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.