Posts Tagged ‘crony capitalism’

INCAP Rule #1 of Acquisition.

Thursday, June 2nd, 2016

Dear Friends,

It seems to me, if I were to write the International Capitalist Party’s Rules of acquisition, as opposed to the Star Trek, Ferengi rules of acquisition, my first rule would be, “Provide a better quality product at a better price point than your competitors…” If every business venture followed this advice instead of the new class version, “Stop competition through bought and paid for government intervention…” Which would be the Ferengi version as well. The first leads to ever better products, made at higher relative wages, with more money returned to shareholders, to invest in more businesses creating growing economy. The second leads to the situation we have today, where the pay for upper management exceeds the amount given to all the shareholders combined, while the employees are squeezed as hard as possible, turning out as defective as law will allow products, all to feed the voracious appetite of the new class, that run our industries today with their new class Ferengi rules of acquisition…

At the root of any rules of acquisition is the presumption that if the players adhere to the rules they will become wealthy. Wealth however can only really grow when the aggregate stock of value goes up. So all the players would, in the end and on average, turn out better than before. To have a system where the aggregate stock of value is corroded over time, only to feed an oligarchy, can only lead to societal disruption, increasing want and violence, as everyone scrambles to get a larger portion of a shrinking pie. Of course as the pie shrinks the more frantic people will become. Eventually, the pie will shrink to such an extent the promises made by government can no longer be met, and wide scale starvation must ensue. As those who have become utterly dependent on government and have no ability to engage in the market system, become hungry, they can only resort to violence.

Many people have a twisted view of the market system because of the egoistic and self serving nature of the new class. People look at the obvious corruption and cronyism and recoil. Where cronyism has been nurtured by the new class society has become striated. There are the haves and the have nots, the haves will always have and the have nots will never have, because government is exploited by the haves to maintain the status quo. This creates a people who are jaded to the market system and confuse free markets with crony capitalism. Which in the end also benefits the new class.

The more angry people get at the status quo the more they will empower government to make everyone equal. Of course they are just feeding the monster. The more power the people invest in government, out of ignorance and anger, the more the new class can exploit that power for their own good, to the detriment of everyone else. Calls for socialism always comes from the top of the new class, as a means to fix the problems they have created, by their selfish and greedy actions. Every communist revolution has been started this way, started and run by egg headed intellectuals, who have no suitable skills to sell in the marketplace, with the peasants, who have been barred from the marketplace by social status, making up the soldiers.

A market system is a structure in which people come together to get their needs met. When a market is truly open and free, companies that sell the best quality products at the lowest price point succeed, and those who sell defective products fail. However, in the system we have now, where those who have large businesses face competition from a new competitor, the new class that almost always run the businesses, go to their bought and paid for politicians through their lobbyists to pass regulations crushing that competition. It is far easier to stifle competition in this manner than to improve one’s product and lower the price. A free market provides ever increasing quality, diversity of products and meets new demands while rewarding employees, shareholders and entrepreneurs.

Yes, the Star Trek Ferengi are fictional. They were created to point out how evil the free market is if left unchecked by government regulation. The premise is that government is always virtuous and businesses are always evil. Such nonsense flies in the face of history and human nature. The new class however who write shows like Star Trek cannot help but put in their inculcated biases and prejudices. If people are so corrupt they cannot be trusted with free markets, then how much more dangerous if given absolute power, backed by arbitrary rule? What is really traded on a free market is value, in a crony market, what is traded is power.

Sincerely,

John Pepin

Right Principles for a Nation

Sunday, August 30th, 2015

Dear Friends,

It seems to me, while abandoning right principles is the ruination of a great nation, those very same principles provide a handy road map to prosperity, low crime rates, and a rising standard of living, for nations wishing to become so. Moreover, any nation adopting those universal right principles will have a positive effect on human history going forward. Everyone knows this truth in their hearts but the lure of power corrupts the elite and keeps them from it, while the lure of free money, keeps the people corrupt and prevents them from demanding it. So, instead of universal profit for everyone, people allow their greed, envy and lust bar them from it. Should a nation, even if old and set in it’s ways were to adopt these principles, it would see a turnaround in it’s fortune that would astound the world.

Wealth can be had for all, not by redistributing a dwindling amount, that is like rearranging the deck chairs on the Titanic, but by creating access wealth. Society has the ability to create huge accesses of wealth easily. To create such prosperity however, does not require a government program, nor a large bureaucracy, but by empowering people to achieve their goals. Government’s role in creating societal wealth is to provide standards, not regulations. Any country could do it, few actually want to, and even fewer will. Here is a list and explanation of the right principles leading to a prosperous, free and vigorous nation.

Protecting the individual from the collective is of the utmost importance. Whenever the collective decides what is good for the individual, both the collective and the individual suffer. The individual because the collective never has morals or compassion, it is pure force. Moreover, the incentives in a system where the collective good supersedes the individual’s good, become pernicious. That is because instead of being motivated by self interest everyone is motivated by self preservation. The collective always has a ready reason to kill an individual for the collective good. Where the collective is king those who create wealth are stepped on, their inventions taken and they are personally attacked, because anytime someone rises above the rest in a collective, they become a threat. That way a society that values the collective over the individual must stagnate.

The free market system is the path to societal prosperity. Not welfare state capitalism, which is no more than a more palatable name for socialism, actual free market capitalism. Of course a free market is predicated on individual liberty and cannot function in a collective. A real free market however is the surest path to national prosperity there is, history shows this to be empirically true, while crony capitalism and socialism are the surest path to poverty and famine. During the era of actual free markets the economies of Europe and the US grew exponentially, not at the pathetic 2% we have come to expect since capitalism became crony and the rise of the welfare state. During the only time in the 20th century the US engaged in a real free market, under Calvin Coolidge, the economy soared to new heights of growth and prosperity, which led to a rocketing rise in the standard of living, low crime, less racism and huge access of national wealth. Until Herbert Hoover and FDR took the US down the path to cronyism and the welfare state.

In a real free market, one with standards, it is easy to get rich but hard to create monopoly. Building a monopoly requires at least some government intervention, to suppress competition by creating a barrier to entry, stifling innovation by regulations, having obscure tax codes or outright cronyism. Occasionally a monopoly can grow organically, where an innovation is too expensive or complex to implement, by the time the patent runs out, it is very hard to compete with it. If however, lacking government barriers to entry, the profit gets too high, other companies will compete for that high profit.

Limited government that creates standards not regulations is another principle that leads to prosperity for a nation. Imagine if a gallon was a regulation and not a standard? The volume of a gallon would depend on who was selling it, what liquid it contained, the shape of the container would be prescribed and the political favor of both the buyer and seller would be paramount. The regulations regarding the volume of a gallon would quickly run into perhaps hundreds of pages. In this way regulations create the conditions where monopoly can form, politically favored individuals can become extremely wealthy without providing any value and sand is thrown into the mechanism of the free market. Standards however facilitates the free market like oil an engine. Standards cannot be used by corrupt politicians to pass out money to their cronies, hinder the competition of unfavored businesses or enrich themselves at the cost to everyone else. Standards are a principle that leads to a prosperous nation while regulations lead to poverty and cronyism.

These fundamental, universal, right principles, wherever and whenever they are adopted, will inevitably lead to prosperity, a rising standard of living, less racism and low crime. All the goods people say they want. The elite will always argue against them however, because then the elite would have to provide value for their wealth, like you and I have to, and that is unacceptable to them. That is why the elite are in love with collectivism, cronyism and regulations. They intentionally confuse regulations with standards, they wrongly claim the collective is more important than the individual and they spuriously argue there needs to be monopoly to produce high value products, all to move us away from right principles and towards wrong principles. Those very few nations that do adopt right principles will be the movers of history in a positive way.

Sincerely,

John Pepin

Net Neutrality and the Corruption of Regulation

Thursday, March 5th, 2015

Dear Friends,

It seems to me, if “net neutrality” was a standard, it would only require a page at most to explain it, it would be open to the public and would actually standardize access for new businesses, since it is over three hundred pages, is not available to the public, even for comment, and passed by the bureaucracy in darkness, shows it is regulation that should have been forcefully condemned by everyone. The unbiased media claim the regulation will force internet providers, like the politically disfavored firm Comcast, to allow all data to go through their networks without bias. Of course, that description only took one sentence. The regulation took over three hundred pages which can only make us ponder what else is in it? Furthermore, the regulation was and is not open to the public for review, so one must wonder, how does the unbiased media know anything at all about it? The government claims the regulation will help protect free speech… by regulating it. Because nothing is as free as when you have to get permission from government to do it. The only entity it seems that was allowed, not only to see the regulation, but change it to suit their needs… was Google. All of which illustrates the point I have made many times in my articles, that regulation is destructive of the market while standardization is helpful.

If the regulation was “neutral,” then why was the largest internet company on the planet, allowed to change it to suit their wants and needs? Proving it is not neutral but biased. Regulation, as I have said before, is by design a means for politically favored companies to avoid competition (crony capitalism), to give politically favored groups a leg up on an otherwise free interaction (state discrimination), protect politicians ambitions (enshrine political power) or to establish a politically favored company’s monopoly. Regulation never goes away it only gets more convoluted and destructive of market interactions as time goes on. Those who pass regulation don’t ever want people to understand what it is really for, so they always couch it in good sounding terms like, neutrality, when nothing could be further from the truth. But then again, truth has nothing to do with politics… does it?

A standard is simple to understand. All standards are this way, a gallon is a fixed amount, a mile is a fixed distance, HDTV is a fixed way of encoding video and sound, etc… A standard applies equally to everyone, and as such, is a benefit to the market. Confucius called it, rectifying terms. Imagine if a gallon was a regulation instead of a standard… How would that work, well a gallon of oil would be different from a gallon of milk which would vary depending on who the buyer was or the seller was. The volume of a gallon of water would vary depending on it’s purity content. The regulation of a gallon would run into the hundreds or thousands of pages of regulation… to protect the interests of politically favored people, groups and companies. Imagine how hard it would be to do business in liquids if that was the case? Every firm would need armies of accountants to comply with the regulation. That net neutrality took over three hundred pages is proof it is a regulation not a standard.

How does the media know… that which we are not allowed to know? Obama has prosecuted and jailed more whistle blowers than every other administration combined. His iron fisted hold on information is legendary. Since that is the case, how is it the unbiased media have information that is not in the public domain? …and are not being hounded for it, like Cheryl Atkinson? The only answer is, they are reporting press briefings on the regulation, and not on the actual content. They are merely parroting the propaganda that those who seek to regulate the internet want them to parrot. If the media took their station as the fourth estate seriously, they would verify the party line independently, that they didn’t, shows they are the willing dupes, or cronies, of nefarious government officials.

In what universe has regulation ever made anything more free? Regulation creates barriers to entry, it increases the cost of doing business, it requires government permission to do business, it crushes firms that are not politically favored and it drives up the cost of products and services. Regulation is the opposite of free, it is designed to regulate that which otherwise would be free! When government decides what you can and cannot say, is that more free or less free? Is an open forum where anyone can say anything they want, more or less free, than one where government permission is required first? When government decides what data is given priority, do you honestly think politically unfavored speech is going to be given equal access? Like the tax free status of Tea party groups under the IRS was protected by regulation?

Lastly, what grows in the dark of night… mold, fungus, bacteria and corruption, that is all. That Net Neutrality was written, passed and now is being implemented, in the dark of night, is proof enough it is corrupt, else the regulations would have been published for anyone to see and comment on. The only one to get a say is the giant internet company Google, and does anyone more than a year old, believe Google would change regulation to benefit it’s customers or competitors? Of course not! The changes Google put in the three hundred page regulation, was to benefit Google, at the cost to the public and it’s competition. Corruption piled upon corruption, and the unbiased media sang the party song, like the good little propagandists they are.

Perhaps standardization of access might be helpful but the debate would have to be open with everyone having a say before we knew. The final standard would have to be simple to understand and public knowledge. To now… the internet has been an open forum for anyone to access and get their message out. In that way the internet has been the most democratizing instrument ever devised by mankind. Now that the door has been opened to regulation, it will be used to protect those in political power, politically favored groups, people and businesses, while smothering the availability of information government doesn’t want out. Very soon there will be calls to license bloggers and internet sites, (if it isn’t already in the regulation), for the benefit of “openness.” Because nothing is more free than when government regulates it. Now that governments, the world over, are regulating the internet… the goose that laid the golden egg is being slaughtered, not for the gold inside, but to keep it from laying any more of those damnable golden eggs.

Sincerely,

John Pepin

Confusion About the Market System…

Monday, January 26th, 2015

Dear Friends,

It seems to me, very few people the world over actually understand what the market system really is, most have fallen into the trap set for them by new class Marxists, that the market is evil and government is good. As long as the new class elite can maintain the fiction they spew we are on a path to predestined serfdom. The global elite quake at the thought that the hoi polloi discovering the ruse. If enough of us did understand what real capitalism is, we wouldn’t stand for their bigger government solutions that never work, but only make the problems worse. That is why we are constantly bombarded by spurious arguments like, the gap between the rich and poor, the market needs regulation, capitalism only benefits the rich, the wealthy got that way by stealing, etc… always made by the uber rich to blind us to the truth that we haven’t lived under a market system anywhere on the planet for generations. Ignorance may be bliss, but it is the best way to keep us in a state where our slavery is all but guaranteed.

What the world struggles under today is called “welfare state capitalism.” It is to the market system as bone cancer is to astrology. Welfare state capitalism is a system where the government redistributes the profits of free market interactions, from those who worked and took risks for them, to those who didn’t. In doing so, the government gains terrific power to destroy businesses that are not politically favored, enrich those who are, hold people in generational poverty, wipe out class mobility, destroy the family unit and create a permanent upper class… all in the name of fairness.

In a real market system, people get rich by taking risks, providing service and value to their customers. Under a welfare state however people get rich by having political favor. When those with political favor fail, they are bailed out by the government, (you and I), but in a market system, failure is paid for by he or she who fails. Moreover, failure in a market system leads to new ideas and greater efficiency, while in the welfare state, failure leads to more of the same, since there are no consequences to the elite, only the people. That is why too big to fail banks were bailed out with enough money to pay off three quarters of all the home mortgages in the US, and QE3 was sufficient to create eighty five thousand millionaires a month! Meanwhile, you and I were stuck with falling house values, wages and financial repression. All because of the bubble created by government policies. Not a real market by any measure!

In a functional market system deflation is the norm. That is one of the ways you can be certain that we have not lived under a market system for generations. The cost of those things we need and desire gets cheaper and cheaper. This is because the market system drives down the cost of everything by increasing productivity. That increase in productivity also has the effect of raising real wages. A carpenter with a nail gun and precut studs can frame a wall in seconds, where a carpenter, even a much better trained one, using a hand saw, hammer, nails and rough cuts, takes an hour. That increase in productivity lowers the cost of the final product even as it raises the wage of the carpenter. Raising his or her standard of living and making the work easier and less taxing on the body.

In welfare state capitalism however deflation cannot be allowed. Government runs a perpetual deficit to maintain the illusion of a functional market and prosperity through bubbles, and so, if the elite were to allow the market to do it’s normal operation and deflate the cost of everything, that huge debt would quickly become unserviceable. Inflation is needed to evaporate the debt through currency devaluation. Without inflation lowering your wages and driving up the cost of everything, the government would collapse, as many have in the past, and the elite would be out of their cushy high paying jobs. A disaster that the elite cannot allow to happen. So they inflate bubbles, watch them pop, destroying the meager wealth hard working people have saved up by the sweat of their brow… and the government inflates the next bubble, to maintain the illusion of economic growth.

Welfare state capitalism is a system where the elite decide who gets rich and who doesn’t. It undermines the market’s innate class mobility. The old saw, “shirts sleeves to shirtsleeves in three generations,” is rendered inert by the state’s interference, allowing the half witted grandchildren of the elite to remain wealthy, despite themselves. This is done by the state requiring everyone to get permission from the state for every economic activity. Those who are the children and grandchildren of the elite not only get permission, but the largess to engage in market activities, (as in Solyndra), while the children of the plebeians have to fight, pay bribes and struggle to get even the smallest of permissions. Crony capitalism is created this way.

Harry Truman said, “Anyone who gets rich in politics is a God damned crook!” Since the all powerful welfare state decides who will get what, the benefits will naturally flow to politicians, their cronies and family. Others who would compete are frozen out. Ways to measure this… are the number of small businesses in an economy, how many are started in a year and the rate of expansion of small businesses to medium and large. Moreover, people will spend absurd amounts of money to gain political office… so they are the ones to decide who gets what, insuring their business isn’t destroyed, and giving them the power to destroy their competitors. In a country where welfare state capitalism is at it’s apex, small businesses cannot compete with large ones because of political favor, and therefore, there will be few small businesses, and most of them will be engaging in illegal activities, ie, doing business without the proper licenses, paying employees under the table, selling non pasteurized milk, exceeding the weight limit of a road, idling a truck so a worker can get out of the cold, hauling without the proper permits, cutting hair without a license, etc…

The new class elite have to keep us in the dark about the market system. To that end we are inculcated in a doctrine that has no basis in reality… that crony capitalism is the market system, that we need the elite to regulate the economy to protect us from it, we are taught to hate those trying to get rich by providing value to us, and love those who get rich by political action. Our children are programmed in school to have a visceral reaction to the term “capitalism,” as a bad thing, and socialism is lionized as the solution to all the world’s problems. The bloody history of socialism is glossed over with absurdities like, “Marxism has never really been tried.” If most of us understood the fiction we have been inculcated with, is just that, fiction, we would demand real capitalism, and that cannot be allowed. The elite have too much at stake… their power, wealth and prestige.

Sincerely,

John Pepin

The Destruction of Our Standard of Living.

Monday, August 4th, 2014

 

Dear Friends,

 

It seems to me, government policies are destroying the middle class in America, and unless the political elite are drooling idiots, the destruction is intentional. From the prices we pay for our needs, to the wage suppression government policies encourage, we are under assault from every direction. While our government scoffs at our Constitution and ignores their own laws we are held to every word of arcane regulation. The veil of secrecy around government and it’s actions grows while every facet of our lives is being recorded for prosecution at a later date. Our taxes are increasing at an alarming rate and the money is sent to Hamas to kill our only real allies in the region. The New Class political elite have been on a crusade to lower the standard of living of the American worker for years, and now the results are showing up for all of us to see, but many refuse to look and blindly follow the elite like lemmings. If we are to turn this around, giving our kids hope for a better life instead of a perpetually lowering standard of living, we must force the political elite to follow their own laws and our Constitution, returning the US to Constitutional rule upon which it was founded, else America will inevitably become a third world hell hole.

 

The business and economic elite claim there is no inflation. As the price we pay for food, housing, heat, electricity, gasoline, clothes and cars gets ever higher, the smartest people in the room claim that because I pads are cheaper, the substitution effect, and wages are stagnant, there is no inflation. The absurdity of their opinion is lost on them. I don’t buy and I pad a day but I have to eat every day, moreover, I can’t substitute an I pad for a loaf of bread. No matter how low the price of a computer gets I will only buy one when the one I am using breaks, but I have to get around, and so I have to pay for gasoline. The reality is, inflation can be driven by wages or regulation but the definition of inflation is an increase in costs, not in wages.

 

Speaking of wages, have your wages kept pace with the price of hamburger? Why do you suppose that is? Because government policies are destroying jobs while the government has opened the flood gates to illegal immigrants. As the number of jobs declines and the number of people looking for those jobs increases, while at the same time the cost of labor increases from regulation, there will be increasing pressure driving down wages, it is basic supply and demand. Raising minimum wage only fuels price inflation and in fact lowers everyone’s real wages, thus lowering the standard of living for everyone, without the benefit of a single person being helped. At least the elite can claim they have done something, something that has hurt instead of helped, do you suppose they are so stupid they don’t know that?

 

Our government is building a huge data storage facility in Utah to keep their illegal and unconstitutional recordings of our personal phone conversations, emails, and any other digital communications the government sweeps up in the NSA spying operation. Meanwhile, the actions of our government get darker and more hidden. As we drive down the street we are videoed, our license plates are recorded along with our location and the time we were there, but try to record the police and you or I would be incarcerated. Moreover, why are there 28 pages redacted from the 911 report? According to congressmen who have read them, if they were to become public, they would force every American to rethink what we know of the history of that day and who our enemies really are. So why are we being kept ignorant? Government seeks to hide their actions in the dark, but we all know what grows in the dark, mold and corruption.

 

Taxes and government fees go up constantly. As our government drives down wages and drives up the prices we pay for our needs, it is also raising our taxes to absurd levels, increasing the strain on our standard of living. Warren Buffett complained he was paying a lower tax rate than his secretary, so the government stepped in, raising his secretary’s taxes. No matter how high our tax burden gets our government always spends $2.00 for ever $1.00 they take in. As a result, the higher our taxes get, the more our government goes into debt. Couple this with what they spend our money on like, making indigence a career choice, buying rockets for Hamas to attack our allies with, funding every third world dictator’s Swiss bank account and giving economic aid to China, etc… and even a blind man can see why we are in such debt.

 

The New Class promotes the economic assault in every way, in the media, academia and culture they are unanimous in their adoration of government power and prerogative. The New Class sees nothing wrong with bringing in millions of illegal aliens to suppress our wages by creating a permanent underclass, passing thousands of pages of regulations that promote crony capitalism, keeping the actions of our “democratic” government in secrecy, while monitoring us to the nth degree, and they have no problem with arming Islamic militants against our allies. We have to face the fact that the elite, who make up the new class, are totally on board with the sinking of the US standard of living, and are the real problem.

 

All the actions our government is doing to destroy our standard of living could not happen if the political elite were held to their own laws and our Constitution. The entire regulatory structure of the US is based on one flawed ruling, Wickard v Filburn. That one flawed anti Constitutional ruling by the Supreme court has allowed this absurdity to grow like an aggressive cancer in our government and our economy. It needs to be overturned as badly as Dred Scott did. The only way to stop the trend to total economic separation between the rich and poor in America, like we see in third world countries, is to force the elite to follow their own laws, and our Constitution as it was written and intended. I offer one method in my book, The Fourth Branch, but there are others that might work as well. The point is, we must start holding government and those that serve in government accountable before it’s too late, if it isn’t already.

 

 

Sincerely,

 

John Pepin

 

Tesla, Crony Capitalism and Creative Destruction

Thursday, July 31st, 2014

 

Dear Friends,

 

It seems to me, an excellent illustration of political favor at work, the type of political favor that is destroying our economy… is the scuffle between Tesla Motor Cars and the Dealerships in New Jersey. Everyone agrees it is about politics and we also tacitly agree the question will come down to which side has the most political favor. Free market consideration is not made at all. This small set to, between the dealerships and Tesla over whether Tesla can sell it’s cars directly to consumers, is all about stopping the free market from innovating and to protect the profits of politically connected dealerships. The best interests of the consumer is not even at question! No one in the media cares if the consumer is hurt or helped by direct sales, only which side has sufficient political favor to push their argument through the New Jersey legislature, because that is all that really counts. This is very damaging to our economy, because the interest of the people is not even a factor, simply the will of the political elite. This shows how far from free market principles we have strayed. Your job, wages, benefits and standard of living are in the balance, but bear no weight on how it turns out.

 

Tesla wants to sell it’s cars directly to the consumer, bypassing the traditional dealership network. The dealerships have asked a court to force Tesla to sell their cars through dealerships and as a result Tesla doesn’t sell cars in New Jersey. Tesla has gone to the New Jersey legislature to get a law passed allowing them to sell their cars direct to consumers. Of course, politics came into it as soon as the smell of money wafted around, and justified by the fact Tesla wanted to do something different then is traditionally done. Because, as Milton Friedman said… when a firm faces competition that sells it’s products at a lower price and better quality, the firm can increase it’s quality and lower prices, or it can go to the government to force the competition closed. That is exactly what the car dealerships have done, they went to government to force Tesla to use them, to protect their profits.

 

The problem is that this strategy always results in stifling innovation, which has a profoundly negative effect on present, and especially future GDP growth, due to the compounding effect of past growth, or lack of it. Schumpeter coined the term, “Creative Destruction” to explain the cycle of growth under the capitalist mode of production. He explained that, as a new idea is implemented, units of production are drawn into realizing that new idea. This results in GDP growth, as more labor, productive facilities and ingenuity are utilized. As the innovation matures, the old systems that are rendered redundant go bust. They go out of business and the recession part of the cycle comes in. As the cost of the units of production become cheaper due to the recessionary pressures, a new idea becomes possible to implement, starting the virtuous cycle again… unless it is short circuited by well meaning but pernicious government programs to protect older more established firms from competition, (like is done in Japan…).

 

The best way would be to let the free market sort it all out. If Tesla’s plan results in angry customers then Tesla will retreat to the traditional strategy of using dealerships to sell it’s cars. Considering the recalls recently on Tesla cars, this might have proven the dealerships argument, without having gone to court and enriching lawyers for nothing. We’ll have to wait and see how the consumer reaction is to how the recalls are handled. If Tesla’s plan does work however, it will have staked out new ground undermining the market reason for dealerships to exist, which would incentivize other companies to stop using dealerships. Either way the market will show the efficiency of the present system or the potential innovative efficiency that could result in creative destruction. With the oceans of paperwork, regulations and political favor that is needed to cross before an innovation can be implemented, the innovative part of the business cycle is drowned.

 

As government policies smother innovation creative destruction is stymied. Lower present GDP growth can be expected, and will be magnified over time due to the effect of compounded growth. That damage to the innovation process by government derails the creative part of the creative destruction by protecting the firms that would face destruction, and so to keep the old inefficient crony capitalism going government destroys the very mechanism of growth of the capitalist system, and by doing that, they lower everyone’s standard of living… but the political Elite get a ton of money and power by doing it.

 

 

Sincerely,

 

John Pepin

 

Deflation and Deficit Spending

Monday, May 26th, 2014

 

Dear Friends,

 

It seems to me, the real reason economists, politicians and Central Bank Presidents are so terrified about deflation, has nothing to do with any pernicious incentives deflation would introduce into the economy, but actually because it would hamper the ability of governments the world over, to deficit spend. Deficit spending has become so entrenched in our political systems that most people don’t give it a thought, and when they do, they grumble but consider it a necessary evil. The ability to deficit spend gives politicians extraordinary power, over the economy, our lives and political evolution. The political elite exploit their ability to spend huge sums of money, to reward their political cronies aka crony capitalism, they “stimulate” the economy with deficit spending and they get and hold office, by promising this or that constituency a hand out if they get elected. All of which are pernicious and destructive of our economies, our Rights and our personal standard of living.

 

John Maynard Keynes aggregate supply aggregate demand model of economics gives politicians an imperative to deficit spend. In the aggregate demand aggregate supply model, if aggregate demand exceeds aggregate supply the economy grows, but if aggregate demand falls below aggregate supply then the economy shrinks, resulting in recession. Keynes made no distinction between consumer demand, business demand or government demand. In fact, he is famously known for saying, if the government buried money in the bottom of a mine, and let firms use the market system to get it out, that would stimulate the economy. This shows he made no distinction between productive uses of money, and schemes that use money to draw people into non productive actions, actions they otherwise wouldn’t engage in.

 

One of the fundamental reasons the aggregate supply aggregate demand model is deficient, is that it doesn’t make distinctions between productive spending, where productivity is increased by upgrading plant and equipment or where someone’s needs or wants are being met, and schemes where money is wasted to draw in other money, which is then also wasted, to increase aggregate demand. When government spends money to stimulate the economy, it takes money that otherwise would be used for productive purposes, and wastes it.

 

The more money that is wasted the lower real economic output will be. Every government today counts government spending as a part of Gross Domestic Product. Therefore, as they deficit spend to draw in other money to gin up the economy, using aggregate demand aggregate supply, the money that is wasted feeds a system where government must have more deficit spending, to offset the loss of market efficiency that is the inevitable result of government “stimulus.” In other words, government spending is increased, to increase GDP, where the market has been so damaged by deficit spending and stimulus, it cannot increase GDP itself. Where government doesn’t deficit spend sufficiently to raise GDP, outside of actual economic growth, economists call it fiscal headwinds.

 

Crony capitalism around the world is fueled by deficit spending. The political elite use it to reward their half witted brother in laws and political backers. In many countries it is impossible to get a permit to do business unless you have political backing. No one can get licensed in those countries to compete with the political hacks. If the power to deficit spend were limited, that would also limit the ability of the politically favored, to reward their backers and half wit relations, for their own illegitimate purposes.

 

The first goal of any political party is to get and hold power. Deficit spending allows the faction in power at any time to hold that power. Further, it allows that faction that is willing to damage the interests of society as a whole, by deficit spending, to get that power they so covet. This is a pernicious incentive for political factions each trying to out promise the other. The party offering the most rewards to the people will be the one to get and hold office. This has the tendency to ratchet up deficit spending to ever higher extremes while lowering outcomes. Simply because, that party which has the least scruples to protect the public purse is rewarded, while the party that practices the most fiduciary responsibility, is punished.

 

All of these things rely on deficit spending and deficit spending needs inflation. Inflation is a hidden tax on the accounts of savers. As a government’s deficit gets ever larger, if the value of the money that the deficit is counted in gets smaller, that deficit also shrinks. If however, the value of the money a deficit is counted in goes up, savers and consumers are rewarded, but government deficits become more problematical. Therefore, governments, central banks and their dependent economists cannot allow any deflation. Deflation would explode the huge deficits governments have built up over the years… to reward their cronies, buy power and “stimulate” the economy. Deflation would show in stark contrast the fiction that deficit spending can go on indefinitely and the system of political favor would come crashing down. Make no mistake, they couldn’t care less about the good to society, in fact the ability to deficit spend rewards those who care the least for the public good, so next time you see a central banker weep at the possibility of deflation remember, those are crocodile tears.

 

 

Sincerely,

 

John Pepin

 

Economics of A Scale

Thursday, May 1st, 2014

 

 

Dear Friends,

 

It seems to me, a simple way to think about a nation’s economy, is that of a balance. On one side of the scale there would be education, entrepreneurial ethos, work ethic, incentives, etc… and the other would be, cost of labor versus productivity, cost of start up, taxes, regulation, cronyism, etc… If the balance tips to the first side, GDP will have a positive incentive for growth, but if is tipped the other, the incentives for GDP growth turn negative. If we add to education and then to regulation, at a balance the scale is not changed, but moment of inertia is. If we take away from education by such follies as Common Core, while adding to regulation, the balance is tipped to negative incentives. The opposite is true if we add to productivity and subtract from taxes. If this is done the scale will be tipped to positive incentives for growth. This is important for people to understand… because when GDP is growing people’s lives get better and when GDP is not growing people’s lives get worse.

 

Moment of inertia in such a scale would be the resistance to change in the system. As an economy becomes more advanced it also necessarily becomes more weighted by the taxes and regulations that accompany an advanced economy. The same resistance both makes the system harder to change and over react when it does. Just like a fly wheel, it is hard to get spinning, but it imparts a great deal of power once it is.

 

The pivot point for our scale is how much a country’s people want to get ahead economically. This varies depending on all the factors that make up our scale. If the basic ethos of a society is to weigh the cost versus the benefit of a given action, as those who are raised in a capitalist society do, the point of the scale will be sharp. People who reason their actions differently have a large negative incentive to prosperity. In such countries, where capitalism has not trained the people to weigh cost v benefit, the pivot point will be so sticky it is certain to resist change until it breaks, and in total failure falls off the machine altogether.

 

On the positive side of the scale, education can always be improved. Perhaps the best method for improving the entrepreneurial education of children would be to add basic economics to the curriculum as early as possible. The basic concepts of economics are really pretty easy to understand, especially if theory and history are stressed, eschewing the heavy duty mathematics. A courteous society is helpful to creating the conditions where a country becomes prosperous. Courtesy really is the grease that allows society to function.

 

On the negative side many of the factors can be changed really pretty easily. Regulation and taxation can be directly changed by fiat of the political elite. It is almost never done because a corresponding loss of political might is lost as well. Cronyism can also be changed at the will of the ruling elite, but provides such an economic windfall for the political elite and their patrons that option is not even considered, except in spurious campaign ads targeted at conservatives.

 

The scale is actually the complex system that is a nation’s economy. All of us doing our thing. Every economic decision everyone makes every day is what makes our economy grow, stagnate or shrink. If we are flush we spend, if we are scraping by with high fuel prices, low wages, rising food prices, stressed at work and facing waves of cheap imported labor, we cannot spend, we have none to spend or save. When entrepreneurs are dissuaded from starting a business the economy suffers a critical wound. As expectations shrink with a new normal the standard of living must also go down. All this can be changed simply by removing weight from the negative side of the scale, but our leaders find it too vexing to lower taxes, or regulation, never mind limiting their cronyism, they drive up the cost of legal labor with minimum wage laws while lowering the cost of illegal labor with amnesty, plus they remove from the education system with folly and undermining morality. With all the weight our leaders are loading up on the negative side, seems no wonder that regardless of the stimulus of central banks, we are getting poorer as a planet.

 

 

Sincerely,

 

John Pepin

 

 

 

Fast Food Economies

Thursday, April 10th, 2014

Dear Friends,

 

It seems to me, just because someone eats nothing but doughnuts, drinks only soda and chain smokes cigarettes, doesn’t mean they are going to have a heart attack tomorrow, but it is an indication they will have problems in the future, economies work the same way. When an economy depends on nothing but printed money, government deficit spending and crony capitalism, it doesn’t mean that economy is going to collapse tomorrow, but it does mean there will be some big problems in the future. It should be obvious to anyone that doing these things will negatively effect an economy over the long term, and anyone who disavows that they will, is either in denial or conning us. Since our lives are so profoundly effected by the economic situation we find ourselves in, it is of the utmost importance we understand the consequences when our leaders do these things with our economy, just as it is when we smoke, eat fatty foods and drink sugary soda.

 

The guy who eats nothing but doughnuts and believes he is different and can eat trash without effect is just like the lawmaker who claims deficit spending is a good thing. Deficit spending is like empty calories, it seems good when we see the GDP “growth” that comes of it, but that “growth” is nothing more than fat. What makes it worse is that the fat that comes from deficit spending requires more deficit spending, else it wastes away and we see negative GDP growth… and no one wants that. What we don’t see, is that fat doesn’t do actual work, it just sits there sopping up more and more capital from productive economic uses.

 

Soda tastes so good, it is hard to believe that it has any bad effects on our health, exactly like monetizing the debt is so delicious that it cannot possibly effect the currency. The fact that it seems to be benign in the short term buttresses this false notion. The effects on our currency from continued money printing, especially printing that far exceeds our GDP growth, builds up tension in the currency. The US is not alone in the money printing business however, and perhaps this is another reason the short term results appear to be harmless… so far. Nothing could be further from the truth, there is not one example in human history where monetizing debt has not eventually resulted in runaway inflation, the fact that the whole world has gone down that rabbit hole might delay the consequences for a while, but the eventual results will not be ignored.

 

Just as the smoker is in denial his or her smoking will effect their health… the government pretends that crony capitalism will have any side effects on an economy. Crony capitalism seems like a win win to both the crooked politician and the corrupt businessman. The President, lawmaker or bureaucrat who gives beneficial regulations, tax breaks and other hand outs to his political backers, only sees the benefit to them but not the negative effect on the market. Crony capitalism pollutes and rots out the core of an economy. The lawmaker might get reelected, because of the vast amounts of campaign money crony capitalism brings into the electoral system, but the incentives in an economy change when crony capitalism is used. Where crony capitalism is rampant, instead of providing better products, service and value for consumers, businesses seek political favor. This is because under such circumstances it is more profitable for a firm to garner political favor than to meet customer’s needs. This pollutes the market with political favor and rots it with declining productivity.

 

It is not just the US that is eating fast food and chain smoking countries the world over are doing the very same thing. That we all have poorly performing economies is only one symptom, like shortness of breath, but these policies have a much more pernicious long term burden. If a person lives this way he or she eventually experiences cardiac arrest, and when a nation lives this way, they must experience catastrophic economic collapse. It is funny that we can see this clearly in people but are blind to it in our government policies and national economies. Heart attacks can be survived, if the proper procedures are used, catastrophic economic failures can be survived as well, but there must be people available who have the power, knowledge and guts to implement the right fixes. More smoking, drinking soda and eating doughnuts is never the proper prescription… no matter how good they taste.

 

 

Sincerely,

 

John Pepin

The Honor System

Sunday, March 30th, 2014

Dear Friends,

 

It seems to me, the political elite only pledge to follow our various Constitutions, but are not forced to. This is nothing more than an honor system. To place such responsibility in the hands of so few without any real oversight, is not only dangerous, but it is unfair to them. The lessons of history are unanimous about this. Every nation, republic, democracy and empire has fallen due to corruption. Corruption stemming from both basic human nature, (self interest), and political favor. The fundamental problem in Ukraine that led to the loss of Crimea to Russia, was government corruption, the poor performance of the economy despite huge the energy reserves of Russia, is from government corruption, the present constitutional crisis in the US, is from government corruption… the list is endless. The point is, to change the paradigm to one that actually works in the interests of the people and the elite, is to force the political elite to follow the limits placed on them, in our Constitutions. Lacking that fundamental shift in governance, we can expect to see history repeat itself over and over again, resulting in war, unrest, famine and poverty.

 

Imagine a society where there are laws but everyone is on the honor system to follow them. The deaths simply from traffic accidents would be daunting. No one would be safe in their own home, unless they went to extreme measures to protect themselves, and people would have to. Our children wouldn’t be safe on the streets, far less safe than they are now! Moreover, the market system could not function under such a regime. Such a system would ring in epic poverty and famine. Everyone reading this article knows and understands this fact, but people are so brainwashed by the elite that as soon as I bring up a constitutionally empowered police of government, people have a visceral reaction against the idea.

 

The spurious arguments flow like a torrent. Some include… “it would be too expensive.” So, it isn’t too expensive to intrusively monitor three hundred million people to the nth degree, but it is too expensive to monitor a few thousand? “More bureaucracy is not the solution,” this ignores the fact that bureaucrats regulate every aspect of our lives, and grows like a kudzu vine strangling our economy and freedoms, but if government were held to Constitutional limits, the existing unconstitutional bureaucracy would have to be scaled back. “They would just get corrupt themselves.” This is the most pernicious argument for allowing the elite to continue in the honor system, crushing our liberty under the jack boot of government corruption. To believe that a Fourth Branch would necessarily become corrupt, one has to believe the local police, the State police and every other law enforcement agency is also utterly corrupt. If someone believes that, they must necessarily believe those agencies should be disbanded, putting the whole of society on the honor system.

 

Human nature is self interest. The market system twists our self interested nature into being rational maximizers, (civilized people). The difference is that a rational maximizer understands that his or her self interest is tied up in everyone else’s self interest. Our basic nature, (barbaric nature), is to follow our immediate self interest regardless of the consequences to society and others. The market system and American ideals have taught humanity the truth of Socrates argument in The Republic. That lesson is lost on those with political favor, because their self interest can be met outside of the market system simply by perverting it into it’s evil twin, crony capitalism. This is furthered by the corruptible elite who are also prevented from being rational maximizers by the lack of any real oversight.

 

There is not a nation on the face of our planet that would not benefit from policing the political elite. Even socialism would work better if it had a Fourth branch policing the actions of the political elite. Since the beginning of time people have sought ways to limit the political elite’s propensity to pervert government to their own self interests. Constitutionalism is a relatively new phenomenon. It has had limited utility because the political elite are still on the honor system. Once the political elite cannot use their offices for personal gain, without facing the imminent fear of prosecution and jail, government will shrink back to it’s Constitutional limits, the people will be prosperous and crime will dwindle. A Fourth Branch is a win win for society, culture and even government itself. The real winners however will be us, the people, stable government is a boon for everyone.

 

You can read more about it in my book, The Fourth Branch here; https://www.smashwords.com/books/view/277193

 

 

Sincerely,

 

John Pepin