Friday, November 29, 2013

Civil Liberties in a Digital Age By Rick Kelo

Civil Liberties in a Digital Age
By Rick Kelo

1. DNA The US Supreme Court ruled that certain types of law enforcement agencies can now collect your DNA when you are arrested.  Their rationale: DNA functions identically to a fingerprint in that it can be used by police to verify the identity of the person in custody.  Here's a summary of their ruling: (Source: WSJ, June, 3, 2013).
Of course DNA samples are not used to verify the identity of the person in custody.  It is collected and put into police databases to solve cold cases.  To examine someone for a crime to which there is no probable cause to suspect them.  And many police jurisdictions keep all DNA samples on file forever.  So when your home is broken into, and the police collect DNA off the door handle the burglar opened the door with they will ask you for your DNA so they can isolate the homeowner and figure out which DNA is the robber.  And once they have your DNA into the cold case databases it goes.... forever.
Now consider that African Americans are far more likely to be arrested than any other group in this country.  NOT CONVICTED OF A CRIME, this is an important distinction to make.  You can commit no crime and still be arrested.  For this reason it is illegal for a potential employer to ask you in an interview about your arrest record, only about crimes of which you were convicted.

2. Phone Call Logging & Email CollectionThis one is widely known, but important to consider for a reason you have not yet heard.... point #3
Edward Snowden, a name that needs no introduction, recently gave us the revelation that all your cell phone calls are being logged.  He followed that revelation in short order with another leak about the collection of email traffic, under a law which is supposed to be restricted to non-Americans, that was in fact being used to indiscriminately capture the emails of a great many American citizens too.
3. Text Message Collection & LoggingThese revelations led many to wonder about the next logical conclusion: were your text messages also being monitored?  The Obama Administration immediately responded to a Freedom of Information request no this topic with the following 15 page document:
“Guidance for the Minimization of Text Messages over Dual-Function Cellular Telephones” by US Justice DepartmentA shocking, and insightful report that makes all of us much more comfortable.... thank you Obama Administration.

4. License Plate Collection & Logging
So in what other ways has the technology of the digital age been implemented in an abusive fashion by the government?  As I discussed here: "You Are Being Tracked!" police jurisdictions across America are employing license plate readers.  In some cities like Manhattan & DC they are everywhere mounted to buildings, traffic signals, etc.  And their data is retained... forever.  (Well some states like New Jersey restrict how long it can be retained to only a modest 5 years worth of information).

5. Implications
These are programs we know about.  We know very, very little about them except that they exist and that there is an incredible potential for abuse.  Data mining.  Data collection.  A series of programs that can be complied to create a shockingly comprehensive picture of you.  And most of these things collected by a government you cannot challenge, where you have no rights to object, approved by secret courts in which only one side of the issue is presented before a secret judge.  
The question every person must consider is how we re-establish civil liberties in a digital age.

Thursday, November 28, 2013

Empire Building & Bureaucracy: Explosive Government Growth By Rick Kelo

Empire Building & Bureaucracy: Explosive Government Growth
By Rick Kelo

In a previous article, America's Secret Rich Ruling Class Revealed, I examined the compensation of the federal government bureaucrat.  The story goes something like this:
  • In America you're in the middle class if you earn $38,520 - $62,434 / year.
  • The upper-middle class is $62,434 - $101,582 / year.
  • The upper class is anyone making more than $101,582 / year.
  • The average American worker earns a total compensation of $62,757 / year.
  • The federal bureaucrat is paid an average compensation of $128,225 / year.
  • The bureaucrat takes home a larger paycheck than 87% of the people working in America.
In my opinion the pay of the bureaucrat is a testament to government's love of looking out for itself at the expense of the people who elected it.  
There is no American President in the last 60 years who loves bureaucracy & treasures the bureaucrat more than Barack Obama.  So much so that he has decided to grow the size of the federal government despite the fact it harms the US economy, which has faltered and languished under his policies.
The problem with the bureaucrat is an issue of carrying dead weight. The US economy is made up of all the goods & services produced.  There are some 314 million people in America of which 113 million work in private business.  So the only goods & services that exist in our economy are what that 36% produce, which must then be divided across the 100%.  Every additional government employee, especially federal government employee, removes someone who otherwise would have found productive employment and makes the total size of the economy 1 person smaller which must also be spread across 1 more non-productive person.
Below are the numbers on the growth of the federal bureaucrat & his empire for the last 60 years:

  • #1 largest period of growth is President Obama in 2010.  
  • #5 largest year for growing the bureaucracy was 2009.
  • #25 largest year for growing the federal bureaucracy was 2011.
  • 2010 was also the first year Obama submitted his own budget.  
  • Obama submitted part of the 2009 budget, but was hampered partially by the half of the budget Bush had already submitted. 
  • The 2010 bureaucracy growth was larger than the explosion of empire building during the implementation of the President Johnson's "Great Society" in the 1960s!
  • This 2010 growth was prior to the coming growth due to Obamacare.

Wednesday, November 27, 2013

Enemies of Freedom

Enemies of Freedom
By Rick Kelo

Dick Cheney Dick Cheney makes the list instead of George W. Bush or Barack Obama because the former vice president provided the intellectual and legal template that both presidents followed to curtail our freedoms. In the wake of 9/11, Cheney, a lifelong defender of executive branch power, pushed the Bush administration to increase secrecy, surveillance, and war. It’s the most lasting legacy in a four-decade career that includes intimate involvement in both Iraq wars, plus the conflicts in Afghanistan, Panama, and Somalia

Hillary Clinton“It takes a village,” Hillary Clinton famously wrote, and we’ve learned since that her meaning encompassed villages in Iraq and Afghanistan to house American troops, villages of taxpayers to fund her favored programs, and villages of snoops to staff a national security state. Those villages must be prudish, too, given Clinton’s longstanding fear of video-game sex. To Hillary’s credit, she does advocate Internet freedom for villages overseas. Too bad she doesn’t promote the same idea at home

Paul KrugmanThe Nobel-winning economist and New York Times columnist is a reliable advocate of economic intervention and deficit spending, arguing that the problem with failed government stimulus programs to fight the recession of the ’00s was that they didn’t go far enough. Krugman’s low point in 2012 was recommending (only mostly in jest) that it would be a good thing if the government wasted huge sums of taxpayer money preparing for an alien invasion. Keep this man’s hands away from any rocks—he might try to break nearby windows to “stimulate” the economy.

Sheriff Joe ArpaioMaricopa County, Arizona’s chief law enforcement officer is famous mostly for publicly degrading inmates: forcing them to live in a tent city, work on chain gangs, wear pink underwear. Meanwhile, his more serious transgressions receive far less attention. Arpaio has created citizen posses to track down and arrest illegal immigrants, overseen a jail staff that has violently abused inmates (resulting in the death of three prisoners and the paralysis of a fourth), and used law enforcement resources to harass and intimidate his political opponents.

John McCainIt is possible to be both an enemy of freedom and a genuine American hero. John McCain endured unbearable punishments and greatly boosted camp morale during his five-year Viet Cong prison stint, for which he deserves our gratitude. He has also been among the most consistently interventionist politicians in the United States Senate, agitating for never-ending “rogue-state rollback” while focusing his war at home on political speech and the healthy American trait he derides as “cynicism.” It’s fitting McCain would close out his career barking sporadic insults (like “wacko bird”) at a new generation of more libertarian legislators.

Dianne FeinsteinSay Feinstein’s name in front of anybody who takes the Second Amendment to the U.S. Constitution seriously and watch that person’s face curdle. The California senator’s federal assault weapons ban, which passed in 1994 and expired in 2004, failed to have any noticeable impact on crime rates. She didn’t allow such facts to keep her from using the Sandy Hook Elementary School shooting in 2012 to unsuccessfully attempt to reinstate the ban. Like the National Rifle Association, she also blames youth violence on video games and has threatened new regulations on that industry as well.

Richard NixonThis American president launched the modern drug war, imposed wage and price controls, kept a pointless war going in Vietnam long after he knew it was hopeless, and imposed massive new bureaucracies on the American economy. Nixon’s vision of government in general had no clear limits, and his view of executive power helped him commit and collude in crimes that he thought were not crimes because he did them. Richard Nixon should be a cautionary tale for all future presidents, but all too often he serves as an example.

Newt GingrichGingrich rose to fame as a politician, but he’s more like an annoying dinner-party guest: He’ll say anything to get attention. During the 2012 campaign, the former speaker of the House called fellow Republican Paul Ryan’s budget proposal a “radical” form of “right-wing social engineering”—but later said he’d vote for it. In 2005, he declared his support for an individual mandate to purchase health insurance, even going so far as to predict that it could be done in a way to “make most libertarians relatively happy.” By 2012, he was saying the mandate was “fundamentally wrong” and “unconstitutional.” Gingrich never truly stands for anything except himself.

J. Edgar HooverThe FBI’s investigations into militias during the 1990s and Muslims in the 2000s trace their roots to the tenure of James Edgar Hoover. The agency’s longest-serving director, Hoover was famous for investigating groups that challenged the American government and its empire. He spied on and entrapped leftists, and he smeared and undermined civil rights leaders.

Michael BloombergHere is how New York Mayor Michael Bloomberg explained the importance of his widely derided 16-ounce limit on servings of sugar-sweetened beverages after a state judge overturned it last March: “We have a responsibility as human beings to do something, to save each other, to save the lives of ourselves, our families, our friends, and all of the rest of the people that live on God’s planet.” Bloomberg literally thinks he is saving the world one slightly smaller serving of soda at a time.
As grandiose as that may seem, it is consistent with Bloomberg’s view of government. A few years ago in a speech at the United Nations, he declared that “to halt the worldwide epidemic of non-communicable diseases, governments at all levels must make healthy solutions the default social option,” which he described as “government’s highest duty.” On Bloomberg’s to-do list for government, apparently, defending us against our own unhealthy habits ranks above defending us against foreign invaders or marauding criminals.
Public health is not the only area where Bloomberg’s authoritarian tendencies are apparent. There is his enthusiasm for gun control, his illegal crackdown on pot smokers, and his unflagging defense of the New York Police Department’s stop-and-frisk program, which portrays the Fourth Amendment as a gratuitous barrier to effective policing. But his determination to halt “epidemics” of risky behavior shows him at his most arrogantly ambitious.
Bloomberg has pursued that goal not only by meddling with people’s drink orders but by banning trans fats, pressuring food companies to reduce the salt content of their products, imposing heavy cigarette taxes, severely restricting the locations where people are allowed to smoke (even outdoors), mandating anti-smoking posters in stores that sell cigarettes (a policy that, like his big beverage ban, was rejected by the courts), and proposing a rule that would require merchants to hide tobacco products from people who might want to buy them.
The attitude driving Bloomberg’s crusade to “make healthy solutions the default social option” is reflected in another comment he made after his pint-sized pop prescription ran into legal trouble. “It was not a setback for me,” said the billionaire with degrees from Johns Hopkins and Harvard. “In case you hadn’t noticed, I watch my diet. This is not for me.” No, indeed. It is for those poor, benighted souls who think it is acceptable to drink a 20-ounce soda.

Tuesday, November 26, 2013

Sugar = Big Business Wins, You Lose, Government Laughs (Part 2) By Rick Kelo

Sugar = Big Business Wins, You Lose, Government Laughs (Part 2)
By Rick Kelo

This is the second half of an article.  You can access the first half by clicking here.  That article looks at the recent history of the Sugar Acts including the failure of socialist style industry control, the destruction of productivity, and how government colludes with big business.
Big government is never good.  The larger the government the more avenues available for big business to gain influence over government.  No example stands out more than the sugar industry.  America pays more than double the price for sugar that the rest of the world pays.  Government protections enable the sugar industry to charge this outrageous price.  Then on top of that extra profit, every year hundreds of millions of dollars is taken from you in the form of taxes and given to a few large companies (who I will name by name at the end of this article).    

Continued from article 1 the bad government action against free market capitalism that we'll now examine include (from the 1st article):
3. Special Interest program #2: 1981 - today destroys your wallet
4. Restrictions against imported sugar hurt "the competition" AKA the poor farmer in the 3rd world
5. The financial benefits from these programs go to a small handful of big companies

    3. Special Interest program #2: 1981 - today In 1981 America passed the Food Act of 1981.  Its policies have stayed in place ever since (under renewed bills sometimes with differently named as Farm Acts) as the heart of America's current robbery program against the taxpayer in favor of the special interest sugar lobby.
    Today's programs break down along the following lines:
    • Interest Free Loans
    • Price Controls
    • Tariffs & Import Restrictions
    • Subsidies
    Loans: the sugar lobby can take out interest free loans from the USDA and pledge its crops as collateral if not repaid.  Each year the UDSA announces loan rates, presently they are 18.75 cents/per pound of cane sugar and 24.09 cents/lb for beet sugar (SOURCE: USDA).  These loans are HUGE subsidies because they are at higher rates than the US sugar price, and about double the worldwide sugar price.  So the big companies who take out these loans can then choose to default after 9 months, keep the money, and give the government their sugar crop as collateral.  Almost all decide to do that, unless the price of sugar is higher when the loan comes due, but since the loans are meant to be an extra subsidy above the already very high price that never happens.
    To highlight this US cane sugar is presently selling for 16.17 cents/pound.  So the crop loan was given out at a 16% premium allowing those companies to forfeit their crop at the end of the loan period and make an even higher price than they would have selling it on the open market (remembering the US sugar price is double the price in the rest of the world).
    Price Controls: When the loan program above does not work to prop up sugar prices the USDA pays sugar farmers to destroy their crops.  These programs starting to sound evil yet?  The program is called "Payment-In-Kind" and it was enacted in 1983. (SOURCE: USDA) 
    Tariffs & Import Restrictions: Every year the USDA announces how much foreign sugar is allowed into the US.  Sugar imports are generally restricted to less than 30% of overall sugar demand.  Here is this year's import restriction notice (SOURCE: USDA).  This program is what's called a "Tariff Rate Quota" which means that it is not an absolute import restriction, but any imports above the restricted amount are subject to very high penalty fees.
    Subsidies: The government engages in other subsidy programs to sugar.  When prices still aren't where the USDA wants them to be they will purchase a part of the nation's sugar supply and convert it into ethanol to reduce the supply available in the market (and raise the price).  An elaborate scheme that costs taxpayers an awful lot to run as opposed to the very simple alternative of eliminating all these programs and allowing the price of sugar to drop in half to the benefit of every American.

    4. Restrictions against imported sugar hurt "the competition" AKA the poor farmer in the 3rd worldPossibly you've seen "fair trade" goods in stores?  The policies identified above have already distorted the amount of sugar that otherwise would have been imported into America.  Also, the artificial price distortions caused by those programs send incorrect signals in the marketplace to farmers.  Those signals can be safely ignored by American farmers because of all the taxpayer funded special protections above, but the farmer in the developing world doesn't get correct market signals for when to slow down or increase production.  So not only is the third world farmer hurt because he cannot import his crops into America, but he also gets distorted signals about the demand for sugar.  This causes farmers in poor countries to incorrectly select which crop is most profitable for them to plant in a given season.

    5. The financial benefits from these programs go to a small handful of big companiesAs far as the sugar loans are concerned, the case is clear.  The USDA publishes their "Agricultural Decisions" and announces who they give these loans to each year.  In total the federal government issues just under a billion dollars a year in sugar loans.  In 2012 it was $966M.  The special interest groups who got the biggest reward for their undue influence on government included:
    1. Amalgamated Sugar enjoyed $274M or 26% of the nation's sugar loans  
    2. Michigan Sugar $167M or 17% of the nation's sugar loans
    3. Western Sugar Co-op $147M or 15%
    4. Southern Minnesota Beet Sugar $101 million or 10%
    So there you have it, between those 4 companies $689 million dollars of tax money was taken from you and given to them in return for artificially raising the price of sugar.  Also those 4 players received 71% of the nation's sugar loans.  If we listed the next 4 largest recipients we'd account for 87% of the nation's sugar loans.
    That is how your government fails you, and takes from you, to line the pockets of a few rich, powerful players all while protecting them from competition and robbing you at the register.

    Monday, November 25, 2013

    Sugar = Big Business Wins, You Lose, Government Laughs by Rick Kelo

    Sugar = Big Business Wins, You Lose, Government Laughs
    By Rick Kelo

    The United States has a long, embarrassing history with sugar.  It is a history that includes the failure of socialist style industry control, the destruction of productivity, government colluding with big business, and you at the register, forced to pay twice as much as the rest of the world.
    Your well-being (both physical & financial) is eaten in a million little bites from a million little parasitic programs.  This is the story of one of them: the sugar industry.  It is a story of multi-billion dollar special interests harming everybody's general interest.   
    The American government massively distorts the price of sugar that should exist in the marketplace for only one reason: to take money from you at the register and transfer it into record profit for a few big companies (I'll reveal company names at the end).
    America's special interest protections to the sugar industry have been in place for over 100 years.  I'll look at:
    1. Sugar is TWICE as expensive in America as the rest of the world.
    2. Why you've never noticed the high price
    3. Special Interest program #1: 1934 - 1974 destroyed American productivity
    4. Special Interest program #2: 1981 - today destroys your wallet
    5. Restrictions against imported sugar hurt "the competition" AKA the poor farmer in the 3rd world
    6. The financial benefits from these programs go to a small handful of big companies

    1. Sugar is TWICE as expensive in America as the rest of the world.Below is the price Americans pay for sugar compared to the price the rest of the world pays.  Sources at end of article, this is source (1).
    US vs. World Sugar Prices; Source
    Sugar is more expensive in America, but we actually don't import sugar in the aggregate.  America is the world's 5th largest sugar producer, and we export almost as much sugar as we import.  Sugar should cost less in America than the global average.  Only government interference makes it more expensive.  
    2. Why you've never noticed the high priceEven though these price differences amount to billions of dollars you've probably never noticed you're paying more.  Why is that?  The answer is a principle is called "concentrated benefits; diffuse costs" and it goes like this:
    You pay $35/year more for your food because your government made sugar more expensive than it should be.  Spread that extra price over 50 shopping trips per year and over hundreds of different items and the harm isn't obvious.  It's not just you though: all 120 million households in America pay that extra $35/year.  All that money concentrated into the hands of a few in the sugar industry becomes several billion dollars in extra profit.

    3. Special Interest program #1: 1934 - 1974 destroyed American productivityThe sugar program of yesteryear led to the problem of high prices we have today.  
    Before 1934 the American sugar industry was protected from foreign competition by a tariff.  Protection was increased still further in 1934 when an import quota was also added.  The government dictated not only the price of foreign sugar but also precisely how much foreign sugar was allowed into the US; the balance of demand had to be produced here.  This law was called the Jones-Costigan Amendment.  It was passed because the perception was that too much sugar was being produced, which was causing low prices. (2)  You heard me right.  The perception was the American consumer was getting "too good" a deal and the special interest wasn't getting a good enough deal.  The policies of that law changed only slightly over the years.  This system of import quotas was combined with a price support system until 1974.  
    Notice the big price explosion in 1974 in the graph above?  Three years prior Milton Friedman, writing in Newsweek on October 18th, 1971, likened price control programs like the one in sugar to a brick put on top of a tea kettle.  If the flame is turned down, he said, the brick may stop the lid of the kettle from bursting.  If not then pressure will build until the lid blows off.  In that same article he explained:
    The most serious potential danger is that, under cover of the price controls, inflationary pressures will accumulate, the controls will collapse, inflation will burst out anew.
    The Jones-Costigan Amendment was the government's first sugar price support & government control scheme, and its structure remained in place through various laws until 1974.  In this system the government gave farmers acreage quotas, dictated how much sugar crop they were allowed to sell and set their prices; the government then told sugar companies how much sugar they could buy, how much product they could produce, and set their prices.
    Sounds a touch like socialism doesn't it?  
    Declining American Productivity in the Sugar Industry Caused by Government Control; Source

    Well, lo and behold, all those government attempts to control the free market and interfere with supply & demand failed.  Just like the failure of collective farms under communism in the USSR, so too these measures led to ever declining productivity (see productivity graph below).  Productivity kept declining until the price support scheme had to be ended in 1974.  Economists from the Federal Reserve & the Bureau of Economic Analysis studied the law and explained it this way (3):
    For “voluntarily” abiding by acreage quotas, farmers were given subsidies by the government based on their “output.” To cover these subsidies, the factories were taxed on the sugar they produced. The rationale for these regulatory provisions was to insure “fair-division” of the benefits (among producer groups) of the sugar program. Tax/subsidy schemes can obviously distort production decisions and, like lack of competition, reduce productivity.  We find the fair-division provisions, by distorting production decisions, led to very significant productivity declines."

    In the upcoming second half of this article I will take you into the current government scheme to funnel money from you into a few large special interests in the sugar lobby.  These massive distortions can only be caused by government intervention against free trade and against the free enterprise system. 
    If the bad government failures were removed the price of sugar would immediately drop more than in half and the American consumer could enjoy the price consumers across the rest of the world enjoy.

    Sources:1. US Department of Agriculture, Economic Research Service
    2. "Mexican Labor and World War II: Braceros in the Pacific Northwest, 1942-1947" by Erasmo Gamboa  pp. 11-12
    3. Federal Reserve, Staff Report 389, "Does Regulation Reduce Productivity? Evidence From Regulation of the U.S.Beet-Sugar Manufacturing Industry During the Sugar Acts, 1934-74" pp. 1-2

    Sunday, November 24, 2013

    Obama unveils plans to attract foreign investment By Rick Kelo

    Obama unveils plans to attract foreign investment
    By Rick Kelo

    This is a seed of an article from Financial Times you can view here.
    Foreign direct investment is one of several ways that American dollars spent on foreign imports return to the United States.  If President Obama is interested in increasing FDI then he must reduce the artificial trade barriers he has created & sustained that reduce foreign imports.
    Because the dollars in and dollars out of America are always in balance Obama's protectionist measures greatly curtail foreign direct investment, as the article alludes to:
    FDI flows have decreased in across advanced economies, but the US has suffered deeper declines than the average of the OECD group of countries that aims to promote sustainable economic growth. FDI inflows to the US were worth about $160bn last year, roughly half of the value at their peak in 2008. Data from 2013 is on track to be still weaker.
    However there is still no evidence that President Obama understands this concept given that his speech and efforts are focused on promoting American exports and attracting foreign direct investment.  The growth of either of those areas is impossible without a corresponding growth of imports.
    Also as a caveat to those concerned about China; below are the sources of FDI by region of the world.
    Source: Bureau of Economic Analysis
    Here's the article:
    Barack Obama vowed to become more personally involved in attracting foreign cash to the US, as he proposed new steps to make America’s federal government more receptive to inward investment.
    “Officials at the highest levels, up to and including me, are going to do even more to make the case for investing in America,” the US president told more than 1,200 foreign investors at a two-day conference in Washington on Thursday.
    The fresh steps taken by the White House are mainly bureaucratic and have the US catching up to many countries around the world where attracting foreign direct investment is a top goal.
    But they mark a big shift for America, which has traditionally not felt the need to advocate for FDI at a federal level, leaving that job to state and local officials. Foreign investment was once taken for granted as the result of the US’s status as the world’s biggest economybut there is growing global competition to attract investors.
    “As a country, we don’t always make our case in a co-ordinated way that links our teams overseas to the right senior officials in Washington,” Mr Obama said. “And we’re going to change that, make our advocacy more efficient, more effective, more connected so that businesses who are making decisions about where to invest are getting timely answers and know that they’re going to have all the help that they need.”
    The White House has instructed commerce and state department officials to make attracting foreign investment one of their “core priorities”, putting it as high on their agenda as export promotion.
    New global teams led by US ambassadors in 32 key countries will be charged with encouraging foreign investment into the US, and a “co-ordinated process” will be set up to connect prospective investors with senior US officials, all the way up to the president in “high priority cases”.
    “It’s not a level playing field for a mayor of one of our cities to have to compete against a prime minister or head of state of a major industrial power when we are competing for the location of a new service centre or manufacturing plant,” Gene Sperling, the White House national economic council director, said.
    FDI flows have decreased in across advanced economies, but the US has suffered deeper declines than the average of the OECD group of countries that aims to promote sustainable economic growth. FDI inflows to the US were worth about $160bn last year, roughly half of the value at their peak in 2008. Data from 2013 is on track to be still weaker.
    Administration officials are not setting a numerical goal for FDI, arguing that their objective is not necessarily to dramatically increase all financial flows into the country but to boost those investments that will create high-paying jobs.
    Jack Lew, the US Treasury secretary, made the economic case at the event for inward investment, saying the US had made a strong “turnround” since the recession and financial crisis, recovering faster than other advanced economies. Mr Lew also added that the US welcomed investment from all countries and “from every type of enterprise and in all sectors”. He tried to reassure foreign companies that they would not face discrimination or undue scrutiny from the US government, suggesting that even foreign state-owned enterprises would not face obstacles. However, Mr Lew could not guarantee that Congress would never create political hurdles for international investors.

    Saturday, November 23, 2013

    Dallas Fed's Fisher Says U.S. Economy Hog-Tied by Government By Rick Kelo

    Dallas Fed's Fisher Says U.S. Economy Hog-Tied by Government
    By Rick Kelo

    An article that appeared November 4th on Bloomberg, which can be viewed in entirety by clicking here.  The topic of discussion was the lack of an economic recovery over 4 years after the Great Recession ended.  Economists blame the stagnant American economy on oppressively large government spending in recent years.  
    This has become so undeniable that even Presidential appointed economists in government positions are speaking out.  One of them is Richard Fisher, who was the Deputy US Trade Representative under President Clinton and has worked for the last 8 years as the head of the Dallas Federal Reserve.
    A couple of notable extracts from the article include:

    Federal Reserve Bank of Dallas President Richard Fisher said fiscal discord has led to the U.S. government playing a suppressive role in the economy’s recovery and the central bank should transition back to interest-rate driven monetary policy at the earliest possible time.
    “I am not a proponent of increasing government spending without restraint,” Fisher, who will hold a vote on monetary policy next year, said a speech in Sydney today. “The excessively over-indebted U.S. government has, as mentioned, been hog tied -- prevented from providing stimulus. It has thus played a counter-cyclical, suppressive role.” 

    Government Drag

    “One could say that GDP would have risen at 3.2 percent had government expenditure increased at the same rate as private expenditure,” he said. “Or, more modestly, if government spending had just been held constant, instead of contracting, GDP would have grown at an annual rate of 2.6 percent.”
    The government suspension shaved at least 0.6 percent from fourth-quarter 2013 gross domestic product growth, or took $24 billion out of the U.S. economyStandard & Poor’s said last month.
    “Under these circumstances, it is no small wonder American businesses are not expanding and growing jobs at the pace we at the Fed would like to see,” Fisher said. “It is no small wonder that our economy is growing at a substandard pace compared to previous recoveries. It is no small wonder that the most expansive monetary policy the Federal Open Market Committee has ever engineered has been hampered from accomplishing what it set out to do.”

    Friday, November 22, 2013

    Global warming, coal power plants and President Obama By Rick Kelo

    Global warming, coal power plants and President Obama
    By Rick Kelo

    CNN's Ashley Killough recently wrote an article entitled "Obama Wants Limits on Coal Plants".  It looks at climate change and the President's recent proposals to reduce global warming.  
    The article does a good job of summarizing the President's positions, but does not take the issue a step further and consider whether these suggestions are reasonable, valid or useful.
    So really we have a couple issues likely to come up in this discussion:
    1. There is or is not global warming.
    2. What to be done about it. (this is the President's list in the article)
    3. What effects the items in #2 will have (what I will discuss).
    So firstly to question #1 about whether global warming exists I believe that it does.  I'm not a scientist, and I'm not terribly well read on the topic so someone could well come along and dispute whether I'm correct in this belief and I'm happy to hear points on either side of the topic.  Again I don't know an awful lot about it except my experiential impression that the places I've lived (Chicago & Kansas City) get a lot less snow now than I remember getting as a kid.  Every time I say that someone inevitably tells me I was allot shorter then and maybe it only seemed like there was more snow.... still though I'm a believer even if I haven't examined this belief in very much detail yet.
    So to point #2 President Obama is proposing:
    1. Reduced tariffs on goods his administration deems "environmentally friendly"
    2. Additional restrictions on coal fired power plants.  
    3. Additional regulations added to new infrastructure projects.  
    4. Hospitals to be "built better" although I don't see that this request has any specific government action behind it?
    My opinions on Obama's points is merely reactionary, I haven't analyzed any of them yet.  But my initial impression item by item is:
    1. I like this proposal, its a shame we have to apply it to only products the government deems "good."  This will ultimately be reverse engineered by corporations who will find loop holes to get their product treated with a lower tariff under this policy.  The better policy would be to reduce all tariffs and barriers to free trade universally across the board.  Still though any removal of barriers against free trade is favorable for everybody.
    2. I view this suggestion as very harmful.  In total the effect it will have is to cause some power plants to close.  Any time you increase the cost you decrease the quantity.  In turn that makes electricity more expensive across the board.  So, in total, it has the effect of reducing the size of the US economy because the additional money spent per KW of higher priced electricity would otherwise have been spent to purchase some other good / service that now has a lower demand.... therefore fewer jobs and less growth in those areas... and so on.  Those are the invisible second order & tertiary effects of raising costs through regulation.  Also part of the cost increase will be passed on to the employee of those companies who will be punished through lower wage growth and fewer benefits.  It will also be passed on to the companies who do business with the coal plant (the railroads, the miners, etc) who will be asked to renegotiate contracts and also cut prices.  So when you consider all those areas you can start to see the harm of regulations and how much money they remove from the economy, which translates to fewer jobs, higher unemployment and higher prices across the board. 
    3. The cost of adding additional regulations to infrastructure projects is unwise for the same reasons I go into above.  Plus, as a former real estate developer, I can tell you federal road standards are already insane.  When developers put in roadway they estimate the price by front foot.  So you take a 12' wide road and estimate the cost by foot of frontage.  The times that I've had to build acel / decel lanes into a development from a US highway we were estimating the cost by square foot of road!  It is that much more expensive due to all the federal regulations... it is insane already to the point of far beyond excessive.
    4. Meh.  Doubt anyone will listen to this one.
    So that is my read of the matter.  I am curious to know the marginal impact these improvements on coal plants are supposed to make against the cost.  I suspect (again do not know), but suspect that the US likely already has the tightest emission standards of all the world's coal fired power plants.  So how much impact globally will the slight increases we achieve make compared a coal plant in, say the former USSR, that is belching out massive pollution laden black smoke without inhibition.  I don't ask that to make a case for doing nothing as a solution, but America doesn't have any plants that are releasing untreated emissions.  So the logical question is how much cleaner will these standards make our emissions and is that difference one that has any impact at all on the global level?  My suspicion is it does not, but I'd like to hear from people who are educated on the topic.

    Thursday, November 21, 2013

    Failures of the Socialist Experiment: Venezuela By Rick Kelo

    Failures of the Socialist Experiment: Venezuela
    By Rick Kelo

    Let's analyze a collapsing economy.  I'll show you how its collapsing, why it is collapsing, what the nation plans to do about it, and why it won't work / what they should be doing instead.
    Venezuela is in dire straights:

    • The country now officially has hyper-inflation (October's monthly inflation rate is 36%).
    • Their currency, the Bolivar, has plummeted in value
    • Starvation is spreading; food shortages are taking hold
    • The government's true authoritarian nature is revealed.
    • Even the Russians have had it and loaded up Russian military bombers with repossessed arms the Venezuelan government couldn't pay for.
    Loss of Value of Venezuelan Bolivar.  Note the worst loss in value has occurred in 2012 & 2013

    The BBC reported less than a week ago that the dictator, er "President," is being voted emergency totalitarian powers.  The first step of any socialist regime under threat is to reveal its true nature: the use of force.  Just as capitalism co-habitates with liberalism as seen in the great democracies & republics of the modern world so to does socialism, true to its core belief of using force, tend to co-habitate with totalitarianism.
    Venezuela's National Assembly has paved the way to granting special powers for President Nicolas Maduro.  Under the measures the leader would be able to govern by decree for 12 months.
    President Nicolas Maduro first asked parliament in October to grant him special powers to fight corruption and what he called "economic sabotage".  The country is facing shortages of food and essential goods, power cuts and around 54% annual inflation.
    Now subsequent to that BBC article President Maduro has, in fact, been granted his Emperor Palpatine status.
    But what will step 2 be?  Well not to worry the Venezuelans have actually thought that far ahead.  Here are some of their ideas:
    1. Communes are the Antidote to Venezuela’s Economic Problems
    2. Have the Venezuelan government get Twitter to block users who publish the true black market exchange rate for the collapsing Bolivar (currency).
    3. Government mandated fixed prices (price ceilings).
    4. It wouldn't be socialism in #3 without jailing shopkeepers who fail to comply with government dictated prices.
    5. Related to #3 & #4 government has taken over some shops and forced the owners to sell their goods at price levels several months back in time.

    Personally I'd find #5 pretty scary if I lived in this socialist nation.  
    National guardsmen, some of whom had assault rifles, were positioned around outlets of an electronics chain that Maduro has ordered to lower prices or face prosecution. Thousands of people lined up at the Daka stores hoping for a bargain after the government forced the companies to charge “fair” prices.
    Maduro said his seizures are the “tip of the iceberg” and that other stores would be next if they did not comply with his orders. (Source)

    Translation: "We will guarantee everyone has a plasma television."
    says President Maduro
    First the price fixing: This action by the Venezuelan government caused shopkeepers to take a loss on the goods they were forced to sell.  That leaves them with no funds to purchase & stock the shelves with new goods.  The result today is barren store shelves across the nation:
    Basic goods such as milk, rice, cooking oil and toilet paper are rarely found on supermarket shelves.
    Source: Venezuela’s “economic war”, The Economist, November 16th, 2013 
    Next to the bigger problem: inflation and currency debasement are problems caused by government action.  There is absolutely nothing the common person can do to cause either of those problems and, sadly, there's also nothing the common person can do to protect against them.
    Socialist Dictator Maduro's plan to fix inflation centers around government controlled price ceilings.  All this will do is force goods into the black market.  Maduro doesn't think so though, these are his thoughts:
    “If I’m bringing down the price of appliances by 1,000%, that has to have an impact on November’s inflation figure, right?”
    ~ President Maduro on national television, 11/16/2013

    Inflation is a monetary problem.  Venezuela is no different.  Maduro, true to his socialist roots, blames all the problems on evil capitalists, speculators & monopolies, even though the only monopolies in Venezuela are government owned ones.  Except the problem isn't any of those things.  Its that the government has printed a lot of money. 
    For years the country has barely kept its head above water due to its revenue from the government's oil monopoly.  But under socialism no amount of money is ever enough.  That's where an unsustainable economic structure leads.  So the government has also been printing a lot of money.  They have force pegged the value of their currency to the US dollar, and even though the Venezuelan government's official exchange rate hasn't changed much the true black market value of the currency has lost over 60% of its value.
    No amount of price controls will ever fix the inflation in Venezuela.  In order to do that the government has to spend less.  Instead of printing money to pay its bills it has to reduce its spending & stop all money printing immediately.  It also has to let the interest rate rise as high as people demand to lend money & to likewise allow prices to rise just as much.  Otherwise inflationary pressures will continue to accumulate under government rent & price controls then eventually explode out Wiemar & Zimbabwe style.  
    Its also necessary for the nation to contract its money supply.  Will this cause a recession?  Yes.  Is that a bad thing?  No.  It is a necessary cleansing of all the damage caused by bad socialist weegie board, helter skelter economic policy.
    Instead what Venezuela is going to get is a recession PLUS hyper-inflation, or as its affectionately known: stagflation.  That dreaded boogey-man that demand side economics said was impossible until Keynesian economics caused a decade of it in America in the 1970s.

    Boy those 2 words go hand-in-hand don't they?  Its no coincidence that everywhere socialism goes crushing poverty, lack of economic growth and frequently famine & mass graves follow (Read more here).  
    Socialism is a failed ideology.  It has failed universally everywhere it has been tried.  We need look no further than the suffering in socialist East Germany compared to the prosperity in capitalist West Germany; North vs. South Korea; Vietnam vs. Hong Kong; the USSR vs. America and so on.
    Socialists would prefer you not know the truth though.  Their lines all go this: 
    Capitalism can not be transcended through capitalism itself; it must be done through socialism, true socialism, with equality and justice. I’m also convinced that it is possible to do it under democracy.  Capitalism is the way of the devil and exploitation. If you really want to look at things through the eyes of Jesus Christ — who I think was the first socialist — only socialism can really create a genuine society.  Those who want to go directly to hell can follow capitalism... and those of us who want to build heaven here on earth will follow socialism. 
    Those were the words of socialist hero Hugo Chavez.  He gave Venezuela hyper-inflation, troops with machine guns taking over stores, food shortages, and the socialist paradise of countless hours of free time.... just don't spend it on the internet, remember the regime has blocked Twitter unless you use it to distribute pro-party propaganda.

    A Voice from the Past: The Debt Ceiling & Fiscal Cliffs By Rick Kelo

    A Voice from the Past: The Debt Ceiling & Fiscal Cliffs
    By Rick Kelo

    I predicted in June that soon the various Obama administration scandals that blanket the news would blow over.  And when that time comes a new matter will consume the national attention: another battle of raising the debt ceiling.  A government spending out of control with no signs of slowing down.
    These are not new themes.  And I am going to give you some words of wisdom from the past.  The exact same chain of events is playing out today as was unfolding at the time this article was written. This is an extract from a column that ran in Newsweek on July 15th, 1968... some 45 years ago.  The column was written by Milton Friedman, who would go on 7 years after writing it to win the Nobel Prize in Economics:

    "The standard scenario has been that the Democrats–in the name of the New Deal, the Fair Deal, or the Great Society–push through large spending programs, with the assistance of a few Republicans but generally against the opposition of the Republican leadership. The spending programs not only absorb the increased tax yield generated by “fiscal drag,” they go farther and produce deficits. The Democrats then appeal to the Republicans’ sense of fiscal responsibility to refrain from cutting tax rates or, as in this case, to raise them. The Republicans cooperate, thereby establishing a new higher revenue base for further spending. The Democrats get the “credit” for the spending; the Republicans, the “blame” for the taxes; and you and I pay the bill.
    The current tax increase, like the increase during the Korean War, was sold as a temporary war measure. That is an excuse, not a reason. Only half of the $53 billion increase in Federal spending from 1965 to 1968 went for the military. Not the Vietnam war but the policy of spend and spend produces the need to tax and tax. The Republicans point to the $6 billion legislated cut in spending to justify their support of the tax increase. That is wishful voting. The tax increase is for real. The spending cut is a hope for the future.
    I honor the Republicans for putting what they regard as the national interest ahead of partisan considerations. But I believe that they have been shortsighted in judging the national interest. True fiscal responsibility requires making the legislators who vote for high spending also vote for the high taxes required to finance it–not bailing them out. True fiscal responsibility requires resisting every tax increase and promoting tax decreases at every opportunity. That is the only way to put an effective ceiling on Federal spending."

    Wednesday, November 20, 2013

    How the Minimum Wage Creates Unemployment By Rick Kelo

    How the Minimum Wage Creates Unemployment
    By Rick Kelo

    The myth of stagnant wages is based upon the failure to consider economic policy from the stand point of the individual.
    I have long maintained that the centerpiece of moral policies is how they effect the individual. Five years from now the person who is today a CNA today making $12/hour will become an RN making $55,000/year.  Five years after that she will become the Nursing Manager making $80,000/year, and so on.
    The growth of wage for the individual is a reflection of productivity.  At a time when America is considering increasing the minimum wage by a whopping 25% it is important to remember this.  And to consider that the unskilled and least productive laborers are hurt by these laws, not benefited.