Saturday, December 7, 2013

Bright sides and Green Chutes as 2013 comes to a close

 Bright sides and green chutes

For those of us who are free market capitalist types, this may be the "Winter of our discontent" but that means that Spring is just around the corner. There are signs that point to very good things ahead for liberty, vibrant markets and improved quality of life.

The phenomenon of the role out of the Affordable Health Care (Obamacare) is one great example. It's still possible to win elections and even get legislation passed using the tried and true spin machine, back room dealings, double speak and out right deception. But fudging beyond the actual implementation is almost impossible now. Especially when that implementation affects so many people so directly. The rise of the Internet, mobile and social media has made the spread of information and opinion from one coast to the other, almost instantaneous. You may believe you have only impacted 5% of the country, but once the posting, tweeting, sharing and emailing is done, 100% of the country is going to know about it and form and opinion about it. So long as we have freedom of speech and information flow, even the worst of ideas can be corrected in increasingly short order. This bodes well for almost everything and everyone going forward.

The unveiling by of their project to provide 30 minute delivery of products via drone has caused some excitement and some concerns. There are a number of issues that come up around it, but none of them are technological. Most have to do with how to manage a crowded sky or ensure privacy, not with how to make it technologically feasible on a commercial scale. It already is. Technology has gotten to a point where it is now progressing faster than we can develop protocols to accommodate it. This is also a good trend. It increasingly puts control of the product and service mix back in the hands of the producers and end users and takes it out of the hands of gate keepers and regulators. Soon, 3-D printing technology may well make banning individual products totally moot. If you can draw it or imagine it, you can have it.

The rise of alternate currencies like Bitcoin is another hopeful sign. As it turns out, creating and managing currency on a global scale is not something that is over the heads of everyone except the most enlightened of bureaucrats appointed by our wisest elected officials. In fact, Bitcoin is open source. It has no Central Banker, and it works. Will it become used by the common man on a daily basis? I don't know, but it did prove the concept. By borrowing more than they can ever hope to repay, leaving hyper-inflation as their only way out, governments have long counted on the fear of currency collapse to encourage people to "whistle past the graveyard" and perhaps put more of a value on currencies than they would if there were an alternative. If we develop a competitive, private global market of easily exchanged currencies, they can't play that card anymore. Collapse of the government's finances doesn't have to be much more than a temporary inconvenience. We throw the bums out and start over without any total apocalypse taking place.

Maybe the most hopeful sign is the decreasing tendency, especially among young people, to long-term commitment to a political party. Policy makers have lots of grand plans and schemes that they are confident will create a better world, if you'll just tolerate the transition long enough. Most of those plans involve taking money from one group and giving it to another. However, they pretty much completely ignore the aspirations of people who want more than a hand out and more than mere survival. You don't tell an ambitious teen ager in America "You only need a little success." Call it the American Dream, call it human nature, but a good portion of the population will not accept limits on their imagination, dreams and drive. They want to be free to do what they want to do. Even if they don't have well refined notions of the proper role of government or the private sector or informed positions on policy questions, they know what they like. What they like is things that work. What they don't like and don't have to accept is mediocrity. Some will, but they will be pushed aside by those who want more.

It all comes down to freedom. Freedom is what gives us the capacity to try new and different things. Freedom is also what give us the capacity to self-correct and it's much more efficient and a lot less bloody than the alternative. If we can only agree on one thing as Americans, it's that freedom must be preserved above all else, because even if you get all else wrong, freedom will let you fix it. We will right this ship, not because of a political party platform or some new legislation, but because of us; because we still give each other the right to be wrong so long as no party introduces force.

Sunday, November 10, 2013

Health Care Comprimise?

At some point, perhaps we'll get to an environment where solutions to health care industry issues can be logically and calmly discussed. One such idea might go something like this:

The 'no consideration of pre-existing conditions' is one quite popular provision of the Affordable Care Act (Obamacare). There is obviously demand for it. But, can it be provided in a sustainable (profitable) manner? I believe it can, with one condition. Consumers must be able to choose and providers must be able to offer, coverage for conditions a la carte, with prices reflecting the actual cost of treating everyone in the pool with said condition. No mandatory coverage.

Of course, the incentive from the consumer standpoint would be to not buy a particular condition coverage until after you've come down with the condition. This could still work. One condition could be a limited annual sign up window. You'd be responsible for your own expenses for up to the first 9 months or so, if you choose to wait. Also, plans would be based on actual costs, so your monthly premium might be quite high, but you'd only carry coverage for as long as you needed treatment for the condition.

This is very close to a direct purchase situation, except that the monthly price for treatment is based on the average monthly cost of treating everyone with the condition rather than the individual case. Providers could be organized as mutuals or trusts (as an option in addition to for-profit companies) and enabled to invest premium surpluses in order to offset treatment costs. Companies or coops could specialize in a particular condition and provide treatment directly for a flat periodic rate in a competitive marketplace. Of course this would not preclude other ideas/products for the provision of health care from entering or remaining in the market. The point is to expand the realm of possibilities, not restrict it.

Maybe this proposal is a real possibility. Maybe it can't work for some reason I haven't seen. But, if our goal is to actually create a healthy, vibrant, growing, innovating, thriving health care market, things like this will have to be objectively evaluated on their merits, not based on the logo sported by the individual who proposed it.

Sunday, September 1, 2013

Collectivism vs Individualism - What is your default position?

There is a long running battle in the arena of ideas between the advocates of collectivism and advocates of individualism. One trap that some individualists fall into from time to time is in accepting the premise that an individual never acts in the interest of a collective. Belonging to or acting in the interest of a collective does not make one a collectivist nor any less an individualist.

Most human beings oscillate between individual and member of a collective all day, every day. Sometimes you act purely in your own individual self-interest. Sometimes you act as a family member, a citizen, a parishioner or club member. When you act as a member of a group, association or collective, you put the interest of the organization or association as a whole first. This may or may not conflict with your individual self-interest at any given time.

How is this different from collectivism? Well, an individualist decides on their own if, when, why and for how long to take on the role of group member. One may make a decision favoring the group one moment and favor ones self the next. The oscillation is entirely up to the individual. Of course an association may choose to disallow one's membership based on one's actions, which is fine, so long as they do not disallow one's departure. An individualist chooses to join and maintain good standing as a member of a group because doing so suits their own self interest, as defined by that individual.

A collectivist always puts the group first. Acting in one's own self interest is considered a weakness; a transgression; something one should feel bad about. The group's interest are determined by leaders, elders, some group of elites who are more in tune with the greater good than the individual members. A collectivist serves the group out of a sense of duty. It is not for them to ask why, but simply to conform and to serve. Understanding may be helpful, but is not necessary. One does what the group wants because the group wants it. There are no other considerations.

To summarize, an individual is a member of a collective when and if it suits them. A true collectivist is never an individual, except in moments of weakness. The Progressive movement is an attempt to shift human behavior away from individualism and toward collectivism. I wont presume to tell you which you ought to be, but I think it's important to recognize the distinction.

Monday, August 5, 2013

Steroids in Major League Baseball - What's the Big Deal?

Another season, another controversy over performance enhancing drugs. Today Major League Baseball announced disciplinary action against a number of players that it has determined used banned performance enhancing substances, including one of its biggest stars, Alex Rodriguez.

So is the use of performance enhancing drugs really that big a deal. Yes, it is. For one thing, if the leagues says no performance enhancing drugs, that's that. It's their church. If you want their money, you play by their rules. But breaking those rules does damage not just to the integrity of the game, but to other players as well. Real financial damage.

Suppose you're a player trying to negotiate a new contract. What do you base your desired compensation on? Well, for one thing, you might look at players of similar ability and what they are being paid. Now if you have a bunch of players whose "ability" comes from a syringe, or is at least enhanced by it, they've distorted the curve. They've lowered your value by artificially inflating theirs. In fact, if you had clear evidence that the performance of one or more of these players was cited during your contract negotiations, you may well have grounds for a civil suit against that player or players.

The use of performance enhancing drugs in professional sports is akin to wearing brass knuckles under your boxing gloves. It's cheating, plain and simple. You can argue technicalities like the substance you used wasn't specifically on the list, but if you're taking something and you're not sick, you know you're cheating. You're violating the intent, if not the letter of the law. All the MVP awards, records, headlines, trophies now carry very little weight. In fact, they're especially tarnished because you may well have stolen them from someone who would have won them based on their natural ability. Yeah, it's a big deal. I hope MLB takes it further in the future and adopts a "one strike and you're out" rule.

Wednesday, July 10, 2013

America's neediness bubble

In economics, a bubble is an irrational inflation of value that ends in a sudden, rapid collapse of value. The inflated values are usually the result of actions taken outside the marketplace (i.e. by government). we've recently seen bubbles in Internet stocks and in real estate and now we're experiencing a neediness bubble.

There are now more people receiving some kind of government subsidized food aid than there are full time workers in America. There are also record numbers of people receiving some form of disability payment from the government. What's going on? Have Americans become less able? Is the economy so broken that it's impossible to survive on one's own? Actually, the answer is much simpler than that.

Even economists with differing views on which economic system or model is best are familiar with what incentives are. An incentive is a reward or benefit derived from engaging in a particular behavior. A disincentive is a penalty or disadvantage derived from engaging in a particular behavior. In a free market, incentives and disincentives come about through changes in what people want and/or need, as well as other factors, such as the availability of materials, location, etc. Generally, when something is incentivized, more of it is produced and if something comes with a disincentive, less of it is produced.

In the name of being nice to everyone and getting more votes, politicians have inadvertently incentivized neediness and disincentivized productivity. It's an easy sell. After all, anyone who is opposed to caring for the needy is obviously a callous, cold hearted monster, right? Never mind that such caring often leads to dependency and a lower standard of living over the long term. Elections are usually based on knee jerk reactions, so the long term is rarely a factor.

The government actually runs ads, encouraging more people to take part in various aid programs. It's become much easier to qualify for disability. I've heard many a conversation where people talk about how hard they work to "get their disability." I actually overheard one man, standing in line at the convenience store, proudly stating that he finally got "my 100%" after 7 years. He spent 7 years diligently trying to prove that he was incapable of productive activity. Yes, he walked out of the store to his truck, under his own power, with a twelve pack in one arm and a carton of smokes in the other.

Meanwhile, the more productive you are, the more demands are place on you. Your tax rates are higher. Many government fees are based on a sliding scale, so that the more you make, the more expensive it is. If you employ anyone, the government not only sets wage standards, but working and scheduling condition requirements, and now, the health care mandate. You have to get a license for just about everything; your sign, your scale, your business name; and you have to collect sales tax from your customers on behalf of the government so you can enable all this to continue.

There is still incentive toward entrepreneurship, if you are so inclined. But it is diminishing as regulations, mandates and taxes increase. And many people are not so inclined. They'd just as soon collect a check from an employer or, absent that, from the government. The trouble is we are approaching, if we have not already arrived at, a point where the bubble has to burst. The shrinking number of producers is no longer able to meet the promises made to the ever increasing number of needy.

This is the fundamental flaw of the underlying principal of socialism "from each according to his ability, to each according to his needs." The logical end result is a vast increase in neediness. Perhaps its a good thing to have an actual real life demonstration, not just for socialists, but for those who believe they are capitalists but also believe that some kind of socialist/capitalist hybrid is desirable and sustainable. It's not. But, don't take my word for it. Just watch.

Tuesday, June 25, 2013

China's make-believe boom

China has become the poster child for what neo-fascists like to call "State Capitalism". It's really not capitalism, but just good old fashioned robbery, central control and bs. China has been able to post some impressive numbers in recent years in terms of growth and employment. Pundits and politicians have suggested that we could learn a thing or two from the China model and even predicted that the U.S. would be replaced as the leader of the global economy by China.

Well, it turns out much of the Miracle in Mao Town was smoke and mirrors. They built mega cities that nobody lives in and shopping centers and theme parks that nobody will ever use. All with the intention of keeping people busy, money moving and creating the illusion of prosperity. But all good Ponzi schemes must come to an end and it looks like this one is no exception. No doubt the whole episode has created several new millionaires and billionaires (many of whom have already fled China), but the general public, as usual, got the shaft and will be responsible for cleaning up the mess.
Here's an excerpt from an article on

The Daily Ticker, via Yahoo Finance:

"China’s 'Giant Ponzi Scheme' Won’t End Well: Jim Rickards

In a nutshell, the ‘shadow’ banks borrow from China’s state-controlled banks, use the funds to finance construction projects and sell bonds tied to those projects with yields far above bank savings rates.

“The Ponzi scheme is going on with retail investors…they don’t want 1% or 2% in the bank or even less,” Rickards explains. “The quasi banks come along and say ‘we’ll give you 6%-7%-8%.’ They take the money, invest in these assets that are completely non-productive [with] no way to be able to pay off the debt.”

In true Ponzi scheme fashion, the key here is that the shadow banks use the proceeds from the latest asset sale to pay off investors from prior ventures. “They never sell the assets,” Rickards says. “They sell [new] products and use that money to pay off the old guys.”

Other articles paint a picture of a good idea that didn't work out, rather than the more cynical view that it was never intended to work out.


"...Much of the country’s economic growth has been driven by the building of its cities. But when the construction runs its course in about two decades’ time, there is a real risk that China will languish as a country “with pockets of extreme wealth and an educated middle class, but whose cities teem with enormous slums and suppurate with entrenched social divisions”.

Given that China was a late-comer to urban development, it had the advantage of being able to absorb lessons from all those that went before. Yet the precedent to which it conforms most closely, albeit unwittingly, is the zenith of urban sprawl and traffic jams: Los Angeles.

Instead of reaping the economic and environmental benefits of dense, mixed-use neighbourhoods, China has gobbled up ever more of the countryside. Vast grids of wide boulevards cut residential districts off from places of work and bear the hallmarks of top-down planning, like some giant, manic game of SimCity.

Built-up areas have more than tripled since 1980, but the urban population has grown by a much smaller 120 per cent. As Miller points out, the urbanisation of land has far outpaced the urbanisation of people."

Whether well-intentioned or not, the marketplace works when it's an expression of the cumulative effect of free individuals engaging in free trade. Yet, politicians and bureaucrats can't stop trying to replace the awesome power of controlled chaos with top-down central planning and edicts from on high. It never works. It never will. But, it's an easy sell because it sounds like it ought to work. People like predictability. Central planning is predictable, and when you get that much money moving around, it provides lots of opportunities for some of it to wind up in a quick thinking central planner's pocket. This Ponzi scheme may be coming to an end, but rest assured, there'll be another one right behind it.

Thursday, June 13, 2013

The generation gap

The Emperor Has No Privacy

By Ed Duffy

It had long been rumored that the United States and other governments around the world had been monitoring electronic communications of just about everyone. Over the past few weeks those rumors have been confirmed and it's actually more extensive than most people ever imagined. And now that Pandora's box has been opened, there's no closing it.

The United States government collects and stores data on phone calls, emails, social page posts, Internet chats and more. Presumably, they would only use such information to protect innocent people from bad guys. However, the IRS scandal demonstrates that actual human beings don't always follow policy.

Even if you have faith that our own government officials and politicians would never misuse information to their own benefit or for the advancement of an agenda, the fact is, the U.S. has now set the new standard for data privacy: There isn't any.

If the leader of the "free" world is within its rights to monitor the behavior, conversation, thoughts, location of all its citizens, all the time, what would be off limits for the governments and intelligence agencies of China? Iran? Russia? Pakistan? India? We didn't just cede the moral high ground, we excavated and leveled it.

I suppose it may be a good thing to have taken the fiction of benevolent authority off the table. With the awareness that everything you say/do/write can and will be held against you, perhaps people will choose their words and ponder their actions more carefully. Politicians must know as well, that if they can use data to attack their rivals, their rivals can do the same to them, and we the common folk, have access to quite a bit of data ourselves. Maybe everybody being watched by everybody isn't all bad. It seems to work for the casino business. Let's see how it plays out on a global scale.

Thursday, February 14, 2013

Could the new round of mega mergers spark an economic Earthquake?

United Airlines recently announced it's merging with U.S. Airways. Berkshire Hathaway and Brazil's 3G just announced they're purchasing Heinz for $23 billion dollars. This comes in an atmosphere in which shareholders are increasingly telling boards of big corporations to put their cash hoards to work or give it back to the stock holders.

Corporations around the world are sitting on trillions of dollars because the global economy doesn't seem to be offering worthy investments in the minds of many. However, like birds on a wire, when one or two key players decide it's time to go back to the lawn and forage, the rest soon follow en masse.

Warren Buffet has said he's ready for yet another big deal. He likes to keep about $20 billion on hand, which means, even after the investment in Heinz, Berkshire still has about $12-$13 billion to shop with. Apple is sitting on a mountain of over $120 billion in cash. Many investors have decided that putting enormous stockpiles of dollars into money markets in this interest rate environment is a waste of capital.

This could upset the government's apple cart. First, if companies start spending their excess capital instead of buying Treasuries with it, interest rates are going to go up, which means financing the debt gets even more expensive. It also means that money is going to find its way into the hands of people who actually have an idea what to do with it. There could be a rash of new start ups, which is great for the economy, maybe not so great for the government.

If investors start to get the idea that equities are a far superior play than government debt, interest rates go higher, faster.

Of course none of this takes place in a vacuum. The government will see some benefit in increased taxes, but will that outpace interest rate increases? Will the government try to put the brakes on growth, should it occur? Can they stop that train, once it's left the station?

We could be approaching the point where all that "kicking the can down the road" finally catches up with the government. The fact is, even a thriving economy can't fix their balance sheet without massive changes that nobody in Washington D.C. is willing to make.

But it's not all gloom and doom. We could conceivably have a financial disaster in the public sector along with massive growth in the private sector. Where it goes from there depends on how everyone reacts to such a dynamic. I'm not even going to try to predict that.

Sunday, February 3, 2013

Maybe the Ravens weren't the only winner of Super Bowl XLVII

Congratulations to the Baltimore Ravens who fended off a tremendous comeback run by the San Francisco 49ers to win the Super Bowl. The Ravens may not have been the only winners. The post half time delay brought about by a power outage may have been a victory, or at least an opportunity, for the fuel cell industry.

This is not the first time the power has gone out at an NFL game. It happened in December 2011 during a game in San Francisco. Aside from aggravating fans, such occurrences can have serious financial repercussions. What if someone in the stadium gets hurt stumbling around in the dark or because they were startled when the power went out? What if a lot of someone's get hurt? It can also cause people to change the channel. Remember at the time of the outage in this case, the game was looking like a blow out. It can also damage the brand of the NFL and the stadium sponsor. Bottom line; it hurts the bottom line. 

The energy consumption of such a large and profitable entertainment venue is not likely to decrease any time soon. Maintaining power probably just moved up a few notches on the priority list. Of course stadiums have emergency generators for some lighting, but not enough to keep the game going and hold the attention of the viewing audience. In the event of a power loss from one source, ideally you want to go directly to full power from another source. This is where fuel cells could come in. 

Why fuel cells? Well, because wind, solar, hydro, combustion and nuclear just aren't practical for a sports stadium. Why aren't they using them now? Because fuel cell technology still has some issues to deal with before they're practical; cost, service life and reliability among them. What a couple of embarrassing and perhaps costly events may do for the industry however, is to lower that cost barrier by making solving the problem a bit more valuable to the end user.

A stadium owner may not be willing to pay double for reliable, always on power, but they might go for 140% today, where it was only worth 120% yesterday. That means researchers and developers have a few more dollars to throw at the other issues. They don't have to bring the cost down as much to be competitive. Perhaps materials and systems that had been ruled out as too costly in the past can be ruled back in. 

The incentive can be tremendous. If a team of researchers thought they were about 4 years away from a viable commercial product, then a change in parameters leads them to believe they're maybe 18 months away instead, the urgency increases exponentially. If your team is getting close, other teams are getting close. First one there with a reliable, affordable product gets the first big payday. Once someone demonstrate that there's a market for existing technology in which actual profits can be made rather than just research grants to win, the competition and innovation takes off as well. 

Whether this event will trigger the above scenario, I don't know. I think it depends on how much the parties believe it cost them, if anything. It's not a question of whether or not they made boatloads of money. It's a question of whether they believe they left anything on the table, and how much. 

Thursday, January 24, 2013

An alternative to Atlas Shrugged; Atlas Spent?

In Ayn Rand's novel Atlas Shrugged, our capitalist heroes ultimately defeat the collectivist power grab by going on strike. They drop out of society, taking their ingenuity, productivity and imaginations with them. Society soon crumbles and the bureaucrats beg for their return.

In real life, there are problems with this approach. Not the least of which is the nature of the capitalist. When a capitalist sees a problem, he or she sees opportunity. They want to fix it. They want to fix it profitably, but they want to fix it. When they see an insurmountable problem (or so perceived by general consensus) they see an opportunity for an enormous return. The other problem is that, unlike in the book, societies don't generally blow up quickly. They die a slow and agonizing death. Rome didn't fall in a day. It took centuries. Personally, I don't want to wait that long.

If you believe in capitalism, you believe it works because it takes advantage of human nature rather than fighting against it. There has been much made of the fact that nearly half the people who file taxes in the U.S. pay no income taxes. Thus, they have little concern about rising taxes and increased regulation. But what if they did pay taxes? What if they had a taste of capitalist success? What if they saw things from the same perspective you do? It is not human nature to do yourself harm.

So how do you create more tax paying capitalists? Invest in your business, locally. Look for small businesses at the local level that can provide things for your business. It may cost you more, but there is value to be had in this approach. For one thing if you're paying 50+% in taxes on your income anyway, why not get the most luxurious office equipment and furniture available (in town)? Make your workplace comfortable, cozy, attractive. This will bring down your bottom line some, but after taxes, it's not that big a difference, and as a bonus, you create tremendous goodwill at the local level. Look for local service providers and suppliers as well.

When you place a $3000 order with a multi-billion dollar company half way across the country, do you think they're bubbling over with gratitude. Now spend that $3,000 or $4,000 at a local shop that averages $2,500 in revenue a week and see if it doesn't get their attention. You can still shop quality and price, at the local small business level. It's going to be more costly than using a super-efficient giant producer, but even if you just spend a portion of your operating capital locally, the return in goodwill can be well worth it. Also, rather than letting the government pick winners and losers with your money, wouldn't it be smarter to eliminate the middle man and pick some winners yourself? Who do you think is a better judge of the worthiness of an up and coming entrepreneur? You, or a panel of bureaucrats at the Department of Commerce?

Further, if this were a trend that caught on, successful small business people would become much more aware of the burdens, speed bumps, roadblocks and useless paperwork, regulation and make-work that government imposes on the business community. They would have to hire help, who, now having jobs, wouldn't have the time or inclination to "Occupy Main Street" or worry about where their next condom is coming from.

In short, if you want to keep the country from going down the drain, don't look to the global financial markets. Look to the local market and see who you can lift up. Create allies and compadres at the grass roots level. Someone who is defending an income of $50,000 a year and rising is likely to be much more passionate in that defense than someone who's already sitting on $250 million hedge fund account. They may not have the same resources, but they have the same number of votes come election day, and if you want to see change in government across the board, you need representation at the City Council in places like Falcon, Colorado and Springfield, Missouri, not just in New York and Los Angeles.

Waiting for society to collapse and come to its senses is a long wait for a train that aint coming (to steal a line from Firefly). Investing in a new generation of capitalists seems much more win/win and intuitively more capitalist to me than hoping the populace will eventually become miserable enough to see things your way. It's also faster, more likely to succeed and more gratifying.

Sunday, January 20, 2013

You're in Charge Here!

As I was watching a Fox News panel discuss the brilliance of the Obama administration's move to convert their re-election infrastructure assets into an issue advocacy organization it suddenly occurred to me that perpetuation the vision of both political machines; Democrat and Republican, as monolithic, insurmountable barriers to the interest of any particular individual, serves the interests of national celebrity pundits of all stripes.

The political machinery that operates our country is perceived and portrayed as too complicated and intricate to be understood by the common man (or woman) and therefore must be carefully studied and analyzed on our behalf by specially trained and educated experts who can tell you what to think and how to react.

In reality, the "massive databases" to which they refer are simply lists of contact information for individuals. The purpose of making contact with all those individuals is to influence the behavior, actions, non-actions or acceptance of each individual. Without the cooperation or at least surrender on an individual basis, none of the complicated, convoluted agendas of the monoliths can work.

Too many individuals in America have bought into the idea that they are powerless, when in fact, they are the source of all power. Just look at the typical political post on your social pages. Most have a common theme, which is that you either buy the entire package of ideas presented by the Democrats or the entire package of ideas presented by the Republicans. Recognize that neither party is a philosophy. They are infrastructures designed to do one thing; get their people elected. They will adopt whatever philosophy you, the individual demand in exchange for your vote.

The Constitution of the United States explicitly spells out the role of the Federal government and the limits of its authority, which is granted to it by the people. It has been blatantly ignored over the years, but it still exists. It can still be invoked and used to undo years of accumulated abuse of power on an unchecked government beginning at the local level.

When new laws and regulations are passed in your community, don't be afraid to ask "why?" and "under what authority?" Does it advance the rights of the individual to Life, Liberty and the Pursuit of Happiness or just provide a new revenue stream to politicians and bureaucrats and those who feed off them? Remember local politicians become state politicians who become national politicians. You can change the character of the "powers that be" from the bottom up.

Become familiar with your Constitution and the reasoning and purpose behind its provisions. It is a charter created to limit the power of government, not the individual.

It is the nature of politicians and bureaucrats to advance more regulation and grow their organizations. That's how they make headlines and advance their status within the party. You are the only check on that tendency. The people who make up our monolithic political parties work for you. Don't let talking heads of any political persuasion convince you otherwise.

Friday, January 4, 2013

How taxes on the rich get paid, by you

The Obama administration held true to the campaign promise of raising taxes on the rich. Now we've really started to take a whack at the Federal budget deficit by introducing new revenue, right? Not quite.

In recent days the yield on the 10-year Treasury bond has gone from around 1.75% to about 2%. What's the significance of that? Well, taxes went up on people making over $400,000/year. For many, a chunk of that income comes from interest on things like 10-year Treasury bonds. When the government raised taxes on that income, they lowered the net return, which lowered the value, hence higher rates. So how did the Treasury fare in this exchange?

Well, if you bought a $1,000 bond at 1.75%, over a year you'd get $17.50 in interest paid by the Federal government. You'd pay $6.30 in taxes at the old 36% tax rate. Now if you buy a $1,000 Treasury bond at 2%, you'll make $20 in a year and at the new tax rate of 39.6%, the Feds will take back $7.92. So, when you compare the net cost of borrowing for the government (interest paid, minus taxes received) their borrowing cost on that $1,000 actually went up by 88 cents. The effect is not immediate of course. They'll come out ahead on debt already issued, but on new debt, they're actually losing money on the deal. This from a scheme that was supposed to address the government's debt problem.

The wealthy also have options when it comes to income and the rate at which it's taxed. They can move investments around. Even in Treasuries, they can buy bonds with the coupons (interest payments) removed (they're sold off to other investors, money market funds, mutual funds, etc). Without the coupons, the net return is no longer income, but a capital gain, which is taxed at a much lower rate. They can also switch from Federal debt to local or state debt, which is not subject to Federal taxes.

The greeter at WalMart doesn't have these kinds of options. If your taxes go up, you pay them and that's that. The new deal did nothing to address the deficit and the ballooning national debt. It's going to get dealt with one way or the other. You'll pay in either higher taxes or by way of massive inflation. Maybe you'll get lucky and the party wont come to an end until after you're gone. In that case, your kids and grandkids will pay.

The moral of the story? There is no good way to pay for a bloated, out-of-control government. If you want to make it better, all you can do is make it smaller.