Conservative Quote of the Day
Every nation on the Earth that embraces market economics and the free enterprise system is pulling millions of its people out of poverty. The free enterprise system creates prosperity, not denies it. – Marco Rubio
Lawrence O’Donnell and Why Governments Can’t Create Jobs
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In the video above I analyze an advertisement made for MSNBC news. In it MSNBC “Personality” Lawrence O’Donnell makes the case that of course government can create jobs, as government creates jobs all the time. All those crazy right wing politicians who claim governments can’t create jobs ignore the fact that, hey genius, the government created YOUR job. At least this is how Lawrence O’Donnell sees things.
The point that O’Donnell, and others of his ilk (I’m looking at you Paul Krugman) completely misses is that government has no money of its own. In order for it to create a government job, it must first take money away from the private sector (what I call wealth creating jobs in the video). The money it takes away in taxes is money that cannot then be used in the private sector to hire more workers, buy other products or services, or expand their business. Government “job creation” is thus always a zero sum game at best. It can only give with one hand by taking away with the other.
Does this mean that government jobs are then somehow not real jobs? Not in the least. Many jobs that government creates, such as policeman and fireman, are vitally important. However, these jobs are wealth supporting jobs, in that ideally they help true wealth creators do what they do best. As I point out in the video, my two entrepreneurs (Fred and Sam) are quite happy to pay some money in taxes in order to be protected from criminal activity and the threat of fire. When the government grows too onerous, however, the wealth creators are squeezed and unemployment is the result. A high unemployment rate is an indication that government has grown too large and needs to be paired back. Too many government jobs, paradoxically, wind up destroying real wealth and real jobs. This the point that Lawrence O’Donnell misses and why he is wrong.
For more information on this check this article posted by the CATO institutes Dan Mitchell. He goes into greater detail about how economies with large public sectors experience less prosperity.
This article by Gary Nolan makes the same case I do in the video, but he uses math to make his point, and you can’t argue with math, right?
And finally, the great John Stossel explores the difficulty he has in setting up a lemonade stand in New York. This is a beautiful example of government moving beyond its legitimate core functions (police and fireman, for example) into wealth destroying insanity (bureaucrats preventing kids from setting up lemonade stands are not helping anyone).
http://townhall.com/columnists/johnstossel/2012/02/24/creators_oped
The Great Green Energy Crackup
Patrick Michaels has a great article today on “The Great Green Energy Crack-Up”. It outlines how so many of the promised green technologies are not panning out. To me this demonstrates how far too few people realize that the price system is an information system, and an incredibly complicated one at that. When a government comes in top down style and says X is preferable to Y, it misses untold reasons as to Y was choice #1 to begin with. Being addicted to oil is really just another way of saying addicted to a cheap and plentiful energy supply.
Why Tesla is Doomed to Extinction and Electric Cars are the real Dinosaurs
In the movie Jurassic Park “chaos expert” Ian Malcolm is immediately skeptical of John Hammond’s attempts to bring dinosaurs back from extinction. In his view dinosaurs have been tried and found wanting. Evolution consigned them to the scrap heap of history for a reason, he notes, and trying to bring them back is to demonstrate unforgivable arrogance in the face of nature’s judgement.
This thought occurred to me when I was reading about the recent introduction of the Tesla Model S Sedan. Unlike the models put out by the likes of GM and Nissan (with the Volt and LEAF respectively) Tesla has captured the public’s imagination. It’s an electric car that’s actually sexy. Not only will you be helping the environment (in theory) you’ll look good too. Who doesn’t want one?
Well, I don’t. Here’s why. Much like how nature and evolution have pronounced judgement on the viability of dinosaurs, so too has the market spoken on electric cars. The truth is that there is nothing new about electric cars at all. When cars were in their Jurassic stage electric cars roamed the Earth, along with their gas guzzling brethren. However, overtime they were out-competed by the gas powered variety and died a natural, evolutionary death. May they rest in peace.
However, just like how John Hammond refused to accept nature’s judgement, so to are there people who insist on ignoring the markets lessons. Hence, the Tesla (and the EV-1, LEAF, Volt, etc). I canvassed Ricochet readers (the place for intelligent right of center discussion on the web) for their opinions, and these are some of the responses I got:
First of all, electric cars are not that environmentally friendly. 44.9% of electricity in the United States comes from coal. Only 6.9% comes from Hydro (which most environmentalists don’t even like) and 3.6% from renewables. To generate the power needed for a country full of Tesla’s you’re going to have to build a lot more coal, nuclear, and hydro electric power plants. Is that really the best for the environment?
The real sticking point for the Tesla though, is that same as its always been, namely its reliance on batteries. Read this article for a story on the issues encountered with the battery life in a Tesla Roadster. It’s not pretty. What’s more, those same batteries will cost up to $30,000 dollars to replace after 5 ears. Fuel, not batteries, remain the best energy storage system we have by a country mile. The Tesla doesn’t change this.
Having said all of that I still have a ton of respect for Elon Musk. Making his money from Paypal, he has put most of his fortune into bankrolling Tesla (as well as SpaceX) in order to try and make something new. If we’re going to get the North American economy going again, we need more Elon Musk’s. Still, like John Hammond, I think he’s let the dream cloud his judgement. Let them rest in peace.
Related articles
- Tesla Model S Gets Sneak Preview (VIDEO) (blippitt.com)
- My Dream Date With A $109,000 Electric Car, The Tesla Roadster (TSLA) (businessinsider.com)
Buffett, Corporate Jets, and Fair Taxes
In light of the current discussions on the rich paying their “fair share” and Obama’s obsession with taxing corporate jet owners, I found this article from May 13, 2007 to be pretty interesting. It explores a George W. Bush proposal to cut the amount passenger carriers pay like American Airlines pay while increasing the obligation on small-jet operators.
The issue here is that the same amount of work, as measured in attention from air-traffic controllers, is required whether the plane is a Boeing 757 or a Gulfstream. In 2007 the 757 would pay $2015 in taxes vs $236 for a smaller craft. The proposal was almost Obamaesque. Shouldn’t the amount paid by the masses be cut by forcing the corporate jet set to pay more? Under Bush’s plan, the 757 would pay $1298 vs $837 for the Gulfstream.
Opponents of the measure point out that the increased taxes would increase the flight costs for rural areas that depend on small planes and for organizations like the Air Care Alliance, which arranges free flights on small planes for sick people. I don’t recall Obama mentioning this when he lambastes corporate jet owners.
I’m not sure how all this played out, but I’m still looking into it.
Oh, and do you know who one of the big opponents of this measure was? NetJets Inc., a business-jet charter business owned by none other than Warren Buffett’s Berkshire Hathaway. Funny that.
http://www.bloomberg.com/apps/news?pid=newsarchive&refer=home&sid=a_weVSOX_Ito
Related articles
- FLIP, MEET FLOP: Now Obama Wants To Extend Tax Breaks For Corporate Jet Owners? He was for them, t… (pajamasmedia.com)
- Corporate Jets Face $100-a-Flight Fee in Obama Deficit Plan (businessweek.com)
Budget Cuts vs Tax Increases
How should the United States balance its budget? The Republican view is that Washington has a spending problem, not a revenue problem. This is why they advocate spending cuts over tax increases. The Democratic view, as expressed by President Obama, is that a more balanced approach is needed, meaning tax increases and spending cuts. Whose right? When considering this question it makes sense to look at countries who have successfully balanced their budgets … like Canada. How did Canada bring its bloated budget deficit into line? As Terence Corcoran notes, it was all done with spending cuts, not tax increases. Click here to learn more about the Canadian experience.
Related articles
- A Bold, Balanced Plan? Analysis of Obama’s Deficit Reduction Proposal (politicsashughesual.wordpress.com)
- Polls Indicate Strong Public Support For President Obama’s Jobs And Tax Proposals (outsidethebeltway.com)
Solyndra Goes Bankrupt
Debra Saunders has written an interesting article highlighting the Solyndra energy debacle. Essentially, this was one of Obama’s examples of “investing in the future” in order to create “green jobs”. I’m sure it all looked good on paper, and solar panels are a sexy technology that politicians love. The only problem is that the firm, which was given a $535 million dollar federal loan, is now bankrupt. The article nicely points on the weaknesses inherit in governments making these kinds of investments. The main one being that these decisions are made for political (solar panels are sexy, investing in a new broom factory isn’t) purposes, not economic ones. What it misses, though, I think, is the real harm to the economy that these kind of decisions cause.
When investments are made like this it uses up resources that might have been used profitably elsewhere. If the $535 million dollars (that amount the feds invested in Solyndra) had been left in the private sector, what new products or services might have been bought or created? If Solyndra had been allowed to go bankrupt sooner, how would its human capital been used? Is it possible that some of its talented engineers etc might have started new companies on their own? Or perhaps help existing companies grow and prosper? We’ll never know, as that money is now gone and that time has been wasted. And people wonder why the US economy is limping along?
What Obama Can Learn From Gilligan’s Island
If you take an Economics 101 class in college at some point you are going to encounter what is called “Crusoe Economics”. Crusoe economics teaches basic economic principles by creating a very simple economy, one in which there is only one actor, namely Robinson Crusoe. With President Obama planning a major jobs speech in the upcoming week it got me to thinking what he could learn from such a simple economy. It seems to me that Obama’s economic team could use some help on basic economic principles, as everything he’s tried so far hasn’t really worked out. Having never read Robinson Crusoe, however, I will use another group of famous castaways that I (and I bet, Obama as well) is very familiar with. Namely, Gilligan’s Island.
Imagine we drop Obama right into the middle of Gilligan’s Island. Right away he’s faced with an enormous unemployment problem. In fact, unemployment is at 100%. At the moment, everyone is just standing around. What can Obama do?
Consulting his Keynesian economic playbook, he immediately sees the need for an economic stimulus plan. But how can he do this? He has no money, as government has no money of its own. Thinking quickly, he quickly taxes the Skipper by literally taking the shirt of his back. In an act of even greater Harvard cleverness, he decides to create a “Green Job”. He hires Mary Ann to create a flag for the island made from the Skipper’s shirt. Mary Ann gets to work and at least temporally the unemployment rate drops. But very quickly the job is done and the environmentally friendly flag is hoisted. Obama looks around to see what the results from his actions are, and realizes things are actually worse off than before. The flag, although it looks nice, doesn’t really help anyone. What’s worse though is that everyone is now eyeing him suspiciously, worried Obama may try and steal the shirt from their back! And this doesn’t even mention the fact that the Skipper is now walking around shirtless, which isn’t pleasant for anyone.
Undaunted, Obama thinks back through his multi million dollar education and decides that what the island needs is some regulation. Promising to pay him next week, he hires Gilligan to be the islands first environmental inspector. Flush with his new and unspecified authority, Gilligan starts to harass the Professor, who has been trying to turn the radio into a transmitter. Gilligan has no idea what the Professor is trying to do, so he makes a series of arbitrary rules and attempts to impose them. The Professor, who is having a tough enough time turning the radio into a transmitter, just gives up.
With new regulations not helping, Obama hits on a new plan. He need to increase taxes on the wealthy! And whose wealthier than the Howell’s! Everyone knows they brought great amount of cash on the 3 hour tour, for some reason. He starts to give speech after speech telling the rest of the castaways how he plans to impose taxes on millionaires and billionaires. The result? The Howell’s didn’t become rich by being dumb. They can see where this is headed. When no one is looking they decide to hide their wealth near the cave at the back of the island. Whatever wealth they do have is now unavailable to the castaways.
Obama is exasperated. He’s tried everything he knows how to do and yet the island’s unemployment rate remains stubbornly stuck at 100%. He walk forlornly to the shade of one of the many coconut trees on the island and sits down. What can he do?
And that’s when the miracle happens.
Free from his hectoring, the castaways get to work. Gilligan goes to the lagoon and starts fishing. The Skipper starts to gather the material needed for new huts. Ginger and Mary Ann start to gather coconuts in order to make coconut pies. The Professor gets back to work fixing the radio with the hope of turning it into a transmitter. The Howell’s, not really being the manual labor type, get their money from the cave and hire others to do little tasks for them. Very quickly, the island has gone from 100% unemployment to a booming economy.
From under his coconut tree Obama rubs his eyes in disbelief. How is this possible? When he tried to direct people everything fell apart. But now, left to their own devices and without his meddling, things are humming.
And that’s the lesson that Gilligan’s Island economics presents for Team Obama.
Strip everything away, what is the prime mover that actually gets an economy going? Anything the government does can only be done if it first takes away from someone else. The government, or Obama, in this little tale, is never a wealth generator. Wealth is only generated when someone you’ve never met or even heard of decides to create a product or service that someone else is willing to pay for. To the extent that a government helps this or hinders this goes a long way in determining how well an economy does, whether on Gilligan’s Island, or a nation as a whole. Politicians like to put on a grand show like the mighty Wizard of Oz, proclaiming how their policies are indispensable to the nation’s well being. In reality, though, this is a sideshow put on for the sole purpose of getting elected. When it comes to real wealth creation, governments have very little to do with it at all.
Is Anyone Else Getting Tired Of Warren Buffet?
Warren Buffet has penned yet another one of his tiresome”Tax me, I’m rich” articles in the New York Times. Some questions I wish Mr. Buffet would answer, but never seems to get around too:
- Please stop talking in general about tax increases. You’re a smart guy, what exactly is the Warren Buffet tax plan? Which taxes would you increase and how much would you expect the government to get from it?
- What does he think of the experience of Andrew Mellon, Secretary of the Treasury under Calvin Coolidge? When taxes were high, the number of people reporting high incomes and thereby the REVENUE to the government also decreased. When taxes were cut, rich people were willing to take money out of tax-exempt securities like state and local bonds and invest it (and have it taxed). For more information on this, see this article: http://www.appeal-democrat.com/articles/tax-101800-mellon-facts.html
- Right now, America has a real unemployment problem. Does Buffet think more jobs will be created by him investing in companies, or the government?
- When Obama had majorities in both houses, was Buffet urging him to increase taxes then? If not, why not? If so, why did Obama not act then? What’s changed? Does he think it’s because of genuine concern about the economy, or is the whole thing just an exercise in class warfare designed to aid Obama’s flagging re-election chances?
- Why doesn’t he just send how ever much he thinks he owes to the government right now? No one is stopping him. He could even do it as an example to the nation. These are the taxes that I think I should be paying, here you go.
I think it’s this last point that bugs me the most. If he seriously thinks the American economy would be better off with government taking more of his money than him investing it in new businesses, then go ahead and do it. But of course, he doesn’t. Why? I suspect articles like this are more about making himself feel good as opposed to actually helping. If he wanted to help, he’d help. I wish he’d get back to investing in new businesses as opposed to writing self indulgent articles like this. That’s what would really help the American economy.
PS – Over at Ricochet Diane Ellis has a great post on how Warren’s seemingly selfless talk have benefited him in the past. There’s a reason most of the financiers on Wall Street are big Obama fans. Crony capitalism anyone?
Is Universal Suffrage A Good Thing?
Bill Flax has a great article in Forbes questioning the value of universal suffrage. His basic point is that the reason that all democracies have failed in history is because they reach a point where people find it easier to vote themselves benefits, rather than earning it for themselves. America’s founders knew this to be true which is why they set up a constitutional republic, rather than a democracy. The basic principle is if you’re not paying into the system, why should you get to vote how the goods are divvied up?
Some of the comments to this article were pretty interesting. I found those that opposed his ideas to be quite hysterical and not really dealing with the issues he raised. The most eloquent was the comment below:
An admirably frank call for class war and the full entrenchment of contemporary oligarchy! I wish that most oligarchs — especially those who control media empires and prefer to hide behind a facade of populism — were so publicly bold in stating their real opinions. Then the often disguised conflict between oligarchy and democracy could be better clarified, and there might be some slim prospect of reducing the gross inequalities of wealth and education that stand in the way of an intelligent democracy.
The only way you learn anything in this world is to discuss things with people you don’t agree with. This is why I posted this reply to the above:
Hi Douglas,
Clearly you don’t agree with what the author wrote. I find your point of view interesting and would appreciate it if you dealt with the issue he raised. Namely, as the founding fathers knew, democracies don’t last in the long run. The reason why this happens is that invariably a sizable part of the population learns that it is easier to vote themselves benefits then to actually earn them through productive work. Politicians are all too eager to cater to this group as it is the easiest way to elected. As the saying goes, “When you rob Peter to pay Paul, you can always count on Paul’s vote.” In the long run this cannot last as you need people to be productive and to produce good and services that others actually want. When you don’t have that the whole system starts to fall apart. This is why the founding fathers didn’t set up a democracy, they set up a constitutional republic. Do you disagree with the founders? What is wrong with my analysis above? What is wrong with the proposition that if you’re not paying into the till, you shouldn’t get to vote on how it is divided up? I’d really appreciate your insights.
Will Douglas respond? I can only hope.
One other thing. The article also had a great Bastiat quote:
“The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.”
So true.
