Posts Tagged ‘taxes’

Big Guy Versus the Little Guy

Thursday, April 13th, 2017

Dear Friends,

It seems to me, the role of government has always been, and continues to be, to keep the little guy down, while protecting the big guys from the little guys. The founding of the US ushered in a new paradigm but the elite, over the course of a century managed to evolve even that virtuous national ethos back to the traditional one. Today there is not a nation on the planet that allows the little people to compete on a level playing field with the big guys. With an eye to calculation, the elite use the power of propaganda to convince the little guy that they work for him, against the little guy’s interests. This is done in a myriad of ways. Usually they offer up a piece of legislation that sounds good, a hike in minimum wage for example, but actually works against the interests of the little guy. We have shown such a propensity for falling for the trick, the elite know they have nothing to fear from us, because we will fall for it over and over again.

Income taxes are the ideal example. At the beginning of Obama’s Presidency, the billionaire Warren Buffett told a crowd of drooling reporters that he was incensed, his secretary paid a higher tax rate than he did. This was reported all across the media landscape as proof Buffett is a human hearted man. So the elite in government dutifully raised his secretary’s taxes, cut Buffett’s and gave him a monopoly for his choo choo trains to carry crude oil from Canada to Texas refineries. Of course transporting oil on trains is exponentially more dangerous then in a pipeline, as Lac Magantic proves, a few dozen little people burning to death is a small price for them to pay however, for the wonderful philanthropist Buffett’s monopoly profits. The entire affair was nothing but a propaganda exercise that worked perfectly.

People who work for a living pay a much higher tax rate than people who derive their income from investments. The already rich derive their income from investments and can pay accountants to protect their income from the tax man, those of us who labor for our daily bread however, have little left to pay an accountant and tax lawyer to protect ours, so we pay through the nose. The false meme that people earning over 200k should be taxed to death, only serves to keep the rest of us down, and protects the uber wealthy from having to compete with us. This is because the guy earning over 200k is not rich yet, she is trying to get rich, and the elite cannot tolerate that, so we are plied with propaganda based on jealousy and envy. The little guy is again tricked into damaging our own interests and protecting those of the elite.

Regulations are all about keeping us down. The role of regulations, despite what the elite tell you they are, is to protect a politically favored group or industry. Let’s say someone starts a business and manages to get rich despite the array of government regulations, taxes, cronyism and corruption. The first thing he will do is turn around and close the door behind him. This is done with regulations. He will use some of his wealth to lobby government to pass regulations making his industry “more safe.” Of course more safe always means a higher bar to entry. That higher bar, one that the already rich didn’t have to leap, protects the elite from having to compete with the hungry entrepreneur. The old saying, Shirtsleeves to shirtsleeves in three generations is one of the primary motivating factors here.

The children of the uber rich never grow up. They don’t have to. So they are ill prepared to compete with people who have grown up in the school of hard knocks. That is why in a traditional capitalist economy this saying holds true. Today however the elite have put in place a whole plethora of ways to protect their half witted grandchildren. Trust funds, regulations preventing competition, taxes to keep the working woman down and cronyism that only allows certain people to do certain things. In South America they haven’t had a free market… ever. I have a friend from Guatemala Brolio. One day we were talking and I mentioned to him that land in Guatemala must be pretty cheap, and the forest products industry pays handsomely for the lumber from that part of the world. I went on to say that if him and I went in together to buy some land and used good silvicultural practices we could make a mint. He laughed and laughed at the very thought. Shocked, I asked why? He replied that only certain people in Guatemala can own land.

The next time you have to cut a check to the government for some arcane regulation you ran afoul of, to pay a tax you weren’t aware of, to get permission from the government to engage in economic activity or buy equipment that you have no use for, to satisfy some government rule, you are experiencing this in action. You are being actively held down so the elite don’t have to compete with you. Next time you get fined by some self important bureaucrat, you’re economic future is being crushed by government, to save the fortune of a half wit. This has been the role of government from time immemorial. Oh yes, there have been a few times, short periods where this wasn’t the case, and those times have been immortalized as golden ages. Ancient Greek democracy, Roman republic, the founding of the US and the early years of free enterprise also known as the Enlightenment, are the few examples. Notice however, that those periods were short, singular and most importantly, the nations and societies involved have never risen again. This is why there is and always will be a huge disparity of wealth in the world.

Sincerely,

John Pepin

Do You Hate the Rich?

Thursday, June 4th, 2015

Dear Friends,

It seems to me, The social contract between those that run our societies, the elite, and the rest of us, has been broken by the elite. The elite have become an oligarchy, the wrong form of aristocracy, and as a result, the average Joe is livid, but doesn’t know what he or she is livid about. Our ignorance allows the elite to manipulate us into doing damage to our own interests while enhancing theirs, which further infuriates us, making it easier to manipulate us… This is why so many people hate the “rich.” Many of us see “the rich” as the problem, but sadly, that is exactly what the manipulators want! We play into their hands when they call for more taxes, regulations and limits on “the rich,” The “rich” never actually get those higher taxes, regulations or limits, we get them instead, which further lowers our standard of living, infuriating us even more…

The contract between the elite in any society and the rest of the people, is the leader gets the best, but has responsibilities for those perks. That is why the chief of a hunter gatherer tribe gets the best meat, his choice of huts, etc… He is the biggest and strongest man in the tribe and if there is a war between tribes, he is expected to lead the other men into battle, at risk to his own life. If a wild animal attacks the tribe, he is expected to fend it off. Those perks of leadership come with responsibilities, those responsibilities are why he gets the extra benefits. That is the paradigm in all human societies everywhere and at every time. The elite get the lion’s share of the goods of society but have responsibilities to the rest for those perks. They don’t come free!

When the social contract between the elite and the people functions, no one has a problem with the tribal chief getting first pick of the meat. When the Chief gets the first pick of the meat, but runs at the first sight of danger, allowing others to die due to his lack of bravery, he quickly becomes loathed. Why should he get the first pick if he doesn’t meet his responsibilities? People get a visceral hatred of him. That is the place our society has got, the elite don’t meet their responsibilities. Instead, they throw the rest of us under the bus at the first sign of trouble, they never lead by example, they protect their interests at the cost to society’s interests, in short they expect us to hold up our end of the contract with no intention of them doing their part. They have broken the contract and so we hold them in utter contempt. The modern elite want those perks for free.

People know it, even if most of us cannot put it into words. So, when some affluent member of the elite calls for more taxes on “the rich,” many people stand and cheer, when an out of control elite politician tells us he or she will control “the rich” with regulations many hold up their fists in support and when a multi millionaire socialist shouts the government must seize the assets of “the rich,” many people rush to the exits to get a share. The actual rich elite never get those higher taxes, regulations or have their assets seized, that os for the people, the non elite. Again, the elite avoid fulfilling their role in the contract and manipulate the people into forwarding an agenda that is counter to the people’s interests, by shirking their responsibility.

When Warren Buffett went on national television, announcing his secretary was paying a higher tax rate than him, there was outrage. The elite solved the problem by raising his secretary’s taxes more, and giving Warren Buffett a billion dollar kickback by vetoing the Keystone Pipeline. That evil oil is still getting to Texas refineries, but on Warren Buffetts trains! Who cares about the added danger of transporting oil by train, Lac Magantic be damned, or the additional cost. In the case of Warren Buffett’s train windfall, courtesy of the US government, he was rewarded for being instrumental in manipulating the people into calling for higher taxes… on themselves! We were made chumps!

Because the actual rich, the elite who are moguls, wield political power and control the means of production, only seek to keep the rest of us down. Joesph Schumpeter argued, the moment someone gets rich, they immediately turn around and close the door behind them. Today the new class, the intelligentsia, control the means of production, have taken the lion’s share of profits, and are the power behind the government, but have abdicated their responsibility to ensure wages grow, the standard of living increases and liberty is maintained. Instead, they work to lower wages at every opportunity with unlimited immigration, enacting by law the Malthusian idea, wages can never grow because there will always be more workers than jobs, they raise taxes on “the rich” but the rich never pay those higher taxes, only those trying to get rich pay them, (you and I) and the elite squander our resources while protecting theirs.

Have you ever wondered why when the tax rate on millionaires was ninety percent in the US, the number of millionaires didn’t go down, only the number of new millionaires did? It was because the elite were using their political power to keep people from getting rich. Holding the rest of us down to protect themselves from competition. By doing so they abdicated their responsibilities to us and society for their own gain. Then they blame the nebulous “rich,” for all the troubles we face because of their shirking their responsibility.

We are angry because we know a scam is being played on us. Most of us, only understand the power contract in human affairs on a gut level, and so can be manipulated by the elite to act against their own interests. I for one, don’t care at all how much a factory worker gets paid, in fact, the more she makes the better, in my view. If a factory worker gets one million dollars an hour, that is no skin off my nose, if an entrepreneur becomes a multi billionaire, I cheer for him, or is an inventor gets millions and acclaim, I am ecstatic for her. When a CEO makes tens or hundreds of millions of dollars a year in bonus’s, wages and perks, while at the same time, making chumps of the shareholders, screwing the workers and poking the customers in the eye, forcing his political, religious and social perspective down the rest of our throats, I become irate. He has avoided his responsibility, the responsibility that comes with those perks to run the company for the interests of the shareholders, provide value to customers and pay good wages to the employees, and that is unacceptable.

Beware of falling for the trap that calls you and I the rich, and thus degrades our standard of living, with our acquiescence. Aim your anger where it belongs, at the new class who shirk their responsibilities, while feeling entitled to the perks they get. Demand they live up to their end of the contract! Else fall for the illusion and become a slave.

Sincerely,

John Pepin

Friction

Thursday, January 1st, 2015

Dear Friends,

It seems to me, a bearing is designed to reduce friction so the shaft it holds can rotate with as little loss as possible, adding sand and thus more friction increases loss to the point the shaft fails in service. We all intrinsically understand that friction makes machines break and work less efficiently but for some reason we don’t correlate that effect to our economy. Just as the friction from sand, rust or a failed bearing reduces efficiency and eventually causes failure in a machine, economic friction from taxes, regulations, corruption and having interest rates set by unaccountable people with dubious alliances, all cause an economy to function less efficiently and eventually fail.

Economics to many seems like magic, giving economists the gravitas of Merlin, but like Merlin’s magic, economics is mere pseudo science. Economics tries to explain how an economy works, and prove it understands by correctly predicting future economic conditions, given present circumstances. A tall order by any standard. It’s fatal flaw is that one of the underlying functions of economics is the human being. We are instrumental to economic outcomes. Clearly, in any area of “science” that involves the human being our science is woefully inadequate, especially as compared to our grasp of physics, mathematics and lately astronomy.

It is our lack of perspective about ourselves that makes our research into ourselves, our nature and emotions, reactions, decision making, etc… so difficult. Without comprehensive knowledge of ourselves we cannot ever really call economics a science. Our lack of dispassion concerning ourselves results in our self interests driving our observations. It is self evident that every politician always wants more power, to do whatever she sought power for in the first place, therefore, given a choice of several options she will always choose the option that results in increasing her power, it is in her self interests. Each time this happens the friction to our economy is increased. The effect on the economic outcome of each person is small individually, but the cumulative effect is huge, and the friction adds up.

Money flows through the economy like hydraulic fluid, mechanical energy or electricity flows through a machine. In a machine the engineer strives to limit the resistance to the flow of whatever the energy the machine is processing. In an economy, the engineer is the government the blue prints, government policy. The engineer builds a machine to do it’s function as efficiently as possible but a bureaucrat builds the economy as inefficient as possible. That is because the engineer is using mathematics and physics to build her machine while the bureaucrat has only his self interest to guide him. No matter how schooled in economics he may be, the bureaucrat’s incentives are in the end, self interest. The same hold’s true for politicians only to a much greater extent.

Every tax, license, regulation, requirement, zoning law, etc… requires an entrepreneur to get a lawyer, which costs money and time, multiplying the friction of the initial rule. Where an engineer puts in a bearing a bureaucrat puts in a clamp that he can tighten at will. The politician has hands to grease, and his ability to grease those hands, is based on his ability to effect changes in economic friction. He can tighten down the clamp a bit, so only the largest company in an industry can turn a profit, returning hundreds to one to his corrupt backer, for her campaign donation. At every level of government, friction to economic operation is piled on, and our politicians lament the gap between the rich and the poor.

This is only one of the fundamental problems with the “planned” economy, and why the laissez faire economy does so well… friction. The planned economy is nothing but friction, bribes, restrictions, permissions, the list of impediments to operating a business efficiently, even with virtual slaves as workers are so pervasive, that instead of adding value at each stage of the manufacturing process the system actually destroys value. In other words, the cost of labor and other inputs become so high due to friction, the value of the manufactured good is less than the original cost of the raw material. All due to friction imposed by politicians, because economics is a pseudo science, in the hands of self interested politicians.

We all want a well functioning economy. A well functioning economy produces general prosperity, low crime, advancing standard of living as well as other social advantages like less racism, more virtuous people and a return to the nuclear family as the primary family unit, that is because in a well functioning economy, we are too hard at work getting ahead, to commit crime, if we are selling sofas we could care less if the buyer is African, Asian or space alien, it is the color of his money that counts, the effects of a well functioning economy are many and positive. The way to a well functioning economy then… is to remove friction from our economy.

Sincerely,

John Pepin

Creative Destruction, Say’s Law and the Pseudo Science of Economics

Monday, October 20th, 2014

Dear Friends,

It seems to me, supply really does drive demand in the creative phase of the creative destruction cycle, and arguments to the contrary are most often based on observation bias. The theory that supply drives demand is Say’s law, but I am changing it a bit. Keynesian economic theory is that demand drives supply which is the opposite of Say’s law. These two theories have been at odds since John Maynard Keynes developed his theory. Keynes theory falls short of the mark, as does Say’s law, but if we combine Schumpeter’s theory with that of Say, the amalgam provides us with a better snapshot of the workings of a healthy economy. This is because an economy is a complex system, and complex systems are by their nature messy, making it impossible to quantify and measure the inputs to any real degree of reliability, therefore economics are a pseudo science or in other words, an art. This is important because our lives are better when we live in an expanding economy with a rising standard of living.

Economics is not a real science in the strictest of terms. The theories cannot be independently verified because the fundamentals cannot be effectively measured. Moreover economics, like any of the humanist “sciences,” are subject to the personal bigotries of the “scientist.” These pseudo sciences have built in traps for those who would promote their theories over those of another. One of those traps is observation bias. In the hard sciences like physics the parameters can be set, measured and quantified. The bias of the observer is irrelevant, a stone dropped accelerates at nine point eight meters per second squared, no matter who is observing it, but since humanistic sciences, economics and climate “science” are not hard sciences based on directly observable phenomenon, but are instead complex systems that have far too many inputs and interactions, so observing and measuring any number of inputs and interactions, many of which are not directly observable at all let alone measurable, gives very little insight into the emergent phenomenon that is different in kind than the sum of the inputs… a key distinction of a complex system.

Since economics is the science/art of a complex system, theories cannot be measured by looking at any of the inputs, but instead must be measured from the emergent phenomenon that rises from the complex system itself. In other words, we cannot reason from the bottom up, like the hard sciences, we have to reason from the top down, and even then, we find observation bias creeping in. In the aggregate demand aggregate supply model, the assumption is that if there is no demand for products and services, any supply is over supply, and therefore demand drives supply. In Say’s law, that supply drives demand, the foundation is that if there is a supply of something there will be demand, even if the demand is at a price point that is lower than the manufacturing cost. In Schumpeter’s theory of creative destruction, the theory rests on the concept that new ideas draw in the means of production until the idea is fully implemented, then the outmoded ideas are destroyed.

All those theories start at some sub function of the complex system, demand, supply, new ideas, etc… then reason from the sub function or input, to the emergent phenomenon. As I have explained this is not an efficient way to reason about complex systems. If we instead look at the desired results, the emergent phenomenon we seek in an economic system, IE. a “healthy economy,” and then reason down, we are more likely to find workable theories that are less subject to observation bias… as long as the term “Healthy economy” is agreed to at the outset. Let’s set the parameters for a “healthy economy,” to be full employment, an expanding economy and a rising standard of living. Notice I didn’t make one of the parameters no recessions. This is because recession’s are clearly a facet of a healthy economy as we have described. We can deduce this by the fact that all complex systems grow in fits and starts, animals and plants grow rapidly, slow, then grow rapidly again, until they have reached maturity. Weather patterns change constantly from rain to clear and back to rain, all complex systems wax and wane and therefore reasoning from the top down, we can reasonably conclude recession is a function of a healthy economy, just as sleep is a function of a healthy body.

The emergent phenomenon of a healthy economy, requires a high utilization of workers, increasing demand for products and services, innovations that improve the standard of living and rising wages relative to the cost of living. From this we can see that driving demand by whatever means has no effect on innovation, it has no direct correlation to wages and only a tangential correlation to demand for labor. Creative destruction correlates well with innovation and tangentially with demand for labor but falls short of the mark when it comes to wages and demand. Say’s law that supply drives demand also falls short. If we combine them however we can get closer to describing conditions required for the emergent phenomenon we are calling a healthy economy.

Justus Moser lamented the fact that the market system invents new products then creates a demand for them. Before there were home computers there was no demand for them, in fact many of the economic brianiacs of the day argued there would never be a need for a home computer, because who needs all that number crunching power? Once the PC came out however, many new uses, from word processing and spreadsheets to computer games followed, giving the home computer uses that exceeded anyone’s initial concept of what a home computer would do. These innovations drove demand for the products they created and for their ancillary products as well. The same holds true for new innovations that have not even been thought of yet.

Aggregate supply aggregate demand, being easy to quantify is therefore scientific appearing, it is an oversimplification however that leads to many negative policies that hinder an economy from being healthy. Moreover it is especially subject to observation bias. This model is easy to understand. The most pernicious effect of this theory is that it’s inherent observation bias gives rise to bad policies. Policies that encourage politicians to deficit spend and redistribute other people’s money. It argues all demand is equal. If that was so then full aggregate demand of anything would give rise to a healthy economy. This is reasoning from the bottom up however. For example, if the only demand in an economy was for cocaine and all the productive resources was put to that end, would that lead to a healthy economy? Of course not, a truly sick economy would arise from such demand, even though aggregate demand exceeds aggregate supply, proving the weakness of the aggregate demand aggregate supply model.

If however, we combine Say’s law with Schumpeter’s creative destruction, reasoning from the top down, we find we have a better description of what is needed to have a healthy economy, ergo… sufficient demand for supply, innovation that betters people’s lives, increasing demand for labor and a rise in real wages driven by the demand for more complex labor. Put simply the theory simply works. Reasoning further down, we can observe the conditions that give rise to creation and the supply produced driving demand. The lower we descend however the more observation bias is likely to come into play. Creation requires as a prerequisite, ease of starting a business, else there can be no creation. This presupposes access to the capital necessary to start a business along with the tax and regulatory environment conducive of it. If these conditions are not met, lacking the supply that creation provides, demand falls short, and an economy fails to meet our definition of healthy. That is why I say, creative destruction must be wedded with Say’s law, to better explain the factors that give rise to the emergent phenomenon of a healthy or sick economy, which then points us to policy directives that will result in a healthy economy.

Sincerely,

John Pepin

Stagnationist Economic Policies

Thursday, May 22nd, 2014

 

Dear Friends,

 

It seems to me, we have learned nothing from the stagnationist policies that created the Great Depression, and so are repeating it. The policies that kept the US, and indeed the entire world, in recession for a decade led directly to the Second World War are being mirrored today, with the only exception being unprecedented monetizing of US debt by the Federal Reserve and aped by most of the rest of the economic powerhouses around the world. The economic stagnation has been only slightly mitigated by the flood of printed money flowing into the world’s economies, but the potential for economic disaster is greatly magnified. Had our economists learned a thing from their history books, they would be decrying the stagnationist policies of the US government, for causing such stagnation in the US economy and by extension the entire world’s. Our jobs, wages, retirement, children’s future and our very lives are all put at risk by the stagnationist policies of the US government.

 

When FDR was elected he ran on a platform similar to Calvin Coolidge’s laissez faire policies. Once Roosevelt gained power however he turned to the policies of Hoover instead. FDR increased regulation by orders of magnitude, just like Obama, taxes were raised by Roosevelt higher than they had been under Wilson, the same as Obama raised taxes on everything he could and is still raising taxes today, Roosevelt vilified business and the free market exactly like Obama has. The only place the policies of Roosevelt and Obama have differed are the price fixing that Roosevelt was so in favor of, and the money printing Obama has had the “benefit” of.

 

In US economic history there have only been three recessions that led to stagnation. The Great Depression, Stagflation of the 1970s and Obama’s New Normal. All of them had Progressive Presidents and all of those Presidents taxed, regulated and attacked the free market. They all poured sugar into the gas tank of the economy and then claimed the fault was the economy’s. All had a willing media to muddy the water so the American people couldn’t see what the real problems were. The policies of those three President’s, Roosevelt, Carter and Obama are the epitome of stagnationist.

 

Two of those periods of stagnation took the unseating of the President and new policies to be adopted to break the cycle of stagnation. Roosevelt’s Great Depression took the Second World War to shock the economy and the American people out of the malaise that builds up during extended periods of economic stagnation. When Roosevelt died and Truman took over, the policies of over taxation and regulation were backed off, and the economy roared to life. In the case of Jimmy Carter’s Stagflation, it took the laissez faire policies of Hayek, and put into action by Ronald Reagan, to get the economy going again. The economic rebound of the 1980s were in stark contrast to the economic malaise of Carter’s Stagflation. Obama’s New Normal is still underway and will take the removal of Obama and a wholesale overturning of his economic policies to get us and the rest of the world out of stagnation.

 

The Second World War was largely a result of the Great Depression. The economy was bad in the US but it was much worse in Germany under the Wiemar Republic. The blatant socialist policies fueled by money printing, coupled with the draconian reparations from the armistice of the First World War, destroyed Germany’s economy. The result was poverty, hopelessness and famine, which always leads to social unrest. In such a climate, the conditions are ripe for an autocrat to seize power, and in Germany in the 1930’s one did. Adolph Hitler used his Brown Shirts to distribute food to the hungry, medicine to the ill and hope to the hopeless, (just like Caesar did a few centuries earlier). This gained him the good will of the masses and they ignorantly flooded to him. The people of Germany didn’t take seriously Hitler’s rhetoric about world conquest, they only saw the fattened faces of their children. The result was the war and all the misery it visited upon the world and Germany.

 

The conditions are becoming ripe for a replay of that tragic war because of the stagnationist economic policies of Obama and the world’s leaders. The policies of Obama, like Obama care, eliminating tax deductions to businesses for plant and tool upgrades and burdensome regulations that make it impossible to make a profit, unless the firm has political favor and doesn’t have to compete in the marketplace and instead get’s it’s profits from the taxpayer… the list goes on and on. These are all stagnationist policies similar to Carter’s and Roosevelt’s. Stagnationist policies always lead to stagnation and stagnation always leads to social unrest. In a climate of social unrest the conditions are ripe for a maniac to seize power. Where the next psychopath will rise is only known to God, but that one will unless we change our path, is certain. With the proliferation of weapons of mass destruction the next world war will make the last look like a walk in the park. So, isn’t it time to stop the stagnationist policies, and return to economic policies that lead to growth instead?

 

 

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

 

 

 

Standards Based Society Versus Regulated Society

Thursday, December 26th, 2013

Dear Friends,

 

It seems to me, standards are better for humanity than regulation, but regulation is better for the elite. Standards encourage commerce while regulations are, by design, intended to give some politically favored group, privilege. Standards drive people to self regulate. Observation shows us that as regulation grows standards drop. The same can be said of the reverse, when standards go up regulation goes down. We can also glean from observation that economies function best when standards are high and regulation is low. The economic history of the World is adamant that these assertions are truths. So why are we in a regulatory spiral that can only end in total government?

 

When asked what would he do if he were made emperor, Confucius said, “I would rectify the use of terms,” or in other words, standardize. Imagine if a gallon sold by a dairy was one size, but when the farmer sold it to the dairy the measure of a gallon was smaller, to help the farmer with his feed costs. Perhaps the amount in a gallon was different at the pump than it was for the refiner? That is exactly how it would work if a gallon were regulated instead of standardized. We have weights and measures that are standardizations not regulations. A gallon is a set amount of liquid or gas.

 

Have you ever wondered why a law passed by Congress and signed by the President has so many pages? Or why those pages expand so much once the bureaucracy gets hold of them? Especially as compared to the short description of any standard? This is because regulations are designed to benefit some politically favored group. Much of the extra wording is to make sure politically unfavored groups don’t get the benefit. But a standard has no exceptions everyone is held to the same code.

 

Since observation tells us that an economy functions best when standards are high and regulation is low, it would seem logical to move any society from a dependence on regulation, to an ethos of standards. Again, any examination of the history of economics shows that when regulation distorts any market, at some point the distortion becomes so great it overpowers the cohesive forces in that economy, blowing bubbles then bursting them or recessions, occur. All of economics is about trying to change this observation of reality.

 

Economists seek to gain control over the economic cycle so government can be the arbiter of who gets what. When an economist gets a Nobel Prize he or she has discovered some means to wrest the reigns of economics from the free market. The holy grail to the elite is total control over the means of production. If that were to occur, distribution would be according to political favor, and who has more political favor than politicians? They would get the lion’s share of the goods of society. If this seems presumptuous, because it rests on the egoism of the elite, I will remind you, President Obama argued; Some doctors are cutting off the legs of patients simply to get the money. How can anyone make a claim that rests so much on the villainous nature of Man unless he has that diabolical himself? Especially since the allegation was, and is false, but only propagandist rhetoric to push the masses. How much less does my argument rest on the egoistic nature of Man? They justify their means by their glorious ends, no mater the hypocrisy of it.

 

There is a faction of the World intelligentsia that believe more regulation and fewer standards is a good thing, they call themselves the Frankfurt School. Their philosophy is a direct contradiction of the largest part of philosophers, like Socrates, who argued in The Republic; justice is a good we do for the intrinsic goodness of it… thereby benefiting all of society, or Confucius, who contended the leaders must lead by example. The Frankfurt School follows the philosophy of Nietzsche, Marx and Freud. The common threads among these philosophers are their belief in the materialistic nature of the universe, and that human beings can be “evolved,” Moreover, there can be no absolute truth or morality, due to their strictly materialistic view of the World. Nietzsche argued in, Thus Spoke Zarathustra, that the way to the over man is under. Or that by the chaos created by crime, poverty and oppression, that would result from everyone doing whatever the hell they want, whenever they wanted to, because they are holding themselves to whatever standard they thought best, from saint to sadist.

 

The Frankfurt School believes that through changing the state, history, society and culture they can evolve human beings into super men, who are in touch with their social natures instead of our individual selves. This means are acceptable to them because, the means are the ends. Since they believe society will be best once people are forced to evolve, to whatever vision the holder has, and in the future all the ills that we find ourselves in will evaporate. Of course, the Frankfurt School’s whole thesis depends on the changing the very essence, of what makes us human beings. They presume to fundamentally change us by changing everything around us and in extreme cases killing those that hinder evolution. Standards are a road block while regulations pave the way. To that end, what would be more effective of gaining the power to evolve us, but by moving the paradigm from standardization to regulation? Because of the deprivation of people, the ends will have been made possible, by the means becoming an end.

 

 

Sincerely,

 

John Pepin

Immigration Reform

Sunday, December 22nd, 2013

Dear Friends,

 

It seems to me, the immigration bill that is winding it’s way through the legislature, should be called “The wage suppression act of 2013.” Let’s face it, the United States does not have a shortage of workers, we have a shortage of jobs. The labor participation rate in the US is falling at an epic rate. The US is in fact the only industrialized country that has a falling labor participation rate. Couple that tidbit with the fact that unemployment is still high by historic standards, and one can only conclude, that for some reason jobs are not being created in America today. Now, to a person with normal thinking, when a country is hemorrhaging jobs, that would be a bad time to introduce millions of new workers… wouldn’t it? Unless the elite think that the reason jobs are becoming more and more scarce is because wages are too high. If that is the case then those in power would do what they can to lower the wages of workers, for example, bring in millions of new workers to compete for fewer and fewer jobs, IE the wage suppression act.

 

Are wages too high in the US today? If we look at wages for skilled and unskilled work in the US, adjusted for inflation, we find that wages are at a historic low. All wage categories, except upper management, bureaucrats, and politicians, have been on a slide down. Wages in the low skilled sector have taken the biggest hit but the high skilled sector has been stagnant for years as well. Engineers in the US, back in the nineteen eighties were at about one hundred thousand a year, and are still at that rate today. Many argue this is because companies like Microsoft, Google, Hewlett Packard, IBM, etc… have been hiring immigrants instead of American engineers. These firms claim there are no Americans capable of doing these high skilled jobs, and that is why these high tech companies are pushing so hard for immigration reform, but facts fly in their faces.

 

Today colleges and universities in the US are turning out record numbers of high skilled people. These new college grads are entering the workforce at a time when there are few jobs and less opportunities. As a case in point, ask the waiter next time you go out to eat, if he or she has a college degree. More likely than not they do. When a college graduate must wait tables, he or she dislocates lower skilled workers, and so lacking a job they fall out of the workforce. So, we must ask ourselves, why are so many skilled people working so far below their potential? Moreover, with wages so low and opportunities so rare, no wonder recent college graduates are depressed and angry, therefore they have the time and are willing to participate in the Wall Street protests.

 

This would seem to indicate that it is not wages that is negatively effecting job creation but some other factor. When Ronald Reagan was elected there was a similar dearth of jobs. Unemployment was high and wages had stagnated. The course Reagan put the US on was not one of raising taxes, regulation, government stimulus and creating new entitlements, what Reagan did was lower taxes, deregulate and ratchet down the entitlement mindset. Calvin Coolidge did the same thing. What was the results of these policies? High GDP growth, rising wages, lower crime, low unemployment and the creation of the term “yuppies.” If you don’t remember what a Yuppy was, it meant a young upwardly mobile person… an all but extinct species today.

 

Since Obama has taken office he has raised a whole slew of taxes, from income to fees and introducing a whole new tax regime, Obama care. His party has regulated everything they can find. Our banking system reels under the weight of Dodd Frank, and the trillion dollar stimulus went entirely to rich political hacks, who went bankrupt as soon as the government check cleared, with not a job to show for it. The Federal Reserve has printed trillions of dollars, to counter the negative effects of Obama’s policies, to no avail. The only people making out well are the uber rich, (you know, the people Obama claims to hate, but spends all his time on Martha’s Vineyard with), government workers and politicians. Washington DC is a boom town awash in money and power while Main Street USA crumbles.

 

So why import millions of new workers who will work for far less than Americans can? The only logical answer to that question is to lower the wages of Americans. Why would the government do that? To diminish the political power of the people and create disquiet in society. Remember, the worse conditions are for the people, the more power politicians get. Since power is their goal, not creating the conditions for a stable wealthy society, the unrest that… diminishing wages, resentment of immigrants, and the crime these beget, drives demand for more regulation, more government oversight, more police, more surveillance, in short, more power to government and the elite. Our compassion for the children of illegal immigrants, is being exploited to lower our standard of living, therefore enhancing the political power of the elite. This should come as no surprise, the new class’ goal has always been to reestablish the power they lost to the bourgeoisie a few centuries ago. Back to the good old days, when there were only two classes, the aristocracy and peasants.

 

 

Sincerely,

 

John Pepin

Incentives, in the Long and Short Term

Thursday, December 19th, 2013

Dear Friends,

 

It seems to me, incentives count, in every facet of human existence. People can be relied on to do what is in their immediate interests. Long term interests however, have less bearing on what we do, because the consequences are distant, while the consequences of short term actions are at hand, so they count more. As more negative incentive build up in society we can reasonably expect more negative actions by people. This is a fundamental fact of economics. That is why the incentives in a society are possibly the most important factor in the real standard of living of that society.

 

If the building you are in is on fire and you are trapped in a room on the 20th floor, what can you do? Jump out the window, landing is simply the next problem you have to solve. The world we live in demands immediate actions and our thinking has evolved to satisfy those needs. When we get up we think about the day at hand and not so much about the coming year. It is mere human nature. So when our immediate needs and wants are blocked by regulation, or encouraged by culture, we react within those constraints. The long term results of those actions are rarely considered.

 

Governments around the world have taken on a new role in the lives of people, to mitigate the negative consequences of negative behavior. Even a cursory look at the goal of most modern regulation and laws illustrates the point. Abortion free of charge and for any reason is one such example. It’s sole purpose is to allow people to engage in socially damaging conduct without short term consequences. What is the welfare state except a means to encourage men to abandon their families? Even a seemingly benign law like Social Security encourages profligate spending during the high earning years of a person’s lifetime, despite the fact it leaves people with insufficient funds to actually retire on.

 

Economic incentives that are socially damaging abound. Regulations that demand banks lend money to people who cannot pay that money back directly led to the banking crisis of 2008, environmental laws that drive businesses into bankruptcy fill thousands of pages, while unemployment benefits are extended regularly, the Federal Reserve is printing billions of dollars a month to mask the negative effects of government policies, like high taxes and stifling regulations, savers are punished by the low returns driven by the Federal Reserve’s monetizing the debt while spenders are encouraged, class warfare are encouraged by the elite, while government officials are allowed to skirt their own laws with almost total impunity.

 

These are just the tip of the iceberg of negative incentives government rakes our virtues with. Many are a crass means to grasp political power, by manipulating our compassion, only serving to increase the very things they are supposed to eliminate. Perhaps the most pernicious thing about negative incentives is the way they lower the outcomes of individuals. There is a story about a woman in her 60s who lives in her father’s basement, while her father, in his 80s, travels the world. If we apply that story to the next generation, their economic outcomes will be lower than hers, and the next’s will be even lower. As government creates more and more negative incentives the economic future of each generation gets worse and worse. Eventually lowering the economic outcomes of Americans to that of the third world.

 

Young people, who are most negatively effected, get to have their immediate wants met. Sex with strangers at any time anyplace fueled by changing cultural mores and free birth control, if that fails, (or they fail to use it), free abortion on demand is the backup. This clearly leads to a promiscuous society. Those babies that slip past the abortionist’s knife are born fatherless, because the State is ready to step in and take his place. This leads to men who never mature. Why save when the savings of others are at your disposal? The elite have created a system where virtuous behavior is punished and bad behavior is rewarded. Is it any wonder there is so much bad behavior? It can truly be said that today’s young people will pay the highest price.

 

Now we stand here, reading the latest results of the negative incentives our society and government promote, aghast at the news we are assaulted with daily. The knock out game both horrifies and befuddles us, school shootings become more common, people have less money for retirement, wages get lower even as jobs get fewer, 60 year old women live in their father’s basement, while he travels the world, and our own government monitors us with increasing intrusiveness, to counter the negative incentives… and we sigh, how could this happen? In our hearts we know, but we are loathe to do what it takes to turn the ship around. The right thing is always the hard thing, because it is painful in the short term, for rewards in the long term.

 

 

Sincerely,

 

John Pepin

Charity, Redistribution, Compassion and Resentment.

Thursday, November 14th, 2013

Dear Friends,

 

It seems to me, charity elevates both the giver and the receiver, while redistribution lowers both. This is a critically important thing for the average person to understand. Those who actually want to help their neighbor will try to comprehend, but those who are simply rooting for their team to win the political battle, will refuse to open their minds. This is a tragic fact of democratic politics. We vote for a team, our team, no matter what. Like the Red Sox and the Yankees, it is all about winning the pennant, not improving the lot of Man. The truly human hearted person wants to improve the lot of Man and doesn’t care about party.

 

Before a problem can be solved it must be understood. The simple fact is, political parties exist to take and hold power. This is their primary goal. Parties deal in votes like a baker deals in dough. In the political arena votes are the currency of the realm. Redistribution is where the government uses it’s power, a monopoly on violence, to take from the politically disfavored, and give that money to politically favored groups. Those who think otherwise are sadly deluded. Money is used by the political elite to purchase votes, whether from firms that support them, or the poor. The recipient of government largess is merely engaging in a crass exchange, a vote and support for money, no different than a baker sells bread else his bakery goes broke.

 

From this we can see that the political elite use the power of government, violence, to take from those they disfavor to exchange for political power. Government alms for the poor are no different. This makes the poor a party to a basically corrupt practice intended to help a party get and hold political power. Those that receive the money from government become clients of the party that favors them, just as a wealthy person or firm that engages in crony capitalism, is the client of the party that benefits them. Being a party to corruption makes a person corrupt. This follows like water flows down a hill.

 

Political parties that encourage people to be corrupt show their disregard for civil stability for matters of expediency. Those, whom the money that will be used for political machinations is taken from, are essentially robbed at gun point. If you disagree that violence is the primary means, simply refuse to pay your taxes, then wait and see if armed men don’t appear at your door. Logically, the person who’s money is seized, resents it. This lowers both the giver, the person who’s money is taken by force, and the receiver, the poor, or the corrupt businessman who engages in crony capitalism.

 

Charity on the other hand uplifts both the giver and the receiver. As I have said many times in these blogs, human beings have three parts, physical, mental and spiritual. If any, some or all of these parts are neglected, they atrophy, while they grow strong with exertion. The person who willingly gives some part of the money he or she has earned is exercising their spiritual part. To not only pay lip service to the less fortunate but to actually give of one’s own hard earned dollar is to show compassion. To demand others pay for the poor are examples of envy and greed. Compassion is uplifting and spiritually invigorating but envy and greed are lowering and spiritually destructive.

 

The receiver of real charity is not only getting money, food, clothing or housing, they are getting a sense that others value them as human beings. If someone is willing to freely give of their hard work to help another, that giver must believe the recipient has intrinsic worth. When we recognize someone has compassion for us we become more engaged in society, and we reciprocate with compassion for others strengthening our own spirit. Those that get largess from the State, understand it is not because anyone believes they have worth, but is merely a corruptly crass political payment for support and so, like any other market transaction they want the most they can get for their product… their support. The understanding that you have real worth outside some crass political scheme is spiritually uplifting and builds a person’s sense of self worth. When we believe we are a pawn in a power struggle our self worth is lowered. Therefore charity uplifts both the giver and the receiver while redistribution lowers everyone involved.

 

 

Sincerely,

 

John Pepin