Budget and Finance – Page 51

CLICHES OF PROGRESSIVISM #7 – The Free Market Ignores the Poor

May 30, 2014/in Budget and Finance, Culture War, Economy, Education, News, Policy, Politics, Regulation, Waste, Fraud and Abuse/by Foundation for Economic Education (FEE)

Editor’s Note: This week’s cliché was authored decades ago by FEE’s founder, Leonard E. Read, and originally appeared in the first edition of Clichés of Socialism. Barely a word has been changed and though a few numbers are dated, the essay’s wisdom is as timely and relevant today as it ever was.)

The Foundation for Economic Education (FEE) is proud to partner with Young America’s Foundation (YAF) to produce “Clichés of Progressivism,” a series of insightful commentaries covering topics of free enterprise, income inequality, and limited government.

Our society is inundated with half-truths and misconceptions about the economy in general and free enterprise in particular. The “Clichés of Progressivism” series is meant to equip students with the arguments necessary to inform debate and correct the record where bias and errors abound.

The antecedents to this collection are two classic FEE publications that YAF helped distribute in the past: Clichés of Politics, published in 1994, and the more influential Clichés of Socialism, which made its first appearance in 1962. Indeed, this new collection will contain a number of essays from those two earlier works, updated for the present day where necessary. Other entries first appeared in some version in FEE’s journal, The Freeman. Still others are brand new, never having appeared in print anywhere. They will be published weekly on the websites of both YAF and FEE: www.yaf.org and www.FEE.org until the series runs its course. A book will then be released in 2015 featuring the best of the essays, and will be widely distributed in schools and on college campuses.

See the index of the published chapters here.

#7 – The Free Market Ignores the Poor

Once an activity has been socialized for a spell, nearly everyone will concede that that’s the way it should be.

Without socialized education, how would the poor get their schooling? Without the socialized post office, how would farmers receive their mail except at great expense? Without Social Security, the aged would end their years in poverty! If power and light were not socialized, consider the plight of the poor families in the Tennessee Valley!

Agreement with the idea of state absolutism follows socialization, appallingly. Why? One does not have to dig very deep for the answer.

Once an activity has been socialized, it is impossible to point out, by concrete example, how men in a free market could better conduct it. How, for instance, can one compare a socialized post office with private postal delivery when the latter has been outlawed? It’s something like trying to explain to a people accustomed only to darkness how things would appear were there light. One can only resort to imaginative construction.

To illustrate the dilemma: During recent years, men and women in free and willing exchange (the free market) have discovered how to deliver the human voice around the earth in one twenty-seventh of a second; how to deliver an event, like a ball game, into everyone’s living room, in color and in motion, at the time it is going on; how to deliver 115 people from Los Angeles to Baltimore in three hours and 19 minutes; how to deliver gas from a hole in Texas to a range in New York at low cost and without subsidy; how to deliver 64 ounces of oil from the Persian Gulf to our Eastern Seaboard—more than half-way around the earth—for less money than government will deliver a one-ounce letter across the street in one’s home town. Yet, such commonplace free market phenomena as these, in the field of delivery, fail to convince most people that “the post” could be left to free market delivery without causing people to suffer.

Now, then, resort to imagination: Imagine that our federal government, at its very inception, had issued an edict to the effect that all boys and girls, from birth to adulthood, were to receive shoes and socks from the federal government “for free.” Next, imagine that this practice of “free shoes and socks” had been going on for lo, these 173 years! Lastly, imagine one of our contemporaries—one with a faith in the wonders of what can be wrought when people are free—saying, “I do not believe that shoes and socks for kids should be a government responsibility. Properly, that is a responsibility of the family. This activity should never have been socialized. It is appropriately a free market activity.”

What, under these circumstances, would be the response to such a stated belief? Based on what we hear on every hand, once an activity has been socialized for even a short time, the common chant would go like this, “Ah, but you would let the poor children go unshod!”

However, in this instance, where the activity has not yet been socialized, we are able to point out that the poor children are better shod in countries where shoes and socks are a family responsibility than in countries where they are a government responsibility. We’re able to demonstrate that the poor children are better shod in countries that are more free than in countries that are less free.

True, the free market ignores the poor precisely as it does not recognize the wealthy—it is “no respecter of persons.” It is an organizational way of doing things featuring openness, which enables millions of people to cooperate and compete without demanding a preliminary clearance of pedigree, nationality, color, race, religion, or wealth. It demands only that each person abide by voluntary principles, that is, by fair play. The free market means willing exchange; it is impersonal justice in the economic sphere and excludes coercion, plunder, theft, protectionism, subsidies, special favors from those wielding power, and other anti-free market methods by which goods and services change hands. It opens the way for mortals to act morally because they are free to act morally.

Admittedly, human nature is defective, and its imperfections will be reflected in the market (though arguably, no more so than in government). But the free market opens the way for men to operate at their moral best, and all observation confirms that the poor fare better under these circumstances than when the way is closed, as it is under socialism.

Leonard E. Read

Founder and President

Foundation for Economic Education, 1946–1983

Summary

Explaining how a socialized activity could actually be done better by private, voluntary means in a free market is a little like telling a blind man what it would be like to see. But that doesn’t mean we just give up and remain blind.
Examples of the wonders of free and willing exchange are all around us. We take them for granted. Just imagine what it would be like if shoes and socks had been a government monopoly for a couple hundred years, versus the variety and low cost of shoes as now provided in free countries by entrepreneurs.
Free markets open the way for people to act morally, but that doesn’t mean they always will; nor should we assume that when armed with power, our behavior will suddenly become more moral.
For more information, see http://tinyurl.com/mkkrcpu, http://tinyurl.com/m8vjqvp,http://tinyurl.com/pfrmbux, and http://tinyurl.com/ocva6hu.

ABOUT LEONARD E. READ

Leonard E. Read (1898-1983) was the founder of FEE, and the author of 29 works, including the classic parable “I, Pencil.”

Why Black Men Need More White Women

May 27, 2014/in Budget and Finance, Commentary, Culture War, Immigration, News, Politics, Regulation/by Raynard Jackson

Black women constantly complain about the dearth of “eligible” Black men to date and marry. Noted sociologist William Julius Wilson has argued that “the increasing levels of non-marriage and female-headed households is a manifestation of the high levels of economic dislocation experienced by lower-class Black men in recent decades.”

He further argued that, “When joblessness is combined with high rates of incarceration and premature mortality among Black men; it becomes clearer that there are fewer marriageable black men relative to black women who are able to provide the economic support needed to sustain a family.”

Then you add in the unfortunate increase in homosexuality within the Black community and you have a recipe for disaster.

This is why Black men need more White women like Ann Coulter and Laura Ingraham. Even though they are conservative media personalities, they have done more to promote the well-being of Black males than many of the very women who stridently complain about the lack of “eligible” Black men.

Coulter is a friend and I find her comments regarding the Black community very insightful. Look at what she said two years ago on “This Week with George Stephanopoulos.” She said, “Groups on the left, from feminists to gay rights groups to those defending immigrants, have commandeered the Black civil rights experience.”

She continued, “I think what – the way liberals have treated Blacks like children and many of their policies have been harmful to Blacks, at least they got the beneficiary group right. There is the legacy of slavery and Jim Crow laws. We don’t owe the homeless. We don’t owe feminists. We don’t owe women who are desirous of having abortions, but that’s — or — or gays who want to get married to one another. That’s what civil rights has become for much of the left.”

Stephanopoulos asked, “Immigrant rights are not civil rights?” Coulter responded, “Civil rights are for Blacks…what have we done to immigrants? We owe Black people something…We have a legacy of slavery. Immigrants haven’t even been in this country.”

Earlier this year, she said, “I mean my whole life I’ve heard Republicans hate Black people, I’ve never seen any evidence of it until I read Marco Rubio’s amnesty bill. We are the party that has always stood up for African-Americans. Who gets hurt the most by amnesty, by continuing these immigration policies it is low-wage workers, it is Hispanics, it is Blacks.”

I don’t know Ingraham personally, but I like what she had to say last month about Democrats and Blacks. “

[Congressman] Steve Israel is reprehensible in what he said [on alleged racism in the Republican Party]…Nancy Pelosi, throw her into the ring [for similar comments]…I say this is a race to the bottom…The Democrats have failed the Black youth in this country with their terrible economic approach. Do we call that racist?

“…They turn their heads away from the millions upon millions of Black babies slaughtered in the womb over 10 years… Is that racist?…Is it racist that they allow inner cities to continue to crumble as families decay across the board in America – especially hard hit is African-American families…It is reprehensible and it’s all about November…This is not about ‘They care about Black people.’ They care about their majority eroding away.”

So, let me make sure I understand. Black women complain about the state of “eligible” Black males to date and marry, yet they support the policies of a president who is going to make the problem much worse.

Under Obama, Blacks have regressed on every economic, social and moral indicator that is tracked. According to the Bureau of Labor Statistics (BLS), the current Black unemployment rate is 11.6 percent; for Blacks aged 16-19 it is at 36.8 percent.

However, the average Black unemployment rate during the terms of the last three presidents, as well as the average over the past 30 years, are noteworthy. Under Clinton, it was 10 percent; under George W. Bush, 9.3 percent but under Obama, 14 percent for the total time he has been in office. The 30-year average for Blacks is 12.4 percent.

Campaign slogans notwithstanding, this isn’t the kind of change we have been waiting for.

Obama has done more for same-sex marriage couples than he has for his same-race brothers and sisters. In fact, Newsweek dubbed him our first gay president – not for his sexual orientation, but for his relentless pandering to homosexuals.

He has also advocated amnesty for those in this country illegally, which will only continue to increase the unemployment rate in the Black community, especially among low and under-skilled Black workers. This will further decrease the pool of potential Black men for women to date and marry. Let’s face it, our women are not going to marry someone who is unemployed or underemployed.

Historically, Black women have been notoriously protective of their men and children. It is ironic that Coulter and Ingraham, two conservative White women, are now assuming that role. We Black men need more White women like Coulter and Ingraham, not Black women who will give a pass to a failing Black president.

CLICHES OF PROGRESSIVISM #6 – Capitalism Fosters Greed and Government Policy Must Temper It

May 26, 2014/in Budget and Finance, Economy, Government Transparency, Policy, Politics, Regulation/by Foundation for Economic Education (FEE)

The Foundation for Economic Education (FEE) is proud to partner with Young America’s Foundation (YAF) to produce “Clichés of Progressivism,” a series of insightful commentaries covering topics of free enterprise, income inequality, and limited government.

Our society is inundated with half-truths and misconceptions about the economy in general and free enterprise in particular. The “Clichés of Progressivism” series is meant to equip students with the arguments necessary to inform debate and correct the record where bias and errors abound.

The antecedents to this collection are two classic FEE publications that YAF helped distribute in the past: Clichés of Politics, published in 1994, and the more influential Clichés of Socialism, which made its first appearance in 1962. Indeed, this new collection will contain a number of essays from those two earlier works, updated for the present day where necessary. Other entries first appeared in some version in FEE’s journal, The Freeman. Still others are brand new, never having appeared in print anywhere. They will be published weekly on the websites of both YAF and FEE: www.yaf.org and www.FEE.org until the series runs its course. A book will then be released in 2015 featuring the best of the essays, and will be widely distributed in schools and on college campuses.

See the index of the published chapters here.

#6 – Capitalism Fosters Greed and Government Policy Must Temper It

On April 19, 2014, the Colonial Bread store in my town of Newnan, Georgia, closed its doors after a decade in business. The parent company explained, “In order to focus more sharply on our core competencies, the decision was made to close some of our retail stores.” A longtime patron responded in the local newspaper this way: “It’s just sad. It’s simply greed and we’re on the receiving end. It’s frustrating to know there isn’t anything you can do about it either.”

Now there’s a rather expansive view of “greed” if there ever was one! Trying to make more efficient the business in which you’ve invested your time and money is somehow a greedy thing to do? And what is it that the disgruntled patron wishes should be done about it? Perhaps pass a law to effectively enslave the business owner and compel him to keep the store open? Who is really the greedy one here?

“Greed” is a word that flows off Progressive tongues with the ease of lard on a hot griddle. It’s a loaded, pejorative term that consigns whoever gets hit with it to the moral gutter. Whoever hurls it can posture self-righteously as somehow above it all, concerned only about others while the greedy wallow in evil selfishness. Thinking people should realize this is a sleazy tactic, not a thoughtful moral commentary.

Economist Thomas Sowell famously pointed out in Barbarians Inside the Gates and Other Controversial Essays that the “greed” accusation doesn’t meet the dictionary definition of the term any more. He wrote, “I have never understood why it is ‘greed’ to want to keep the money you have earned but not greed to want to take somebody else’s money.”

Once upon a time, and for a very long time, “greed” meant more than just the desire for something. It meant the inordinate, obsessive worship of it that often crossed the line into actions that harmed other people. Really, really wanting a million bucks was not in and of itself a bad thing if you honestly worked for it, freely traded with others for it, or took risks and actually created jobs and wealth to secure it. If you worshiped the million bucks to the point of a willingness to steal for it or hire a public official to raid the Treasury on your behalf, then you were definitely a greedy person. Shame on you. If you’re one of those many people today who are willing to stoop to stealing or politicking your way to wealth, you’ve got a lot to answer for.

“Greed” also means, to some people, an unwillingness to share what’s yours with others. I suppose a father who buys a personal yacht instead of feeding his family would qualify. But that’s because he is evading a personal responsibility. He owes it to the family he brought into being to properly care for them. Does the bakery owner who closes his store thereby violate some responsibility to forever serve a certain clientele? Was that ever part of some contract all parties agreed to?

Let’s not forget the fundamental and critical importance of healthy self-interest in human nature. We’re born with it, and thank goodness for that! I don’t lament it for a second. Taking care of yourself and those you love and have responsibility for is what makes the world work. When your self-interest motivates you to do that, it means on net balance you’re good for the world. You’re relieving its burdens, not adding to them.

A common but misleading claim is that the Great Recession of 2008 resulted from the “greed” of the financial community. But did the desire to make money suddenly appear or intensify in the years before 2008? George Mason University economist Lawrence White pointedly explained that blaming greed for recessions doesn’t get us very far. He says, “It’s like blaming gravity for an epidemic of plane crashes.” The gravity was always there. Other factors must have interceded to create a serious anomaly. In the case of the Great Recession, those factors prominently included years of cheap money and artificially low interest rates from the Federal Reserve, acts of Congress and the bureaucracy to jawbone banks into making dubious loans for home purchases, and government entities like Fannie Mae and Freddie Mac skewing the housing market—all policies that enjoyed broad support from Progressives but never from genuinely “free market” people.

The Progressive perspective on “greed” is that it’s a constant problem in the private sector but somehow recedes when government takes over. I wonder exactly when a politician’s self-interest evaporates and his altruistic compassion kicks in? Does that happen on election night, on the day he takes office, or after he’s had a chance to really get to know the folks who grease the wheels of government? When he realizes the power he has, does that make him more or less likely to want to serve himself?

The charlatan cries, “That guy over there is greedy! I will be happy to take your money to protect you from him!” Before you rush into his arms, ask some pointed questions about how the greedy suspect is doing his work and how the would-be protector proposes to do his.

The fact is, there’s nothing about government that makes it less “greedy” than the average guy or the average institution. Indeed, there’s every reason to believe that adding political power to natural self-interest is a surefire recipe for magnifying the harm that greed can do. Have you ever heard of corruption in government? Buying votes with promises of other people’s money? Feathering one’s nest by claiming “it’s for the children”? Burdening generations yet unborn with the debt to pay for today’s National Cowboy Poetry Gathering in Nevada (a favorite pork project of Senator Harry Reid)?

If you are an honest, self-interested person in a free market, you quickly realize that to satisfy the self-interest that some critics are quick to dismiss as “greed,” you can’t put a crown on your head, wrap a robe around yourself and demand that the peasants cough up their shekels. You have to produce, create, trade, invest, and employ. You have to provide goods or services that willing customers (not taxpaying captives) will choose to buy and hopefully more than just once. Your “greed” gets translated into life-enhancing things for other people. In the top-down, socialized utopia the Progressives dream of, greed doesn’t disappear at all; it just gets channeled in destructive directions. To satisfy it, you’ve got to use the political process to grab something from other people.

The “greed” charge turns out to be little more than a rhetorical device, a superficial smear intended to serve political ends. Whether or not you worship a material thing like money is largely a matter between you and your Maker, not something that can be scientifically measured and proscribed by lawmakers who are just as prone to it as you are. Don’t be a sucker for it.

Lawrence W. Reed
President
Foundation for Economic Education

Summary

Greed has become a slippery term that cries out for some objective meaning; it’s used these days to describe lots of behaviors that somebody doesn’t like for other, sometimes hidden reasons.
Self-interest is healthy and natural. How you put it into action in your relationships with others is what keeps it healthy or gets it off track.
Lawmakers and government are not immune to greed and, if anything, they magnify it into harmful outcomes.
For more information, see http://tinyurl.com/lxdrfac, http://tinyurl.com/pyvvx73, and http://tinyurl.com/lj7s2ab.

ABOUT LAWRENCE W. REED

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. Prior to becoming FEE’s president, he served for 20 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.

CLICHES OF PROGRESSIVISM #5 – Warren Buffett’s Federal Tax Rate Is Less than His Secretary’s

May 25, 2014/in Budget and Finance, Economy, Taxes/by Foundation for Economic Education (FEE)

The Foundation for Economic Education (FEE) is proud to partner with Young America’s Foundation (YAF) to produce “Clichés of Progressivism,” a series of insightful commentaries covering topics of free enterprise, income inequality, and limited government.

Our society is inundated with half-truths and misconceptions about the economy in general and free enterprise in particular. The “Clichés of Progressivism” series is meant to equip students with the arguments necessary to inform debate and correct the record where bias and errors abound.

The antecedents to this collection are two classic FEE publications that YAF helped distribute in the past: Clichés of Politics, published in 1994, and the more influential Clichés of Socialism, which made its first appearance in 1962. Indeed, this new collection will contain a number of essays from those two earlier works, updated for the present day where necessary. Other entries first appeared in some version in FEE’s journal, The Freeman. Still others are brand new, never having appeared in print anywhere. They will be published weekly on the websites of both YAF and FEE: www.yaf.org and www.FEE.org until the series runs its course. A book will then be released in 2015 featuring the best of the essays, and will be widely distributed in schools and on college campuses.

See the index of the published chapters here.

#5 – Warren Buffett’s Federal Tax Rate Is Less than His Secretary’s

In August 2011, Warren Buffett wrote an opinion piece in the New York Times in which he made the assertion that his 2010 “federal tax rate” of 17.4 percent was 18.6 percentage points less than the 36.0 percent average rate paid by the 20 other workers in his office.

Buffett’s piece garnered substantial media attention and, in the months since its publication, his “federal tax rate” assertion has been woven into the fabric of American politics. His analysis was the basis for the “Buffett Rule,” a tax plan proposed by President Obama that would implement measures under which everyone making more than $1 million in income per year would pay a minimum effective tax rate of 30 percent.

Clearly, given Buffett’s status as a legendary businessman and investor (the “Oracle of Omaha”), his tax analysis carried a great deal of credibility and, as such, it was never challenged. Adding to the unchallenged acceptance of Buffett’s assertion was the fact that Buffett never released (a) his 2010 federal tax return, (b) the federal tax returns of his office workers, or (c) the analysis underlying his “federal tax rate” assertion.

In truth, Buffett’s assertion is completely inaccurate and is based on a fundamentally flawed analysis of basic federal taxation principles. In reality, he pays a much higher relevant “federal tax rate” than any of his office workers.

First of all, payroll taxes (Social Security and Medicare) are totally irrelevant for this type of analysis. Because these taxes were not assessed on non-wage income (prior to 2013), and because Social Security taxes were only assessed on the first $106,800 of wage income in 2010, the amount Buffett paid into these programs was very close, in dollar terms, to the amounts paid into them by each of his office workers. But because Buffett had total taxable income of almost $40 million, the amount of Social Security and Medicare taxes he paid in 2010 represented only a tiny fraction of his total taxable income. For most of his office workers, these taxes represented 7.65 percent of their taxable income (even though they paid roughly the same amount as Buffett did in dollar terms). This 7.65 percent payroll tax differential is part of the 18.6 percent differential cited by Buffett in his op-ed piece.

But what Buffett failed to mention is that Social Security and Medicare benefits are capped as well. Upon retirement, Buffett will receive almost exactly the same Social Security and Medicare benefits (in dollar terms) that his office workers will receive. There is very little differential between Buffett and his office workers in terms of what they pay into the Social Security and Medicare programs and what they will receive in benefits. As such, the 7.65 percentage point “federal tax rate” differential between Buffett and his co-workers arising from the existing Social Security and Medicare taxing mechanism is simply not relevant and is a mirage.

A second flaw in Buffett’s analysis has to do with the fact that he included employer-paid payroll taxes in coming up with his and his office workers’ “federal tax rates.” The obvious problem here is that Buffett’s coworkers do not pay these taxes. Rather, Buffett does as a partial owner of their employer, Berkshire Hathaway. Buffett’s inclusion of these taxes in his analysis was clearly incorrect, and it distorts the rates he cited. Of course, he included employer-paid payroll taxes to double the 7.65 percent “federal tax rate” differential mirage identified in the previous paragraph.

Buffett himself owns 33.9 percent of Berkshire Hathaway, a publicly traded corporation with taxable income of $19.1 billion in 2010. Assuming a very conservative corporate federal tax rate of 25 percent, Berkshire will ultimately pay $4.76 billion in federal corporate income taxes on this taxable income. Corporate taxes are borne by shareholders of the corporation, in that these taxes reduce the amount of cash available for (a) dividend payments (Berkshire has not historically paid dividends to its shareholders), or (b) reinvestment into the corporation in order to increase shareholder value.

Given his ownership stake in Berkshire, Buffett bore 33.9 percent of the $4.77 billion in federal corporate taxes, or $1.61 billion. Buffett ignored this tax amount in compiling his “federal tax rate” analysis. If Buffett’s share of corporate taxable income and corporate taxes paid are factored into his analysis, his overall 2010 “federal tax rate” increases by 7.56 percentage points, from 17.4 percent to 24.96 percent.

As an employer, Berkshire matches the Social Security and Medicare taxes paid by its employees. These taxes are borne by the shareholders of Berkshire for the same reasons corporate income taxes are. Using reasonable assumptions and data gleaned from the company’s 2010 SEC filings, Buffett’s share of these taxes was approximately $400 million in 2010. If these taxes are included (and they certainly should be), his 2010 “federal tax rate” increases by 6.16 percentage points to 31.12 percent.

Let’s do the math. Buffett, in his analysis, overstated his office workers’ “federal tax rate” by including irrelevant payroll taxes (7.65 percent) and employer-paid payroll taxes (7.65 percent). In actuality, his office workers’ relevant 2010 “federal tax rate” was 20.7 percent, not 36.0 percent, while Buffett’s was actually 31.12 percent, not 17.4 percent.

Bottom line: Buffett’s 2010 relevant “federal tax rate” was actually at least 10.4 percentage points higher than the average rate paid by his office workers.

Who knew?

It is quite troubling that Buffett’s original Times op-ed piece, based upon such a flawed and incomplete analysis, has gained such unchallenged visibility and credibility within the landscape of American politics. While Buffett should be chastised for putting out such an inaccurate and misleading analysis, political commentators on the right should be faulted for not doing their research and for not effectively raising a challenge against the flawed thinking underlying Buffett’s op-ed.

George P. Harbison

Executive Vice President and Chief Financial Officer

Trident University International, LLC

Cypress, California

Summary

Warren Buffett created a new tax metric by combining individual income taxes and payroll taxes into one “federal tax rate.” He then asserted that his 2010 “federal tax rate” of 17.4 percent was 18.6 percentage points lower than the 36.0 percent average “federal tax rate” paid by his office workers.
The Social Security and Medicare taxing mechanisms in place in 2010 were inherently fair. Ascribing a “federal tax rate” differential to employee-paid payroll taxes, as Buffett did, is analytically incorrect. This 7.65 percentage point “federal tax rate” differential is a mirage.
Incredibly, Buffett included employer-paid (matching) payroll taxes in his calculations as well, thus doubling the 7.65 percentage point differential.
Buffett ignored, in his calculations, the roughly $1.6 billion in corporate income taxes he bore in 2010 as a one-third owner of Berkshire Hathaway. He also ignored his share (roughly $400 million) of Social Security and Medicare matching taxes that Berkshire Hathaway paid to employees.
The analytically correct comparison, excluding individual payroll taxes and including corporate income and payroll taxes, shows that Buffett’s “federal tax rate” was actually over 10 percentage points higher than the average rate of his office workers in 2010.
For further information, see http://tinyurl.com/mn4z9rr, http://tinyurl.com/kt8kcds,http://tinyurl.com/lzdg7ym, and http://tinyurl.com/lxdrfac.

Editor’s Note: This essay originally appeared on Forbes.com in October 2013.

ABOUT GEORGE P. HARBISON

George P. Harbison is the Executive Vice President and Chief Financial Officer of Trident University International, LLC.

Slogans or Science? Regression toward the meme in the minimum wage debate by Sandy Ikeda

May 25, 2014/in Budget and Finance, Economy, Policy, Politics/by Foundation for Economic Education (FEE)

The debate over raising the legal minimum wage (LMW) to $10 an hour has people on both sides saying things they should know better than to say. For example, a friend recently posted the following meme (which isn’t the worst I’ve seen) on Facebook:

One year ago this week, San Jose decided to raise its minimum wage to $10/hour.

Any jobs disappear?

The number of minimum wage jobs has grown.

Any businesses collapse?

The number of businesses has grown.

Any questions?

Yes, several, but I’ll get to those in a bit.

Memes like these are just as silly and misleading as the simplistic arguments they’re probably attacking. In fact, the economic analysis of significantly raising the minimum wage says that, other things equal, it will reduce employment below the level where it would otherwise have been. It doesn’t say that that employment will fall absolutely or businesses will collapse.

A little thinking can go a long way

Have a look at this chart published in the Wall Street Journal. At first, it seems to support the simplistic slogans. But it’s important to compare similar periods, such as March–November 2012 (before the increase was passed) versus March–November 2013, (just after it went into effect). The LMW increase wasn’t a surprise, so in the months before it was passed, businesses would have been preparing for it, shaking things up. Comparing those two periods, which makes the strongest case for the meme’s assertions, the total percentage increase in employment (the area under the red line) looks pretty close, going just by my eyeballs and a calculator. In fact, the post-hike increase might actually be smaller, but you’d need more data to be sure. So if you compare similar periods, the rate of employment growth seems not to have been affected very much by the hike. So is the meme right?

According to that same chart and other sources, hiring in the rest of California and the country, where for the most part there was no dramatic increase in the LMW, was also on the rise at pretty much the same time. Why? Apparently, the growth rate of the U.S. economy jumped in 2012, especially in California. So the demand for inputs, including labor, probably also increased. I’m certainly not saying this correlation is conclusive, but you could infer that while hiring in San Jose was rising, it wasn’t rising as fast as it might have otherwise, given the generally improving economy.

That’s a more ambiguous result, and of course harder to flit into a meme.

You are stupid and evil and a liar!

Those strongly in favor of raising the LMW cast opponents as Republican apologists for big business. Take this post from DailyKos, which apparently is the source of the above meme. The author writes, “Empirically, there’s no clear negative effect that can be discerned. The concerns of Teahadists like Paul Ryan and Marco Rubio is [sic] rather unfounded in academic literature and in international assessments of natural experiments.”

Now, the overwhelming conclusion of years of economic research on the effects of a minimum wage on employment is that it tends to increase, not lower, unemployment. As this article from Forbes summarizes, “In a comprehensive, 182-page summary of the research on this subject from the last two decades, economists David Neumark (UC-Irvine) and William Wascher (Federal Reserve Board) determined that 85 percent of the best research points to a loss of jobs following a minimum wage increase.”

So, saying there is “no clear negative effect” is an outrageously ignorant claim. And there’s not one mention of the economic evidence that significantly raising the LMW will hurt the very people you wish to help: the relatively poor. But why address solid scientific research when there’s sloppy sloganeering by politicos to shoot down?

Attacking easy targets is understandable if you want to vilify your opponents or win an easy one for the cause. In that case, you take the dumbest statement by your rival as the basis of your attack. Such is the way of politics. In intellectual discourse, however, you may win the battle but you’ll lose the war. That is, if your goal is to learn from fruitful intellectual discussion, you must engage your opponent’s best arguments, not her weakest ones.

Let me use a counterexample. The sloganeering approach to attacking those who oppose raising the LMW is the equivalent of someone saying: “Well, this past winter was one of the coldest on record in the Midwest. So much then for global warming!” That may be “evidence” in a mud-slinging contest, but it’s not science.

What’s the theory?

While weather is complex and unpredictable, economic systems are even more so. Does that mean there are no principles of economics? Of course not. In fact, it’s because of such complexity that we need whatever help economic theory can offer to organize our thinking. And it doesn’t get any more basic than this: The demand curve for goods slopes downward.

That is, other things equal, the costlier something is, the less of it you’ll want to buy.

Note that the caveat—other things equal—is as important as the inverse relation between price and quantity demanded. That’s why my earlier back-of-the-envelope analysis had to be conditional on more data. Unfortunately, those data are often very hard to get. Does that mean we abandon the theory? Well, that would be like letting go of the rope you’re hanging on to for dear life because you’re afraid it might break.

So what exactly is the theory behind the idea that raising the LMW will increase hiring low-wage workers and boost business? If raising wages will actually increase employment and output, then why not also mandate a rise in interest rates, rents, electricity rates, oil prices, or the price of any of the other myriad factors of production that businesses ordinarily have to pay for? I would hope that this idea would give even the meme promoters pause.

As far as I know, the only situation in which forcing people to pay a higher wage rate will increase employment is when there is a dominant employer and there are barriers to competition. Economists term this “monopsony,” a situation that might occur in a so-called “factory town.” There, the dominant employer (of labor, capital, land, or whatever) can lower what she pays for inputs below the revenue that an additional unit of input earns the company. I would love to hear that argument and challenge it, because it’s the strongest one that standard economics can offer in favor of coercing businesses to raise wages. But so far I’ve not come across it, let alone any discussion of the economic literature on monopsony in the labor market, most of which questions its relevance. Some almost random examples are here and here.

Margins of analysis

Finally, economics teaches us that we can adjust to a particular change in different ways. In a thoughtful article on the effect of the LMW increase in San Jose that all sides of the debate should read, we get the following anecdote:

For his San Jose stores to make the same profit as before the wage increase, the same combo meal would be $6.75. “That would chase off a large percentage of my customers,” Mr. DeMayo said. He hasn’t laid off San Jose workers but has reduced their hours, along with some maintenance such as the drive-through lane’s daily hosing, and may close two unprofitable stores.

Employers can adjust to higher costs in one area by cutting back on spending in others. That might mean less unemployment than otherwise, but it doesn’t mean that raising the LMW has no negative employment effect at all. It means that the effects are harder to see. There’s that darn “other things being equal” again!

Slogans and memes are no substitute for science, or even clear thinking.

ABOUT SANDY IKEDA

Sandy Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism. He will be speaking at the FEE summer seminars “People Aren’t Pawns” and “Are Markets Just?“

Bastiat for Younguns: There’s a new children’s book about “The Law”

May 25, 2014/in Budget and Finance, Courts & Law, Education, News/by Foundation for Economic Education (FEE)

Connor Boyack has joined forces with illustrator Elijah Stanfield to create a children’s book about Frederic Bastiat’s The Law. It’s called The Tuttle Twins Learn about The Law.

The Tuttle Twins—a brother and a sister—are curious about life and the world. Luckily they have a wise older neighbor, Fred, who can drop some wisdom about morality and the role of government.

Channeling the ideas of Bastiat himself, Boyack uses Fred to offer the twins—and young readers—precious nuggets like, “In many cases, the bad guys can become part of the government!” Not to mention, “Bad guys in government don’t wear capes or look like villains,” Fred said. “They look normal and say things that a lot of people like,” he explained.

Fred goes on to describe the familiar processes of legal plunder.

Readers will find that the authors play up Bastiat’s theological justification for rights. But any fans of The Law, secular or religious, will find the book does justice to Bastiat’s ideas.

CLICHES OF PROGRESSIVISM #4 – The More Complex the Society, the More Government Control We Need

May 25, 2014/in Budget and Finance, Economy, Government Transparency, News, Policy, Regulation/by Foundation for Economic Education (FEE)

The Foundation for Economic Education (FEE) is proud to partner with Young America’s Foundation (YAF) to produce “Clichés of Progressivism,” a series of insightful commentaries covering topics of free enterprise, income inequality, and limited government.

Our society is inundated with half-truths and misconceptions about the economy in general and free enterprise in particular. The “Clichés of Progressivism” series is meant to equip students with the arguments necessary to inform debate and correct the record where bias and errors abound.

The antecedents to this collection are two classic FEE publications that YAF helped distribute in the past: Clichés of Politics, published in 1994, and the more influential Clichés of Socialism, which made its first appearance in 1962. Indeed, this new collection will contain a number of essays from those two earlier works, updated for the present day where necessary. Other entries first appeared in some version in FEE’s journal, The Freeman. Still others are brand new, never having appeared in print anywhere. They will be published weekly on the websites of both YAF and FEE: www.yaf.org and www.FEE.org until the series runs its course. A book will then be released in 2015 featuring the best of the essays, and will be widely distributed in schools and on college campuses.

See the index of the published chapters here.

#4 – The More Complex the Society, the More Government Control We Need

Argued a college president at a recent seminar: “Your free market, private property, limited government theories were all right under the simple conditions of a century or more ago, but surely they are unworkable in today’s complex economy. The more complex the society, the greater is the need for governmental control; that seems axiomatic.”

It is important to expose this oft-heard, plausible, and influential fallacy because it leads directly and logically to socialistic planning. This is how a member of the seminar team answered the college president:

“Let us take the simplest possible situation—just you and I. Next, let us assume that I am as wise as any President of the United States who has held office during your lifetime. With these qualifications in mind, do you honestly think I would be competent to coercively control what you shall invent, discover, or create, what the hours of your labor shall be, what wage you shall receive, what and with whom you shall associate and exchange? Is not my incompetence demonstrably apparent in this simplest of all societies?

“Now, let us shift from the simple situation to a more complex society—to all the people in this room. What would you think of my competence to coercively control their creative actions? Or, let us contemplate a really complex situation—the 188,000,000 people of this nation [Editor’s note: now, in 2014, about 318 million]. If I were to suggest that I should take over the management of their lives and their billions of exchanges, you would think me the victim of hallucinations. Is it not obvious that the more complex an economy, the more certainly will governmental control of productive effort exert a retarding influence? Obviously, the more complex our economy, the more we should rely on the miraculous, self-adapting processes of men acting freely. No mind of man nor any combination of minds can even envision, let alone intelligently control, the countless human energy exchanges in a simple society, to say nothing of a complex one.”

It is unlikely that the college president will raise that question again.

While exposing fallacies can be likened to beating out brush fires endlessly, the exercise is nonetheless self-improving as well as useful, in the sense that rearguard actions are useful. Further, one’s ability to expose fallacies—a negative tactic—appears to be a necessary preface to influentially accenting the positive. Unless a person can demonstrate competence at exploding socialistic error, he is not likely to gain wide audiences for his views about the wonders wrought by men who are free.

Of all the errors heard in classrooms or elsewhere, there is not one that cannot be simply explained away. We only need to put our minds to it. The Foundation for Economic Education seeks to help those who would expose fallacies and accent the merits of freedom. The more who outdo us in rendering this kind of help, the better.

Leonard E. Read

Founder and President of FEE, 1946–1983

Summary

Complexity does not automatically suggest centralization of power.
You and I have full-time jobs managing our own respective lives; our task increases exponentially if we try to control the lives of a handful of others, and it explodes beyond reason if we try to control the lives of millions.
For further information, see http://tinyurl.com/p7kauf5, http://tinyurl.com/l7wbfa8,http://tinyurl.com/om9kybb, and http://tinyurl.com/ozxu23l

Editor’s Note

This was the first chapter in the first edition of FEE’s Clichés of Socialism when it appeared in 1962. Though the “complexity requires control” fallacy is not publicly expressed so boldly today, it is still implicit in the core assumptions of modern Progressivism. Almost every new innovation gives rise to some call from some Progressive somewhere to regulate it, monitor it, sometimes even ban it. Rarely will a Progressive reject new assignments for government, even though it has already assumed so many that it manages so poorly (and at a financial loss). It behooves us to point out that the more government attempts to control, the less well it will perform all of its duties, including the essential ones. Leonard Read passed away in 1983, but his wisdom as expressed here still resonates.

ABOUT LEONARD E. READ

Leonard E. Read (1898-1983) was the founder of FEE, and the author of 29 works, including the classic parable “I, Pencil.”

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

Poker and the Free Market by Robert Stewart

May 25, 2014/in Budget and Finance, Economy, News/by Foundation for Economic Education (FEE)

Good Poker Players Have More in Common with Entrepreneurs than with Gamblers.

Until recently I was a director and the chairman of the audit committee of one of Bermuda’s banks, but I lived with a guilty secret, almost the equivalent of being an alcoholic or, even worse, a smoker. I played poker regularly and had done so since I was about 20 years old. A public poker game was held in a bar in Bermuda called Flannagan’s, and I played there a few times until about five years ago. A friend suggested that I should not participate in a public game since customers and shareholders of the bank would get the wrong impression I was gambling. Poker, of course, is not gambling, although the authorities took a different stance and closed the game down on the grounds that people like me need protection from ourselves. Poker appears to be about gambling, but it is a game of immense skill—skill that is based on betting and reading the bets of other players.

However, the more I thought about it the more I began, belatedly, to realize that poker has as much in common with the free market as banking—indeed more, in light of some of the recent bailouts in the United States. There is no lender of last resort like the Fed, and no friendly Uncle Sam saying that you are too big to fail.

But I get ahead of myself.

The origins of poker are obscure (they go back to Persia in the fourteenth century to a card game called “as nas”), but most historians give the honour of developing the modern game to the French residents of New Orleans, the home of jazz and enjoyable living. It spread up the Mississippi through paddle steamers (showbiz historians will remember that in Showboat the main character was Gaylord Ravenal, a huge romantic but a rotten poker player). It was played by soldiers of both sides during the Civil War and then made its way to the Wild West and became a staple of cowboy movies. Violence has always been associated with the game, wrongly in my view, and many westerns feature poker disputes. Wild Bill Hickok was shot by Crooked Nose McCall in Deadwood in 1876 during a poker game when he held a hand of two aces, two eights and a queen, immortalized as the dead-man’s hand. Benny Binion, owner of Binion’s Horseshoe Casino in Las Vegas, who hosted the First World Series of Poker tournament in 1970, was a convicted murderer.

Spontaneous Order

The game is a good example of spontaneous order, not unlike the development of language, dancing, or the free market, where cooperation and coordination among people arise without conscious government or other deliberate direction. It is a classic product that arises not because of human design, but because of human action.

Poker is normally played by five to eight players, usually but not exclusively males who enjoy the raucous company of one another plus the thrill and skill of being able to make a few dollars at the expense of their friends. The rules are pretty simple—to avoid boring everyone, they can be found in many reference books—and are enforced by all participants in an unequivocal way in much the same manner as golf rules are enforced by the U.S. Golf Association.

There are no extenuating circumstances, and genuine mistakes are regarded as acts of remarkable stupidity and penalized accordingly. No friendly banking window, no Ben Bernanke, just a fleeting look of sympathy (or contempt) as the other participants pocket your dough. This is capitalism at its rawest. You keep the benefits, but you pay the full price if you get it wrong. Best of all, you are not taxed on your winnings—unless you are good enough to win the World Series of Poker. There is no moral hazard because the participant bears the losses of his actions (or bets), and he will be constrained in his actions because of the burden of potential losses.

Arguments about the rules of poker are rare. They have been established for years now, and although there can be local variations, the players generally all know the rules. There is no nonsense about living rules that need to be interpreted as social or economic circumstances change. However, nothing is perfect. Daniel Seligman, a writer for Fortune, in a delightful essay titled “Poker Memories” cites taking an arcane dispute to a professor of jurisprudence and public policy at Fordham Law School because his writings evidenced a lifetime of dealing at a high level with questions of justice and ethics. In my experience, it is rare for there to be an unresolved question about the rules. Anyway, people are too impatient to get on with the game rather than haggle about some obscure point of procedure.

A Zero-Sum Game

In one vital aspect poker is unlike a free-market economy. It is a zero-sum game. Participants who win are exactly matched dollar for dollar by those who lose. Indeed, playing in a casino setting it is even worse than a zero-sum game as the “house” takes its cut for organizing the game. By contrast, in a free market, both buyer and seller gain something—otherwise, no exchanges would take place.

That being said, most of the people with whom I play put the five or six hours of entertainment ahead of dining at the best restaurants, and even a bad night with the cards is less expensive than paying for an expensive dinner.

Over the past five years poker has enjoyed a renaissance thanks to television and the Internet. Online players are estimated to wager more than $250 million per day. On most evenings a viewer may watch a game and get a sense of the excitement that arises, notwithstanding that the game most frequently telecast is Texas Hold ’Em, probably the most boring of all poker games and scorned as “poker for dummies.”

Indeed, so popular has the game become that it is the central theme in movies such as Lucky You, about a professional poker player, played by Eric Bana, who gets a lesson in life from a struggling singer played by Drew Barrymore; a few poker personalities make cameo appearances. Even James Bond in Casino Royalehas given up baccarat in favor of Texas Hold ’Em.

Risk and Uncertainty

Competing against seven hardened veterans of poker means that the risk of failure is pretty high—at least 6 to 1 against—but less risky than the business world, where the failure rate is higher. Unlike a job in the civil service, the monetary rewards from playing poker are not predictable, and like most business ventures it does not provide a guaranteed income. There is always and everywhere uncertainty. In the free market, unless you serve the consumer at least as well as your competitor, you will end up broke—this is known as creative destruction. In poker, unless you are consistently better than your rivals over a five-hour period, you will end up the same way. It is you versus the rest, and in the poker world, there are only two types: winners and losers, with the latter being the more numerous. It is a game of immense skill, not luck, although in the short term luck can temporarily overcome skill just as it can in economic life. But as most people know, luck comes in two packages—good and bad—and no one knows in advance which will apply.

In short, success at poker has much in common with success as an entrepreneur. Ludwig von Mises says it best in Planning for Freedom: “The entrepreneurs are neither perfect nor good in any metaphysical sense. They owe their position exclusively to the fact that they are better fit for the performance of the functions incumbent upon them than other people are. They earn profit not because they are clever in performing their tasks, but because they are more clever or less clumsy than other people are.”

Few people play poker for “Monopoly” (or play) money because it does not mean anything; any incentive to win would evaporate if the participants knew that no one was going to win or lose. If there is nothing at stake the game is meaningless, just like the communist economies before 1989. In a socialist or communist country, as Henry Hazlitt pointed out in The Foundations of Morality, “If I am a government commissar selling something I don’t really own, and you are another government commissar buying it with money that isn’t really yours, then neither of us really cares what the price is.” Prices and real money depend on the possibility of personal profit or loss.

You would be sneered at in disbelief if you alleged after a year of playing poker that the distribution of income was unfair and, because you find yourself with less cash than you think you should have, someone should bail you out in the name of social justice. There are no affirmative-action policies and no redundancy payments for bad poker players, no unemployment insurance, no subsidies, no tax write-offs, no pension after 40 years for having played the game sportingly. There are no alibis in poker.

Many poker games use chips instead of cash. They are easier to use than notes, can be given different values based on color, can be stacked with ease, and can easily be counted when the game ends. Each player, for example, can put $200 (or $2,000) in the kitty and at the end of the night cash in his chips against notes in the kitty. Should the host for the evening borrow extra chips without a corresponding donation to the kitty, there will be a cash shortage at the end of the evening when the players cash in. With seven players there could be chips valued at $1,500 but only $1,400 in cash. Any host who tried this stunt would suddenly find that no one would play with him. But is that not what central banks do? They create money (chips) out of thin air by using the printing press and when the public comes to spend it on goods and services they find that prices have gone up—which is the same thing as saying that the value of money has gone down.

The Fed and the Bank of England are really like crooked hosts. They create money without a corresponding payment to the kitty. In poker you would be banned—or shot, if you played in Deadwood. In central banking, the chairman of the Fed is listened to with respect and awe, and collects accolades when he retires.

Just as people can trade freely with everyone irrespective of age, sex, race, national origin, income, or any other irrelevance, poker players have no objection to anyone participating in the game provided he plays by the rules and does not complain if he loses. Indeed, any televised poker game provides a representative sample of society, although your grandmother might think that there are more than a fair number of shady characters wearing dark glasses and baseball caps with odd nicknames like Amarillo Slim. Poker is a great social equalizer: So long as you have the cash you are welcome to pull up a chair. It is rare for someone, even a stranger, who wants to borrow to be denied a loan from another player; and it is equally rare, in my experience, for a debt not to be repaid in full. Financial responsibility is an unexpected characteristic of most players.

The essayist Leonard Kriegel, in an article titled “Poker’s Promise” in the New York Times Magazine, stated, “No game commanded greater loyalty and no game promised more. Along with the intricacies of baseball, poker was a cultural bridge that helped you cross over into a wider world. No game better embodied the enormous sense of possibility we felt was ours by right of having been born in this America. A man could shed the past in poker. What could be more American than that?”

Imperfect Knowledge

Poker, like capitalism, is a game of incomplete information. In the free market there is always imperfect knowledge and uncertainty. In poker, it is possible to calculate the odds of drawing a king to make a full house, or whether the amount in the pot is sufficient to risk calling a bet, but these are mere fragments of the information required.

Donald Boudreaux, in his May 2000 column in this magazine, wrote:

In The Future and Its Enemies, Virginia Postrel notes the astonishing fact that if you thoroughly shuffle an ordinary deck of 52 playing cards, chances are practically 100 percent that the resulting arrangement of cards has never before existed. Never. Every time you shuffle a deck, you produce an arrangement of cards that exists for the first time in history. The arithmetic works out that way. For a very small number of items, the number of possible arrangements is small. Three items, for example, can be arranged only six different ways. But the number of possible arrangements grows very large very quickly. The number of different ways to arrange five items is 120 . . . for ten items it’s 3,628,800 . . . for fifteen items it’s 1,307,674,368,000.

The number of different ways to arrange 52 items is 8.06667. This is a big number. No human can comprehend its enormousness. By way of comparison, the number of possible ways to arrange a mere 20 items is 2,432,902,008,176,640,000—a number larger than the total number of seconds that have elapsed since the beginning of time ten billion years ago—and this number is Lilliputian compared to 8.06667.

This means that everyone playing poker is pretty much in the dark about what is going happen. To be a consistent winner means paying attention to minute detail, but it also means that the unexpected is always likely to happen. Like a participant in the economy, nothing is forever and nothing is certain. There is always the ever-present risk of being bested by the unforeseen. Is this not the problem of knowledge to which Hayek drew our attention? As he explains in “The Use of Knowledge in Society,” “The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. Or put briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.”

A good poker player does not play just the odds; he also plays the people. Is a bet of $100 a bluff or a warning that your opponent holds four aces? Is the sweat on the hands of your opponent a result of the air conditioner not working or does it arise from the fact that the guy across the table is playing you for a sucker? Not all the information that you need to make a correct decision is available and it never will be.

The late John von Neumann, a mathematician involved in the development of the computer and the atomic bomb, sought to apply the principles of mathematics to poker, but he soon discovered that bluffing, deception, human fallibility, and human ingenuity were not promising subjects for the application of mathematical principles. Others have tried to apply what is known as game theory, but without any notable success. The geeks have failed to best the uneducated cowboys. That lack of success is similar to the failure of computer-generated studies to forecast with any degree of accuracy (or usefulness) the track of free-market economies. Time will tell if the same types of studies will be able to forecast accurately the climate of the world in 50 years time. But it must be remembered that poker (like economics) is not a hard science like physics, where predictions can be made in laboratory-like conditions. For a computer program to work, poker would have to be a game in which nothing unexpected happens. People would have to be predictable. Anyone who knows anything knows that people are totally unpredictable, and this is especially true of those who play poker.

In a free economy information is not free and is difficult to acquire. Government regulators, for example, always like to speak about uniform standards and processes, as do security personnel at airports. I wonder if these people play poker, because if they do, using uniform standards would mean that they are guaranteed losers. If you always fold when you have a mediocre hand or shake with excitement when you have a certain winner, your opponent will know exactly what you are up to and the chances are you will be a consistent loser. What is needed is not uniform or standardized behavior but unpredictable behavior. You want your opponent always to be guessing at what you have in your hand. Predictable security standards at airports assure that some criminal will do the unexpected. So will those who are regulated, as the 2008 subprime financial crisis indicated. I’ll bet my house that it was a poker player who came up with structured investment vehicles, which were developed to get around regulators.

Good poker players are like entrepreneurs: You need greater skill than average to anticipate the future. As Mises so cogently puts it in Human Action, “What distinguishes the successful entrepreneur and promoter from other people is precisely the fact that he does not let himself be guided by what was and is, but arranges his affairs on the ground of his opinion about the future. He sees the past and the present as other people do; but he judges the future in a different way.”

Incentives Matter

Most of all, poker is a game of incentives. It has been said of economics that it is only a question of incentives; the rest is merely detail. No one in his right mind would play if, at the end of the evening, the money won and lost had to be redistributed to ensure fair shares. Any poker game run on that basis would be a complete flop. In real life an economy that seeks to ensure that losers are compensated from the earnings of the winners (those who cater to the wishes of the consumer) would not be a place that winners would like to frequent. One of the central lessons of poker, and the free market, is that when incentives change, individual behavior also changes.

In the current world of high oil prices, futures markets, structured investment vehicles, and hedge funds, speculators are often blamed for creating mayhem and dismissed as mere gamblers or poker players. What difference is there between betting on two pairs in poker and taking a position on oil or corn? Are not speculators merely well-dressed poker players with Ivy League names?

There is a big difference. Poker is an artificially contrived uncertainty devised for entertainment or thrills, while the speculator clearly discerns unnoticed opportunities for profits and alertly exploits them. “Whereas the gambler is attentive to the world of artificial indeterminacy, the speculator keeps an economic vigil over the real, uncontrived future” (John A. Sparks, “The Fellows with Black Hats: The Speculators,” The Freeman, August 1974).

There is certainly a close affiliation between playing poker and commercial speculation, but that simply makes my point that poker is but a surrogate for the free market.

ABOUT ROBERT STEWART

U.S. Military: “Going Green” is Putting our Soldiers, Sailors, Airmen and Marines at Risk

May 25, 2014/in Budget and Finance, Environment, Featured, National Security, News, Policy, Waste, Fraud and Abuse/by Dr. Richard M. Swier, LTC U.S. Army (Ret.)

There has been a push by the Obama administration’s Department of Defense to “go green”. But what if this effort puts our soldiers, sailors, airmen and Marines at risk on the battlefield?

The Environmental Protection Agency has been pushing to outlaw lead bullets.

Lead free bullets.

Fox News reporter Perry Chiaramonte wrote in his column “End of the line for the lead bullet?“:

The bid to ban lead bullets, seen by some as harmful to the environment, started slowly more than a decade ago. But with two dozen states, including California, banning bullets made of the soft, heavy metal, the lead bullet’s epitaph was already being written when the federal government finished it off.

First, the military announced plans to phase out lead bullets by 2018.”

Then the federal Environmental Protection Agency, citing emissions, ordered the shutdown of the Doe Run company’s lead smelter in Herculaneum, Mo., by year’s end.

Whether by state or federal regulation, or by market forces, lead bullets will be all but phased out within a few years in favor of so-called green bullets, experts say. [Emphasis added]

Major John L. Plaster, US Army (Ret.) in a column titled “It Has To Be Green” writes, “Spanning a decade-and-a-half, and costing taxpayers about $100 million, the process of adopting the lead-free 5.56×45 mm NATO M855A1 ball cartridge was hardly transparent. At times, lethality, accuracy and battlefield performance seemed to take a backseat to environmental factors.” [Emphasis added]

Going green also impacts the military budget dramatically.

Brian Slattery and Michaela Dodge in their article “Biofuel Blunder: Navy Should Prioritize Fleet Modernization over Political Initiatives” write, “For the past several years, the President and Navy Secretary Ray Mabus have directed the U.S. Navy to dedicate increasingly precious budgetary resources to establish a “green fleet”—i.e., to replace conventional diesel fuel for ships with biofuels harvested from organic material. Supporters claim that instability in the fossil fuel market justifies paying more for unproven technologies, but this initiative will in effect cause fiscal instability in an already unstable Department of Defense budget.”

Slattery and Dodge list multiple reasons that biofuel is not the answer including:

Diesel Will Be Plentiful. The American petroleum sector is currently undergoing a booming revival, and new sources of fuel such as shale will decrease demand for diesel elsewhere in the U.S. economy. This will help secure sources of diesel to be readily available to the U.S. military.
No Established International Infrastructure. That could cause considerable challenges given the Navy’s global reach. It might be difficult or even impossible to refuel a “green” ship in foreign waters, because a foreign biofuel infrastructure capable of meeting the Navy’s needs is almost non-existent. Even if the U.S. builds its own supply chain for the Navy, it would still have to rely on diesel if refueling in foreign ports.
Increased Corrosion. Studies have shown that biofuels are more corrosive than regular diesel and can therefore increase maintenance costs within the Navy’s fleet. This would only worsen the current fleet’s dire situation, since inspection failures are already occurring at an alarming rate within the fleet. Increasing average age of U.S. fleet; delayed, deferred, and underfunded modernization; and use of fuels with potentially harmful consequences is a recipe for a fleet readiness crisis.
Increased Expenses. Biofuels are disproportionately more expensive than conventional fuels. A gallon of biofuel costs $26, whereas the Department of Defense purchases diesel at about $3.60 per gallon. Many argue that this rate will decrease over time as biofuel production increases, but in the interim, the Navy’s readiness would be further damaged by wasting precious resources on biofuels that are seven times more expensive than the Navy’s conventional fuels—not including the increased maintenance costs.
An Already Unstable Funding Environment. Even in a fiscally robust environment, biofuels are not a wise allocation of the Pentagon’s funds. The U.S. military is currently facing serious funding reductions due to sequestration, which was mandated by the Budget Control Act of 2011. Under these cuts, the Navy will be unable to sustain its current shipbuilding rate, which has already been below the necessary level for a number of years.

Mother Jones’ Adam Weinstein lists 14 Weird Ways the US Military Is Becoming a Clean, Green Fighting Machine: Here are a few of Weinstein’s weird examples:

DARPA

Project Aquaman: The “Materials With Novel Transport Properties” (MANTRA) program seeks to create a 75-gallon-an-hour water desalination plant small enough to fit into a “man-portable backpack system…allowing decentralized water sustainment for increased troop agility and mobility.”
DARPA or Derpa? Pretty realistic, so long as you’re not fighting in a desert. Er…

ARMY

Waste? Not! At New York’s Ft. Drum, one of the Army’s largest bases, animal and plant waste could soon light up the parade grounds, and that’s no crap.

AIR FORCE

Big Brother in Your Tank: 30,000 vehicles are being outfitted with gas cap rings that track fuel consumption and identify needed maintenance, saving more than a million man-hours needed to check odometers. (Wait, what?!)

NAVY

Thar She Blows: The Navy boasts the world’s largest diesel/wind hybrid power plant…in Gitmo. It’s part of a broader initiative to green the prison base, including bicycle MPs and solar-powered floodlights.

MARINES

Green Grunts: In Afghanistan, Marine bases use “ground renewable expeditionary energy systems” (GREENS), foldable solar panels. On patrol, solar “blankets” power communications gear, cutting 20 pounds of batteries per pack.

Ehren Gosssens from Bloomberg in his article “The Army Goes Green, but Not to Save the Earth” reports, “The Army has spent $10 million to equip Special Forces units with SunDial’s [solar panel] systems. It’s part of a $4 billion green campaign the Army launched in 2009, with plans to spend billions more over the next three decades. The mission isn’t about saving the environment. It’s about saving money and lives.”

But are any of these initiatives about saving lives or pushing a more expensive and costly “green agenda” on our military? The cost of this greening is being felt in the reduction in our military forces.

Going green is negatively impacting our military capabilities and mission readiness.

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

It All Depends on Who You Know

May 24, 2014/in Budget and Finance, Economy, News, Politics, Waste, Fraud and Abuse/by Paul R. Hollrah

A May 20, 2014 report by the Reuters news agency tells us that Credit Suisse, Switzerland’s second largest bank, has been fined $2.5 billion by U.S. regulators. The bank was charged with helping wealthy Americans conceal major cash assets, making it possible for them to evade U.S. federal and state income taxes.

In a related story, the Associated Press reports that, “The case is part of an Obama administration crackdown on offshore banks believed to be helping U.S. clients hide assets. Justice Department officials said their investigations into secret bank accounts held by Americans in Switzerland and other countries likely will bring forth additional resolutions.”

The prosecution of Credit Suisse came after prolonged criticism that the Obama administration has not been aggressive enough in its pursuit of wrongdoing in the banking industry. According to the AP, “A report from the Senate subcommittee that investigated Credit Suisse accused (Eric Holder’s) Justice Department of (surprise, surprise) lax enforcement and faulted the government for gleaning only 238 names of U.S. citizens with secret accounts at Credit Suisse, or just 1 percent of the estimated total.” The Senate subcommittee was able to find more than 22,000 U.S. clients with Credit Suisse accounts totaling some $10-12 billion.

The subcommittee report charged that Credit Suisse had sent bankers to recruit American clients at golf tournaments and other events. They encouraged potential clients to travel to Switzerland where they were assisted in hiding assets. The report disclosed that, in one instance, a Credit Suisse banker passed bank statements to a U.S. client hidden in the pages of a Sports Illustrated magazine during a breakfast meeting. In some instances, Credit Suisse bankers helped wealthy U.S. depositors withdraw funds from their Swiss accounts by either providing hand-delivered cash in the United States, or through Credit Suisse bank accounts in the U.S.

The $2.5 billion fine will be divided between the U.S. Department of Justice, the Internal Revenue Service, the Federal Reserve, and the New York State Department of Financial Services. Just under $200 million has already been paid to the Securities and Exchange Commission. In order to appease investors, the bank will begin paying out roughly half its profits to shareholders until its profitability reaches a pre-established price/earnings ratio.

However, the Credit Suisse settlement calls into question a 2009 “deferred prosecution agreement” between the U.S. Department of Justice and Switzerland’s largest bank, the Union Bank of Switzerland (UBS). In 2009, following a lengthy investigation by the Senate Permanent Subcommittee on Investigations, UBS agreed to pay just $780 million in fines and to turn over the names of thousands of customers suspected of evading U.S. taxes.

So why the disparity in fines between the two largest Swiss banks, UBS and Credit Suisse?

In July 2008, Barack Obama boasted of a contributor base totaling some 1.5 million people, with one-fourth of his $265 million coming from those contributing $2,000, or more. However, by October 2008, just five months later and just days before the General Election, the campaign reported that their contributor base has grown from 1.5 million to 2.5 million, and that the total amount raised approached $600 million. So who were all those people, and where did all that money come from?

In a July 25, 2008, column we pointed out that UBS Americas, headed by Robert Wolf… along with George Soros, one of Obama’s top two money men… had been accused of highly unethical and illegal banking practices in six months of hearings by the Senate subcommittee. According to an article in The Nation, UBS Americas had advised wealthy Americans, including many of our worst villains, how to shelter funds from the IRS, as well as from prosecutors, creditors, disgruntled business associates, family members, and each other.

In a Statement of Fact in the criminal trial of former UBS executive Bradley Birkenfeld, it was learned that UBS took extraordinary steps to help American clients manage their Swiss accounts without alerting federal authorities. For example, UBS advised American clients to avoid detection by using Swiss credit cards to withdraw funds, to destroy all existing off-shore banking records, and to misrepresent the receipt of funds from their Swiss accounts as loans from the Swiss bank. According to The Nation, UBS established an elaborate training program which taught bank employees how to avoid surveillance by U.S. authorities, how to falsify visas, how to encrypt communications, and how to secretly move money into and out of the country… ”

It was the perfect instrument for funneling illegal campaign contributions into the coffers of an unscrupulous American politician. Putting two and two together, I suggested that a very wealthy individual, such as George Soros, wishing to influence the outcome of an American presidential election, could transfer unlimited sums of money through this device. A U.S. recipient, such as the Obama campaign, could receive tens of thousands of individual contributions via Swiss credit card transfers, with the identities of bogus contributors “borrowed” from their extensive list of $10 and $20 U.S. contributors and entered onto FEC reports by teams of paid staffers working in a “boiler room” setting. The owners of the Swiss accounts would receive periodic statements indicating debits of varying amounts, up to $2,300 each, and offsetting credits funded by the wealthy, but unnamed, “international financier.”

For most of the super wealthy, especially those attempting to hide income and assets from U.S. authorities, an unexplained debit and credit of $2,300, or less, would not even raise an eyebrow. It would look to the depositor as if the bank had made a debit error which had been immediately corrected with a credit of like amount. However, in this instance, the Swiss bank account would actually have been debited, money transferred to the U.S. recipient, and funds replaced by person or persons unknown. The scheme would represent money-laundering of the first order. So who would ever know the source of such contributions? No one.

In response to my July 25 column, and at my suggestion, Newsmax sent a team of researchers to the Federal Election Commission to take a closer look at Obama’s FEC reports. In a follow-up October 20 article by Kenneth Timmerman, Newsmax provided details from FEC records that gave substantial weight to my theory. In studying Obama’s FEC filings, Newsmax found more than 2,000 donors who had given substantially more than their $4,600 limit ($2,300 in the primaries and $2,300 in the General Election).

But these were relatively minor infractions compared to 66,383 highly suspicious contributions that were, oddly enough, not rounded to even dollar amounts. For example, Newsmax reported that John Atkinson, an insurance agent in Burr Ridge, Illinois, gave a total of $8,724.26, more than double his legal limit. He gave in odd amounts such as $188.67, $1,542.06, $876.09, $388.67, $282.20, $195.66, $118.15, and one of $2,300. A self-employed caregiver from Los Angeles made 36 separate contributions totaling $7,051.12, of which thirteen were later refunded. However, in an odd coincidence, those 13 refunds, in amounts such as $233.88 and $201.44, came to an even $2,300, the maximum amount allowable in any one election.

One contributor interviewed by Newsmax, Ronald J. Sharpe, Jr., a retired schoolteacher from Rockledge, Florida, was reported to have given $13,800… $9,200 over his limit. However, when interviewed by Newsmax, Mr. Sharpe did not remember giving that much money to Obama, nor had anyone from the Obama campaign ever contacted him about a refund.

Lest anyone suggest that those 66,383 donors either emptied their piggy banks or emptied their pockets and purses periodically and just sent it all to Obama, pennies and all, I think it is far more reasonable to assume that those contributions were the proceeds of foreign currency conversions, smuggled into the country in foreign credit card transactions, converted to U.S. dollars, and deposited in Obama’s campaign coffers. Of course, when your money is coming in large chunks from illegal offshore accounts and laundered though a Swiss bank in Zurich, it takes a bit of creativity to put authentic-sounding names on all of it for the quarterly FEC reports. But the Obama campaign had a huge source of such data: the names, addresses, and occupations of tens of thousands of $10 and $20 U.S. Kool-Ade drinkers.

According to Newsmax, the Obama campaign finance reports contained some 370,500 unique names… a far cry from the 2.5 million contributors claimed by the campaign. Of course, a great many of those 2.5 million contributors were illegal Muslim “conduits” who were given money by their local imams with the understanding that they would use it to help elect Obama… a crime for which Eric Holder is now prosecuting a major Obama critic, author Dinesh D’Souza. The principal difference being that, instead of creating tens of thousands of illegal conduits, as the Muslim clerics clearly did, D’Souza reimbursed only three people in a New York senate race.

So what happened to Robert Wolf, Obama’s most important friend in the international banking industry? Was he fired, tried and imprisoned? No, Wolf was named to UBS’s Group Executive Board and promoted to President and COO of the UBS Investment Bank. From 2009-11, Wolf served on Obama’s Homeland Security Advisory Council, in 2011 he became a member of Obama’s Council on Jobs & Competitiveness, and in 2012 he was appointed to the President’s Export Council.

In response to the Credit Suisse prosecution, Attorney General Eric Holder has said that no bank is immune from criminal prosecution. But it’s clear that in his world, and in Obama’s world, the severity of punishment depends very much on who you are and who you know.

EDITORS NOTE: The featured photo is courtesy of Reuters/Ruben Sprich.

The Market Is Rigged: High-frequency trading vs. the culture of inflation by Douglas French

May 23, 2014/in Budget and Finance, Economy, News, Waste, Fraud and Abuse/by Foundation for Economic Education (FEE)

When Michael Lewis’s new book Flash Boys came out, the author caused a stir while making the media rounds to promote it. “The market is rigged,” he told 60 Minutes flatly. His comments set off a firestorm of debate as to whether sharp techies and their fast computers are screwing small investors.

As titillating as that soundbite was, those who take aim at high-frequency trading (HFT) need to reconsider their targets. The computers of HFT firms jump ahead of investors buying stock, purchasing shares from the seller and in turn selling to the buyer, making a few pennies of profit in between. Technology makes this all possible with computers making decisions in nanoseconds.

This trading system has created an opportunity for enterprising entrepreneurs to make a buck and, some would say, make the market more efficient. Others see it differently. “If you can see trades a little before someone else,” Floyd Norris writes for The New York Times, “then it may be possible to profit from that knowledge. To Mr. Lewis, and to some of the heroes in his book, the technology should be used to help bring real investors together to trade with one another.”

Matthew Phillips at Bloomberg Businessweek takes the opposite view. Speed traders and retail investors are not playing the same game, he writes. High-frequency traders are competing against each other to fill retail investors’ orders.

“The majority of retail orders never see the light of a public exchange,” writes Phillips. Large wholesale firms compete to fill these orders. “These firms’ algorithms compete with each other to capture those orders and match them internally. That way, they don’t have to pay fees for sending them to one of the public exchanges, which in turn saves money for the retail investor.”

HFT has created an arms race of sorts. One story Lewis’s book revolves around is a $300 million construction project to lay a more direct cable between the futures exchanges in Chicago and the stock market computers in New Jersey. The line shaved critical milliseconds off the time it takes to send information.

Ex-Wall Street economist Robert J. Barbera believes, “Economically, that has to be a deadweight loss.” He’d rather they built another lane on the George Washington Bridge.

Norris is also skeptical of the investment. “It is hard to see the benefit to society as a whole of enabling such trades.”

However, Gus Sauter, who was the CIO at low-fee Vanguard for many years, said speed traders helped him save his mutual fund clients (retail investors) more than a $1 billion a year. By that comparison, the Chicago–New Jersey cable looks downright cheap.

The culture of inflation

The cultural effects of inflation create this HFT debate in the first place, because it is financially fatal to leave one’s money in cash as government continually erodes its purchasing power. As Jörg Guido Hülsmann writes in The Ethics of Money Production, inflation deprives people “of the possibility of holding their savings in cash.” Professor Hülsmann explains that the elderly, widows, and orphans “must invest their money into the financial markets, lest its purchasing power evaporate under their noses.”

With a sound currency a person could put a few bucks away in a savings account each month, confident its purchasing power would keep pace and the interest earned provide an adequate nest egg, all the time being blissfully unaware of what was happening on Wall Street. But in the modern world, Hülsmann writes, people “become dependent on intermediaries and on the vagaries of stock and bond pricing.”

This is great for Wall Street players and bad for everyone else.

The Fed’s inflation provides near-term arbitrageurs opportunities to make money while share prices fall on a real basis. Hans Sennholz explained in his 1979 book Age of Inflation, “But alert traders can profit from the many chills and fevers that attack the market.”

Sennholz foresaw this new investing class of one-percenters all those years ago, when he wrote, “A small new middle class of traders and speculators replaces the old middle class of investors, and huge new fortunes are created from the losses suffered by investors and capitalists.”

Everyday middle-class investors look with envy at the wealth they see generated on Wall Street and seek to emulate it. Instead of spending time on more important things, “Inflation forces them to spend much more time thinking about their money than they otherwise would,” writes Hülsmann.

Think of all the time spent perusing financial publications and watching TV networks devoted solely to investments. People must invest right in hopes of accumulating wealth for emergencies and retirement. Inflation “compels them to be ever watchful and concerned about their money for the rest of their lives,” explains Hülsmann. “They need to follow the financial news and monitor the price quotations on the financial markets.”

In the end, the controversy surrounding high-frequency trading is likely much ado about nothing. For one thing, the industry peaked five years ago, pulling in $5 billion in profits. In 2012, it pulled in $1 billion. That might sound like a lot, but JPMorgan Chase made $5 billion just last quarter. As far as influencing markets and costing the average person money, HFT doesn’t compare to the Fed’s quantitative easing and zero interest rate policy. But in this age of inflation, “Money and financial questions come to play an exaggerated role in the life of man,” Hülsmann warns.

A more sound currency, whether metallic or digital, would spread a healthier culture: one not so obsessed with speculation, wealth, material goods, and nanoseconds.

ABOUT DOUGLAS FRENCH

Douglas E. French is senior editor of the Laissez Faire Club and the author of Early Speculative Bubbles and Increases in the Supply of Money, written under the direction of Murray Rothbard at UNLV, and The Failure of Common Knowledge, which takes on many common economic fallacies.

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

The Great Inversion: Technology like Bitcoin flips the logic of collective action by Carl Oberg

May 19, 2014/in Budget and Finance, Economy, News, Regulation/by Foundation for Economic Education (FEE)

The political logic of “concentrated benefits and diffuse costs” has been with us since day one of democracy. But it was only recently explained effectively by great economists like the Nobel Prize-winning James Buchanan and Mancur Olson.

It works like this: A special interest group such as the sugar lobby wants money in the form of subsidies, tax breaks, scientific study funding, or anything else of value to them. Let’s say the package they want is worth $100 million. The benefit is concentrated with that company or industry doing the lobbying at $100 million.

How much will this cost the American taxpayer? $100 million is the partially right answer. Of course, as individuals we react to the impact of this corruption not as a $100 million tax, but rather as a 32-cent tax. ($100 million divided by 310 million Americans) The costs are diffused over every taxpayer, lessening its impact and making it more politically palatable to any individual voter.

Are you willing to protest for $0.32? Will you hit the barricades for $0.32? Will you use your precious income-earning time to get back that $0.32? They’ve already won, because almost no one is willing to lose time or sleep over this—if they even know any individual instance is occurring.

And so the “logic” of Public Choice Problems is for spending to increase—seemingly forever—on pet projects and special interests until a crisis is reached and the system has to be reset.

But something interesting happens when you start talking about diffuse systems like the internet and bitcoin—something that hasn’t yet been fully examined. This public-choice logic gets turned on its head. The systems not only survive, but thrive. Let’s look at bitcoin as an example.

The government sees bitcoin as a threat to its monopoly on money and the power to create federal reserve notes whenever it wants. The federal government jealously guards this power because it allows the government to pay for anything it desires while passing on the true costs of the money printing to the citizenry through inflation. Increased spending (concentrated benefits) and diffuse costs (inflation which lowers the value of savings) are hallmarks of the current federal monopoly on money.

But as the feds fight against bitcoin and other crypto-currencies, they will find the tables turned: The beneficiaries of these diffuse systems are legion, and spread far and wide. But the costs of fighting technological advancement and increased monetary freedom are laid squarely at the feet of the government. Investigations, new laws, prosecutions, new snooping technologies all cost significant time and resources. And the government has just begun to go after crypto-currencies.

The closure of the first Silk Road site and the arrest of BitInstant CEO Charlie Shrem are just the beginning. Meanwhile, the benefits of a robust, changing and growing crypto-currency community and ecosystem are constantly spreading to more and more people. The government can stop places like Silk Road and others, but more will pop back up, considering the relatively low setup costs and its value diffuse throughout a larger user community.

The internet as a whole functions in the same way. Attempts to constrain the internet, like SOPA, incur huge costs for the lawmakers who attempt to get them passed. Meanwhile, technology has developed to the point where even if the government was able to constrain or suppress the internet, other networks outside of their control could easily pop up. The darknet already exists, is being actively used by individuals interested in privacy and could be expanded to address outside infringement of the regular Web.

This is a development which turns the very logic of political action on its head. Thanks to technology and the distributed nature of networks, we are no longer beholden to the political process, majoritarian rule, and the so-called “fair” tax and fiat money regime. The more of the economy we move to the net, the safer we will be and the more distributed power becomes.

ABOUT CARL OBERG

Carl Oberg is the Chief Operating Officer of the Foundation for Economic Education.

Unaccountable Consumer Protection Agency Will Blow $400,000 on Summer Meeting

May 16, 2014/in Budget and Finance, Must Read, News, Taxes, Waste, Fraud and Abuse/by Sean Hackbarth

The Consumer Financial Protection Bureau (CFPB) may be charged with watching over the consumer financial industry, but watching over its own spending doesn’t appear to be a top priority.

The Washington Free Beacon reports that the agency will spend nearly $400,000 on an all-staff Washington, D.C. conference this summer:

The Consumer Financial Protection Bureau (CFPB) is planning an “all hands” meeting for its more than 1,300 employees at a hotel in Washington, D.C., this summer, with cost estimates nearing $400,000.

The agency will book up to 475 hotel rooms each night for a five-day conference in July. The CFPB issued a solicitation on Friday, which included an attachment with the agency’s request for hotel accommodations.

…

At the per diem rate, which is listed at $167 for each room, the government is planning to spend $329,825 on hotel rooms for the meeting.

Add to the lodging, $34,200 for lunches along with almost $26,000 for morning and afternoon snacks.

While it’s debatable whether the agency is doing a good job protecting consumers, apparently the CFPB knows how to spend money. The Wall Street Journal reported in January:

The Consumer Financial Protection Bureau’s director, Richard Cordray, came under fire Tuesday on Capitol Hill for what Republicans characterized as a lavish plan to renovate property located on G Street near the White House.

House Financial Services Committee Chairman Rep. Jeb. Hensarling (R., Texas) questioned why renovating the building had soared to $145.1 million from a prior estimate of $95 million, according to a December financial report from the regulator. The regulator’s employees are expected to move to temporary space while the renovation work is being completed.

Mr. Hensarling compared the agency’s renovation of the late-1970s-era building, on a cost-per-square foot basis, to the Trump World Tower in New York, Bellagio Casino in Las Vegas and the Burj Khalifa in Dubai—the tallest building in the world.

“Explain to me, Mr. Director, why I should be–why I shouldn’t be outraged, and why the American people shouldn’t be outraged,” he said.

At the hearing, CFPB Director Richard Cordray merely said that it had to be done.

Regardless of whether this spending is prudent or not, the problem is that the CFPB can spend money at will without adequate accountability.

The CFBP isn’t funded by Congressional appropriations (it’s funded by the Federal Reserve), so Congress lacks the ability to use its power of the purse to adequately oversee the agency. In January, Rep. Jeb Henserling (R-TX), Chairman of the House Financial Services Committee, said the CFPB is “Fundamentally unaccountable to Congress because the bureau’s funding is not subject to appropriations” and thus “remains unaccountable to the American people.”

It’s like a college student getting a credit card with an unlimited spending limit and having the bills sent home to her parents. The chances for irresponsible spending are high.

EDITORS NOTE: The featured photo of Richard Cordray, director of the Consumer Financial Protection Bureau is by photographer Andrew Harrer/Bloomberg.

Pope Francis should take a lesson from Pope Leo XIII “On Socialism”

May 15, 2014/in Budget and Finance, Featured, News, Policy, Politics, Taxes/by Dr. Richard M. Swier, LTC U.S. Army (Ret.)

Recently Pope Francis restated his wish for world leaders to redistribute the world’s wealth to the poor. According to Time, “Pope Francis reaffirmed his plea on Friday for world leaders to redistribute wealth from the rich to the poor during an address before top U.N. officials and called for a global initiative to reduce the income gap. Pope Francis on Friday renewed his call on global leaders to redistribute wealth from the rich to the poor. Francis made his plea during an address to U.N. Secretary-General Ban Ki-moon and other U.N. leaders gathered in Rome for an audience with the pope, CBS News reports.”

Perhaps Pope Francis can take a lesson from Pope Leo XIII on socialism?

QUOD APOSTOLICI MUNERIS (On Socialism) issued by Pope Leo XIII on 28 December 1878 states:

9. But Catholic wisdom, sustained by the precepts of natural and divine law, provides with especial care for public and private tranquility in its doctrines and teachings regarding the duty of government and the distribution of the goods which are necessary for life and use. For, while the socialists would destroy the “right” of property, alleging it to be a human invention altogether opposed to the inborn equality of man, and, claiming a community of goods, argue that poverty should not be peaceably endured, and that the property and privileges of the rich may be rightly invaded, the Church, with much greater wisdom and good sense, recognizes the inequality among men, who are born with different powers of body and mind, inequality in actual possession, also, and holds that the right of property and of ownership, which springs from nature itself, must not be touched and stands inviolate.

For she knows that stealing and robbery were forbidden in so special a manner by God, the Author and Defender of right, that He would not allow man even to desire what belonged to another, and that thieves and despoilers, no less than adulterers and idolaters, are shut out from the Kingdom of Heaven. But not the less on this account does our holy Mother not neglect the care of the poor or omit to provide for their necessities; but, rather, drawing them to her with a mother’s embrace, and knowing that they bear the person of Christ Himself, who regards the smallest gift to the poor as a benefit conferred on Himself, holds them in great honor. She does all she can to help them; she provides homes and hospitals where they may be received, nourished, and cared for all the world over and watches over these. She is constantly pressing on the rich that most grave precept to give what remains to the poor; and she holds over their heads the divine sentence that unless they succor the needy they will be repaid by eternal torments.

In fine, she does all she can to relieve and comfort the poor, either by holding up to them the example of Christ, “who being rich became poor for our sake, or by reminding them of his own words, wherein he pronounced the poor blessed and bade them hope for the reward of eternal bliss. But who does not see that this is the best method of arranging the old struggle between the rich and poor?

For, as the very evidence of facts and events shows, if this method is rejected or disregarded, one of two things must occur: either the greater portion of the human race will fall back into the vile condition of slavery which so long prevailed among the pagan nations, or human society must continue to be disturbed by constant eruptions, to be disgraced by rapine and strife, as we have had sad witness even in recent times.

Has Pope Francis, by his break with the true nature of the church, become merely another socialist? Socialism historically is a threat to the church, whether it be National Socialism, Communism, or any other form of wealth redistribution. Charitable giving is not the role of government at any level. Governments that seek to redistribute wealth do so to expand their power over their subjects, not to help the poor.

Americans have long embraced the ideas and ideals of classical liberalism. American Catholics would do well to understand the dangers outlined by Pope Leo XIII one hundred and thirty-six years ago. Was Pope Leo XIII thinking about Pope Frances when he wrote, “For she knows that stealing and robbery were forbidden in so special a manner by God, the Author and Defender of right, that He would not allow man even to desire what belonged to another, and that thieves and despoilers, no less than adulterers and idolaters, are shut out from the Kingdom of Heaven.”

Is Pope Francis giving his blessing to those who would steal and rob in the name of income equality? Is Pope Frances violating the Ten Commandments which implore Christians to reject stealing and coveting? American Catholics need to think long and hard about this.

Czech Book Dusting off Tucker (Benjamin, not Jeffrey) by Lawrence W. Reed

May 14, 2014/in Budget and Finance, Commentary, News, Policy, Politics, Regulation, Taxes/by Foundation for Economic Education (FEE)

The literature of liberty, free markets, and individualism is immensely rich and getting richer with each passing year. Today’s great minds are building on yesterday’s greats. Taken as a whole, liberty’s library constitutes a most incredible collection of inspiration and insight into the boundless potential of human society. The only sad thing about it all is the extent to which those of an anti-liberty, statist perspective won’t tell their acolytes about it. Have you ever noticed how well “our side” knows Marx and Keynes while those on the other only think they know Hayek, Mises, Friedman, or even Smith?

Among the great thinkers of barely a century ago was Benjamin Ricketson Tucker. Critic of corporate welfare and a welfare state of any kind, Tucker edited and published a remarkable journal called Libertyfrom 1881 to 1908. It featured the bylines of many other great minds as well. Tucker was a fascinating advocate of “individualist anarchism,” which he also called “unterrified Jeffersonianism.”

In September 2013, the Foundation for Economic Education cosponsored a conference in the Czech Republic. Our partner in the effort was CEVRO, a private college in Prague devoted to advancing liberty ideas. Among the students in attendance was Lukáš Nikodym. He approached me afterward with a project he and his brother Tomas were contemplating: an online book of selected articles from Tucker’s old journal. “Will you write the foreword?” Lukáš asked. I hesitated not a second.

The book is now available, and I commend it to our readers, along with these related materials:

“The Individualist Anarchists: An Anthology of Liberty” (1881-1908)” by Greg Pavlik
“Forgotten Critic of Corporatism” by Sheldon Richman
Liberty Fund’s Online Library of Liberty

Download file Download the PDF here

ABOUT LAWRENCE W. REED

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. Prior to becoming FEE’s president, he served for 20 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.