The United States became the wealthiest country during a period of laissez-faire, from about 1825 to 1900. The nation has retained elements of that system, but has allowed them to erode and disappear over the past century. As they have eroded, the American economy has become less friendly to workers and more friendly to four groups: the super-wealthy, corporate executives, service providers to large corporations and ultra-smart entrepreneurs. Big business executives', hedge fund operators', investment bankers and related professionals' pay has skyrocketed as average employees have seen hourly wages decline.
This process of wealth transfer from poor to rich is the result of Federal Reserve Bank inflationary policy since 1932, its subsidization of the stock market through low interest rates, and the resulting resiliency of stock prices to small increments in profit margins, for instance through overseas plant transfers. Because of low interest rates, inefficient large firms have been able to masquerade as efficient. Executives whose practices would destroy wealth in a competitive economy appear to increase wealth in an inflationary, Fed-supported one. Investment bankers who produce no wealth can be paid exhorbitant fees out of Federal Reserve Bank countefeit.
America increasingly has become a nation on government life support where those who produce subsidize the ultra-rich via government. Government does not produce wealth, as James Crum recently pointed out. The expansion of governmental systems, regulation, Federal Reserve Bank interference in markets, and high income tax rates on the middle class have squashed the ability of small and intermediate sized firms to compete. Inheritance taxes demotivate inter-generational transfer of firms that might compete with America's mismanaged large ones.
The result has been declining average real wages due to ongoing, systemic inflation. Non-wealth producing fields like law, consulting and investment banking have attracted away America's top talent from productive labor in engineering and manufacturing. This is justified through hollow arguments such as "traders improve efficiency". But such arguments would hold true only in cases where there is laissez-faire. Subsidization of traders through Fed interest rate policy can explain all of Wall Street's gains over the past 70 years.
Thus, big business has had several deleterious effects on the American economy, and it has done so through the Progressive/New Deal system that is the product of both Democrats and Republicans. This system has won the support of the average American, who has been willing to believe that government can produce wealth and that big business is more productive than competition. In a certain sense, the American public has voted for the nation's future economic decline and so future generations will pay for this and the past four generations' bad judgment.
The news this week reports attempts by firms that have paid high executive salaries for the past 30 years to obtain subsidies. These are on top of subsidies to Bear Stearns and Freddie Mac. In addition, in the past six weeks the Fed has intervened in the dollar market, causing the dollar to rise. This may be related to the current stock market correction (the Dow was down over 500 points on Monday, up 100+ points yesterday and as of this writing is down 350 points today). The dollar intervention may help consumers for a few months but it will also disturb the natural correction of markets.
The subsidization of large firms that do not produce value DOES NOT save jobs or preserve wealth. Rather, it creates a new welfare system. New York City DOES NOT NEED 8,000 additional welfare recipients under the employment of AIG Insurance who do not pay for themselves and drain wealth from other citizens. New York would be better off allowing inefficient firms like AIG to die and eliminating the regulation that stifles new job creation. You do not produce wealth by subsidizing inefficiency. It is only by allowing firms that produce wealth to survive that the American economy will prosper.
Wednesday, September 17, 2008
Tuesday, September 16, 2008
James Crum's Abraham Lincoln, No William J. H. Boetcker, Quote of the Day
"You cannot help the poor by destroying the rich. You cannot strengthen the weak by weakening the strong. You cannot bring about prosperity by discouraging thrift. You cannot lift the wage earner up by pulling the wage payer down. You cannot further the brotherhood of man by inciting class hatred. You cannot build character and courage by taking away men's initiative and independence. You cannot help men permanently by doing for them what they could and should do for themselves."
--William J.H. Boetcker
According to Wikipedia (thanks to comment by R on this blog) the above quote is often mistakenly attributed to Abraham Lincoln, although it is still good.
--William J.H. Boetcker
According to Wikipedia (thanks to comment by R on this blog) the above quote is often mistakenly attributed to Abraham Lincoln, although it is still good.
Obama's Contributors Benefit From Sub-prime Crisis
Contrairimairi forwarded this story from M. Simon's Power and Control blog. Simon writes of the Superior Bank of Chicago's bankruptcy:
"The uninsured depositors were dealt another blow recently when the U.S. Supreme Court let stand a lower court decision to put any recovered money toward the debt that the bank owners owe the federal government before the depositors get anything.
"But this seven-year-old bank failure has relevance in another way today, since the chair of Superior’s board for five years was Penny Pritzker, a member of one of America’s richest families and the current Finance Chair for the presidential campaign of Barack Obama, the same candidate who has lashed out against predatory lending.."
Moreover:
“The [sub-prime] financial engineering that created the Wall Street meltdown was developed by the Pritzkers and Ernst and Young, working with Merrill Lynch to sell bonds securitized by sub-prime mortgages,” Timothy J. Anderson, a whistleblower on financial and bank fraud, told me in an interview."
Simon adds:
"Well, isn't that special. Kind of reminds you of O's special friend Tony Rezko who worked the low income housing scam in Chicago. Small potatoes that Tony. He only destroyed millions in housing value. Pritzker was involved with trillions. But you know the Democrats really have a heart for the poor. As long as they can rob them blind."
Simon discusses another "thief for Obama", Jim Johnson. As well, he discusses ACORN's many links to Fannie Mae. He asks:
"Which politicians did Freddie Mac and Fannie Mae's Political Action Committees support? How about a look at the top five.
1. Dodd, Christopher J D-CT $133,900
2. Kerry, John D-MA
$111,000
3. Obama, Barack D-IL
$105,849
4. Clinton, Hillary D-NY
$75,550
5. Kanjorski, Paul E D-PA
$65,500"
Well what do you know. They're all Democrats. Change we can believe in. Read it all here.
"The uninsured depositors were dealt another blow recently when the U.S. Supreme Court let stand a lower court decision to put any recovered money toward the debt that the bank owners owe the federal government before the depositors get anything.
"But this seven-year-old bank failure has relevance in another way today, since the chair of Superior’s board for five years was Penny Pritzker, a member of one of America’s richest families and the current Finance Chair for the presidential campaign of Barack Obama, the same candidate who has lashed out against predatory lending.."
Moreover:
“The [sub-prime] financial engineering that created the Wall Street meltdown was developed by the Pritzkers and Ernst and Young, working with Merrill Lynch to sell bonds securitized by sub-prime mortgages,” Timothy J. Anderson, a whistleblower on financial and bank fraud, told me in an interview."
Simon adds:
"Well, isn't that special. Kind of reminds you of O's special friend Tony Rezko who worked the low income housing scam in Chicago. Small potatoes that Tony. He only destroyed millions in housing value. Pritzker was involved with trillions. But you know the Democrats really have a heart for the poor. As long as they can rob them blind."
Simon discusses another "thief for Obama", Jim Johnson. As well, he discusses ACORN's many links to Fannie Mae. He asks:
"Which politicians did Freddie Mac and Fannie Mae's Political Action Committees support? How about a look at the top five.
1. Dodd, Christopher J D-CT $133,900
2. Kerry, John D-MA
$111,000
3. Obama, Barack D-IL
$105,849
4. Clinton, Hillary D-NY
$75,550
5. Kanjorski, Paul E D-PA
$65,500"
Well what do you know. They're all Democrats. Change we can believe in. Read it all here.
Barack Obama's Leeches
Mayor Bloomberg was on television yesterday. I wasn't paying careful attention but he seemed to be suggesting that American International Group will survive despite financial losses and that markets need to be regulated. The Sun reports today that Governor Paterson is changing New York insurance law to allow the firm to borrow from its subsidiaries. The rule of law is is becoming an alien concept to our increasingly socialistic, government-by-whim society. What especially troubles me is that I doubt that Governor Paterson or Mayor Bloomberg have ever learned about or thought about why the rule of law was associated with the solitary (in world history) rise of technology and wealth under free market capitalism, and how violating it will destroy the incentives and flexibility that enable it. Americans have allowed themselves to be led by fools.
Another potential milestone on America's government-built expressway to serfdom is that, as the Sun's Russell Berman reports, our inept automakers may get a bailout from the American people. The automakers don't think enough of American workers to locate their plants in Flint or Detroit, but they are happy to accept alms from those same workers.
The Sun notes:
"The nation's top car manufacturers are pushing Congress to act by the end of this month to guarantee $25 billion in loans to help them invest in the production of fuel-efficient vehicles. The idea is being greeted warmly by both the Democratic and Republican presidential candidates, who see it as a way to win votes in the swing state of Michigan while also moving America away from dependence on foreign oil."
The pattern of government support for incompetently managed businesses, from Fannie Mae in Washington to General Motors in Detroit to Bear Stearns in Manhattan, is a function of a failed, mercantilist economic model associated with Harvard University and the New Deal. The vicious harm that this ideology is doing to America's future is evident. When firms are badly managed, they should be closed and replaced by more nimble firms with more capable managements, not supported at taxpayer expense through the printing of money. Readjustments are painful, but the alternative is economic decline as resources are diverted to incompetent and slothful cronies at the expense of innovative entrepreneurs.
In response to massive over-regulation, government subsidized-firm incompetence and failed, New Deal economic theories, Senator Barack Obama, like Mayor Bloomberg a product of Harvard's graduate program, calls for more regulation. This call is echoed by John McCain, Harry Reid and our other illiterate leaders, who tell the American public that they will illegalize greed, all the while snickering as the laws that they pass reflect their own greed.
Senator Obama reminds me of Benjamin Rush, the physician who signed the Declaration of Independence. As a political activist we can respect Rush, but as a physician he advocated the aggressive use of leeches to cure disease. The idea that leeches can cure cancer is much like Senator Obama's and Mayor Bloomberg's idea that more regulation can cure economic decline.
The Sun notes that Senator McCain's diagnosis is as off base as Senator Obama's, and they are right. The state of education about economics is this. The establishment advocates economic ideas that harm innovation and the average American's long term prospects, and they do it in the name of helping the average American. Regulation is a leech-cure that weakens the patient instead of curing him. What is worse, though, is that regulation does protect one group: the physicians' friends, the wealthy recipients of corporate welfare.
Benjamin Rush aimed to cure his patients. Barack Obama and Mayor Michael Bloomberg are much worse. They are willing to harm the American public in order to benefit themselves, their contributors and their fellow Harvard alumni. They may really believe their silly ideas. But alternative knowledge is available, and they are unwilling to be educated.
Another potential milestone on America's government-built expressway to serfdom is that, as the Sun's Russell Berman reports, our inept automakers may get a bailout from the American people. The automakers don't think enough of American workers to locate their plants in Flint or Detroit, but they are happy to accept alms from those same workers.
The Sun notes:
"The nation's top car manufacturers are pushing Congress to act by the end of this month to guarantee $25 billion in loans to help them invest in the production of fuel-efficient vehicles. The idea is being greeted warmly by both the Democratic and Republican presidential candidates, who see it as a way to win votes in the swing state of Michigan while also moving America away from dependence on foreign oil."
The pattern of government support for incompetently managed businesses, from Fannie Mae in Washington to General Motors in Detroit to Bear Stearns in Manhattan, is a function of a failed, mercantilist economic model associated with Harvard University and the New Deal. The vicious harm that this ideology is doing to America's future is evident. When firms are badly managed, they should be closed and replaced by more nimble firms with more capable managements, not supported at taxpayer expense through the printing of money. Readjustments are painful, but the alternative is economic decline as resources are diverted to incompetent and slothful cronies at the expense of innovative entrepreneurs.
In response to massive over-regulation, government subsidized-firm incompetence and failed, New Deal economic theories, Senator Barack Obama, like Mayor Bloomberg a product of Harvard's graduate program, calls for more regulation. This call is echoed by John McCain, Harry Reid and our other illiterate leaders, who tell the American public that they will illegalize greed, all the while snickering as the laws that they pass reflect their own greed.
Senator Obama reminds me of Benjamin Rush, the physician who signed the Declaration of Independence. As a political activist we can respect Rush, but as a physician he advocated the aggressive use of leeches to cure disease. The idea that leeches can cure cancer is much like Senator Obama's and Mayor Bloomberg's idea that more regulation can cure economic decline.
The Sun notes that Senator McCain's diagnosis is as off base as Senator Obama's, and they are right. The state of education about economics is this. The establishment advocates economic ideas that harm innovation and the average American's long term prospects, and they do it in the name of helping the average American. Regulation is a leech-cure that weakens the patient instead of curing him. What is worse, though, is that regulation does protect one group: the physicians' friends, the wealthy recipients of corporate welfare.
Benjamin Rush aimed to cure his patients. Barack Obama and Mayor Michael Bloomberg are much worse. They are willing to harm the American public in order to benefit themselves, their contributors and their fellow Harvard alumni. They may really believe their silly ideas. But alternative knowledge is available, and they are unwilling to be educated.
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