Once again I hear the pundits on the Saturday business shows stating that the problem with the economy is not taxes and regulations. It's lack of demand. The implication being that if we just dole out more money, the economy will fix itself. Of course demand is great for business. The question is, where does demand come from.
Some pundits and economists believe that creating demand is a simple matter of putting more money in someone's hands. Wouldn't it be great if that were true? All we'd have to do when recession hits would be to cut everyone a government check. Recessions would last a few days rather than months or years.
The fact is that demand comes from exposure to new things. Once you get past the basic needs; food, clothing, shelter; demand becomes subjective. What came first, the iPhone or demand for the iPhone? You didn't know you had to have it before it existed, or at least not before the commercials for it existed.
The fact that innovation and creativity spur demand is what incentivizes companies and entrepreneurs to innovate and create. If this were not the case, and demand was simply a matter of individuals having more money, companies would only have to maintain inventory and have access to more. There would be no reason to spend anything on research, innovation and creation because they would be irrelevant.
But they're not irrellevant. If you suddenly came into some extra cash and you already have an iPhone 5, your not going to go out and buy another iPhone 5. You might buy a cool new add on or accessory for it, but you're not just going to buy more of what you already have or buy something you've already decided you don't need or don't want.
To create demand you must enable producers to produce, create, innovate. That means making the risk/reward ratio pay off. Most new products don't work out. That means there has to be room for failure. Lower tax rates, less regulation; in short less time spent complying with government demands and more time spent working on consumer demand. Yes, demand is important, but it comes from supply. The two work together, but trying to create demand for products with your boot on the neck of producers is a losing model.
Saturday, September 29, 2012
Saturday, September 8, 2012
Specifics on the proposal to broaden the tax base would be a really bad idea
Mitt Romney has proposed "broadening the tax base" by eliminating loopholes and tax credits while lowering tax rates across the board. Critics have dogged him for not getting specific about which loopholes and credits he would eliminate. However, getting into specifics at this point would likely kill the whole idea before it even began.
I like the idea of eliminating targeted tax credits and loopholes because I'm generally opposed to the practice of trying to influence individual decision making through the tax code, a.k.a. social engineering. I just don't believe that trying to direct the subjective decision making processes of individuals is a legitimate function of government and it's counter to free market principals.
I don't believe that all of such tax credits and loopholes can be eliminated in one fell swoop, or that it would even be a good idea to do so. People need time to evaluate how it effects them and make adjustments where they deem necessary. Therefore, there would be a negotiation process. If you go into that process with ultimatums, you may just wind up going in all alone.
For example, I would not mind seeing the home mortgage interest deduction go away, if over a period of years, for a number of reasons. I have very good friends and customers who would vehemently disagree with me on this. I would likely get a lot of support for the notion of eliminating tax credits and loopholes from all of them, but if I prefaced it with a demand that this particular tax credit is going to be eliminated, the negotiation would never take place.
Instead, I could present it as an option, once we're at the table. It would likely be met with fierce resistance and I'd end up backing off from it in favor of some alternatives. The important thing is that the process was started, the overall premise agreed upon and now we can look for opportunities to agree on specifics.
It sounds like politics as usual, but it's really negotiation as usual. You don't make ultimatums unless and until you are ready, willing and able to walk away if you don't get your demand. Opponents of the general concept would seize on any specific provided in advance as justification for dismissing the whole thing before it got started. The firestorm would make for good television, but it would not be an effective strategy for actually accomplishing the goal.
I will say that Governor Romney, nor his supporters have done a very good job of explaining the reasoning behind not getting specific. They should give the American people credit for having enough intelligence to see the logic of it, given the opportunity.
I like the idea of eliminating targeted tax credits and loopholes because I'm generally opposed to the practice of trying to influence individual decision making through the tax code, a.k.a. social engineering. I just don't believe that trying to direct the subjective decision making processes of individuals is a legitimate function of government and it's counter to free market principals.
I don't believe that all of such tax credits and loopholes can be eliminated in one fell swoop, or that it would even be a good idea to do so. People need time to evaluate how it effects them and make adjustments where they deem necessary. Therefore, there would be a negotiation process. If you go into that process with ultimatums, you may just wind up going in all alone.
For example, I would not mind seeing the home mortgage interest deduction go away, if over a period of years, for a number of reasons. I have very good friends and customers who would vehemently disagree with me on this. I would likely get a lot of support for the notion of eliminating tax credits and loopholes from all of them, but if I prefaced it with a demand that this particular tax credit is going to be eliminated, the negotiation would never take place.
Instead, I could present it as an option, once we're at the table. It would likely be met with fierce resistance and I'd end up backing off from it in favor of some alternatives. The important thing is that the process was started, the overall premise agreed upon and now we can look for opportunities to agree on specifics.
It sounds like politics as usual, but it's really negotiation as usual. You don't make ultimatums unless and until you are ready, willing and able to walk away if you don't get your demand. Opponents of the general concept would seize on any specific provided in advance as justification for dismissing the whole thing before it got started. The firestorm would make for good television, but it would not be an effective strategy for actually accomplishing the goal.
I will say that Governor Romney, nor his supporters have done a very good job of explaining the reasoning behind not getting specific. They should give the American people credit for having enough intelligence to see the logic of it, given the opportunity.
Saturday, August 4, 2012
Why government stimulus isn't what it used to be
Many Keynesian economists, including the folks in the current U.S. administration, believe that stimulating a down economy is a simple matter of spending enough money. When the private sector slows down, the government fills the gap by spending more, and they don't much care what the money is spent on, just spend it. They point to government spending and jobs programs in the 40's and 50's as proof that such stimulus can be effective. The problem is, this isn't the 40's and 50's and it wasn't the spending in and of itself that helped the economy.
The most obvious difference between then and now is the number of people required to do a large project. Back in the day, building a highway or a dam or a bridge required hundreds or even thousands of individual workers. These days the same projects can be done with dozens. That's why our nearly $1 trillion stimulus program resulted in only a handful of jobs at a ridiculous cost per job. Furthermore, with all the regulations and procedures put in place in the name of protecting the environment and workers and whatever else requires extensive study, just getting a project underway can take many years. Even President Obama learned that, and lamented that the jobs weren't as "shovel ready" as he thought.
If roads and bridges need to be built, updated, repaired, so be it. But that's not going to create a bunch of jobs or pull the economy out of recession. There just aren't enough people involved and the time period is too spread out.
Another difference between then and now is that, for the most part, public works projects were things that were actually in demand and that furthered the engineering and manufacturing revolution that came about due to World War II. There was the Trans Alaska Highway and the Hoover Dam for example. These were not roads to nowhere or speculation on technology that had not been proven in the market place.
So what's a government to do if simply spending more money isn't going to get the job done? There's really only one path left. There are thousands of small businesses within 20 miles of my house. If each had the confidence and optimism to hire one worker, that would be one heck of a jobs program. They don't need hand outs, or programs or grants from the government. They just need fewer regulations, less paperwork and the flexibility to negotiate with employees for pay and benefit packages that work for both, rather than with a government that's not involved in any aspect of the production process, except for those that slow it down and make it less efficient.
Government trying to control and direct the free market is like the Lenny character in "OI Mice and Men", and the free market is a bunny rabbit. Put the bunny down and give it some room to run before you do something you can't undo.
The most obvious difference between then and now is the number of people required to do a large project. Back in the day, building a highway or a dam or a bridge required hundreds or even thousands of individual workers. These days the same projects can be done with dozens. That's why our nearly $1 trillion stimulus program resulted in only a handful of jobs at a ridiculous cost per job. Furthermore, with all the regulations and procedures put in place in the name of protecting the environment and workers and whatever else requires extensive study, just getting a project underway can take many years. Even President Obama learned that, and lamented that the jobs weren't as "shovel ready" as he thought.
If roads and bridges need to be built, updated, repaired, so be it. But that's not going to create a bunch of jobs or pull the economy out of recession. There just aren't enough people involved and the time period is too spread out.
Another difference between then and now is that, for the most part, public works projects were things that were actually in demand and that furthered the engineering and manufacturing revolution that came about due to World War II. There was the Trans Alaska Highway and the Hoover Dam for example. These were not roads to nowhere or speculation on technology that had not been proven in the market place.
So what's a government to do if simply spending more money isn't going to get the job done? There's really only one path left. There are thousands of small businesses within 20 miles of my house. If each had the confidence and optimism to hire one worker, that would be one heck of a jobs program. They don't need hand outs, or programs or grants from the government. They just need fewer regulations, less paperwork and the flexibility to negotiate with employees for pay and benefit packages that work for both, rather than with a government that's not involved in any aspect of the production process, except for those that slow it down and make it less efficient.
Government trying to control and direct the free market is like the Lenny character in "OI Mice and Men", and the free market is a bunny rabbit. Put the bunny down and give it some room to run before you do something you can't undo.
Sunday, July 29, 2012
Captian's Doctrine # 1
Individual freedom requires individual responsibility and accountability; the complete ownership of all of one's mistakes. If you can't take it, you don't get it.
Monday, July 23, 2012
Fascism by any other name...
They're not calling it fascism, but it's been all the rage, especially in the last decade. The new and improved term is State Capitalism. I guess that's supposed to make it more palatable to actual capitalists.
China is the poster child for state capitalism. Many economists have predicted that China will be the world's new global economic power, replacing the United States, as they posted impressive GDP numbers and managed to avoid the calamity of 2008 to a great extent. The U.S. may be unseated as King of the Economic Hill one day, but it wont be by China.
What the experts forgot to tell you was that China avoided economic turmoil in the short term by investing billions and billions of dollars into the construction of cities that nobody lives in. They're still doing it, both in China and abroad. Yet their growth rate for this year will officially drop below 7.5% (that's assuming you trust the communist parties official data), which is well below their stated target. China is about to experience a real estate bubble burst of Biblical proportions.
The idea behind State Capitalism is that the government owns all or part of major industries. This enables these companies to bypass a lot of the red tape and regulatory burdens that privately owned companies have to deal with. Another distinct advantage is that whether the company is run well or not, they're back stopped by the full taxing power of the nation's government. How can the free market compete with such a thing?
Well, let's look at what the growth of "State Capitalism" has brought us; chronically high unemployment worldwide, unprecedented debt levels, lower standards of living and disposable income. In fact, even in the United States, where the government saw fit to become shareholders in GM, Chrysler and AIG to name a few, the percentage of Americans living in poverty is at a 20 year high.
Fascism by any other name is still fascism. It's both a rival and a cousin to communism. Both are based on the premise that a select enlightened few can do a better job of directing resources, natural, human and intellectual, than a bunch of free individuals running around freely associating and trading all willy nilly. In the case of running a prison camp, perhaps that would be so, but it's no way to create a thriving, growing economy.
State run companies may have access to unlimited financing and bureaucrats at their command, but free market, privately held companies have the incentive to excel, innovate, create, make things better, cheaper, faster, stronger. Giving consumers what they want and need in an efficient, cost effective manner is directly tied to their personal advancement. The state run business and its employees have only the incentive to obey their superiors in order to keep that state sponsored paycheck coming.
If private enterprise is allowed to continue (not a guarantee by any means) it will prove superior to the state run enterprise. It may not seem so now, because state run companies didn't have to go to investors to get a mountain of operating capital. They can print it. But in the end, you've got to produce and perform to stay in the game. They can dominate a market by force, but they wont dominate if freedom of choice has anything to do with it. If they successfully force private enterprise out of the arena, look for living standards to get progressively worse.
In the meantime, in the name of transparency, let's dispense with the "Capitalism" moniker for what is really just another flavor of fascism.
China is the poster child for state capitalism. Many economists have predicted that China will be the world's new global economic power, replacing the United States, as they posted impressive GDP numbers and managed to avoid the calamity of 2008 to a great extent. The U.S. may be unseated as King of the Economic Hill one day, but it wont be by China.
What the experts forgot to tell you was that China avoided economic turmoil in the short term by investing billions and billions of dollars into the construction of cities that nobody lives in. They're still doing it, both in China and abroad. Yet their growth rate for this year will officially drop below 7.5% (that's assuming you trust the communist parties official data), which is well below their stated target. China is about to experience a real estate bubble burst of Biblical proportions.
The idea behind State Capitalism is that the government owns all or part of major industries. This enables these companies to bypass a lot of the red tape and regulatory burdens that privately owned companies have to deal with. Another distinct advantage is that whether the company is run well or not, they're back stopped by the full taxing power of the nation's government. How can the free market compete with such a thing?
Well, let's look at what the growth of "State Capitalism" has brought us; chronically high unemployment worldwide, unprecedented debt levels, lower standards of living and disposable income. In fact, even in the United States, where the government saw fit to become shareholders in GM, Chrysler and AIG to name a few, the percentage of Americans living in poverty is at a 20 year high.
Fascism by any other name is still fascism. It's both a rival and a cousin to communism. Both are based on the premise that a select enlightened few can do a better job of directing resources, natural, human and intellectual, than a bunch of free individuals running around freely associating and trading all willy nilly. In the case of running a prison camp, perhaps that would be so, but it's no way to create a thriving, growing economy.
State run companies may have access to unlimited financing and bureaucrats at their command, but free market, privately held companies have the incentive to excel, innovate, create, make things better, cheaper, faster, stronger. Giving consumers what they want and need in an efficient, cost effective manner is directly tied to their personal advancement. The state run business and its employees have only the incentive to obey their superiors in order to keep that state sponsored paycheck coming.
If private enterprise is allowed to continue (not a guarantee by any means) it will prove superior to the state run enterprise. It may not seem so now, because state run companies didn't have to go to investors to get a mountain of operating capital. They can print it. But in the end, you've got to produce and perform to stay in the game. They can dominate a market by force, but they wont dominate if freedom of choice has anything to do with it. If they successfully force private enterprise out of the arena, look for living standards to get progressively worse.
In the meantime, in the name of transparency, let's dispense with the "Capitalism" moniker for what is really just another flavor of fascism.
Sunday, July 1, 2012
Is Chief Justice John Roberts crazy ...like a fox?
When Chief Justice John Roberts sided with the more liberal side of the Supreme Court bench to uphold the Affordable Health Care Act (Obamacare) under the taxing authority of the Federal government, a lot of Conservatives, Libertarians and Tea Party types thought he had lost his mind, if only temporarily. I must admit, that was my gut reaction. However, after hearing some of the punditry opine on the matter, I'm beginning to think the John Roberts opinion may some day be seen as the Trojan Horse that put the breaks on runaway Federal spending.
The Obama administration and Democrats in Congress did not want this law regarded as a taxing legislation. In fact, they rejected a version that referred to it as a tax. What the Roberts ruling does, is establish that a piece of legislation that requires individuals to make a payment to the Federal government is a tax, no matter what you call it or don't call it. This is important because a tax bill only takes 51 out of 100 votes in the Senate to undo. Other types of legislation can require a super-majority (60 votes) to accomplish a repeal. Whether the Obamacare bill survives or not, this will make it tougher to enact spending programs in the future, at least ones based on "fees", "surcharges", "penalties" and the like.
Perhaps more important, or at least equally important is the ruling on the expansion of Medicaid. Many states have opposed this portion of the law because it requires them to expand their Medicaid rolls through new eligibility rules. The Federal government, under the law as it stood before the ruling, would force states to comply by threatening to take away all of their Medicaid funding if they refused. The ruling says that's a no go. The Federal government can withhold funding for that particular program, but cannot take away existing funding. This is big, because other government programs have been forced on states using the same tactic. If you didn't raise your drinking age to 21 for example, you would have lost highway funds.
What this part of the ruling could enable is true state laboratories for government spending programs. States get to choose on their own, without the threat of force, whether or not to participate on an a' la carte basis. Good programs would be adopted by other states in the future. Bad ideas would gradually go away. More immediately, programs already in force are vulnerable. States may be able to now opt out of existing programs within programs without fear of reprisal.
Now, I think it's still possible that Roberts simply dropped the ball on this one. But whether unintentionally or with brilliant forethought, it's also possible that Chief Justice Roberts has opened up two new fronts in the war on over-reaching government. Fronts that big government fans were not prepared for.
The Obama administration and Democrats in Congress did not want this law regarded as a taxing legislation. In fact, they rejected a version that referred to it as a tax. What the Roberts ruling does, is establish that a piece of legislation that requires individuals to make a payment to the Federal government is a tax, no matter what you call it or don't call it. This is important because a tax bill only takes 51 out of 100 votes in the Senate to undo. Other types of legislation can require a super-majority (60 votes) to accomplish a repeal. Whether the Obamacare bill survives or not, this will make it tougher to enact spending programs in the future, at least ones based on "fees", "surcharges", "penalties" and the like.
Perhaps more important, or at least equally important is the ruling on the expansion of Medicaid. Many states have opposed this portion of the law because it requires them to expand their Medicaid rolls through new eligibility rules. The Federal government, under the law as it stood before the ruling, would force states to comply by threatening to take away all of their Medicaid funding if they refused. The ruling says that's a no go. The Federal government can withhold funding for that particular program, but cannot take away existing funding. This is big, because other government programs have been forced on states using the same tactic. If you didn't raise your drinking age to 21 for example, you would have lost highway funds.
What this part of the ruling could enable is true state laboratories for government spending programs. States get to choose on their own, without the threat of force, whether or not to participate on an a' la carte basis. Good programs would be adopted by other states in the future. Bad ideas would gradually go away. More immediately, programs already in force are vulnerable. States may be able to now opt out of existing programs within programs without fear of reprisal.
Now, I think it's still possible that Roberts simply dropped the ball on this one. But whether unintentionally or with brilliant forethought, it's also possible that Chief Justice Roberts has opened up two new fronts in the war on over-reaching government. Fronts that big government fans were not prepared for.
Saturday, June 16, 2012
Why computers stopped getting cheaper
Remember about 6 years ago, when your standard, off the shelf desktop computer got down to about $500-$600? Well, they're about the same now. Sure, the processing power, memory and overall technology have continued to improve, but the lower end models are still around $500-$600. Why is that? This is one case where lack of demand has actually kept prices up.
When the economy was doing relatively well, if a lower income family or individual wanted to make an over-the-budget purchase, they could either put it on the card (credit was easy) or they could fairly easily pick up some over-time or even do some free lance or piecemeal work on the side. Now, we have 15% of the workforce either unemployed or underemployed. Extra work is hard to come by and credit, even harder.
Yes, it's certainly possible to make a decent desktop computer, say with 2 or 3 year old technology, load it with freeware so one could still surf the web, create documents and modify images, and retail it at around $300, but who would buy it? Right now, the market for new computers is people who can easily afford a new computer. Those folks aren't interested in 2 or 3 year old tech, when for a couple hundred bucks more they can have the new stuff. There just aren't enough buyers at the moment for trailing edge technology, at least not brand new trailing edge technology.
The good news is, the economy will come roaring back eventually. The Progressive experiment will come to an end, not because of some broad based ideological enlightenment, but because Americans like new stuff and big government is simply not delivering.
Tomorrow's trailing edge will be today's top of the line, which is pretty darn good. Tech will become widely available and affordable to even lower income families/individuals on the store shelves. Until then, there's always Ebay and Craigslist. Of course, you may have to go to the library to go online and look for them. Just be sure to check those feedback ratings and always meet strangers in a well lit, public place. Also, when you go to the polls this Fall, remember, big government doesn't make cool new stuff. They regulate it, tax it and try to control its characteristics and distribution. Let them know how you feel about that.
When the economy was doing relatively well, if a lower income family or individual wanted to make an over-the-budget purchase, they could either put it on the card (credit was easy) or they could fairly easily pick up some over-time or even do some free lance or piecemeal work on the side. Now, we have 15% of the workforce either unemployed or underemployed. Extra work is hard to come by and credit, even harder.
Yes, it's certainly possible to make a decent desktop computer, say with 2 or 3 year old technology, load it with freeware so one could still surf the web, create documents and modify images, and retail it at around $300, but who would buy it? Right now, the market for new computers is people who can easily afford a new computer. Those folks aren't interested in 2 or 3 year old tech, when for a couple hundred bucks more they can have the new stuff. There just aren't enough buyers at the moment for trailing edge technology, at least not brand new trailing edge technology.
The good news is, the economy will come roaring back eventually. The Progressive experiment will come to an end, not because of some broad based ideological enlightenment, but because Americans like new stuff and big government is simply not delivering.
Tomorrow's trailing edge will be today's top of the line, which is pretty darn good. Tech will become widely available and affordable to even lower income families/individuals on the store shelves. Until then, there's always Ebay and Craigslist. Of course, you may have to go to the library to go online and look for them. Just be sure to check those feedback ratings and always meet strangers in a well lit, public place. Also, when you go to the polls this Fall, remember, big government doesn't make cool new stuff. They regulate it, tax it and try to control its characteristics and distribution. Let them know how you feel about that.
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