Bitcoin Truly “Disrupts” Argentina

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Bitcoin is supposed to be the latest disruptive technology. But whenever you hear someone use the buzzword “disruptive,” turn on your B.S. detector. Sure, technologies can be vaguely transformative, and that’s fine as far as it goes.

But the original concept of disruptive innovation is narrower. This term of art came from Harvard Business School guru Clayton Christensen, who meant something very specific.

“Disruptive innovation,” according to Christensen, “describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up-market, eventually displacing established competitors.”

Remember, that’s the “bottom” of a market, and by that, Christensen means not wealthy. (This distinguishes a disruptive tech from other transformative innovations, like computers and cell phones, which started at the top.) And the not-wealthy can sometimes be desperate to escape to a better system.

When it comes to Bitcoin, even the New York Times Magazine has figured this out:

Bitcoin proponents like to say that the currency first became popular in the places that needed it least, like Europe and the United States, given how smoothly the currencies and financial services work there.

It makes sense that a place like Argentina would be fertile ground for a virtual currency. Inflation is constant: At the end of 2014, for example, the peso was worth 25 percent less than it was at the beginning of the year. And that adversity pales in comparison with past bouts of hyperinflation, defaults on national debts and currency revaluations.

Less than half of the population use Argentine banks and credit cards. Even wealthy Argentines fear keeping their money in the country’s banks.

And the disruption is already happening: “Argentina has been quietly gaining renown in technology circles as the first, and almost only, place where Bitcoins are being regularly used by ordinary people for real commercial transactions.”

That satisfies the bottom of the market criterion. Whether it’s Argentines struggling with hyperinflation, or sub-Saharan Africans living under dictators and warlords, the developing world is likely to embrace bitcoin simply because it’s so much better than the failed banking and currency systems they’ve been locked in for so long.

“There are an estimated 2 billion ‘unbanked’ in the world,” says Bitnation CEO Susanne Tarkowski Templehof, “who don’t have access to global financial markets. To set up a bank account is difficult and expensive. Just like the developing world have leapfrogged in many other technologies, like mobile, etc., they’re likely to leapfrog in when it comes to financial technologies, as well — why shouldn’t they?”

Why shouldn’t they, indeed?

The beauty of the market process is that its gales of creative destruction almost always leave the world better off. And nowhere is it more important than for the people of the world who are longing for a chance at the freedom to build a better life for themselves.

Max Borders

Max Borders is the editor of the Freeman and director of content for FEE. He is also co-founder of the event experience Voice & Exit and author of Superwealth: Why we should stop worrying about the gap between rich and poor.

Do Corporations Run the Market? Do companies control consumers?

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One this day in 1985, the Coca-Cola Company introduced “New Coke” to replace its flagship soft drink Coca-Cola. Their executives were so sure that they knew what consumers wanted, they pulled the old formula from the shelves entirely.

The new product — or, rather, the new product combined with the loss of the old familiar one — generated so much negative response that the company put “Classic Coke” back on the market less than 3 months later.

As Vox notes, however, the company hadn’t been stupid or reckless. Coke had been losing market share to the sweeter-tasting Pepsi for years, and they needed to shake things up.

They conducted countless hours of consumer research, performing over 200,000 blind taste tests between Classic Coke, New Coke, and Pepsi — and New Coke swept the field.

Moreover, in their judgment, Coke had to be replaced with a better product — the company couldn’t simply add an additional flavor:

It didn’t have a choice — Coke needed to retain market share for a single drink.

Fountain sales made up a formidable two-thirds of Coke’s market. . . . Many of the contracts depended on Coke being the top-ranked cola. And if market share for Coca-Cola fell, the company might lose even more ground to Pepsi. If Coke had planned to run New Coke and original Coke side by side, it would have risked splitting its market share and alienating valuable fountain clients.

The smartest guys in the room all knew what the market needed. They pulled the trigger on New Coke, lost millions of dollars, and became a punchline for decades.

A line from Ludwig von Mises’s Human Action is informative: “The entrepreneur in his entrepreneurial capacity is always subject to the full supremacy of the consumers.”

In Bureaucracy, Mises elaborated:

The capitalists … are instrumental in the conduct of economic affairs. They are at the helm and steer the ship. But they are not free to shape its course. They are not supreme, they are steersmen only, bound to obey unconditionally the captain’s orders. The captain is the consumer. . . .

The real bosses are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality.

It was a lesson that Coke learned the hard way. In free markets, even the biggest, most entrenched corporations must follow the orders of the consumers. Icebergs await those who flout their preferences.

Anything Peaceful

Anything Peaceful is FEE’s new online ideas marketplace, hosting original and aggregate content from across the Web.

Tax “Refunds”: Your Interest-Free Loan to the Government

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What that check really means by DANIEL BIER.

It’s April, which means that most people will soon be getting checks from the government for overpaying on their taxes. It feels good to get a big chunk of money — especially since it was yours to begin with — but that tax “refund” cost you more than you realize.

Getting a refund means that, throughout the year, the IRS took more of your income than the law allows, and after you file your tax return, they have to give it back. But losing that money for months and months cost you something — goods and services you were not able to buy (and hence benefit from), investments you didn’t make, debt you didn’t pay down, savings you did not accumulate, etc.

A tax refund is, in essence, an interest-free loan from you to the government. Over at FiveThirtyEight, Ben Casselman and Reuben Fischer-Baum show you just how much that loan cost you.

More than three in four taxpayers get refunds, and the average amount they get back is close to $3,000, according to IRS data. That means that for many Americans, their annual refund is the biggest single check they’ll get all year.

What could you have done with that $3,000? Interest rates are very low for savings accounts right now, so that wouldn’t get you much, but if you had invested it in stocks (say, an index fund for the S&P 500), it would have earned you an extra $239.

The stock market can be risky, but the great thing about money is that you can do lots of things with it. Casselman and Fischer-Baum calculate:

Nearly 40 percent of American households carry a credit card balance, and those loans carry high interest rates. . . If instead of getting a $3,000 refund come April, you’d been able to pay off $250 in credit card debt each month (or put $250 a month less on your card), you would have avoided more than $300 in interest expenses by Tax Day.

And then there’s the cost of just not being able to buy things you need when you need them: a car, appliances, or whatever else you had to delay purchasing because the government “borrowed” your income. You missed out on the benefits those goods would have provided. Even if you have zero net tax liability at the end of the year and get all your money back, you’ll still be paying this cost.

People aren’t necessarily being stupid about their taxes, though. The tax code is so intricate and so complex that it can be impossible to predict what you’ll owe, and if you underpay, God help you, the IRS will charge you interest, as well as possible fines and fees.

The tax withholding system is designed to encourage taxpayers to overpay. It’s a sneaky, invisible tax levied on those without the financial savvy or expert advice to avoid it. And, as Don Boudreaux has pointed out in the past, it is a costly and regressive system that disproportionately hurts people who get income from wages versus those (mostly rich people) who get income from non-wage sources, like capital gains.

It’s nice to get your money back — but don’t forget, “refunds” aren’t free money.

Check out FiveThirtyEight’s calculator to see how much your interest-free loan to Uncle Sam cost you this year.

Daniel Bier
Daniel Bier is the editor of Anything Peaceful. He writes on issues relating to science, civil liberties, and economic freedom.

Is the “Austrian School” a Lie?

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Is Austrian economics an American invention? by STEVEN HORWITZ and B.K. MARCUS.

Do those of us who use the word Austrian in its modern libertarian context misrepresent an intellectual tradition?

We trace our roots back through the 20th century’s F.A. Hayek and Ludwig von Mises (both served as advisors to FEE) to Carl Menger in late 19th-century Vienna, and even further back to such “proto-Austrians” as Frédéric Bastiat and Jean-Baptiste Say in the earlier 19th century and Richard Cantillon in the 18th. Sometimes we trace our heritage all the way back to the late-Scholastic School of Salamanca.

Nonsense, says Janek Wasserman in his article “Austrian Economics: Made in the USA”:

“Austrian Economics, as it is commonly understood today,” Wasserman claims, “was born seventy years ago this month.”

As his title implies, Wasserman is not talking about the publication of Principles of Economics by Carl Menger, the founder of the Austrian school. That occurred 144 years ago in Vienna. What happened 70 years ago in the United States was the publication of F.A. Hayek‘s Road to Serfdom.

What about everything that took place — most of it in Austria — in the 74 years before Hayek’s most famous book? According to Wasserman, the Austrian period of “Austrian Economics” produced a “robust intellectual heritage,” but the largely American period that followed was merely a “dogmatic political program,” one that “does a disservice to the eclectic intellectual history” of the true Austrian school.

Where modern Austrianism is “associated with laissez-faire economics and libertarianism,” the real representatives of the more politically diverse tradition — economists from the University of Vienna, such as Fritz Machlup, Joseph Schumpeter, and Oskar Morgenstern — were embarrassed by their association with Hayek’s bestseller and its capitalistic supporters.

These “native-born Austrians ceased to be ‘Austrian,'” writes Wasserman, “when Mises and a simplified Hayek captured the imagination of a small group of businessmen and radicals in the US.”

Wasserman describes the popular reception of the as “the birth of a movement — and the reduction of a tradition.”

Are we guilty of Wasserman’s charges? Do modern Austrians misunderstand our own tradition, or worse yet, misrepresent our history?

In fact, Wasserman himself is guilty of a profound misunderstanding of the Austrian label, as well as the tradition it refers to.

The “Austrian school” is not a name our school of thought took for itself. Rather it was an insult hurled against Carl Menger and his followers by the adherents of the dominant German Historical School.

The Methodenstreit was a more-than-decade-long debate in the late 19th century among German-speaking social scientists about the status of economic laws. The Germans advocated methodological collectivism, espoused the efficacy of government intervention to improve the economy, and, according Jörg Guido Hülsmann, “rejected economic ‘theory’ altogether.”

The Mengerians, in contrast, argued for methodological individualism and the scientific validity of economic law. The collectivist Germans labeled their opponents the “Austrian school” as a put-down. It was like calling Menger and company the “backwater school” of economic thought.

“Austrian,” in our context, is a reclaimed word.

But more important, modern Austrian economics is not the dogmatic ideology that Wasserman describes. In his blog post, he provides no actual information about the work being done by the dozens of active Austrian economists in academia, with tenured positions at colleges and universities whose names are recognizable.

He tells his readers nothing about the  books they have produced that have been published by top university presses. He does not mention that they have published in top peer-reviewed journals in the economics discipline, as well as in philosophy and political science, or that the Society for the Development of Austrian Economics consistently packs meeting rooms at the Southern Economic Association meetings.

Have all of these university presses, top journals, and long-standing professional societies, not to mention tenure committees at dozens of universities, simply lost their collective minds and allowed themselves to be snookered by an ideological sleeper cell?

Or perhaps in his zeal to score ideological points of his own, Wasserman chose to take his understanding of Austrian economics from those who consume it on the Internet and elsewhere rather than doing the hard work of finding out what professional economists associated with the school are producing. Full of confirmation bias, he found what he “knew” was out there, and he ends up offering a caricature of the robust intellectual movement that is the contemporary version of the school.

The modern Austrian school, which has now returned to the Continent and spread across the globe after decades in America, is not the dogmatic monolith Wasserman contends. The school is alive with both internal debates about its methodology and theoretical propositions and debates about its relationship to the rest of the economics discipline, not to mention the size of the state.

Modern Austrian economists are constantly finding new ideas to mix in with the work of Menger, Böhm-Bawerk, Mises, and Hayek. The most interesting work done by Austrians right now is bringing in insights from Nobelists like James Buchanan, Elinor Ostrom, and Vernon Smith, and letting those marinate with their long-standing intellectual tradition. That is hardly the behavior of a “dogmatic political program,” but is rather a sign of precisely the robust intellectual tradition that has been at the core of Austrian economics from Menger onward.

That said, Wasserman is right to suggest that economic science is not the same thing as political philosophy — and it’s true that many self-described Austrians aren’t always careful to communicate the distinction. Again, Wasserman could have seen this point made by more thoughtful Austrians if he had gone to a basic academic source like the Concise Encyclopedia of Economics and read the entry on the Austrian school of economics.

Even a little bit of actual research motivated by actual curiosity about what contemporary professional economists working in the Austrian tradition are doing would have given Wasserman a very different picture of modern Austrian economics. That more accurate picture is one very much consistent with our Viennese predecessors.

To suggest that we do a disservice to our tradition — or worse, that we have appropriated a history that doesn’t belong to us — is to malign not just modern Austrians but also the Austrian-born antecedents within our tradition.

Steven Horwitz

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Microfoundations and Macroeconomics: An Austrian Perspective, now in paperback.

B.K. Marcus

B.K. Marcus is managing editor of the Freeman.

The Economics of Karaoke (and Other Necessities)

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Even sticker shock can reveal something about scarcity by Robert P. Murphy.

I am a mild-mannered economist by day. But by night, I am a zombie and a karaoke singer (sometimes simultaneously). So, when I travel to events, the other attendees often want to organize a karaoke outing. My recent trip to Philadelphia was no exception. There were two occasions where even I — a professional economist — was flummoxed by the price for a particular service, but on reflection I was glad that the market had made it an option.

The first jolt came when I went to self-park at my hotel in downtown Philadelphia. The weekend rate was around $33 per night (with tax), which was several dollars more than the more prominently posted daily rate (applicable on weekdays).

“It costs me more to park per day than to rent this car,” I grumbled as I went down into the bowels of the property.

A moment later, I realized this was a non sequitur. After all, it would hardly help me if the price for renting the car were higher. I used to live in New York City, so I was used to high parking prices. Really, I should have been thinking, “Man, I’m so lucky that the market economy provides me this virtually new car to drive from Nashville to Philly at less than it costs me to park!”

I actually love parking garages, because they epitomize the market solution to the constraints of the big city. People often think in terms of space (meaning square footage) being expensive in a densely populated city, but more accurately, it’s the area of real estate on the ground that’s so expensive. The market response to the problem of parking is to take the relatively small “footprint” of part of a city block and then (a) dig down and (b) build up. The invisible hand decided to get the cars out of everybody’s way by effectively stacking them in very tall, tightly packed columns.

My other episode with market prices where “this time, it’s personal” occurred the next night, as a group decided to go out for karaoke. It was a Saturday, so of course 18,000 other people in the Philadelphia area had the exact same thought. The problem is that if you have a group of six or more people, at best everybody will get to sing one song if you go to a conventional karaoke bar.

Once again, the market has options for those who are willing to pay extra. In our case, we reserved two hours in a private karaoke room at an Asian restaurant. (I’m not going to say how much I had to pay for this — in case anybody from my group reads this and feels bad — but let’s just say I could’ve rented more than one car for a day at that rate.)

Here, too, when the guy on the phone quoted me the price, I thought it was excessive. But then I reminded myself that we were in a high-traffic area on a Saturday night. We wanted this business to build a (relatively) sound-insulated room equipped to play karaoke songs just for our small group — while people brought us drinks. Truly, Louis XIV would have been blown away by such luxuries, though the book wouldn’t have had any of the songs he would have tried to look up. As it turned out, the market was even more bountiful than I realized when I made the reservation. The unexpectedly high price quote I got on the phone was just the minimum I was guaranteeing for our party. Because our group ordered enough drinks, we actually got the karaoke room itself “for free.”

In this world of finite resources and unlimited human desires, there is scarcity. As in nature, the fact of scarcity creates a tendency for hostility among members of a species, as they compete for the limited goodies available. But unlike the merciless struggle of biological competition, human society enjoys peaceful cooperation through market-based competition. Specifically, humans employ (often imperfectly) the institution of private property, which assigns specific rights of usage and control to particular individuals.

One outgrowth of private property is the emergence of market prices, which merely reflect the terms on which people have exchanged portions of their respective property. Rather than fuming at the “outrageous” price a merchant asks for a good or service, we should always remember that we are expecting the merchant to do something for us — we don’t call them “bads” and “disservices.” It makes sense to complain about taxes, war, and the weather — things over which we have no individual control — but in the market economy, nobody really forces you to pay prices for anything.

I have a friend who worked for a hedge fund when he was younger, and when single ladies at the bar asked him what he did for a living, he would say, “I help move resources to where people can use them the most.” Although this was a strange way of putting things, it was perfectly accurate. Among other ways of viewing market prices, we can interpret them as a communication mechanism. If, say, there aren’t enough parking spaces or individual karaoke rooms in Philadelphia, this information is transmitted to the relevant parties in the form of higher returns to existing parking garages and karaoke bar owners, as they find they can raise their prices and still fill their capacity.

If politicians proposed to block radio transmissions whenever the news was bad, everyone would recognize the futility of such a measure. By the same token, market prices themselves aren’t bad — they are simply messengers conveying underlying facts about scarcity. Market prices need to be free in order to do their job.

Robert P. Murphy

Robert P. Murphy has a PhD in economics from NYU. He is the author of The Politically Incorrect Guide to Capitalism and The Politically Incorrect Guide to The Great Depression and the New Deal. He is also the Senior Economist with the Institute for Energy Research.

Some Basic Economic Truths

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During the summer of 1985 my oldest son, Mark, decided to leave his job as a chemistry teacher in a Silver Spring, Maryland, Catholic Boy’s High School to complete his Master’s thesis and his Doctoral work in Metallurgical Engineering at the University of Oklahoma.  With little money to finance the move, he was looking for ways to transport his wife; his five-year-old stepson, Chris; and his four month old infant son, David, from Washington, D.C. to Norman, Oklahoma.

Having recently retired from my job with a major oil company in suburban Philadelphia, I offered to help with the move.  So, on the appointed day I drove to Silver Spring and loaded every cubic foot of my trunk and my rear seat with some of their belongings.  As we headed west on Interstate 70, my son took the lead in a borrowed Mercury station wagon, with every cubic foot filled to capacity; my daughter-in-law followed close behind in their worn-out old Toyota, the baby strapped into a car seat beside her; and I brought up the rear with five-year-old Chris riding “shotgun” in the passenger seat beside me.

The trip across the country was not up to my usual standard for cross-country driving.  Since the Interstate highway from Indianapolis to St. Louis was completed, but unposted, I had always taken that to mean that they wanted me to use my own discretion.  As a result, I was accustomed to driving the 1.030 miles from Philadelphia to St. Louis in just under fifteen hours.  But on our trip in August 1985, from the D.C. area to St. Louis, it was drive two hours, nurse the baby, drive two hours, nurse the baby, and on and on.  Then, after a night’s rest in St. Louis we set out again the next morning for the last leg of our trip from St. Louis to central Oklahoma.

As we had lunch in a roadside restaurant in Joplin, Missouri, I remarked that we were just a few miles north of Camp Crowder, Missouri, where I spent the first week of my U.S. Army military career, and that I’d like to revisit the place sometime just to see if it was the same as it was in the summer of 1953.

That was the last word on the subject until we crossed the Missouri/Oklahoma state line fifteen or twenty minutes later.  It was then that young Chris said, “Grandpa, tell me about some of your war wounds.”

Not wanting to go into detail on how I was machine-gunned by a group of South Koreans in a “friendly fire” incident during basic training, I decided to tell him some stories about wounds I received when I was a boy, just a few years older than he.  So I proceeded to describe a long ugly scar I have on my right knee that I received when I was just ten or eleven years old.  When I had described the scar, Chris said, “Grandpa, how did you get that wound?”

I said, “Well, as I recall, my friends and I were at the local ballpark in my hometown, crawling around under the bleachers, when I knelt on a broken soda bottle.”  To which he replied, “What were you doing crawling around under the bleachers?”

I said, “We were looking for small change, nickels and dimes that people had inadvertently dropped while watching a softball game.”

“Why were you looking for nickels and dimes?” he asked.

To which I replied, “We wanted to buy some sodas.”

He thought for a moment, a puzzled look on his face.  Then he said, “Grandpa, you can’t buy a soda for five or ten cents.  Sodas cost sixty cents.”

Not when I was your age,” I replied.  “When I was your age we could by a soda for five cents.”

That came as a big surprise to him.  He said, “How did that happen, Grandpa?”

I said, “The Democrats did it.”

“The Democrats did it?  Why did they do that?”

Thinking I’d impart a bit of economics wisdom, I said, “Well, the Democrats discovered many years ago that if they passed a law taking money away from people who have jobs and who work for a living, and give it to people who don’t have jobs or who don’t want to work, the people who get the free money will always vote for them on election day.  That helps to create what we call inflation and that’s why a soda costs a lot more than five cents today.”

This was obviously a new concept for him and I could almost hear the wheels turning in the seat beside me.  Finally, he said, “Grandpa, could the Democrats pass a law that would make candy free?”

I replied, “Sure they could.  But think about it… if the Democrats made a law saying that candy would be free, how long do you think the people who make candy would continue to make it?”

New concept; I could hear the wheels turning again.  Then he said, “Grandpa, am I a Democrat?”

I said, “Well, it’s too early to tell.  We’ll have to wait a few years to find out.”

Then he asked, “Grandpa, could the Democrats make a law that some candy would cost money and some would be free?”

I replied, “Yes Chris, the Democrats could make some candy free and others that would cost money.  But are you asking whether the Democrats could make a law saying that the kind of candy you like would be free and all the rest would cost money?”

A big smile crossed his face.  He nodded his head and said, “Yeah!”

I said, “You’re a Democrat.”

I’m happy to report that my step-grandson has turned out just fine, in spite of his Democratic leanings as a five-year-old.  He graduated from the University of Oklahoma with a degree in Economics and is now a successful executive with a major Oklahoma City bank.  But now, thirty years later, there is evidence that many who were as ignorant of basic economic principles as my grandson was at age five, are still burdened by the same economic illiteracy.

The proof of what I say can be found in the television commercials of a company called Lear Capital, Inc.  In their most recent TV ads they tout the current low price of silver, showing a two dimensional graph in which the abscissa, or x-axis, represents time, and the ordinate, or y-axis, represents the fluctuations in the price of silver.  If one were to believe the graph, the market price of silver during a significant time period represented on the graph dipped to less than the price of production.  In fact, that claim is made quite clearly in the Lear Capital voice-over.

When I saw the ad I couldn’t help but be reminded of my grandson’s attitude toward the candy market when he was just five years old.  The fact that a precious metals marketing firm would continue spending big bucks attempting to convince television viewers that mining companies are continuing to mine silver when the market price is less than the cost of production, is proof that there are some adults out there in TV land who still believe in the Tooth Fairy.

When I posed the hypothetical question to my grandson thirty years ago, asking him how long he thought candy manufacturers would continue to make candy if there was no profit in doing so, it never occurred to me that, some thirty years later, silver miners might be doing just that.

However, there is some empirical evidence that there are fewer consumers who might fall for that advertising scheme than we might think.  Another Lear TV ad that has run on a daily basis for many months proclaims that the first one-hundred callers to their 800 number will receive up to $500 worth of free silver… just for calling their number.  If, in fact, callers to that 800 number are actually given silver coinage, they could be given a silver ten-cent piece, just for their taking the time to listen to a sales pitch, and the marketer could still claim truth in advertising by hanging their hats on the words “up to.”

Nevertheless, it is frightening to think that Madison Avenue advertising firms have such a low opinion about the economic smarts of the American people that they would air such an insulting advertisement.  My step-grandson has discovered some important economic truths.  Apparently, some in the corporate world and on Madison Avenue have not.

Communist member of the Seattle City Council steps down

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Goodbye Comrade Sally Clark City Council District 9 Seattle, Washington State. Many thanks for your personal email telling me you are now stepping down from this position. I hope my emails telling you over the years what a disaster you are-were for free markets and capitalism in Seattle helped you pack your little ditty bag and clean out your cubicle.

Your mission to raise the minimum wage in Seattle for entry level non skilled jobs from $9.32 to $ 15 was a huge success. Now you are part of the history books and can be remembered for crushing the Seattle economy and destroying jobs. Karl Marx would be very proud of you but now you are quitting and this is great.

So now your job killing strategy is a success and many workers look forward to the higher pay, while employers are looking for ways to absorb the big increase in labor costs. Some plan on eliminating jobs. Some plan on moving out of Seattle. I say come to Florida to a free market capitalist state free of Communism.

“We’re going to be looking at making some serious cuts,” said Cedarbrook Lodge General Manager Scott Ostrander. “We’re going to be looking at reducing employee hours, reducing benefits and eliminating some positions.” Hey Obama-Romney care did this too…. wam wam double wammy on Seattle.

A local trade group it is going to close one of its two restaurants, eliminating 200 jobs.

The plan has also caused Han Kim — who runs Hotel Concepts, a company that owns and manages 11 hotels in Washington state — to shelve plans to build a hotel in SeaTac. The company already has three hotels in SeaTac, and Kim and a business partner were looking to build a fourth on land they own. More jobs lost. Source Fox News.

“Uncertainty is bad for business, and right now we’re right in that area so we’re just putting everything on hold,” Kim said.

One of the biggest supporters is your friend Kshama Sawant, a self proclaimed socialist-Communist who also won her election to the Seattle City Council. She plans on keeping Seattle a $15 minimum wage city. You won’t have many hotels or restaurants left but who cares right ?

Your colleague Sawant said. “There may be a few jobs lost here and there, but the fact is, if we don’t fight for this, then the race to the bottom will continue,” Really…? The race to the bottom will continue ? My friend in Baton Rouge started out flipping burgers in McDonald’s 30 years ago and now he owns 9 restaurants. You call that a race to the bottom? Typical Communist mentality. Sawant needs to move back to North Korea cleaning the barracks at the forced labor camp.

The American Car Rental Association estimates 5 percent of low-wage jobs will be cut; and another 5-10 percent of those workers will be replaced by more experienced workers.

The owner of Dollar Rental Cars told Fox News she’ll outsource some functions, change schedules and cut some staff in response to the new policy. More jobs lost!

So Ms. Sally there you go, your Communist ideology just put thousands of people out of work but you did probably down size the city as more people move to free states. So as Seattle becomes a ghost town and you plug in your iron from your solar paneled apartment and run it over your Hammer and Sickle a few times before draping it over your balcony, smile.

Much luck in your future endeavors. I know you tried to ban plastic bags too and that failed but keep on trying Comrade. Don’t let the door hit you in your rear on the way out.

EDITORS NOTE: The featured image is courtesy of Alan Berner / The Seattle Times, 2014.

Study shows seismic shift in lending away from large banks to non-banks

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Study shows seismic shift in lending away from large banks to non-banks continued in February By Stephen D. Oliner, Edward J. Pinto and Brian C. Marein.

A new study released by the AEI International Center on Housing Risk found that the seismic shift in home purchase loan originations away from large banks to non-banks continued in February.  Since November 2012, the large bank share has dropped from 61 percent to 33 percent (see the report below).  The share shift was unabated in February as the large bank share dropped 1.2 percentage points from  previous month.  The dramatic decline in the large bank lending share has been met point-for-point by an increase in the non-bank share, which has risen from 24 percent to 51 percent.  Large non-banks and other non-banks each have accounted for about half of the 27 point increase in share.

This shift is due to the fact that non-banks compared to large banks are more thinly capitalized and more lightly regulated, generally face less reputational and litigation risk, and tend to have a shorter term outlook. Additionally, their primary business is generally just mortgage banking as compared to the more diversified business lines of large banks.  Therefore they have a more limited ability to stay on the sidelines.

Key Takeaways:

  • The dramatic decline in agency market share for large banks continued unabated in February, offset by an equally dramatic increase in the non-bank share.
  • Since November 2012, the large bank share has dropped from 61% to 33%, a move of 28 points, including a 1.2 point drop in February, a dramatic decline that has been met point-for-point by a 27 point increase in the non-bank share from 24% to 51%. Large non-banks and other non-banks have participated equally in the increase, accounting for 14 points and 13 points respectively.
  • Large banks have reduced the riskiness of their agency mortgage originations over the past few years. Non-banks, in contrast, have shifted toward riskier loans as they have increased their market share.
  • Loans originated through the retail channel are less risky than loans originated through the broker and correspondent channels. This is true both for large banks and for non-banks. But retail channel loans from non-banks are substantially riskier than such loans from large banks.
  • The bottom line is that large banks attempting to regain market share would have to move well out the risk curve.

The $15 Billion Failure to Store Nuclear Waste

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“The American people have spent 30 years and $15 billion to determine whether Yucca Mountain would be a safe repository for our nation’s civilian and defense-related nuclear waste.” That’s a quote of Sen. Jim Inhofe (R-OK) reported in the April issue of The Heartland Institute’s Environment & Climate News.

Compare that with the one year and 45 days it took to build the Empire State Building or the five years it took to build the Hoover Dam in the depths of the Great Depression. In the first half of the last century, Americans knew how to get things done, but the rise of environmentalism in the latter half, starting around the 1970s, has increased the cost and time of any construction anywhere in the U.S. In the case of Yucca Mountain it has raised issues about nuclear waste that is currently stored is less secure conditions.

As reported by CNS News in January, “The Nuclear Regulatory Commission (NRC) has released the final two volumes of a five-volume safety report that concludes that Nevada’s Yucca Mountain meets all of its technical and safety requirements for the disposal of highly radioactive nuclear waste.” Five volumes!

So why the delay? The NRC says the Department of Energy “‘has not met certain land and water rights requirements’ and that other environmental and regulatory hurdles remain.”

Harry ReidA Wall Street Journal editorial on March 30 asserted that It is not about environmental and regulatory hurdles. It is about a deal that Nevada Senator Harry Reid, the former Senate Majority Leader, cut with President Obama to keep Yucca Mountain from ever opening for use. In return, Reid blocked nearly all amendments to legislation to shield Obama from having to veto bills. He virtually nullified the Senate as a functioning element of our government.

“Since there is no permanent disposal facility, spent fuel from the nation’s nuclear reactors—‘enough to fill a football field 17 meters deep’ according to a 2012 Government Accountability Office report—is currently being stored at dozens of above-ground sites. The GAO expects the amount of radioactive waste to double to 140,000 by 2055 when all of the currently operating nuclear reactors are retired.”

The United States where the development of nuclear fission and its use to generate electrical energy occurred is now well behind other nations that have built nuclear facilities and are adding new ones. As Donn Dear, an energy expert with Power For USA, points out “there are only four new nuclear power plants under construction, all by Toshiba-Westinghouse LLC. One other plant, Watts Bar 2, whose construction was held up for several years, is being completed by TVA.”

Meanwhile, as Dear notes, “South Korea is building four nuclear reactors in the United Arab Emirates. The Russian company, Rosatom, is building power plants in Turkey, Belarus, Vietnam, and elsewhere. The China National Nuclear Corporation is scheduled to build over twenty nuclear power plants.”

These represent jobs and orders for equipment that are not occurring in the United States, along with the failure to utilize nuclear energy to provide the growing need for electricity here. The same environmental organizations opposing construction here are the same ones supporting the Environmental Protection Agency’s attack on coal-fired electrical plants. The irony is, of course, that nuclear plants do not produce carbon dioxide emissions that the Greens blame for the non-existent “global warming”, not called “climate change.”

A cynical and false propaganda campaign has been waged against nuclear energy in the U.S., mostly notably with the Hollywood film, “The China Syndrome” about a reactor meltdown. If you want to worry about radiation, worry about the Sun. It is a major source. Three incidents, Three Mile Island in 1979 and Chernobyl in 1986, added to the fears, but no one was harmed by the Three Mile Island event and Chernobyl was an avoidable accident.

More recent was the March 11, 2011 shutdown of the Fukushima reactor in Japan as the result of an earthquake and subsequent tsunami. Three of its cores melted in the first three days, but there have been no deaths or radiation sickness attributed to this event. That’s the part you’re not told about.

CarterIn the end, all it takes is one ignorant President to set progress back for decades. In this case it was President Jimmy Carter for not allowing reprocessing of nuclear waste, a standard practice in France where only one-fifth of spent fuel requires storage. In the 1980s there were three U.S. corporations leading the way on the introduction and use of nuclear energy to produce electrical power; General Electric, Westinghouse Electric, and Babcock & Wilcox. Today only Babcock-Wilcox continues as a fully owned American company.

Thanks to President Obama, we have lost another six years on the Yucca Mountain project. That fits with his refusal to permit the Keystone XL pipeline. No energy project that might actually benefit America will ever see his signature.

Some are arguing that America is a nation in decline and they can surely point to the near destruction of our nuclear energy industry as one example. That decline can begin to end in 2017 with the inauguration of a new President.

© Alan Caruba, 2015

Powerful Video: Future of New York State Education Exposed

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On March 31, 2015, the New York State Assembly proved that budgeting well takes a back seat to “budgeting badly but on time.”

rotten apple

Even before the official vote was taken, Assembly Speaker Carl Heastie knew that the budget would pass the Democrat-controlled Assembly because “the people of this state want an on-time budget.”

So, according to Heastie,  it’s “the people” who “want” politicians to tell New York schools how to evaluate teachers– just so long as the screwy budget that also relieves New York’s wealthiest from sales tax on yachts is Approved. On. Time.

Due to that Democrat-induced, “on time” approval, New York now has a similar teacher evaluation stupidity that passed in Louisiana in 2012 (with student test scores counting for 50 percent of a teacher’s evaluation unless the teacher is rated “ineffective,” in which case the test scores override all else). Moreover, New York has an extra layer of idiocy, even outdoing Louisiana: the “independent evaluator” nonsense that promises to introduce unprecedented disruption in the running of already-pressured schools as their administrators could be required to travel to other schools to evaluate teachers in unfamiliar contexts.

Did I mention that all of this “admin swap” means nothing in the face of the “ineffective test scores” trump card?

And “ineffective,” well, that is To Be Determined by the New York State Education Department (NYSED).

Ahh, yes. The bottom line is that all New York career teachers are now at the mercy of whatever test score “growth” NYSED concocts in its effort to please a governor who is decidedly and openly hostile to the “public school monopoly” he vowed to “bust” upon reelection.

There you have it, People of New York: A casualty of the “budgeting on time” that Heastie says you demand.

Therefore, don’t blame the “heavy-hearted” Democrats captured in short order in the brief, powerful video below. And certainly don’t blame those clueless legislators who voted for a budget without fully comprehending its ramifications.

The politicians are innocent… right?

Future of NYS Education, by Stronger Together (ST) Caucus

TEA Party Hero refuses to cave on GOP’s Omnibus Funding Bill [Video]

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An elected Combat Veterans For Congress, Congressman James Bridenstine, Lcdr-USNR (R-OK-1), is one of the principled members of Congress who votes his conscious against very bad legislation, in support of the US Constitution, and regardless of the consequence.

Regardless of the possibility of retribution, Congressman Bridenstine voted his conscious against the Omnibus Funding Bill that provided funding for the budget thru September 2015 for the Obama administration illegal Executive Order that will effectively give Work Permits and Social Security Numbers to 5 million Illegal Aliens.  Cong Bridenstine also voted against re-electing the Speaker of the House of Representatives because the Speaker sought Pelosi’s help in getting her Democrat members to help the Speaker pass the Omnibus Spending Bill against the votes and will of the majority of Republican Congressmen.  Following his votes of conscious, Congressman Bridenstine was removed from the House Rules Committee by the Republican leadership.  That action was uncalled for and we oppose that type of vindictive retribution against a Patriotic Congressman who votes to protect and defend the US Constitution..

Please read the below article about Congressman Bridenstine, listen to his interview with Joe Miller on the Joe Miller Show. In the interview, Congressman Bridenstine refuses to back down from his principled stands and his votes to protect and support the US Constitution, regardless of future consequences.  We and all Americans are fortunate to have a Representative in the House with integrity like Congressman Bridenstine representing the voters.  We wish more Congressmen were as principled as Congressman Bridenstine; we will continue to support him in any way we can, and encourage all American citizens to financially support Cong Bridenstine’s re-election campaign in 2016.

Congressman Bridenstine: Tea Party Hero Refuses to Back Down from GOP Leadership

In an exclusive interview with Joe Miller Show, Congressman Bridenstine talked about his stand against the GOP Leadership and the critical need to fight Obama’s unconstitutional power grab. Listen to this patriot discuss his modern day fight against the Tories of our time:

Congressman Jim Bridenstine was endorsed by the Combat Veterans for Congress and was elected in 2012 to represent Oklahoma’s First District, which covers Washington, Tulsa, Wagoner Counties plus portions of Rogers & Creek Counties. Bridenstine serves on the House Armed Services Committee and the Science, Space and Technology Committee.

From the start, Cong Bridenstine has been widely recognized in the House for his integrity, commitment to principles, and willingness to uphold the rule of law. He has become an effective member of Congress by focusing on three specific areas: National Security, Economic Freedom, and Constitutional Integrity. Jim supports moving toward a balanced budget through spending control, tax reform, and financial measures and policies promoting free markets.

Bridenstine has focused on the elimination of Obamacare and reform of laws and regulations that present a huge burden on the economy. He has introduced legislation and supported a strong national defense, religious freedom, protection of life, free speech and restoration of the balance of power within the branches of the federal government consistent with the Constitution.

On April 1st, Bridenstine achieved a remarkable accomplishment and became the first freshman on the Science, Space and Technology Committee to author and pass legislation this session. The Weather Forecasting Improvement Act (HR2413) will enable technology development to save lives and protect property from severe weather, including tornadoes, without adding to the budget or debt. The measure received tremendous bipartisan support and passed on a voice vote.

Bridenstine’s background includes a triple major at Rice University, an MBA from Cornell University, 9 years of active duty in the United States Navy, and he is an Eagle Scout. Cong Bridenstine began his Naval aviation career flying the E-2C Hawkeye off the aircraft carrier USS Abraham Lincoln. It was there that he flew combat missions in Iraq and Afghanistan and gathered most of his 1,900 flight hours and 333 carrier arrested landings. While on active duty, he transitioned to the F-18 Hornet and flew at the Naval Strike and Air Warfare Center, the parent command to TOPGUN. He is currently a Lieutenant Commander in the U.S. Navy Reserve where he flew the E-2C Hawkeye in America’s war on drugs before becoming a member of Congress. He and his wife Michelle live in Tulsa with their three children, ages 7, 5, and 2.

Read more.

EDITORS NOTE: Click here to learn more about Combat Veterans for Congress: http://www.CombatVeteransForCongress.org

Does Government Spending Help the Economy?

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The evidence says bigger isn’t better by COREY IACONO.

How much government spending is enough, and how much is too much? While some spending on infrastructure, defense, and courts is probably beneficial, many economists suspect that public spending has decreasing marginal benefits: after a certain point, further spending results in slower growth by crowding out private sector activity.

To illustrate this theory, economist Richard Rahn of the Cato Institute developed the “Rahn Curve,” as pictured below. The peak of the Rahn Curve is the optimal or “growth maximizing” size of government, relative to the overall economy.

While we have strong theoretical reasons to suppose that governments cannot allocate resources as efficiently as private markets (and have little incentive to try), what does the empirical evidence say? The best macro-level evidence for the validity of the Rahn Curve comes from the fact that countries with large governments tend to have less economic growth than countries with small governments.

In a book published by the World Bank, two economists examined the relationship between government size and economic growth for Europe and the world as a whole. After controlling for numerous variables known to affect economic growth, as well as accounting for reverse causality, the economists found that:

[In Europe], higher initial government size has led to slower economic growth… Government [spending] reduces growth, particularly when it exceeds 40 percent of GDP. Perhaps because governments are smaller outside Europe, there is no evidence that government size generally harms growth in the global sample.

Similarly, a 2011 survey of the research on government size and economic growth in wealthy countries found that:

The research is rather close to a consensus: the correlation [between government size and growth] is negative, and the sign seems not to be an unintended consequence of reverse causality in the sense that government generally expands during economic downturns… The most recent studies find a significant negative correlation: An increase in government size by 10 percentage points is associated with a 0.5 to 1 percent lower annual growth rate.

Other recent reviews of the literature on military spending and government transfers — two of the largest budget categories in the United States and other western countries — found that higher levels of each are associated with slower economic growth.

But that’s not all: several other studies also suggest that countries with relatively large governments tend to experience higher rates of unemployment, and, of course, high unemployment results in less output than if more people were working. One paper by economists at the University of Delaware’s Department of Economics found that “positive shocks to government outlays slow down economic growth and raise the unemployment rate.”

Likewise, research from the International Monetary Fund found that increasing public hiring — a popular prescription to alleviate unemployment since at least the New Deal — fully crowds out private employment and consequently reduces economic growth, while incurring substantial fiscal costs to a diminished tax base.

In developed countries, limiting the size of government can help the economy grow faster. Studies explicitly looking at the non-linear relationship between government size and growth typically find that government spending hurts growth after it exceeds 25-30 percent of GDP. One paper found that over three-quarters of developed countries have levels of government spending that are detrimental to their growth. The author concluded that, “The concern about large governments is not misplaced. Ever-expanding governments will have negative effects on long-run growth.”

Based on an extensive body of research economist Dan Mitchell has proposed a Golden Rule for fiscal policy: government spending should grow slower than the economy itself. Such a rule would effectively ensure that government doesn’t outpace (and eventually swamp) the private sector.

There are also some ways to enhance economic growth without reducing government spending. There is evidence that governments can compensate for high levels of taxation and spending by implementing market-friendly policies in other areas. Research also shows that simply changing what government spends money on can enhance growth. A study of wealthy nations found that “reallocating total spending towards infrastructure and education would be positive for long-run income levels.”

While big governments may not increase growth, they could be providing other benefits, such as better education, more equality (assuming that has some intrinsic value), or other social improvements. But it’s not obvious that throwing more money to politicians or bureaucrats will guarantee stronger performance there, either.

A paper from the European Central Bank examined how public sector performance — as measured by a number of societal outcomes, such as income inequality, infant mortality, economic performance, and stability — varied across industrialized countries. They also examined how efficient the public sectors in each country were in attaining better economic and societal outcomes by measuring the amount of relevant public expenditure that is used to achieve a given performance level. The results?

Countries with small public sectors report significantly higher PSE [public sector efficiency] indicators than countries with medium-sized or big public sectors. All these findings suggest diminishing marginal products of higher public spending. [Results regarding public sector performance] are also in line with the aforementioned conclusions. Small governments tend to show better results. Spending in big governments could be, on average, about 35 per cent lower to attain the same public sector performance.

In other words, countries with relatively smaller governments achieved greater socio-economic outcomes for every dollar they spent, and at the same time they achieved better socio-economic outcomes in general.

So how much is too much? There seems to be a substantial amount of evidence that larger governments in the West are inefficient and economically handicapped by their bloated public sectors. While the conclusions of the studies are provisional and always subject to revision, the available evidence suggests that less is more when it comes to government spending.

ABOUT COREY IACONO

Corey Iacono is a student at the University of Rhode Island majoring in pharmaceutical science and minoring in economics.

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.

Will America Choose Victory Or Defeat?

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Will America blow yet another chance to strengthen her hand against her adversaries, or maintain a self-imposed implosion of her economic and military prowess?  Detroit’s General Motors recently announced plans to slash production in Russia and yank its mass market Opel brand completely in the face of shrinking sales through the economically troubled land of the ruble.  As Russia’s auto market continues to shrivel up, mainstream GM brands like Chevrolet are losing Russian auto-market sales to the tune of 74 percent.  The Opel brand has suffered an even greater loss of 86 percent.

By years end, Opel vehicles will no longer be sold in Russia, with Chevrolet officials cutting production significantly. They will focus high end models such as the Corvette and the Tahoe SUV, both of which are imported into Russia from the United States. CNS news reports that GM President Dan Anmann noted that “this change in our business model in Russia is part of our global strategy to insure long term sustainability in markets where we operate… This decision avoids significant investment into a market that has very challenging long term prospects.”

General Motors Saint Petersburg factory will no longer be operational by June or July 2015. There are no plans to restart production in the foreseeable future or beyond. According to GM spokesman Dave Roman. Production of Chevrolet under license by Russian firm GAZ will also end this year, while General Motors  joint venture with Russia’s Avtovaz producing the Chevrolet Niva basic SUV will continue. The GM pull out of Russia is supposed to preserve the auto makers strong cash position by avoiding another drain on its capitol.­

According to CNS news at the end of last year GM was sitting on 25.2 billion in cash, but earlier the company agreed to a 5 billion stock buyback. The U.S. Justice Department may soon be extracting a sizable civil penalty out of GM for concealing a deadly ignition switch problem. Amongst other predicaments, Russia’s central bank recently predicted that Russia’s economy will contract between 3.5 and 4 % this year. The weak and droopy ruble has resulted in a 38% downward spiral in overall auto sales from two years ago. In addition the ruble has lost almost half its value against the U.S. dollar since the start of 2014 according to CNS news.

Despite Russia’s economic traumas she continues to be ruled by officials who are dramatically increasing her military might. Conversely the United States with a corrupt regime has set out to endanger our republics physical well being, by reducing our military might dramatically. Russia is also being punished for not being politically correct. Because she remains patriotic or nationalist oriented as opposed to a more globalist focus.

So the question remains will America blow yet another chance to strengthen her hand against her adversaries, or maintain a self-imposed implosion of her economic and military prowess?

Right now, our republic turned mob ruled democracy is awash in her own specified twenty trillion deficit. The so called economic recovery is at best a pause in the overall decline of our economy and standard of living. Special interest groups an many in the progressive media can sometimes find a racist cop behind every telephone pole than to seek genuine economic policies or opportunities to help Americans work their way towards a better life. Hopefully the Republican leadership will follow through on its promise to repeal Obamacare which is designed to destroy both high quality healthcare and the economy.

The world is witnessing Iran seeking to assume nuclear power status. Russia and China are rapidly expanding militarily. So I pray that congress will stand up against the Obama regime effort to thwart our nation’s ability to defeat our enemies through military reductions. Our restrictive tax rates and burdensome regulations must be substantially reduced along with wasteful deficit spending. If not, America will blow yet another chance to strengthen her hand against her adversaries, both foreign and domestic.

That my fellow Americans will be most troublesome, not only for the United States, but for the world at large.

Let the Budget Battles Begin

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The announcement of a new fiscal budget for the U.S. government always sets the stage for struggles between the spenders and those trying to put some limits on the spending. The spenders usually win because politicians—particularly progressive ones—love to tap the national treasury in order to reward their supporters.

As the Speaker of the House John Boehner said on the occasion of the March 17 announcement, “For 53 of the last 60 years, the federal government has spent more than it has taken in. It is unacceptable.” Not so unacceptable that one Congress after another has not seen fit to ignore common sense and fiscal prudence.

Capitol with DollarsThe sheer enormity of the budget tends to overwhelm and I suspect that most voters pay little attention to it and the issues it represents except to want assurances that their benefit check arrives. Rarely mentioned or largely unknown is the size of the nation’s unfunded liabilities, long term obligations in Medicare and Social Security. In 2014 they reached nearly $49 trillion with a “T”.

Our annual Gross Domestic Product, (GDP) what the U.S. takes in for goods and services is about $14 trillion. Our current national debt is $18 trillion and growing. Regarding the unfunded liabilities, Romina Boccia of The Heritage Foundation noted last year that they were “nearly three times the size of the total national debt or more than $150,000 for every person in the U.S.” He predicted that “even the most vulnerable Medicare and Social Security beneficiaries would see their benefits drastically cut after 2030.”

Here’s another way of looking at our debt. When interest rates return to normal WE are going to be paying several hundred billion in interest on our current $18 trillion debt. In short, we have to desperately start cutting spending NOW to reduce that debt. Or else!

The 2016 budget announced by House Budget Chairman Tom Price represents Republican values. As the Wall Street Journal noted, it “would cut spending by $5.5 trillion relative to the status quo over the next decade, reducing federal spending to 18.2% of the economy by 2024. The share today is 20.3% and is headed toward 22.3% in a decade on present trend.” It’s useful to keep in mind that every dollar the government collects and spends is one less dollar that the private sector can spend on starting and expanding businesses large and small.

All that money represents opportunities for waste that are mind-boggling. A recent article in CNS News reported that “Medicare and Medicaid made a combined $77.4 billion in improper payments in fiscal 2014, a 20.4 percent increase from fiscal 2013, according to data published by the Government Accountability Office and the federal paymentaccuracy.gov website.” Twelve government programs that wasted money made the Government Accountability Office list including the school lunch and public housing/rental assistance programs.

The good news about the new fiscal budget is that it openly calls for repealing ObamaCare. It also outlines deregulating Medicaid to give governors more flexibility. It is a terrific fiscal burden. The budget took note of the fact that there are too many duplicative government programs such as 92 antipoverty programs. The Congressional Budget Office estimates that consolidating such programs would increase real GDP per capita by 1.5% in 2015. Eliminating a whole bunch of them would save even more.

Jane M. Orient, M.D., the Executive Director of American Physicians and Surgeons, and a policy advisor to The Heartland Institute, warned that “there seem to be some good first steps, such as block-granting Medicaid to the states. But even Republicans aren’t admitting that their budget also involves fighting over money that we don’t have, that the Federal Reserve will create out of faith and credit.”

“Also absent,” said Dr. Orient, “is recognition of the crushing burden of regulation, especially EPA rules to destroy a huge portion of our electrical generating capacity, with heavy subsidization of costly, unreliable, environmentally destructive wind and solar projects that can’t possibly replace coal, nuclear, or natural gas. Or recognition of the destructive impact of the Department of Education. How about devolving environmental protection and education back to the states, too, along with Medicaid?”

Heartland Tax & Budget News (1)“This new House budget,” said Peter Ferrara, a Heartland Senior Fellow for Entitlement and Budget Policy, “shows the passing of the Age of Obama and the broad gulf of difference between today’s conservative Republicans and the modern, ultra-Left, extremist, neo-socialist Democrats. Reagan-life, the plan would balance the budget without tax increases, while modernizing our increasingly dangerously lagging military.”

The Wall Street Journal editorial pointed out that, “As important, failing to pass a budget would also deprive Republicans of the procedural tool known as reconciliation. This allows the GOP to pass a final budget with a simple majority in the House and Senate, and thus it will be crucial to putting larger reforms of ObamaCare or taxes on Mr. Obama’s desk. A vote against the budget is in that sense a vote for the ObamaCare status quo.”

In sum, the proposed budget represents a serious effort to enact reforms that are long overdue. These and other measures are needed to encourage economic growth, the heart’s blood of the nation.

© Alan Caruba, 2015

EDITORS NOTE: The featured image is by J. Scott Applewhite/AP Photo.

Filthy Stinking Profits: Entrepreneurs have a nose for potential by DANIEL J. SMITH, ZAC THOMPSON

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Imagine a product that leaves your home covered in soot. Worse, imagine it makes your entire neighborhood smell like rotten eggs. The stuff discovered in Lima, Ohio, did just that. “Even touching this oil,” writes historian Burton Folsom, “meant a long, soapy bath or social ostracism.”

Why even bother to pump such “skunk oil” out of the ground?

When John, an entrepreneur, brought a new “investment opportunity” to the board of his company, suggesting that it spend millions of dollars to buy and store the stinking Lima crude, they must have thought it was the dumbest idea they’d ever been asked to risk money on.

But John was confident that a technology could be found to make the rejected oil usable. Many successful entrepreneurs can sympathize with how he must have felt. They likely have been in similar situations, where no one else saw the hidden potential they did in an idea or innovation.

In fact, Sam Altman, the president of the famous Silicon Valley business accelerator, Y Combinator, revealed that to make profits, his firm specifically searches for companies in which other investors don’t see the hidden potential. “We don’t want ideas that are whatever the current fashionable thing is,” says Altman. “So by the time everyone is already starting something in some category, it’s too late.”

Altman goes on to explain that to make a profit, you have to find ideas that look like bad ideas to most people, but have the potential to actually be good ideas. That investment strategy resulted in the creation of successful companies such as Dropbox, Airbnb, and Reddit.

The most assured way to become rich in a market society is to discover a new idea that can enhance the lives of millions of consumers and be the first to invest in it. As soon as the pathbreaking entrepreneur demonstrates an idea’s potential by earning profits, other investors will quickly enter the market. The increased competition will quickly spur innovation, quality improvements, and lower prices, benefiting millions of consumers in the process. In fact, William Nordhaus estimates that, while initial innovators do earn handsome returns, consumers are overwhelmingly the primary beneficiaries of innovations; innovators receive only about 2.2 percent of the total value to society generated by their innovations.

Even computers and televisions, goods and services that, with perfect hindsight, should have been seen as obvious profit opportunities, demonstrate the skepticism that often surrounds new innovations. Ken Olsen, the founder of Digital Equipment Corporation, famously predicted in 1977 that “There is no reason anyone would want a computer in their home.” Darryl Zanuck of 20th Century Fox figured people would “soon get tired of staring at a plywood box every night” and predicted household television would never take off.

The path to enhancing the lives of millions of consumers isn’t always obvious or easy. It is often fraught with great personal risk and financial peril, and met with great skepticism.

Perhaps no one exemplifies taking the risky and difficult path to improving others’ lives more than our skunk-oil entrepreneur: the world’s first billionaire, John D. Rockefeller.

While some have heard of Rockefeller’s humble background and the hard work he devoted to building his fortune, few people know the incredible foresight he exhibited in pursuing ventures that nearly every other investor believed to be bad investments, allowing him unexpectedly to improve the lives of ordinary people.

When it came to skunk oil, Rockefeller saw an opportunity to employ resources that no one else saw a use for. He was convinced that he could purchase up the dirt-cheap crude oil and then invest in discovering a technological innovation that would make it usable. When Standard Oil’s board initially refused to finance the risky project, Rockefeller declared that he would stake some of his own personal fortune, some two to three million dollars, eventually causing the board to grant Rockefeller permission. The investment proved lucrative, as Rockefeller found a technology that would refine the oil while neutralizing the horrid smell. The discovery brought the price of kerosene down to record lows, benefiting millions of consumers (not to mention helping save the whales in the process!).

Rockefeller had a knack for seeing the hidden potential in opportunities that no one else saw. When the Mesabi iron mine was discovered in Minnesota in the late 1800s, investors avoided what they considered to be a risky venture because Mesabi’s ore was notorious for clogging drilling machines. Even iron and steel experts such as Andrew Carnegie saw the ore as worthless; he, too, chose not to invest in the mine. Only Rockefeller made the bold move of investing in the mines. As with skunk oil, he was certain that this ore could be refined and made useable with, at that time, nonexistent technology.

Rockefeller was, once again, proved right when he was later able to provide cheap and useable ore to steel manufacturers after a technology was discovered that made the ore usable. His ability to see a profit opportunity where no one else saw one substantially reduced the costs of steel manufacturing. Cities such as Pittsburgh and Birmingham exploded in economic growth as new factories were opened to utilize the new source of ore. A reduction in steel manufacturing costs allowed for the construction of new railways, bridges, the first skyscrapers in Chicago and New York, and an overall greater infrastructure. Carnegie came to regret his initial judgment and eventually bought the mine’s entire output from Rockefeller.

Not just hardworking and thrifty, Rockefeller also had a natural inclination to see profit where other investors and entrepreneurs saw nothing. Just as importantly, Rockefeller was willing to take great risks investing in projects that no one else dared to invest in. He recognized, as entrepreneurs do today, that substantial profits can only be made by discovering the hidden potential in opportunities that others did not see. Once the first pathbreaking entrepreneur realizes profits, additional investors enter the field, quickly driving down costs and dissipating profits for new investors, all to the benefit of consumers.

Entrepreneurship, when left unfettered, is a continuous process that encourages the creation of seemingly impossible products and services that enrich the lives of billions.

ABOUT DANIEL J. SMITH

Daniel J. Smith is an assistant professor of economics at the Johnson Center at Troy University.

ABOUT ZAC THOMPSON

Zac Thompson is a graduate of the economics program at Troy University.