Obama Has Gaul
Wow. This surprised even me. Check out this article in Politico that details Obama’s latest shameless pandermonium. This clown actually has the gaul to publicly rip into Bank of America for raising fees on customers when it is his administration’s fault entirely.
The president said the $5 per month charge “is exactly why we need somebody whose sole job it is to prevent this kind of stuff from happening” and noted that the Consumer Finance Protection Bureau is the type of strong watchdog agency the U.S. needs to crack down on cases like this.
You do remember that I warned you about this? So, here we have the classic government regulation scenario playing out…
- A large organization with a lot of power (Wal-Mart, in this case) pays a politician ($20M to Dick Durbin’s hometown of Chicago) to pass regulatory legislation that helps the organization. This is a Democrat politician, by the way, lest anyone get the impression that one party is any better than the other on these kinds of things.
- The legislation passes and one of the companies affected (Bank of America, in this case) starts changing course to undo the damage that is being done. After all, as I’ve said many many times, a large public corporation like Bank of America has shareholders, all of whom expect the company to maximize profits. So BofA raises fees on debit card usage. If Wal-Mart won’t pay it, the consumer will.
- Then, as expected, the public objects. They didn’t object to the initial regulation because they either weren’t paying attention (that’s most people) or they didn’t realize the consequences of the regulation. The public objects when the situation hits their wallets.
- Finally, as an ode to poetic injustice, the politicians who agitated for the reform vilify the companies who are responding to it.
It’d be funny if it weren’t so disgusting.
One good thing comes out of this – Obama yet again reveals his disdain for the free market.
“You can stop it because if you say to the banks: You don’t have some inherent right just to, you know, get a certain amount of profit, if your customers are being mistreated, that you have to treat them fairly and transparently,” Obama said.
Yeah, uh, you actually do have an inherent right to make a certain amount of profit. That’s called freedom. If the customers are being mistreated, they can go bank somewhere else. That also is called freedom. And it is a real hoot for this president to be talking about transparency, since it was a lack of transparency that created this legislation.
Remember – politicians don’t care about you. They do what they do to get and keep power. And as long as we let them, we lose.
3 Myths of Capitalism
I’ve covered these three before, but it always makes me feel good when reputable folks like the Cato Institute and occasionally reputable people like Harvard professors say the same thing. Enjoy!
I was sent a link to Annie Lowrey’s recent piece on Slate.com called, Do Tax Cuts Ever Increase Government Revenues? A friend and I have an ongoing debate about tax policy, and this was one of his shots across my bow. As I really want the focus of this blog to be about capitalism primarily and not about politics, I don’t want to get too deep into my perspectives on taxation. Suffice it to say, I am a supply side economics kind of guy, so the notion of taking too much from the producers in the economy generally disagrees with me. Of course, the question is always what is too much?
Let me, however, sidestep that and take this opportunity to show how poor reasoning dooms an argument and makes the writer look like nothing more than an ideologue who starts with a conclusion and works backwards. This article is attempting to persuade its readers that the idea that tax cuts pay for themselves is just another conservative canard. Right out of the gates, Ms. Lowrey shows her unfamiliarity with logical discourse.
Since even before Arthur Laffer drew his curve on a napkin, Republicans and Democrats have been having the same fight about taxes and growth. Republican politicians insist that tax cuts “pay for themselves,” increasing receipts by goosing economic growth. Democrats and virtually all economists say they’re wrong.
Virtually all economists say they’re wrong. Did you get that? She starts her argument with one of the granddaddy’s of all logical fallacies, the Appeal to Improper Authority. It works like this – if you don’t have any real evidence that your assertion is true, you just start saying that “important” people agree with you. People who don’t understand logic will often buy this and accept the assertion on the spot. (This, incidentally, is the primary pillar in any human induced climate change argument.)
Ms. Lowrey should have qualified her statement by saying that virtually all American academic economists say they’re wrong. That would have at least been more accurate, since most academic economists (guys like Ben Bernanke) probably do think that tax cuts never pay for themselves. But there are scores of economists who work or have worked in industry who actually understand how the real world operates. I’d be surprised if many of them believe tax cuts (income tax cuts, not rebates) don’t pay for themselves. In any case, who cares what economists think? If tax cuts don’t pay for themselves, I’m sure there’s plenty of evidence to prove it.
This is where our intrepid writer steps headlong into sheer irrationality. Her three main assertions are as follows:
- Tax cuts RARELY pay for themselves
- Republicans believe all tax cuts pay for themselves
- Even when it appears that tax cuts pay for themselves, it’s impossible to tell
Now, to the evidence. Oops. She offers none. You read that right. None. For her first assertion, you’d think she’d call up examples of tax cuts that actually did not pay for themselves. Oh no. Instead, she names three examples – the RARE three, I might add – that Republicans allegedly trot out every time they lobby for lower taxes. And then she says Republicans use these three instances to “…apply that dogma to all taxes, in all situations…” And then, and THEN, she says it doesn’t matter because even the big three examples are not bulletproof. It turns out, says she, that it is really hard to connect the dots between tax policy and economic performance.
It strains common sense for one to make an assertion and then try to prove it by saying the three big counter-arguments to the assertion are the only three and they’re not entirely sound. That’s like saying, “I’m right because not many people say I’m wrong, and the ones who do aren’t completely credible in everyone’s eyes.” The moment I get into a discussion I like that, I throw up my hands and say, “you win.” I know that any further discussion is a waste of time because I am dealing with a person who lacks basic reasoning skills.
But that’s not the end of it. You see, Ms. Lowrey would only be guilty of poor logic if it weren’t for the obvious omission of the Reagan tax cuts in her discussion of the RARE cases when tax cuts pay for themselves. They only get a curiously passing mention in her brief coverage of the Kennedy-era tax cuts, despite the fact that every economic metric you care to review will show that Reagan’s tax cuts more than paid for themselves. (They don’t even merit a place in her top 3 exceptions.) No, Ms. Lowrey is not merely a logically-challenged journalist (or whatever you call them nowadays); she is clearly an ideologue with an agenda.
The real irony in all of it is that she negates her whole argument (if you can call it that) by suggesting that it is very difficult to determine what would have happened to the economy had the tax rates not been changed. If that’s the case, then the best we can say is that we don’t know if tax cuts pay for themselves. But that doesn’t serve the cause, so she tosses it (and logic) aside and rides off into the sunset where important people say its nice this time of year.
The Truth About The Economy, straight from Robert Reich.
This little clip is getting a lot of play online right about now. MoveOn.org, in particular, is a having a grand old time with it. And, like so many other things about economics, it sounds pretty good on the surface. Unfortunately, it’s a massively pedestrian and ideologically skewed point of view, which means it is a far cry from the truth. The good news is that Reich gives us a bulleted list, so let me just walk you through his errors (both in logic and fact).
- The economy has doubled since 1980 but wages are flat. Where did the money go? This is the premise of everything else he says, so it is very telling that both numbers he cites are incorrect. I don’t know how he measures the size of the economy, but most folks use GDP, and GDP went from $2.8 trillion in 1980 to $14.1 trillion in 2009. On the wages side, I’m sure there’s some erroneous stat out there that gives Reich his footing, but the Bureau of Labor Statistics shows a different story.
- All gains from the economy go to the super rich. Oh Robert, when will you and your anti-capitalist comrades give up on this one? It is true that the people who have invested/risked the most in any venture typically get the highest returns, and this remains the same for businesses and countries. However, to suggest that the only people who are benefitting from a growing economy are the super rich is patently absurd. Growth leads to jobs, which benefit everyone except the super rich (who often don’t work anyway). I bet you’re a lot better off than your parents were when they were your age, and when you see the “poor” with $100 shoes and cell phones, it’s hard to miss that the rising tide lifts all boats.
- With money comes political power. Taxes on the super rich are slashed and tax revenues evaporate. I can’t disagree with the first statement, but the latter is wrong on multiple levels. On one hand, Reich talks about how the super rich pay very little in taxes because they don’t really pay at the income tax rate. They pay capital gains on investments. So if that’s true – it is, and it has been that way for a looooong time – then the tax revenues he claims we’re losing from “slashed tax rates” were never there to begin with. So this story about how the super rich use their newfound political power, which they’ve gained from their disproportionate take of the growing economy, to cut their taxes and deprive the Treasury of much-needed tax revenue is just well-dressed class warfare.
- Huge budget deficits. The middle class is agitated and fights for scraps. This is a real gem. Whatever Reich is smoking, I want some. He’s actually suggesting that since we don’t make as much in taxes – because of the rich and their schemes – that our government has had to make the tough choices to cut programs and safety nets. Riiiiight – like that ever happens. So if only the middle class were getting their fair share of the economy instead of the evil rich, and if the evil rich actually paid their “fair share” in taxes, then we wouldn’t have budget deficits. There’s no way a guy with Robert Reich’s background doesn’t know how stupid this is. It is clearly a deliberate attempt to distort reality for political purposes. You can tell because he says our safety nets are all being sacrificed – classic big government rhetoric. The fact is that our budget deficits are due to one big thing – the government’s insatiable appetite for spending. You do know that when budget cuts are discussed, they are never actual cuts. They are cuts in rates of growth! It’s debatable as to whether the sacrifices are actually being made, but even if they are, this is not a lack of revenue problem.
- The middle class is divided. He starts with this…”Instead of joining together for better wages and jobs, many people are so scared that they’re competing with other working people for the scraps that are left behind.” Wow. Seriously, this story just gets better and better. I’d love to know what he thinks people gathering together are going to do to create jobs. Oh wait. He means unions. You do recall that Reich was Labor Secretary under Bill Clinton, a president with a special warm place in his heart for unions. Sorry to break it to you, Rob, but labor unions aren’t going to help any more than raising taxes on the super rich. A healthy economy is a competition for resources. That has nothing to do with whether people are divided. If you want less division, perhaps you could stop pitting groups against each other and painting people with differing views as villains.
- Anemic recovery. ”The vast middle class, unable to borrow as it could before, no longer has the purchasing power needed to get the economy going again.” Reich saves the best for last. Here we see the Keynesian mindset on full display. In this alternate universe, economic growth is simply a function of consumer buying…at whatever cost. Obviously, that’s an important component, but to suggest that the middle class should be borrowing money so they can buy stuff to kick off the economy is flat-out ludicrous. And besides – I’d love to know what middle class person who hasn’t already demonstrated irresponsibility can’t get a credit card.
So – through the entire 2 minutes and 15 seconds, I could find only two things I agreed with – that the super rich get a disproportional share of growth and that their super rich status gives them political power. The rest of Reich’s “truth” is utter bullshit. His numbers are wrong. His conclusions are wrong. His advice is wrong. He’s still the same old hack he always was, no matter how pithy his little presentation might be.
Price Fixing: The Next Chapter in the Dismantling of America
I’m prompted to write about this because of this post over at the Red State blog.
Senator Dick Durbin’s (D-IL) amendment to the Financial Overhaul Bill is set to go into effect in April that will allow Obama and the Federal Reserve to set the prices of debit card interchange fees.
Good! Those evil banks will have one less way to stick it to us, right? Oh, if it were true. If the rest of us were living in the alternate universe that Durbin and his economically corrupt and ignorant comrades currently occupy, that might be the case. But, IRL (that’s the acronym pasty-faced, Red Bull slogging, fantasy gamer nerds use to refer to “In Real Life”), exactly the reverse is true.
Today, it seems, we are being saddled with “hidden” fees for using our debit cards – somewhere in the 44 cents per transaction range. The fees are hidden because they are paid by the businesses that accept debit cards as payment. The fees don’t show up on my bank statement, but I pay them in higher prices at Home Depot and Wal-Mart. And I’m really pissed about that. Aren’t you? I mean, the nerve of these people – actually expecting me to pay for the luxury of not having to go to the bank a couple of times a week, of not having to carry cash with me all the time, of not having to charge things on credit cards that have all sorts of fees and interest. Where’s my free lunch??? Damn them!
The fact is that, even if I don’t notice it, there is obviously a problem here or good folks like Durbin et al wouldn’t be riding to my rescue on their white stallions with saddles from Wal-Mart. What these knights in shining armor fail to recognize (or rather, could give a crap about), however, is that the banks have lots of levers they can pull to keep their margins where they want them. If they can’t charge transaction fees, they can just limit the number or size of transactions, which is what they say they’ll do. According to this Wall Street Journal article…
Limiting the size of a debit-card purchase could force consumers toward credit or charge cards, helping the banks recoup debit-card revenue that will be lost to the new rules. Banks earn higher fees from credit- and charge-card swipes; these fees were excluded from rules curbing debit-card fees.
Uh oh! Wait. So, in their effort to help us poor little guys, they’re actually going to make life more inconvenient and potentially more costly? You don’t say. Hmm. Something else must be going on here. There is, and there are two points that you can take as axioms with regard to the intersection of economics and politicians…
- Anytime a politician wants to regulate something on behalf of supposedly harmed consumers, the one who really benefits is the politician. In this case, Wal-Mart donated $20M to Durbin’s home town of Chicago – because Wal-Mart stands to make a killing in extra profits (since they’ll get to pay 12 cents instead of 44 for every debit card transaction). If consumers were being helped, Wal-Mart and Home Depot would be passing on this savings to you and me via reductions in price. Think that’ll happen? Right around when Gitmo closes.
- Anytime the government tries to fix prices, the winners and losers in the economy will simply shift around - there will be no overall improvement in the economy. Prices reflect the scarcity of resources. When an entity (government, usually) fixes them by fiat, then consumers and businesses are deprived of a critical piece of information to be used in making decisions. Bottom line – this never works, and it only happens because of axiom number 1.
So thanks for nothing, Senator Durbin. Again. And thanks to you, America, for having so little interest in how the things that most matter to you work that you allow these hacks and losers the authority to bend us all over with a smile and a pat on the back. In the meantime, before all of this takes effect, I’m going to start making super small purchases, like gum and er uh Red Bull, on my debit card. That’ll show em.
Electric Blankets For Our Unicorns
Even the Harvard Business Review, which is generally a source of good business and economic information, can occasionally lapse into utter stupidity. Look at this blog post – Time For A New Five-Dollar Day , by John Landry – for example.
Here’s a quote to kick off the fun…
Henry Ford helped create America’s astonishing 20th-century prosperity with his five dollar day. Maybe it’s time for his 21st-century counterparts to follow his lead with some kind of boost to wages, at least in less competitive industries. Like Ford, they can do it to spark consumer spending. Or they can do it to reduce turnover — in our case, anger at the political system that might turn against both parties at the next election.
The backstory on this is that Ford famously doubled the wages he paid his factory workers from $2.50 to $5.00 in one day 1914. He did so because his assembly line was taking a toll on workers. (Keeping up with a conveyor belt that keeps going whether you like it or not isn’t for everyone.) To battle turnover, Ford simply took some of the money he was making from the new efficiency and funneled it into wages. Voila – workers had more money, which they spent on all sorts of things, including cars.
So the economy took off. But Mr. Landry seems to believe that the five-dollar day was a cause, not a result, of the economic surge. It’s amazing to see Keynesianism pop up in unexpected places. His cult logic goes something like this…
- Ford raised wages
- This gave consumers more money
- Consumers spent that money
- The economy took off
He completely misses how monumental the assembly line was in terms of technological advancements and how the economy had no choice but to take off with such a tremendous increase in productivity. (Ford’s raising wages was a reaction to that.) But no such advancement is emerging right now. Nevertheless, says Mr. Landry, perhaps corporations should do the same. Yes, let’s consider that, shall we…
Let’s take a company like IBM with 300,000+ employees. If you gave all of them a 25% raise, that would certainly inject some serious capital into the economy, no? Let’s keep it simple and say we only give each person $10,000. That’s about $3B. IBM makes about $20B/year in profit (give or take $5B). So we’ll take 15% of the profit of IBM to add this $3B to the economy. Fine. Sounds good so far. That’s what Ford did, right? Would it work now?
Um, no. The only thing that would happen is that IBM’s market share would tank, its stock price would nose-dive, and it’s top execs would get canned. And then the next regime would come in and bring wages back to normal and the Keynesian experiment would be over. The end result would be no different than:
- the tax rebate of 2001
- the tax rebate of 2008
- cash-for-clunkers
- the 2009 mortgage relief plan
- insert any number of failed Keynesian stimulus programs here…
In summary, these kinds of solutions are fantasies. They don’t work. They never have. But they get trotted out every time someone wants to complain about the free market being unable to correct itself. (As if it’s easy to get up when Uncle Sam has a big boot on your neck.)
The good news is that when all of these companies raise wages, we’ll all be able to afford electric blankets for our unicorns. Winters a comin.
Why political coercion works…MoveOn.org versus Target
You may be familiar with the campaign that MoveOn.org has launched against Target for their indirect contribution to an ad for a Republican running for governor in Minnesota.
The story they’re telling is that Target donated $150,000 to an ad for Tom Emmer, and Emmer has made some anti-gay statements. Ergo, Target is supporting an anti-gay conservative candidate. Awful, isn’t it?
It appears, however, that Target donated the money to a pro-business group called MN Forward. (Look at their site – their focus is on creating jobs and improving the economy.) It was MN Forward who contributed to Emmer’s campaign. Thus, my assertion that Target’s contribution was indirect. I think that matters, but it’s not the point of this post.
The take-away here is the sad but true conclusion that what MoveOn.org is doing is working. It is political coercion, and it doesn’t matter if what they say is true. It only matters that they’re saying and it is enough to worry executives in large companies.
But why would a business leader worry about true believers like the MoveOn.org folks? Prior to this “scandal,” Target had a terrific track record with respect to the gay-lesbian community. The Human Rights Campaign folks, who produce the Corporate Equality Index, gave them a top rating in 2010. (Incidentally, in the interest of full disclosure, the 2011 report is out and Target got dinged for this contribution.)
Anyhow, the reason executives worry is because they are short-termers. Remember that corporate America is now run by people who focus on the current quarter at pretty much all costs. They parachute in when things are going wrong – as far as the ignorant investors are concerned – and they stay until they collect their bonuses and have puffed up their resumes enough to move on (pardon the pun) to their next gig.
So, the kind of bad press Soros and pals can produce – legitimate or not – is something the short-termers want no part of. The effect is that they pretty much neuter big business when it comes to influencing politics in an above-board way. Wouldn’t it be nice if the Target execs could stand up and say,
Yes, we support MN Forward because we support political candidates who are pro-business. Do we support people who are anti-gay? No. Our record clearly shows that. Would we have donated money to Emmer had we known he would come out as anti-gay? Obviously not. However, we’re still pro-business, and we still think candidates who are pro-business need help from companies like Target to get into office. Are we trying to “buy” elections? No more than anyone else who contributes money to political campaigns.
Alas, the expedient solution is to simply run away from controversy. Stand for nothing but this quarter’s profits. And if you really want to influence politics, well you have to do it in the kind of shady way that people really detest – using lobbyists, payoffs, political blackmail, etc. The bottom line is that big businesses have big money and big interests. They are going to flex their muscles no matter what. So the question is do we want them doing it out in the open, or do we want them doing it behind the scenes where they’re free to dispense with petty notions of morality or legality? The bitter irony for Soros et al is that they’re just making things worse for their cause.
Yet another shining example of what is gravely wrong with capitalism in America right now.
BTW – here’s the video put out by MoveOn.org. It is chocked full of herculean leaps from vague and largely dishonest premises to shaky, almost laughable conclusions. Watch at your own logical peril.
