half the budget) are Medicare/Medicaid and Social Security—federally-subsidized medical care and retirement.  That’s why we have 47 million people—one in six—on food stamps.  That’s why the United States federal government is the single largest employer and single largest consumer on the planet.

And that’s why I sometimes refer to the District as The Beast.

So, in the interest of buying as many votes as possible, the progressives sponsor an endless string of spending programs, while the Republican establishment—every bit as vested in the same big-government machine as the Democrats, they just want to be in charge of it once in awhile—never offer more than token opposition.  The outgo is never checked, but at some point someone has to pay for the orgy; the solution is never to cut back, but to tax—read: take—still more.

But that’s not the real evil.

The way government has sold this behavior pattern is to convince one group of Americans—usually couched in flowery talk about the “middle class,” or in the charitable language of ending “poverty”—that the other group has unfairly acquired more wealth than they, and that they’ve done so at the first group’s expense.  The so-called “wealthy” have, simply by virtue of having more, cheated everyone else out of their fair share.  It is from this mentality taught to us by the unholy symbiosis of big government and progressive academia that we get things like the “Buffet Rule” and all the Occupy nonsense.

But notice the perverse morality play at work here.

This “fairness” pitch inherently—and erroneously—assumes that there is only a finite pool of wealth.  Only in a fixed wealth universe can we say that if I have a dollar it means you don’t, such that it’s unfair for me to have that dollar in the first place.  In a world where there is only, say, $1,000 in total wealth, my holding $100 is necessarily to the exclusion of someone else holding it.  I have for all practical purposes taken it from someone else.  My ability to obtain those dollars is thus immoral, and subjects me to the guilt of having deprived others.  And the greater my ability, the greater my guilt and the greater the measure of my associated moral debt. 

On the flip side, that others do not have those dollars—their need—creates a corresponding moral claim upon me.  The very fact that they do not have becomes a check drawn upon the bank account of my guilt, and it is a debt that can never be retired.  This affords them a clear conscience in accepting the government’s largesse at my expense, because they’ve been taught that as the needers—as they who do not have—they have the moral high ground.   

The problem with this moral code is that the zero-sum-if-I-have-it-you-don’t wealth universe upon which its logic rests isn’t the real world.  The wealth I hold is not irretrievably drawn from a permanently static pool to the exclusion of all other holders.  Put differently, the fact that I have is nothing to you, and has nothing to do with whether you have or don’t; I didn’t take it from you, I didn’t cheat you out of it, I don’t hold it at your expense, and the fact that I have it does absolutely nothing to prevent you from gaining as much for yourself as your effort and ability will allow.

To play off the old John Houseman pitch: I’ve made my money the old-fashioned way—I earned it.

What wealth I have has been accumulated, slowly over time, from wages I’ve been paid for my labor; from the minimum-wage jobs I held in high school and college, to the standardized test teaching I did in law school, to my positions as associate, counsel, and partner in private law firms, to the corporate position I hold today.  At each juncture, I traded my labor to my employer in a free, voluntary, mutually-beneficial exchange for the amount my employer was willing to pay for it because my labor represented a good to him: something he needed for his business.   My wages weren’t paid to me from a static pool, but instead were traded to me for what my skill and effort added to the pool of available wealth, because they enabled my employer to do something to further its own business; in the case of the law firms, to sell my effort to the firms’ clients, who needed that service in order to be able to conduct their own businesses.

This is what is known as “producing.” 

What is so monstrously evil about the morality embedded in this entitlement mentality with which so many have been brainwashed is it has turned morality and human virtue upside-down.  It has taken productivity—which should be a good thing—and made it immoral, because holding wealth, which is the measure of one’s ability to be productive, is a guilty debt owed to the rest of society as though you took it from them instead of added it to the global account.  The greater your ability to produce—the greater your virtue—the greater your guilt, and the greater the debt you owe.  But at the same time it has rewarded the lack of ability (or willingness) to produce—the less the virtue of adding to the universe of wealth—with the greater claim on that debt despite the fact (indeed, precisely because) it wasn’t earned.  And all of this is bundled and sold with the fundamental lie of victimhood: that anyone who has wealth didn’t get there by virtue of the value added through their talent and effort, but only because they’ve stolen from a static account that should have belonged to everyone else.

Boiled down to its essence, this moral code teaches that you and your life are not valuable in and of themselves.  Under this code, your only value and moral justification for existing is in your ability to produce wealth to be taken from you for the “needs” of others who do not produce.  And it enslaves both sides of the equation: the needers to the addictive cycle of depending upon taking from others at the expense of the self-esteem that is born of self-sufficiency; the producers to the grindstone of supporting the weight of the needers, all the while their very ability to do so is branded as their shame.  The former are forever parasites, the latter are forever victim-hosts, and neither realizes the fullness of human potential.

All to enable a permanent ruling class to live off you and wield power over you.

That is evil indeed.

Minimum Wage Whiners Have It Wrong

 

Tyler:              The question, Raymond, was: WHAT DID YOU WANT TO BE?!?

Raymond:      Veterinarian.  Veterinarian.

Tyler:              Animals.

Raymond:      Yeah.  Animals and ssstuff.

Tyler:              And stuff, yeah, I got that.  That means you have to get more schooling . . . I’m keeping your license.  I’m gonna check in on you.  I know where you live.  If you’re not on your way to becoming a veterinarian in six weeks, you will be dead.  Now run on home . . .  Tomorrow will be the most beautiful day of Raymond K. Hessel’s life.  His breakfast will taste better than any meal you and I have ever tasted.

                        —Brad Pitt as Tyler Durden and Joon Kim as Raymond K. Hessel in Fight Club

 

Happy Labor Day.

Those of you who tried to get a Big Mac last Thursday may have seen the impact of a wave of strikes by fast food workers demanding that the minimum wage be increased from $7.25 to $15 an hour.  At least one store in Detroit was forced to close, ironically demonstrating that Detroiters still haven’t connected the dots on the negative impacts of overreaching labor demands.

The argument, so it goes, is that these workers are simply worth more than $7.25 and it’s just not possible to raise a family and make ends meet on that wage.  And, of course, we all know the giant fast food corporations make too much money and can afford it; as one protester in Detroit put it:

“It’s a very uncomfortable lifestyle working for $7.40 at McDonald’s when McDonald’s made like $500 billion last year.”

You know it’s only a matter of time before the President and the Left seize on this as an emergency issue du jour in order to distract from Syria and the various other messes they have brought on themselves.  Washington Post resident nitwit E.J. Dionne was already gushing over the weekend about the need for more income “predistribution.” 

But let’s back up.

In point of fact, McDonald’s Corporation did not make $500 billion last year, or anything like it.  McDonald’s Corporation made $5 billion, not even good enough to crack the Fortune 100 (McDonald’s was #107), and yet that was still by far the largest profit in the food service industry that employs close to half of all those making the minimum wage. 

More importantly, however, if you’re a line cook at a McDonald’s restaurant, the chances are overwhelming that you don’t actually work for the McDonald’s Corporation that you’re complaining is so greedy.  Most likely you work at a franchise owned by someone more or less local, who’s trying to make his profit on a business model that has him selling hamburgers for between $3 and $4 apiece, out of which he has to pay not only his franchise fees, but also taxes, payroll, mandatory benefits contributions, rent, utilities, the cost of the raw materials that went into the burger, etc.  That doesn’t leave a ton of margin to play with on raising wages.

Let’s work through an example. 

Assume you have a Whataburger franchise that during the peak rush has a manager, an assistant manager, five employees working the registers and drive-thru, and five working the fryers and grill.  That’s ten employees and two managers.  Let’s further assume that all ten regular employees are at minimum wage (unlikely), and the managers are at an average of 20% above that (also unlikely).  At a minimum wage of $7.25, ten employees cost you $72.50 per hour, and the two managers cost $17.40, for a total hourly labor cost of $89.90.  If your gross margin on a $3.49 burger is 50% (and I submit that that’s likely generous), you have to sell 51.5 burgers every hour just to cover your labor costs.  Of course, you have all the other expenses on top of that, and bear in mind that when you’re open 24 hours rent and electricity cost the same even though you may go hours at a time in between sales in the middle of the night.  

When we jack up the minimum wage to $15, ten employees now cost $150 per hour.  Two managers now at $18 per hour add $36, for a total labor cost of $186/hour.  You now have to sell 106.5 of those $3.49 burgers per hour just to pay your employees.  But your rent, electricity, and other expenses didn’t decrease to offset your increased labor costs.  It becomes readily apparent that you will either have to cut back on the number of employees, raise your prices drastically, or both.  That $3.49 burger will become something more like a $7.49 burger (fries and a drink will add another $5 or so, and who’s going to be willing to pay $12-$13 for a fast food-level burger combo?) and some of those minimum wage earners will be out of a job.  That’s if the shop can survive at all.

As the President once said, that’s just math, and it doesn’t work.

Moreover, there isn’t a massive problem here making it necessary to jack up the minimum.  According to the Bureau of Labor Statistics, a total of about 3.5 million made at or below the federal minimum wage in 2012.  That figure represents all of 4.7% of the hourly wage population, and something like 2.4% of the working population as a whole.  These are not big numbers.  More to the point, however, fully half of those at or below minimum wage are between 16 and 24, and half of them are between 16 and 19.  The compression of this segment of the workforce into an extremely narrow age cohort indicates that for the relatively few earning minimum wage, that is generally not a permanent condition.  As workers gain experience, training, education, and seniority they tend to move to higher wage levels, either by moving up the ranks or by changing jobs.

And this shouldn’t surprise us, because contrary to the strikers’ verbal posturing, wages aren’t about their value as human beings, but about the value of the work they do.  It doesn’t require any education or any real skill to flip a burger; virtually anyone can do it.  If there is someone willing to do it for $7.25 an hour—and I promise you, there is—then that’s what that work is worth.  If you as an employee have in fact gained additional experience or skill such that your work is worth more, presumably your present employer or another one would be willing to pay you that.  That’s how the free market works: your work is worth exactly the wage you agree to accept and your employer agrees to pay.  If you are among the few chronically stuck at $7.25, the problem isn’t the minimum wage, the problem is you haven’t attained the education or increased skill level to make your services more valuable and thus move up the ladder.

But the minimum wage whiners don’t want to do it that way.  They don’t want to accept personal responsibility for their flat career trajectory, and they don’t want to work by mutual assent.  Instead they want to extract an artificially-inflated wage by substituting government force for the employer’s agreement.  Work is no longer worth what the laborer is willing to take and what the employer is willing to pay, but it is worth whatever the laborer says it is (enforced at the point of a federal bayonet), economic consequences be damned. 

If the “right” to a “living wage” vests someone with a claim upon a business owner wholly divorced from the actual economic value of the work that person performs—which is what a legally-mandated minimum wage does—it’s not much of a stretch then to say that that person is entitled to be paid that living wage—to take that money from the business owner—regardless of whether they in fact do any work at all.  After all, if you have a right to $15 per hour even though you only do $7.25/hour work, aren’t you equally entitled to that $15/hour for doing $5/hour work?  And if that’s so, doesn’t the same logic hold if you only do $3.50/hour work, $2/hour work, and so on all the way down to $0?

You cannot carry on an economy like this forever.  It is impossible to, in the name of “fairness” or whatever Progressive buzzword you want to use, continue to take by force from the productive and entrepreneurial and give to the unskilled and unproductive without regard for the actual economic value of their contribution.  The money to pay that artificial minimum wage doesn’t just fall from heaven.  It has to be generated in the marketplace, and if the labor costs are higher than their economic value, then sooner or later the employer is upside-down on the enterprise.

So strike if you want to.  But I submit your time would be better spent trying to acquire an education or skills that would in fact make your work worth more than you are currently making flipping burgers.    

Dropping Birth Rate Is Trouble

 

Declining numbers at an even rate

At the count of one we both accelerate

My Stingray is light, the slicks are starting to spin

But the 413’s really diggin’ in

            —The Beach Boys, Shut Down

 

Last Thursday I found myself in waiting room hell, pending surgery to repair a ruptured biceps tendon (hazards of starting martial arts training in one’s mid-40’s).  All three TVs (plus the one in pre-op) were mercilessly tuned to ABC’s The View.  As a side note, Thursday’s episode featured guest host Katherine Schwarzenegger, whom ABC billed as an “author and activist”—she in fact has written a book titled Rock What You’ve Got: Secrets to Loving Your Inner and Outer Beauty from Someone Who’s Been There and Back, whatever that has to do with anything—but who in reality is a 23 year old recent college graduate with two famous actor parents.  I am at a complete loss as to what she could bring to the table, although I suppose her level of insight and expertise fit right in with Whoopie Goldberg (actor/comedian), Barbara Walters (faux journalist), Joy Behar (actor/comedian), and Sherri Shepherd (actor/comedian—anyone seeing a pattern here?).

Despite my best efforts to run or hide, I was unable to avoid a segment entitled “The Child-Free Life.”  Goldberg introduced the segment by referring to a recent piece in Time—she gave no specifics as to the date, issue, author, or even the title, which I soon learned is apparently standard procedure on the program, but I think I found it here—that noted the U.S. birth rate has dropped to significantly low levels.  The general premise of the segment, it became immediately apparent, was that this was OK, maybe even a good thing.  And for the next four minutes, the ladies discussed the evils of having children and the virtues of not, all to the intermittent cheering of the studio audience.

I’m not sure when children, as an abstract concept, became such anathema in this country that we cheer their non-existence.

Among the arguments offered by the esteemed panel:

  • It costs $295,000, before college, to raise a child (Walters, spouting a very official-sounding exact figure, but citing nothing);
  • Years ago someone did a poll showing that 100% of parents of adolescents regretted having children (Walters, operating from memory);
  • Child-free is happier and stress-free (Schwarzenegger, citing her own personal observation from her vast 23 years of life experience, with which she expressly disagreed in the very next breath);
  • Not everyone should have children (Schwarzenegger, to spontaneous roars from the audience);
  • Mommy has to be the conflict-resolver whether there’s one child or multiple (Goldberg, never explaining why that’s a problem); and
  • Children nowadays don’t/won’t take care of their parents (Walters, again citing nothing).

The level of analysis and intellectual depth of the discussion was just staggering.  To her credit, Behar—in her lone contribution to the conversation—did argue that you should have one child “in case you need a matching donor.”  I’m not even sure she wasn’t serious; if it was a joke, no one laughed.

Now, I will agree with Miss Schwarzenegger that not everyone should have children, and I won’t argue that we should enforce some kind of mandatory birth quotas.  But the tenor of the discussion on The View, I fear, reflects a growing societal aversion to children.  And that’s troubling indeed.

The Time piece Goldberg apparently used to kick off the segment centered on 2009 data from the National Center For Health Statistics, and took the position based on loose generic anecdotes to Europe and the idea that lost births can simply be replaced with immigration, that a dropping fertility rate was no problem.  But The Washington Times recently did a piece using the same study updated to 2011 data, and the necessary conclusions are problematic.

The general fertility rate fell to 63.2 births per 1,000 women aged 15 to 44, a historic low.  The total fertility rate fell to 1.89 births per woman.  The reason this is trouble is it’s well below the statistical replacement threshold of 2.1 necessary simply to maintain a population.  In other words, all else being equal, a birth rate that low means population decline.  And in a society dependent upon multiple ponzi-scheme-driven entitlement programs, what that means is the economic engine is running out of gas.

Consider Social Security, which even the Social Security Administration openly admits is dependent upon having perpetually growing numbers of payors paying into the system in order to fund future outlays; in debt parlance this is referred to as an “unfunded liability”—an obligation to pay in the future for which there is no present savings or revenue stream.  With a declining population, there simply aren’t enough future young people paying in to fund the benefits payments to the larger number of retirees.  The system becomes upside-down, and it necessarily collapses on itself.

Medicare is in largely the same situation, with benefits payments to seniors being dependent upon funding from a sufficiently large base of younger taxpayers.  In a different way, Obamacare will eventually also face the same problem, as there are fewer and fewer younger healthy premium contributors to offset the disproportionate benefits payments to the older and sicker cohort.  None of which is sustainable.

That’s assuming all else is equal, which, of course, it’s not.  And that’s not necessarily a good thing.

As noted above, the Time piece assumed that any declines resulting from low fertility rates will be made up through immigration.  Query whether they should.  I have previously noted that the bulk of our immigration does not consist of wealthy skilled people likely to be large net contributors to our entitlement system, but of impoverished low-skilled laborers, mostly from Latin America, likely to be net consumers.  Rather than curing the fiscal imbalance in the system, the immigrant population increases an already unsustainable draw on ever-depleting funding resources.  But there’s another issue.

While the population as a whole is at fertility rates below replacement levels, consider that the Pew Center reports that the fertility rate among U.S. Muslims is around 2.8, meaning that the muslim population is increasing—in addition to immigration—while the general population is decreasing.  And when you add in the fact that the Muslim population is younger, thus further increasing their potential for total births—a 20 year old is more likely to have additional children over her lifetime than a 35 year old—and the potential for dramatic demographic shift is clear.  One need only look to Europe, where the declining birth rate phenomenon has been playing out for decades, to see the consequences.  Much of Europe has already become Islamicized, with many countries expecting to see Muslim populations exceed 10% within the next 15 years.  In Britain, some predict a Muslim majority by 2050.  

Why is that a problem?

Leave aside the fact that in a 2011 Pew Research poll nearly 20% of U.S. Muslims found themselves unable to say that violence in defense of Islam was never justified, and that a similar percentage had either a “favorable” view of Al Qaeda, or did not know.  Never mind that 20% said they did not want to assimilate—then why the hell are you here?—and another 16% said they wanted to both assimilate and remain distinct from larger American society—query how you have it both ways.  And forget that while Pew didn’t publish U.S. results for this question, globally the overwhelming majority of Muslims favor making Sharia the law of the land (it’s impossible to give a figure because Pew deliberately broke the results down by region to mask it, but except for Southern/Eastern Europe, regional majorities in favor ranged from 64% to 84%).

No, don’t worry about that.  Forget how women and homosexuals fare in places where Muslims wield political control.    Pay no mind to the fact that the only tolerance Islam admits is of itself, and they will sue for all things accommodating Islam, while at the same time accommodating no one else.  Leave all that aside, because worrying about such things makes you an Islamophobe, and the ladies of The View simply can’t have that.  Just consider this:

76% of U.S. Muslims approved of Barack Obama’s job performance as of 2011

68% of U.S. Muslims favor even bigger government and more services.

Even the DNC doesn’t get those kinds of numbers.

This is where we’re heading with current birth trends and immigration.  Thought you might want to know.

****************

EDITOR’S NOTE:  I am in a cast following my surgery, making typing difficult.  Will try to post when I can, but traffic is likely to be slow for awhile.

The Law Of Unintended Consequences

[Talking to God, who has just sprayed him with a lawn sprinkler] “I know, whatever you do, you do because you love me.  Do me a favor:  love me less.”

            —Steve Carrell as Evan Baxter in Evan Almighty

In Atlas Shrugged, the industrialist Hank Rearden supports his widowed mother and unemployed adult brother, both of whom live in Rearden’s home rent-free.  Nothing wrong with that, so far as it goes, and we might even say that’s what families do.  But Rearden’s mother takes it a step further.  Recognizing the younger Philip’s discontentment at living off his brother’s largesse, she visits Hank at his office and insists that he give Philip a job in his steel mill.  When Hank asks what possible use his brother would be in a steel mill, his mother incredulously responds that Philip’s competency is irrelevant; Hank should give Philip a job precisely because Philip is Hank’s brother and needs a job, not because he is qualified to do a task Hank needs done.  She is totally oblivious to the economic (and moral) implications of Hank’s point that it is irrational and irresponsible for him to pay Philip to do a job Philip cannot do, thus denying employment to someone else who could do the job.

It’s a pervasive concept with Progressives that society—more to the point those in society with money (other than themselves, of course)—owes people something as a matter of fundamental fairness, basic economic principles be damned.  What’s interesting, as economist Thomas Sowell frequently points out in Intellectuals and Society, the Progressive intelligentsia who spew these ideas are almost invariably operating outside their particular area of expertise.  Of course, what does that matter?  After all, these people are self-proclaimed intellectuals, which makes them inherently better able to assess and opine on all things for the greater good of “the people,” so long as the ideas they espouse are currently in fashion and give them the appearance of siding with the angels against the forces of oppression.

Hopefully they stayed in a Holiday Inn Express last night.

The fact is, it matters a great deal.  For all their education, credentials, and specific subject-matter expertise, the Progressive intellectuals who arrogantly assume the mantle of surrogate decision-maker for the great unwashed masses can never have the same degree of information and self-interest in the outcome of those decisions as is held collectively by those very masses on whose behalf the Progressives purport (at least outwardly) to operate.  Predictably, despite the lofty intentions upon which they were based, these Progressive programs to legislate artificial fairness frequently end up harming the very constituencies they were ostensibly aimed to help.

There is a real world case study on this concept unfolding right now in Washington, D.C.  The D.C. Council—comprised of 11 Democrats and 2 “Independents”—has voted 8-5 to pass the “Large Retailer Accountability Act,” which would require retail outlets whose parent company generates more than $1 billion in annual revenue to pay a “living wage” of $12.50 per hour, 50% above the current $8.25 minimum wage in D.C.  Query what it is the large retailers are being held “accountable” for, but the idea is apparently another iteration of the Progressive notion that those who have owe those who don’t, simply as a matter of fairness. 

According to Councilman Jack Evans, a supporter of the bill:

“It has become very difficult, as you know, to live in the District of Columbia.  We are prospering beyond what any other city in America is doing and, as a result, it is expensive to live here.  So many people who are working, particularly in the retail industry, are having a hard time.”

Huh?!?  It’s “very difficult” to live in D.C. because it’s “prospering,” and D.C. is prospering therefore many people are “having a hard time”?  I’m not sure what this prosperity is Evans is talking about; according to BLS as of May the District of Columbia at 8.5% joined eight states with unemployment rates “measurably higher” than the national average of 7.6%, and the latest ranking (April 2013, using 2010 data) put it at 25th among the nation’s 50 largest cities.   

If you can wade past the gibberish, I gather that the point is simply that it’s expensive to live in D.C., therefore a higher wage is needed to compensate.  That of course begs the question why not simply raise the minimum wage across the board.  Do people who work for smaller retailers somehow magically have a lower cost of living?  One might also suggest that Evans and other Progressives examine why it’s so expensive; could it be the enormous tax burden (D.C. ranks 5th in terms of the highest “state” income taxes) imposed by the Left that has long been in control there?

The real problem, however, is the unintended consequences of this kind of measure.  Wal-Mart, which was set to open three D.C. stores and had plans to construct another three, has announced that if the bill passes, it will scrap the construction and review whether to open the three already built.  Council member Vincent Orange arrogantly proclaimed that “we’re at the point where we don’t need retailers.  Retailers need us.”  With all due respect, Mr. Orange, I submit that Wal-Mart will do just fine without D.C.  Meanwhile, however, hundreds of jobs will vanish if Wal-Mart pulls out, and I’d like to see Mr. Orange’s conversation with the people who lose those jobs about just exactly who needs whom.  Collaterally, other developments like the still-in-progress Skyland Town Center, which was depending on the new Wal-Mart there as an anchor tenant, are now in jeopardy, and hundreds of additional jobs with them.

The idea of a legislatively-mandated minimum “living wage”—set, of course, in the infinite wisdom of a self-proclaimed intellectual acting in benevolent protection of “the people,” meaning he pulled the number out of his ass—seems nice in feel-good theory, but it’s not much use if the job doesn’t exist at that wage in actual practice.  And this has always been the problem with minimum wage laws.  The free market forces of supply and demand will set wages at an inherently fair rate, because they will settle at the level at which workers are willing to accept and employers are willing to pay.  This provides the most efficient allocation of resources to employ a maximum number of people, and allows for labor competition; the only real means for a low-skilled laborer to compete for a job is to be willing to accept the job at a lower price.  But minimum wage laws eliminate that opportunity.

Thus, the Progressive ends up hurting the very people he claims to be trying to help.  By disrupting the normal function of the markets, the Progressive eliminates some jobs (in the case of the Wal-Mart example), and prevents the low-skilled laborer from competing for the jobs that remain.  Further, by artificially inflating the price of labor, the minimum wage law forces an increase in prices across the board, thus aggravating the very cost of living issue that was the original justification for the minimum wage in the first place.  And the people who end up harmed by this are those at the lower end of the economic chain.  This has been the empirical result time and again (see any number of works by Professor Sowell and Professor Walter Williams for details). 

The supposed need for a “living wage” is illusory.  Left alone, the marketplace and millions of decision makers acting in their own self-interest based on better information about their individual circumstances than any Progressive know-it-all will take care of everything on its own.  If the wage offered by the local Wal-Mart isn’t enough for you to get by on, don’t take the job; if enough people do that such that Wal-Mart can’t get enough employees to operate, it will raise wages all on its own.  If you want to work in D.C. but it’s too expensive to live there, then don’t; do like everyone else and move to Virginia or Maryland and ride the Metro.

The problem isn’t “living wages,” it’s Progressives getting in the way for the sake of their own self-aggrandizement and keeping themselves in charge.  

Gold Rush

“You’ll get nothing, and like it”!

            —Ted Knight as Judge Smails in Caddyshack

 

I told you this was coming.

The Obama administration yesterday—two months late, in violation of federal law (again)—released its proposed 2014 budget.  Among the highlights, it calls for total spending of $3.8 trillion.  Yet despite adding a new “Buffett Rule” tax requiring a minimum 30% contribution from those earning $1 million or more, and cutting (actually slowing the increases in) Social Security spending, still doesn’t balance.  As in 2012, and in 2011, I don’t expect this proposal to get any votes for passage from either Republicans or Democrats, so the likelihood of this coming to fruition this year is low.  But buried in there is a nugget I’ve warned you about and it bears watching.

You’ve probably seen the money grab over in Cyprus the last couple of weeks.  To recap, Cypriot banks—almost entirely government-owned—were over-exposed to Greek debt, such that the Cypriot economy was unable to withstand the negative impacts of European Union measures to deal with the debt crisis there.  Facing collapse, as a condition for a bailout the EU forced the closure of the second-largest bank, consolidation into the largest bank, with the result that depositors with holdings above the €100,000 cap may lose as much as 60% of their accounts.  In essence, the EU compelled the government of Cyprus to confiscate over half of many people’s savings.

Yeah, Rusty, but that’s Cyprus.  I can’t even find Cyprus on a map.  That kind of thing could never happen here.

Think again, Amigo.     

Among the proposals in the President’s budget is a cap on 401(K) savings.  Savings in retirement accounts like 401(K) and IRA devices above $3 million would no longer be eligible for tax advantaged treatment.  Currently, money deposited in those sorts of accounts—up to annual limits—is deposited on a pre-tax basis, and that money can sit there and accumulate interest or other investment growth tax free; the money then gets taxed as income as it is withdrawn in retirement.  What the President wants to do is go ahead and tax—read: take—that money now.

It’s an irresistible temptation.  U.S. savers have accumulated some $10 trillion in these retirement accounts based on the government’s promise that they could deposit it and let it grow tax free, and then it would be taxed down the road as ordinary income when they withdrew it in retirement.  But like a 3-year-old on Christmas Eve, Obama simply can’t wait until Christmas morning to open the presents under the tree.  The problem is that isn’t the government’s money, and it isn’t money Santa Clause has brought Obama or even to you.   It’s your money, earned through your labor and investment of time, skill, and expertise.  And Obama wants it.

But Rusty, I don’t have $3 million in my 401(K), and I’m never going to have $3 million in my 401(K), so why should I care?

Well, if you don’t and aren’t, I (depending on your age and lifestyle goals) submit you may want to re-think your retirement plan given that the monetization of our debt through the printing of fiat money is in fact already taxing your savings by devaluing it, but that’s another article for another time.  But regardless of whether you do or don’t (or will or won’t) have $3 million in retirement, you should care very much about the President’s proposal.

And it should scare the crap out of you.  

You see, that $3 million figure isn’t pulled completely from thin air.  It’s actually the amount you would need—under current economic conditions—to purchase an annuity paying you $205,000 per year.  Why that number?

Because that’s the amount the Obama administration, in its infinite wisdom, has decided is a reasonable amount for you to live comfortably in retirement.  In other words, they want you to work and save your whole life, and then in the end they will tell you how much of your own money you should have to live on and the rest of it is subject to the government taking it.

Rusty, that’s what any tax is.

Quite so.  But here we’re not talking about the government taxing your current income; we’re talking about it taking from you a substantial chunk of your money you’ve spent a lifetime saving.  Time you can never, ever replace.  Moreover, it’s taking from you out of accounts the very same government set up the tax breaks to encourage you to accumulate savings in the first place.  At a time when progressives are arguing that Americans already don’t save enough such that we need a second Social Security system, why would you start altering the tax advantages to discourage savings?!? 

What incentive do you have to keep working once you’ve saved $ 2,999,999, if the government can take some or even all of every dollar you save thereafter?  Why would a business owner stay in business—and keep employing his employees?

And it’s naïve to think that because you don’t expect ever to reach the $3 million threshold that you’re immune to the taking.  Once we’re in a universe where government gets to decide how much of your savings you actually get to have based on what government determines is a reasonable retirement income for you, then all bets are off.  Today that’s $205,000.  Tomorrow it might be pegged to the median U.S. income (currently about $50,000).  Next week it might be the median income tied to average life expectancy at retirement.  For a male at 65, today that’s about 13 years; the present value of a $50,000 annuity for 13 years is about $612,000, and anything in your 401(K) above that would be subject to the government taking it.  Furthermore, once they can tax your 401(K) or IRA, it’s only a small additional step for them to tax your regular savings, your checking account balance, or the value of any other investments you might have.

Still feel safe?

Keep this in mind as the Leftists are also looking to take your guns.  The people in Cyprus were already effectively disarmed before the government came to take their money.

I’m just saying.

Now, if Obama thinks his judgment that $205,000 is a reasonable income for you, let’s see him put his money where his mouth is.  I suggest we see legislation that reduces the Presidential salary to $205,000, provides ex-Presidents with a $205,000 annual lifetime stipend, and requires them to surrender all other assets to the U.S. Treasury.

I’ll bet you a million dollars this President would never sign such a bill.  And if he did, he’d never comply with it.  Because it’s never about what’s reasonable; it’s about taking as much from you as possible to buy enough votes to keep him and his ilk living like kings on your nickel.

 

Farewell, Iron Lady

“Girls, come on.  Leave the saving of the world to the men?  I don’t think so.”

            —Holly Hunter as Elastigirl in The Incredibles

 

With yesterday’s passing of former Prime Minister Margaret Thatcher, the world has lost one of the truly great figures of modern history.  Mrs. Thatcher was a tremendous political partner with President Reagan in battling the Soviets and global communism.  But she also faced down tremendous difficulties at home in Britain, salvaging a flagging world power drowning in its own self-imposed socialism.  And she was able to do that by staying true to a set of intellectual and philosophical principles, rather than reading polls and blowing with the political wind.  She had guts, charisma, and integrity.  And she will be missed.

I tracked down an address she gave 10 October 1975 to the Conservative Party Conference, and you’ll see she could just as easily be talking to us in the U.S. today.  I’ve edited it for space reasons, but I’ll otherwise let the then-Prime Minister-to-be speak for herself:

Some . . . suggested that I criticized Britain when I was overseas. They are wrong.  It wasn’t Britain I was criticizing.  It was Socialism.  And I will go on criticizing Socialism, and opposing Socialism because it is bad for Britain—and Britain and Socialism are not the same thing.   As long as I have health and strength, they never will be.

But whatever could I say about Britain that is half as damaging as what this Labour Government have done to our country?

Let’s look at the record.

It is the Labour Government that have caused prices to rise at a record rate of 26 per cent a year.  They told us that the Social Contract would solve everything.  But now everyone can see that the so-called contract was a fraud—a fraud for which the people of this country have had to pay a very high price.

It is the Labour Government whose policies are forcing unemployment higher than it need have been—thousands more men and women lose their jobs every day.  There are going to be men and women many of them youngsters straight out of school—who will be without a job this winter because Socialist Ministers spent last year attacking us, instead of attacking inflation.

And it’s the Labour Government that have brought the level of production below that of the three-day week in 1974.  We’ve really got a three-day week now—only it takes five days to do it.

It’s the Labour Government that have brought us record peace-time taxation.  They’ve got the usual Socialist disease: they’ve run out of other people’s money.  And it’s the Labour Government that have pushed public spending to record levels.  And how’ve they done it?  By borrowing, and borrowing, and borrowing.  Never in the field of human credit has so much been owed.

But serious as the economic challenge is, the political and moral challenge is just as grave, perhaps more so.  Economic problems never start with economics. They have deeper roots—in human nature and in politics.  They don’t finish at economics either.

Labour’s failure to cope, to look at the nation’s problems from the point of view of the whole nation, not just one section of it, has led to loss of confidence and a sense of helplessness.  With it goes a feeling that Parliament, which ought to be in charge, is not in charge—that the actions and the decisions are taken elsewhere.  And it goes deeper than that. There are voices that seem anxious not to overcome our economic difficulties, but to exploit them, to destroy the free enterprise society and put a Marxist system in its place.

*  *  *

Our capitalist system produces a far higher standard of prosperity and happiness because it believes in incentive and opportunity, and because it is founded on human dignity and freedom.   Even the Russians have to go to a capitalist country, America to buy enough wheat to feed their people.  And that after more than 50 years of a State controlled economy.  Yet they boast incessantly while we, who have so much more to boast about, forever criticize and decry. 

Isn’t it time we spoke up for our way of life?  After all, no Western nation has to build a wall round itself to keep its people in.  So let us have no truck with those who say the free enterprise system has failed.  What we face today is not a crisis of capitalism, but of Socialism. No country can flourish if its economic and social life is dominated by nationalization and state control.

The cause of our shortcomings does not therefore lie in private enterprise.  Our problem is not that we have too little socialism. It is that we have too much.  If only the Labour Party in this country would act like Social Democrats in West Germany.  If only they would stop trying to prove their Socialist virility by relentlessly nationalizing one industry after another.

Of course, a halt to further State control will not on its own restore our belief in ourselves, because something else is happening to this country. We are witnessing a deliberate attack on our values, a deliberate attack on those who wish to promote merit and excellence, a deliberate attack on our heritage and great past. And there are those who gnaw away at our national self-respect, rewriting British history as centuries of unrelieved gloom, oppression and failure. As days of hopelessness—not Days of Hope.

*  *  *

A man’s right to work as he will to spend what he earns to own property to have the State as servant and not as master these are the British inheritance.  They are the essence of a free economy.  And on that freedom all our other freedoms depend.  But we want a free economy, not only because it guarantees our liberties, but also because it is the best way of creating wealth and prosperity for the whole country.  It is this prosperity alone which can give us the resources for better services for the community, better services for those in need.

By their attack on private enterprise, this Labour Government have made certain that there will be next to nothing available for improvements in our social services over the next few years.  We must get private enterprise back on the road to recovery, not merely to give people more of their own money to spend as they choose, but to have more money to help the old and the sick and the handicapped.

The way to recovery is through profits.  Good profits today, leading to high investment, well-paid jobs and a better standard of living tomorrow.  No profits mean no investment, and a dying industry geared to yesterday’s world . . . The trouble here is that for years the Labour Party have made people feel that profits are guilty-unless proved innocent . . . Governments must learn to leave these companies with enough of their own profits to produce the goods and jobs for tomorrow.  If the Socialists won’t or can’t there will be no profit making industry left to support the losses caused by fresh bouts of nationalization.

*  *  *

Yet the Government could not have destroyed the confidence of the industry more effectively if they had tried deliberately to do so, with their formula of empty promises and penal taxation.   So today what is the picture? Depressed profits, low investment, no incentive, and overshadowing everything government spending, spending far beyond the taxpayers means . . . One of the reasons why this Labour Government has incurred more unemployment than any Conservative Government since the War is because they have concentrated too much on distributing what we have, and too little on seeing that we have more.

We Conservatives hate unemployment.  We hate the idea of men and women not being able to use their abilities. We deplore the waste of national resources, and the deep affront to peoples’ dignity from being out of work through no fault of their own.

*  *  *

Some Socialists seem to believe that people should be numbers in a State computer.  We believe they should be individuals.

We are all unequal.  No one, thank heavens, is like anyone else, however much the Socialists may pretend otherwise.  We believe that everyone has the right to be unequal but to us every human being is equally important . . . The spirit of envy can destroy.  It can never build. 

Everyone must be allowed to develop the abilities he knows he has within him, and she knows she has within her, in the way they choose.  Freedom to choose is something we take for granted—until it is in danger of being taken away.  Socialist governments set out perpetually to restrict the area of choice, Conservative governments to increase it.  We believe that you become a responsible citizen by making decisions yourself, not by having them made for you. 

*  *  *

We Conservatives do not accept that because some people have no choice, no one should have it.  Every family should have the right to spend their money, after tax, as they wish, not as the Government dictates.  Let us extend choice, the will to choose and the chance to choose.

*  *  *

We are coming, I think, to yet another turning point in our long history.  We can go on as we have been going and continue down.  Or we can stop—and with a decisive act of will we can say “Enough”.  Let us, all of us, here today and others, far beyond this hall who believe in our cause make that act of will.  Let us proclaim our faith in a new and better future for our Party and our people.  Let us resolve to heal the wounds of a divided nation.  And let that act of healing be the prelude to a lasting victory. 

Godspeed, Prime Minister.  Tell President Reagan we miss him, too.