Thursday, April 28, 2011

What you're really up against

Recently a friend of mine called, very upset at something he had just read. In the newest Superman comic, the Man of Steel will allegedly renounce his American citizenship. So much for Truth, Justice and the American Way. He was also irked by the fact that while we put moratoriums on drilling for oil in the U.S., we have actually proposed subsidizing drilling in Brazil, and a number of other policies and trends that seem to be leading to the decline of the U.S.. Has the world gone mad?

As I explained to him, when you understand the game plan, it all makes perfect sense. I used to think the differences between free market capitalists and Progressives was simply a disagreement in how to reach a common goal; a better quality of life for everyone. I have come to learn that this is not the case. Progressives believe that the world would be a better place if the production and distribution of its resources were overseen by an elite group of our best and brightest (as determined by Progressives) rather than by the cumulative effect of individuals making decisions on their own. The world being a better place, in their minds, is not contingent on improving anyone's quality of life. It's all about fairness and sustainability. If everyone lives in squalor, that's okay, as long as it's fair and sustainable.

In fact, worrying about the happiness of any one individual, especially yourself, is not only frowned upon, it's heresy. One should derive satisfaction and fulfillment only from the knowledge that you have served the collective well. Praise is heaped on those who demonstrate the least concern for their own well being. After all, the self is irrelevant. Unfairness must be wiped out wherever it is found. Evidence of unfairness is when one person has more success or more material goods or is generally happier than another. Obviously the fact that one person is less successful than another is clear evidence that they are disadvantaged. The playing field must be leveled. This is not done by providing opportunities for the latter, but by removing "advantages" from the former.

Top priority is given to the well being of the planet, the environment, wildlife, "society", culture. You are not even on the list. One big stumbling block is the image of the United States of America. The country was founded on the idea that the state exists solely for the protection of the individual. That the state is accountable to the individual. That the individual trumps the mob. This is all counter to Progressive thinking. The fact that a country based on such beliefs became and remains the world's top super power is a problem. That's what the Progressive movement is currently trying to rectify. Statements that countries like China and India may overtake the United States in terms of world economic power are not dire predictions to Progressives, they are goals, and short-term goals at that.

The next time you start scratching your head when policies enacted in the name of fixing a problem obviously just make it worse, remember this post. The premise that we all have the same goals in mind, just different opinions on how to get there, is a false one. Worse yet, those working for central control will not advocate for it honestly or out loud. But their actions speak volumes.

Monday, April 18, 2011

The Speculator Myth

Oil and gas prices are on the rise once again, and once again fingers are being pointed at those nasty speculators. What's a speculator? A gambler, really.

It's someone who buys contracts to buy oil or other commodities at a certain price within a certain period of time (i.e. oil futures contracts), in the hopes that they can resell them at a higher price. Two important things to keep in mind: The speculator has no intention of ever taking delivery and the contracts expire. If you can't get the price you're looking for by expiration time, you take delivery or take the loss. In the speculator's case, you take the loss. They have nowhere to put all that oil and they don't have the cash to actually buy all the oil they bought options on.

The refrain is that speculators "drive up the prices". How would one drive up prices? By paying increasingly higher prices for the contracts. Intentionally paying above market prices for anything is a good way to go broke fast. Speculators take advantage of short term fears, supply interruptions, knee jerk reactions, by trying to get in the market before prices rise, or at least well before they peak. Speculators also make bets that the price of oil will fall, but that doesn't seem to bother anyone.

The role of the speculator in the marketplace is to provide liquidity. That is, if you want to buy or sell a contract, you don't have to wait until an end user wants to buy or a producer wants to sell. There's always a speculator ready to buy or sell at most any point in the trading day. Speculation is risky, by definition and can only affect prices over a very short term. Ultimately prices are determined by supply and demand.

So why is oil soaring when supply is plentiful? Because we import most of our oil from producers who aren't terribly interested in our financial well being. They decide how much to pull out of the ground and make available for sale on any given day. We curtail production in the U.S. and then complain that we're being gouged by the Saudi's, the Iranians, the Venezuelans, the Libyans and all the other folks we've handed control of the market over to. We don't want to drill for oil, use coal, nobody wants a windmill farm in their neighborhood, or solar panels, or a nuclear plant. We seem to subsidize only alternatives that have no chance of viability in the marketplace and penalize or criminalize energy sources that are proven to work. Nobody can make the case that ethanol laden gas is a better product than non-ethanol laden gas or that the ethanol program is a success, or that it even makes sense. Yet it continues. Enabling more drilling is shunned because it can "take years" to develop a field. We'll still need oil in "years" and we're not getting any closer to it by continuing to put it off.

If the price of oil and gas is causing you grief, Washington D.C. is your problem, not the speculators or even the Saudi's. Then again, as one reader helped point out, politicians and bureaucrats do what the polls tell them to do. So I guess we're the real culprits.

Sunday, April 17, 2011

Can the private sector grow while government shrinks?

The Federal Government and the states are in a financial pickle, to be sure. That's not going to end any time soon. However, the conversation in Washington D.C. and in state capitals around the country these days is about how to cut and how much to cut. It's no longer about new government programs and increased spending. From the standpoint of the business community, the worst may be over.

Whoever wins the next election, it's not likely to be the candidate or party that promises continued deficits and bigger government. Politicians down to the local level are now seeking ways to encourage and incentivize small business. Many of them still don't really understand or trust the free market, but at least they're now giving it a look. That's a positive development.

The health care law is not likely to survive intact and may well be scrapped and replaced altogether. A Constitutional amendment requiring a balanced budget was a pipe dream just a short time ago. Now it is at least a real possibility.

Growing government sucks resources from the private sector, not the least of which are human resources. When government increases its payroll, a lot of talented, creative people wind up in less than productive jobs. When the unemployment checks run out and the government's not hiring, people find another way to make a living, whether it's considering employment they had previously shunned, trying something completely new and out of their comfort zone or starting their own business.

They also start paying closer attention to how government affects the marketplace. Not everyone comes to the same conclusions, but more people really paying attention means we have a better chance of getting it right over time.

There is new technology coming to market now and in the near future that can spawn a new run in productivity and economic activity. The new political reality may well inspire cash-heavy companies and even shoe-string entrepreneurs to get back in the game. Inspiring people to take a chance with their assets, talents, ideas, time and effort doesn't require waiting until conditions are ideal. There just has to be a light at the end of the tunnel. If the business community gets a sense that their efforts wont be wasted, real recovery will take hold.

We could be at the beginning of an odd situation. One in which the private sector is growing and thriving while the public sector continues to struggle with the financial mess they've made of their budgets. Will the public keep up the pressure for fiscal discipline in a healthy private sector environment? I don't know. The big government proponents will no doubt argue that their big spending caused the recovery, not the anticipation of its ending. Will that spin sell? I don't know. It has in the past, but there are a lot more people tuned in these days.

My sense is that, at least in the near term, tax hikes, increased regulation and more government are a no go. Americans have no more stomach for stimulus and bail outs and subsidies. I wont say the era of big government is over just yet, but it's looking tired and starting to get wobbly. I think we have better economic weather ahead. I hope we will take this opportunity to better educate the younger generations, not only in reading, writing and 'rithmatic, but also in the role of government, the art of civil discourse and debate, the meaning of freedom and the consequences that come with it and the mechanics of the free market.