Saturday, August 27, 2016

How the United Kingdom voted on Thursday... and why - Lord Ashcroft Polls

What happened in the United Kingdom during the summer of 2016? The working class revolted, in fear and disgust.

How the United Kingdom voted on Thursday... and why - Lord Ashcroft Polls

The "Remain" side predicted collapse, which for two days was a self-fulfilling economic event… that ended quickly. The pound sterling is back to $1.35 and rising, the FTSE is up 2% for the last two days, and people are now realizing the EU, as a trade group, never finalized treaties with China, India, Australia, Canada, or even the United States. The only trade agreements were internal, and many of those ineffective due to internal politics (French farmers come to mind).

Both campaigns relied on so much hyperbole that neither was believed by the general population. I listen to BBC WS, Bloomberg London, and CNBC International for hours daily (in the car) and all these sources are slowly agreeing the End of the World™might not happen after all.

The EU nations need the UK. Contrary to stories, the insurance and banking industry aren't going to pack up tomorrow, any more than they rushed out of NYC after 9/11 or when NYC raised taxes. Cambridge, Oxford, the London School of Economics, and the Royal Society remain the intellectual centers of many disciplines.

The UK needs the EU - its largest market. The Channel Tunnel isn't going to close, trade isn't going to stop. It won't be the same deal Norway struck, but there will be a deal, out of necessity.

Yes, middle-class, bachelor's holding and un-degreed voters with at least 30 years in the U.K. (not all "native born") voted to leave. The elites of London and elsewhere have created an economy in which the educated elites and their children do great, like in the United States. The top 10% raise children destined for the top 10% — and we are willing to live in high-tax "liberal" cities (London, SF, NYC Paris) that have the greatest wealth inequality coefficients because the outrageous costs of houses, education, and services don't register with us as they do the working class.

People in the middle are angry. You can tell them all about how great the "information society" and "tech revolutions" are, but the disruptions are more extreme than the Industrial Revolution was. Automation and algorithms are leaving little room for the "average" person. From the ATM to the automated stock trading platforms managing my 401k, I don't deal with people outside my class as often as I should. The toll road is automated. My bills are paid automatically. Most of my shopping is online, managed by little orange robots in an Amazon warehouse.

So, yes, those workers are ticked off at the financial class, the educated elites, and the politicians. The brave new world didn't include a safety net and led to an economy based increasingly on mathematical modeling instead of human creativity.

Greece should have also been willing to tell the EU where to take its austerity and its regulations, but instead caved and is beholden to Germany and France more than it was. The people of Spain are in the much the same situation, as unemployment spikes again in their major cities (30%) and nobody in the elites seems to care.

What's sad is that the EU could have been more democratic and more responsive, but ruling classes tend to be isolated simply because that is human nature. Just as our leaders aren't going to sit down and really listen to people talking about their lives at an Olive Garden or McDonald's.

The solution needed to be action 10 years ago. Now, the disillusioned are in charge. That might not go well for the UK, EU, or the United States.

Ah, Canada. How do you remain so sane????

Friday, June 17, 2016

Election Uncertainty and Economics

The economy is already rocky. This election won't bring a stable, growing economy, and it could bring disaster.

In business, I'd rather know what taxes and regulations are ahead of me. If you can plan for something, there's stability. You might not like the programs and proposals of Hillary Clinton (I don't), but you can plan for what she would pursue as president.

Donald Trump? His candidacy embodies the uncertainty businesses fear. It is like waiting for a natural disaster, but you don't know which type of disaster. Do we seek higher ground, to avoid a flood? Do we go into the basement to avoid a tornado? Trump is going to be something, but what will he be?

Don't assume Trump cannot win. He can and he might.

I'm not suggesting support for Hillary Clinton, either, but I am more concerned about Trump.

The world today needs free trade. We need open borders. We need economic flexibility. Trump makes the case that we can magically survive without our partners.

I don't know that Trump will lose. The map favors the Democrats, but Trump could win in the Midwest / Rust Belt. I was in California for the election of Arnold Schwarzenegger. He didn't have any core values, except self-promotion. I've also lived in Minnesota: ditto Jesse Ventura - self-promotion over all. Both men were all about themselves, not about any party or ideology. (I'm still not sure what Jesse Ventura believes, other than some conspiracy theories.)

Trump isn't anything at his core. And that's the problem. He's whatever "wins" for Trump. He isn't an ideologue, which a true fascist must be. Trump isn't even a true nationalist, or he wouldn't outsource in his own businesses. He lacks any depth, at all.

Historically, fascists have been "true believers" like their authoritarian cousins on the left. Trump is frightening because he might do anything, anything at all… if it is good for Donald J. Trump.

Trump would lead the Communist Party tomorrow if he thought he'd get to be the party leader. He'd be a Green, or a Libertarian, or a Democrat (oh, wait, he was). Trump was willing to destroy the GOP as a party to get his way. He would have run (and done well, sadly) as an independent.

He's a cry baby and whiner, who manages to manipulate systems to get what's best for him, no matter who gets crushed in his path.

I can't imagine a worse example of all the dangers mentioned by the classical rhetoricians. Here is a man able to ignore logic and reason, yet win and win again. Isocrates, Aristotle, and Quintilian all warned of such men. Trump is the master of Twitter… today's Agora.

Economically, I'm concerned because Trump lacks coherence. As the election approaches, if it looks close, the uncertainty will start to unnerve investors. Nobody knows what President Trump would really do, or what Congress would permit him to do. At best, we'd have severe gridlock. At worst, we'd have conflicting legislative actions.

What is the "base" of Donald Trump? It's not libertarian-leaning Republicans or independent voters. It's not the religious right (unless they really don't care what Trump has said and done in the past).

Hillary Clinton is predictably loyal to the Democratic majority. She would want to be re-elected by the Democratic base. I disagree with every major policy Clinton has expressed on the campaign trail. She would slow economic growth even more than the current sluggish economy. Yet, she might be better than Trump.

The Republican Party has lost its way. The Libertarian Party never had a clear vision (except to oppose everything).

The United States is experiencing a slow, painful recovery from the Great Recision. The recovery has left many people behind. Uncertainly will cause companies to invest less, setting reserves aside for security. Individuals will curtail spending.

Uncertainty is always there in a market economy, and risk is a given. You at least want government policies to be stable and predictable.

Friday, June 10, 2016

2016: Proof Our System is Broken

Our "choices" for the 2016 presidential election are very bad and extremely bad.

What, you say? There are more than two choices? Right. And I'll soon be running a Hollywood Studio.

The two-party system of the United States is not going to change this election cycle, though the cracks are showing. More likely, if the Republican Party does implode, a new party will rise. It has happened before and will happen again. But, overall, we remain a two-party nation. The parties flip ideologies, the parties change names, individual parties split. And we always end up with a duopoly.

Not that other nations really have multiple parties in the way romantically imagine. There are, generally, two central parties with minor parties trying to pull the major parties to the left or right. Because the parliamentary systems rely on coalitions, those minor parties have more influence than smaller parties can have in the United States.

The upside of the European model is that small parties do have legislative seats. The downside is that the coalitions can be unstable. Just ask most of Southern Europe about stability. The U.S. model isn't exciting, but it is stable. The parties drift towards each other, then apart.

Normally, I can accept that my views seldom win local, state, or federal elections. People want a lot from government for little or no cost and absolutely no inconvenience. If government is going to cost money, take that money from someone else — though there really isn't as much "income" to redistribute as imagined (see "Eat the Rich"). My ideals are electoral losers… and I accept that. Instead, I vote for the "lesser" spender, the "lesser" promiser of public largess.

Not this time.

We have Populist A and Populist B, one of whom will win. Hillary or Trump. They are campaigning on their famous names, not substance. They are campaigning on how well they connect to the "common" person. And they both have populist rhetoric that would take the United States further down the entitlement hole while opposing free trade and economic disruption that is natural to capitalism.

The Libertarian Party's tired re-packaging of Republicans doesn't stand any chance of victory. They might take some votes from the two major parties, but votes are meant to be earned anyway. Whining that some third party helped to elect a major candidate really means that the other major party failed to earn support.

Populist A: Hillary. She wants to expand federal programs. She wants to expand "positive" rights, using government to ensure someone does things for other people. She has lurched to the left during this campaign. I assume much of what Sec. Clinton has promised she knows will not happen. Nobody believes political promises and now we just assume they are blatant lies.

Populist B: Trump. Please, no. Isolationism sounds good, and I generally support it, but Trump doesn't merely promote isolationism: he promotes xenophobia and protectionism. He takes nationalism and cloaks it in fear and dread. He has no clear program for anything, except a wall that isn't about security so much as it is about fear.

Hillary and Trump. Those are our choices. One will win. Any system that leads to these two as the two contenders is broken. Extremely broken.

If anything, these two are a great argument for gridlock and divided government.

The parties can now be caricatured with some accuracy: Democrats are the party of the poor and the elite urban voters. Call it the Urban Party and you'd be reflecting voting patterns. Republicans are the exurban and rural gray-haired voters, the romanticized small towns that are shrinking and dying (sadly).

The parties are more regional and racial than they should be. The Democrats view issues from the perspectives of New York, San Francisco, Los Angeles, and other big cities. Their elite voters are busy gentrifying the cities, while their poor voters are struggling in these urban centers with the greatest inequality in the nation. The ideals of the elites cost the poor, ironically, by raising the costs of living. Rent control, strict zoning, green laws, higher minimum wages, more spending for schools, all cost the poor more as a percentage of income. Ideas that appeal to the educated elites have price tags.

The Republicans are afraid of the urban voters, both the elites trying to dictate values and the poor. The GOP seems to be stuck campaigning on fear of everything. That's not a platform for the future, either. Nothing I'm hearing from Trump or the GOP appeals anymore. They deride regulation, complex taxes, and other problems, but they don't offer realistic solutions that will become law. I'd even accept some "unrealistic" goals accompanied by some incremental plans on how to get to a better place with more effective public spending.

We need new voices, new leadership. Oh, well.

Friday, June 3, 2016

Response: Am I a Libertarian?

Because I've been cautioning that libertarians need to be pragmatic and we should avoid the caricatures of others that we are subjected to online and in the press, a few readers have asked why I consider myself an almost classical liberal and a libertarian.

My core values and my ideal economic and political models remain firmly grounded in the works of Austrian economic theorists and John Stuart Mill's theories on freedom. I value Adam Smith, Ludwig von Mises, Henry Hazlitt, F. A. Hayek (a lot), early Murray Rothbard, Roger Garrison, Eugene Fama, Deidre McCloskey, and Milton Friedman.

I enjoy the views and historical grounding of Meagan McArdle, Robert J. Samuelson, and Amity Shlaes. I argue with other "libertarians" over Ayn Rand, while still respecting The Fountainhead for its emphasis on personal expression over greed.

The federal government of the United States is a tangled mess of departments, agencies, bureaus, and offices.

In order of Constitutional rank, we have cabinet-level departments of State, Treasury, Defense, Justice, Interior, Agriculture, Commerce, Labor, Health and Human Services, Housing and Urban Development, Transportation, Energy, Education, Veterans Affairs, and Homeland Security.

I do not presume the federal government will be more efficient with fewer cabinet departments, but it might be more responsive. Plus, it has assumed responsibilities it does not need.

I would eliminate, as cabinet agencies: Agriculture (move to Interior), Labor (merge with Commerce), Housing and Urban Development (no replacement at the cabinet level), Energy, Veterans Affairs (move to Defense), and Homeland Security (split between Justice and Defense, once again).

The Department of Homeland Security (DHS) might be the biggest mess we have in the current organization of federal responsibilities. Justice, Treasury, and Defense were more than capable, as long as there was a true central adviser to the White House. A monstrosity was created that is worse than what we had.

I've never liked having a Depart of Agriculture in its current form. Eliminate subsidies, compacts, price controls, and so on. The New Deal programs have done more to hamper the agricultural market than to help it, and keeping prices artificially high benefits large corporations more than small farmers.

Education should be a state issue. Segregation and other issues of civil rights belong under the purview of Justice. I know school districts spend millions of dollars complying with Education regulations. The department is more about perceived "social justice" than education. I dislike using regulatory power to dictate how states and local governments manage education. Fight discrimination, yes, but leave the rest to local control.

As with most libertarians and conservatives, I want to start over with the tax code. No deductions. None. No treating couples and individuals differently. No more than three brackets, starting at an agreed upon level above poverty. No complex forms and calculations: What did you earn? Here are the brackets, do the math. Send a check or get a refund. No caps on "special taxes" (and let's be honest, Social Security is a tax).

Don't whine about the loss of child tax credits, home mortgage deductions, and so on if in return we get corporate taxes with no deductions. That's right: absolutely no deductions even for business. No more using the tax code to encourage or discourage specific behaviors. I would even eliminate deductions to non-profits. No deductions means none, period.

I dislike sales taxes at the local and state levels (very regressive, since the poor spend more as a percentage of income). We need better state tax models.

Transit is a mess. People don't realize most European airports are privatized. Our state-run airports with lots of federal oversight are a mess. Our roads are rotting, the highway fund is broke, and rail transit is in shambles. I'm not sure there are any good solutions, but it is time to consider new funding methods and more private investment.

Obviously, I could go on for pages…

Taking of property for eminent domain, police seizures, and other acts of confiscation (ag co-ops) should be limited to extreme need. Taking land to build a mall or seizing cars without a criminal conviction? Things like that lead to the Tea Party movement.

Dictating what people can or cannot do in private, from drinking large sugary drinks to sleeping with someone of the same sex. Get out of my private life, governments.

Regulatory overload, costing jobs and hindering business. We need a "sunset" provision on all regulations, forcing them to be renewed only after considering how effective each regulation is.

I oppose the minimum wage, but know it isn't going to go away. Therefore, it should be regional, at the state level at most, and indexed to the cost of living.

I oppose criminalizing, as felonies, "victimless" crimes. However, in return I would increase the penalties for choices that result in harm to others. You can drink, smoke, and do whatever you want… but you drive and kill someone? Sorry, there should be a high price for bad choices.

I oppose mandates, on principle, but realize insurance mandates aren't going away. Of course, that means "insurance" is no longer insurance at all. It's something else. But what is it? I don't have a good model for dealing with car insurance, flood insurance, et cetera. Then again, federally subsidized insurance is why people rebuild homes in places that shouldn't have homes.

Government should be small, serving essential needs. We have defined "essential" as anything we want to receive. That's untenable over time.

Overall, I remain a libertarian aware that we've lost in the marketplace of ideas. We don't give away enough goodies and we expect too much of individuals. I'm not sure how to better sell our ideas to the public, when most voters have something the government does for them.

Responsibility only wins voters when you're talking about anyone other than the voter to whom you address such concerns.

I'm increasingly cynical that our system will collapse under its own weight.

Friday, May 27, 2016

Political and Economic Realism

The Libertarian Party in the United States is no more (and maybe no less) realistic than the Democratic or Republican parties. The platforms of parties are not based on realistic legislative goals; they are the work of party ideologues with little to no hope of becoming legal realities. There are exceptions, but overall the party platforms are hopes and dreams, meant to reaffirm core values for base voters.

In the world of an Almost Classical Liberal, ideologues from across the political landscape represent the failure of pragmatism in our political discourse.

Let us admit to some basic realities, how things really are, and that might reduce the name calling and outlandish fallacies that dominate our political climate.

1) Every major nation in the world has a hybrid economic system. There are welfare state programs in most industrialized nations and those aren't going to be ending anytime soon. Also, there are markets in those nations, and the markets aren't going away, either.

2) Every nation is a "failure" of some perfect political model that didn't take hold. The Communist nations ended up nothing like the Marxist ideal, and never will achieve the Communism of Marx. Instead, cults of personality and authoritarianism lead to Leninism and Maoist cults. Sorry, but Communism in practice ends up with a technocratic and/or bureaucratic class in charge — and they assume they are entitled to more than their "worker" comrades.

Democracies fail because voters want things, often things the nation cannot afford in endless supply. This leads to rationing, at some point, and voters get angry. Democracies end up pretending to serve the majority while trying to defend the elites from political collapse. Safety nets expand and contract to balance the tensions between the classes.

Republics, which seem ideally suited to the libertarian ideal, end up dominated by coalitions of the business and technocratic elites. Corporations and regulators collude, sadly, and a system meant to mitigate the risks of mob rule and personality cults ends up serving near-oligarchs.

3) Every claim of "It's never been tried" is a proud (and silly) deflection of reality. Of course Marxism hasn't been tried. Of course, neither has capitalism as described by Adam Smith. Republicanism was sort of attempted in various nations, and it continues to limp along in most of the West (elected representatives, protections of minorities against mob rule), but republicanism is struggling.

With the above three items in mind, a realistic libertarian has to admit some things that he or she will not like but must accept: 1) social safety nets aren't shrinking until they collapse; and 2) ideologues won't admit their systems also failed.

The best we can hope to do is limit the size and scope of government vs. individual freedom. We cannot hope for a free and open market, because that would require informed consumers and transparent markets. Our markets are not transparent (especially in health care and finance) and transparency seems unlikely anytime soon.

We can fight for our ideals, but we must also participate in our political and economic systems as they are, not as we wish them to be.

My goals for the United States are still unrealistic, though less radical than the Libertarian Party platform. I'm certainly no objectivist, either.

In my ideal world:

1) We should have transparent markets, especially in health care, finance, and education. Pricing should never be hidden from consumers, because then the supposed "value add" is undisclosed.

2) The federal government would, except in extreme cases, defer to the states and local government. The decisions that affect our daily lives are local: education, public safety, transportation, et cetera. The federal government is used to forcing regions to comply with largely elite, urban ideals. Too much of that and people will rebel, at least at the ballot box.

3) Individual freedom would trump majority values. What people do in private rarely alters my life. You don't have to be tolerant or accepting of other lifestyles: ignore them and deal with your own life, please.

4) Companies, unions, groups of people, whatever and whomever, would not receive special treatment in the tax codes or any other regulations. We all belong to "special interests" and it's time to admit that most of us complain about "special interests" only when some other group receives a favor. Sorry, but the middle class gets more perks than any other group — because that's where the votes are. That's not good government. Big corporations get special treatment, too, but plenty of research shows the middle class tax breaks (which the wealthy also receive) are the untouchable budget items.

5) No party-based primary elections, immediate disclosure of donations, and a "majority to win" requirement with instant run-offs in elections. Nobody with only 40 percent of the vote should win an elected position. Parties have lost their influence, with single-party dominance in most congressional districts assuring the primary is the election. Let's come up with something better.

6) Simplify taxes, eliminate deductions, and establish a maximum debt ratio for the federal budget. I do not believe in balanced budgets, but there should be fiscal discipline.

Why I dislike most "Libertarian" and "Conservative" politicians:

1) The Gold Standard. Absolute nonsense. Every "standard" is arbitrary, including the gold standard. We could not return to the gold standard without major disruptions to the global economy.

2) Deregulation without commonsense. Seriously, the financial industry should never have lost its focus on basic saving and lending. Once the local savings and loan became a casino, it was doomed. Insuring the gambling was even dumber.

3) Unwillingness to criticize the bigots clinging to libertarianism as an excuse for hatred. Sorry, but if we believe in freedom, we must also believe in a responsibility to point out and protest hatred. Fine, a baker doesn't want to sell cakes to gay couples. Libertarians can accept that, be we should also decry the stupidity of the baker.

4) The God vote. The moment I hear a politician invoke religion, I am biased against that person. Stop equating liberty with the "freedom" to teach religion in public schools or to enforce a particular faith's morality via laws and regulations. Go away. Please.

But, I am realistic. Sadly, my only political choices are often people espousing some pretty stupid ideas, but at least the ideas are less stupid than the alternatives.

I must be pragmatic, not a purist.

Friday, May 20, 2016

Left-Leaning Libertarians

A supposed "tolerant progressive" wrote online that Libertarians are "invariably men with immature, selfish attitudes." When asked why she also invoked Ayn Rand on a regular basis when criticizing the "greedy libertarians" she posted that Rand "looked and acted like a man." At least the irony wasn't missed by those posting comments on Facebook. Reading this thread, which started on the site of a major online magazine, the generalities from all sides were disturbing.

Can we be any more insulting to people with different views than the approved urban-elitist progressivism? (See, I can generalize, too!)

Seriously, my wife is more "Libertarian" than I am, but I consider myself more "libertarian." The range from left-to-right within libertarianism is probably broader than the ranges within either major political party in the United States. What unifies libertarians is a distrust of the majority to protect the rights of the minority without negative rights being codified in the Constitution. We simply do not trust groups — and plenty of research and history support this skepticism.

I am a left-of-center ("moderate" or "pragmatic") almost classical liberal. I object to the social engineering of the Republican Party, which is heavy-handed when they have complete faith in a cause. I object to the social engineering of the Democratic Party, too, which wants to protect me from bad choices.

Let me state the apparently not-so-obvious: there are left-leaning and extreme-left "libertarians" and if you go far enough out along the political scales you reach the other side. (This is why I prefer scales of statist-individualist, since authoritarians are authoritarians, no matter what they might claim.)

Left-leaning, pragmatic libertarians are found among policy architects of Democratic administrations. They are men and women who believe in choice, but also know that the "default choice" should be the best choice for society. (An example used in texts: organ donor status should be a choice, but opt-out versus opt-in leads to more organ donors and more benefits for society.) There's nothing wrong with this "parental libertarianism" (sometimes called "paternal" but that label is problematic).

The left-leaning libertarian believes that it is absurd to claim "ownership" of natural resources that no company created. You can own the technology to extract, process, refine, and deliver oil, gas, gold, diamonds, or even salt. You cannot claim to have created the actual item of value — you can only offer a "value-add" via extraction. Compare this to the farmer, who plants a seed, nurtures it, harvests the crop, and so on. For this reason, many left-leaning libertarians support mineral leases, extraction taxes, and so on, allowing the people of a state share in the benefits of luck while also rewarding technological innovation.

It's quite fair to charge mining and extraction fees, but those fees cannot make it unprofitable to extract and distribute those resources. And because the presence of resources is a matter of luck, not individual action, there's also some reason to allow some regulation on how resources are managed. The key question for the libertarian is how to balance rewarding risk in the marketplace with sharing this "luck of location."

But, most businesses are not extraction of the most extreme sort. Most businesses should be left alone as much as possible, allowed to rise and fall on their own merits.

My personal "model" for the left/center of libertarianism is Deidre McCloskey. As her website notes, she's a "Christian libertarian" who believes in social safety nets, but would rather err on the side of freedom and individualism whenever a policy choice is made. Just because you don't want government to operate as the leading charity in our nation doesn't mean you don't believe in the concept of charity. Anytime government "helps" someone, it gets to set rules and conditions on that help. Those rules have unintended consequences.

I encourage readers of this blog to read McCloskey.
Deirdre McCloskey
http://www.deirdremccloskey.com
Deirdre McCloskey taught at the University of Illinois at Chicago from 2000 to 2015 in economics, history, English, and communication. A well-known economist and historian and rhetorician, she has written 17 books and around 400 scholarly pieces on topics ranging from technical economics and statistical theory to transgender advocacy and the ethics of the bourgeois virtues. She is known as a "conservative" economist, Chicago-School style (she taught in the Economics Department there from 1968 to 1980, and in History), but protests that "I'm a literary, quantitative, postmodern, free-market, progressive-Episcopalian, Midwestern woman from Boston who was once a man. Not 'conservative'! I'm a Christian libertarian."
For a little more on left-leaning libertarianism, you can read Wikipedia as an okay starting point. It's not the best resource, though. Instead, consider reading the early works of Austrian economists.

Critics point out that even left-leaning libertarians have allowed their messages to be co-opted to defend racism, sexism, and other bigotries. The progressive movement, however, was often led by outright racists (Woodrow Wilson) and people intolerant of the disabled (George Bernard Shaw). The Republican party has been stuck with its bigots since the 1970s, so there's no "good" political movement with clean hands.

It is incumbent upon libertarians to reject the bigots using our ideals to defend their hatreds. If we're going to suggest freedom with risks is better than less personal freedom with more security, then we need to explain why freedom is so important. We have to explain how a "free market" isn't the mess we have in the United States. We have to explain variation within Austrian and conservative economic theories, refuting the idea there is one unified "libertarian" economic model. We need to remind people that libertarians, like progressive or conservatives, are a varied group.

Defending individual freedom does mean defending the right to fail. Life cannot be risk free, neither can business. The libertarian not only accepts risks are part of a dynamic economy, but embraces that risk as the price of advancement.

I'm on a crusade, probably quixotic, to stop the insults lobbed at libertarianism from the progressive camp. As long as the loudest progressives refuse to appreciate the tolerance of libertarianism, they will be estranged from potential allies on a great many issues. That's a shame.

Friday, May 6, 2016

More Caricatures of "Libertarians"

Tonight, someone generalized so broadly about libertarianism that I was shaking in anger. The notion that libertarians do not care about other people is beyond insulting. It is precisely because we do care about human rights that we want government powers and government intrusions limited.

People trusting the government any more than they trust corporations will either be disappointed or choose to willfully ignore the failures of government. And government fails spectacularly on a constant basis.

It scares me that an increasing number of people are okay with "socialism" or "communism" and have nothing but contempt for classical liberalism. They blindly associate libertarian ideals with crony capitalism and a lack of compassion.

Most of us in the "classical liberal" school of thought are not Libertarians with a capital-L as in the Libertarian Party. The party, for one thing, does not reflect the Austrian economists much less Adam Smith. The Libertarian Party is close to the Objectivism of Ayn Rand, not the morality-based market ideals of Hayek or Adam Smith.

I'm tired of people accusing libertarians (small-l) of "Social Darwinism" and glorifying greed. Even Rand did no such thing, as I've written before: her characters would rather be poor than surrender to mediocrity for money (read The Fountainhead, it is a rejection of selling out).

For most libertarians, government serves the essential purpose of protecting the individual from the mob. It creates and maintains the rule of law, including contract law. Government at the local level performs vital functions, agreed to at the local level, in compliance with the national ideals of freedom.

I'm tired of being insulted for caring about freedom.

In no way do I believe money is the path to happiness or that greed is good. I do believe that government threatens my freedom more than the local Walmart does, but that doesn't mean I have to love Walmart.

The insults from left and right towards libertarians remind me how lousy politics are in this nation and how divided we are as a nation.

To one side, I'm a lousy amoral person willing to accept transgender unisex bathrooms. To the other side, I'm a horrible capitalist pig willing to let employers automate jobs and outsource parts.

The libertarians I know donate time and money to causes. They want better roads, safe water, and decent schools. They also know that governments and businesses form alliances that favor the big and powerful over the small business, over the individual citizen. We don't trust government because once it regulates, the powerful get the regulations and rules they want… while the rest of us get crushed.

Big companies complain about regulations, but they can comply. Small businesses get ruined.

Witness the mess after the financial crisis. On this Bernie Sanders is right: the big banks got bigger, not smaller, after the mess. Why? Government regulation actually helped remove competition. Funny how that worked out.

Libertarians are not in favor of such crony capitalism. We want less regulation because that's actually more fair to the small and medium-sized businesses.

Imagine a world in which medical services had price boards. Not shifting prices, based on your insurance, but fixed pricing posted for all people to see and understand. The price is the price, period. That's a libertarian ideal. Most of us believe regulations and complex insurance systems have made health care expensive and inefficient. Libertarians want transparency in a market.

Do I oppose, do most libertarians oppose, social safety nets? No. The Libertarian Party aside, few classical liberals reject the basic modern welfare state. Adam Smith reminded us that taxes on the rentier class should support those workers in needs. Many current libertarian economists suggest a "guaranteed income" would be better than the modern tangle of welfare programs. That's not social darwinism. If anything, it's simply a more efficient way to care for people and let them make their own decisions on how to live on that basic income.

Stop claiming all classical liberals and libertarians are Libertarians. We aren't. We cover the range of political and economic models, but we always place the individual above the group. We believe in freedom ("negative rights") because we don't trust other people to tell us how to live and we don't want to tell others what is right or wrong, either.

Sadly, the 2016 election mess is going to give the Libertarian Party more attention than it deserves. It is not home to classical liberalism. It is home to an almost nihilistic distaste for any and all government, a reaction to conservative and liberal overreach during the last 50 years.

The Libertarian Party could shift towards more pragmatic views, but I doubt it will.

The classical liberal has no party in the United States. We're stuck watching and hoping the nation doesn't implode from the radicals in the two major parties, while knowing the party that claims to represent us is often a juvenile reaction to the major parties.

And so we are caricatured, by the two parties, because we have no platform and the intellectuals in our schools of thought are in fields like economics or decision sciences. We abandoned the social sciences to the left long ago. There are few strong, coherent voices for classical liberalism.

We care about people. We care about freedom. And we're disillusioned after watching the two parties pulling further and further away from this nation's founding principles.

Friday, April 15, 2016

Leaders on Corporate Taxes: Misleading or Misinformed

Though I don't assume Sen. Bernie Sanders will be the Democratic Party nominee for president, I do assume the next president will respond to populist outrage against corporations (especially those in the financial sector). As a result of this populism on the left and right (Tea Party and Occupy having the same vitriol for Crony Capitalism), there is little hope for meaningful corporate tax reform.

Ignorance (or feigned ignorance) on issues of economics seems to underpin the campaigns of all four leading candidates as we enter the "home stretch" of primaries. From Donald Trump swearing to raise taxes to 30 percent on companies that leave the United States to Bernie Sanders claiming that we must shift the tax burden (income taxes are already progressive, the "burden" tends to be sales and other local or state taxes that do penalize the poor, not income tax).

The United States needs tax reform, of both the personal (household) income tax system and the corporate earnings tax system. Both need to simplified, condensed, and made more equitable by favoring only those struggling in the truest sense. Though this post focuses on corporate taxes, I want to point out the obvious: the home mortgage deduction and other middle-class favorites have equivalents in business. You cannot argue for equity while taking advantage of your own special interest deductions and loopholes.
Elizabeth Warren's Tax Warning
She orders Democrats not to make the U.S. tax code more competitive.

The Wall Street Journal
Nov. 20, 2015 6:26 p.m. ET

Sen. Elizabeth Warren (D., Mass.) … says the problem with the U.S. corporate tax code is "not that taxes are far too high" but that "the revenue generated from corporate taxes is far too low." She points out that while the U.S. federal rate on corporate income is 35%, the average effective tax rate that U.S. companies actually pay, after various deductions, exemptions and credits, is 20%.
Okay, Senator Warren, if the rate isn't the problem, clearly the deductions and loopholes are the problem. Close the loopholes, end the deductions, and then lower the rates to be more competitive, especially for small and mid-sized companies without armies of tax lawyers.

Also, I'm never one to argue that revenues in the United States are too low. They are not too low. We spend too much and we spend in idiotic ways. The budget process makes ending bad programs or programs no longer needed nearly impossible. We should spend more on infrastructure. We should spend less on defense. Our priorities are wrong, not our tax revenues.

Faced with stupid tax laws, many businesses keep foreign revenues abroad. This is a logical move. If I make widgets for Europe in Europe, why not keep the revenues there as well? Then, any need for expansion, research, marketing, and so on is funded by income from that region. The notion that a company somehow owes the United States everything, no matter where it is manufacturing and selling goods, is absurd.

Also, many smaller companies no longer go public. Going public is expensive thanks to Dodd-Frank and other regulatory hurdles. Just stay private. Don't form a corporation at all, if you can avoid it as a small company.
Ms. Warren… tries to steal a base by claiming that over the years corporations have been paying a smaller and smaller share of federal taxes. This is true, but as Kyle Pomerleau of the Tax Foundation notes, "the underlying reason is not tax avoidance. The reason is that there are fewer corporations. For the past few decades the number of pass-through businesses have greatly increased in number." These businesses pay through the individual income tax code. Their taxes are no longer counted as corporate tax revenue.
The Massachusetts Senator also says that most of the developed countries in the OECD collect "higher corporate tax revenues as a share of GDP than we do." Since they all have lower rates, shouldn't that tell her something?
Senators Warren, Sanders, Cruz, and former Senator Clinton all like to complain about companies trying to merge with foreign partners, allowing these corporations to move their legal residency abroad. Donald Trump is also upset with these tax inversions. First question: What have you done as senators to simplify taxes and encourage companies to move to the United States from other nations? Oh, that's right. Nothing. You've done nothing but use the issue as a campaign slogan.

You want companies to stay in the United States? You want other companies to relocate here? Make the United States more competitive. We're actually less free economically than many European and Asian nations, which manage to be "democratic socialists" with fewer regulations. How in the world did that happen?

Those of you stuck in the Senate after this election, do something positive. Work with the House to simplify taxes and close loopholes. End deductions. Make it clear to any adult able to read and perform basic math how much a company owes in taxes. It shouldn't take an army of lawyers to comply with federal tax law.
"Right now U.S. companies can pay a lower rate by investing overseas instead of in the U.S.," said Ms. Warren…. That is exactly the problem. And tax reform to make U.S. rates competitive in a simplified system that doesn't favor the corporations with the best lobbyists is the solution. 
But don't expect Sen. Warren to propose anything like that. It would require moving too much power out of Washington. As the heartthrob of progressives, she expects her remarks to be ideological marching orders to Senate Democrats and Hillary Clinton. In attacking even the chance of reform, she is endorsing corporate inversions and the movement of American jobs and capital overseas.
The Wall Street Journal is correct, though. Nothing is going to change. That would make too much sense and take away a great campaign speech talking point.

Wednesday, March 2, 2016

In the One Percent? Probably not for long...

My wife and I have been in the top ten percent off and on for a few years. We've even made it, briefly, into the top five percent. And, like most people in those "upper-class" categories, we quickly fell back out of the top tier of households. 

Why is that? 

For one thing, high incomes tend to be temporary "blips" related to "good years" for some professions. The highest earners are not salaried workers with steady, predictable incomes. Instead, the highest earners are glorified freelancers: doctors, lawyers, consultants, and other specialists. 

Some years are great for professionals. You might have an unusual number of surgeries if you're a doctor. Maybe you win a windfall case if you're a lawyer. A consultant lands one great contract. The money flows in for that year and you stash some away. Because, as the upper-middle knows, that one year is pretty rare. 

Eleven percent, slightly more than one out of every ten adults in the United States, will be in the One Percent for at least one year. Think about that. That's a lot of people making it to the highest income bracket. Though the top tenth of a percent of wealthy (not earners) are much wealthier than the top one percent of earners, we'll stick to income for this discussion.

As CNN reported in January, 2016:
No one stays in the Top 1% for long
http://money.cnn.com/2016/01/07/news/economy/top-1/index.html
by Tami Luhby   @Luhby
January 7, 2016: 8:15 AM ET
Made it into the Top 1%? Congrats!
Just don't expect to stay there for very long. 
The Top 1% is often considered an exclusive, monolithic group, but folks actually rise up into it and fall out of it quite often. That's because their incomes can vary widely year to year. 
Some 11% of Americans will join the Top 1% for at least one year during their prime working lives (age 25 to 60), according to research done by Thomas Hirschl, a sociology professor at Cornell University. But only 5.8% will be in it for two years or more.  
As for holding onto this status for at least 10 years? Only a miniscule 1.1% of Americans are this fortunate.
So, the One Percent this year isn't the one percent of next year. In ten years, nine out of ten of the current one percent won't be in that category. Welcome to mobility: it goes both directions. 



We have a dynamic economy. There is mobility, though that mobility is obscured by the much wider range of income in the United States versus Europe. Reaching our "upper-middle" would be like reaching the top one percent of most European nations. And, for something to consider, the "wealthy" of Greece rank just below the median income in Alabama. That's right, Alabama's middle-class residents are much better off than Greece's middle class. 

Dynamic income brackets, especially at the top, are U.S. phenomena. Most of our economic mobility is up and down between the four top quintiles since 2007. The bottom hasn't fared so well. Still, the top is dynamic, contrary to what many people assume.
"Affluence is dynamic, said Hirschl, who calculated that it took $332,000 to get into the Top 1% in 2010. "The 1% really isn't the 1%. People move around a lot." 
Think of it this way. Ninety-seven percent of the One Percent won't be there in ten years. Creative destruction at work.
The IRS looked at how frequently the same Top 400 taxpayers appeared on the list over a 22-year period ending in 2013. Some 72% ranked that high for just one year. Only 3% were listed for a decade or more. 
"People feel it's a fixed club and no one else can get in, but that's not the case," said Mark Perry, resident scholar at the American Enterprise Institute. "Once you get there, it's not easy to stay there." 
Lots of research reveal that those great years of income are rare. If you make it to the top, save that money!

Friday, January 29, 2016

SF Fed Report: Min Wage Increases Ineffective vs. Poverty

I'm not a huge fan of the minimum wage, but I also admit it isn't going away. It's a feel-good public policy that some nations embrace with complex brackets (Australia indexes for age of worker) and others simply don't have at all. There's little economic correlation between the minimum wage and job creation, because the wage tends to trail earned wages in skilled trades.

Which nations don't have legal minimum wages? How about Denmark, Iceland, Norway, Sweden, and Switzerland! Germany has regional minimums, handled by local governments, just as many states in the United States set their own minimums.

How can it be that social democracies don't have minimum wages? They have a history of employee ownership, through unions with board seats at companies. The United States lacks a similar history of corporate-union or even government-union cooperation. Our unions are more adversarial. (Maybe they should try another approach; it might increase wages and influence.)

The Federal Reserve Bank of San Francisco studied the minimum wage (yet another minimum wage study) and found it has negligible effects on poverty or employment. Basically, increasing the wage costs some job creation and helps the working children of middle-class and upper-middle-class families earn some extra cash. That's not a bad thing for college students, but not a great thing for unskilled people in poverty… many of whom don't have jobs!
Hiking minimum wage won't stop poverty: Fed paper
Jeff Cox
Wednesday, 30 Dec 2015 | 1:47 PM ET

David Neumark, visiting scholar at the San Francisco Fed, contends that raising the minimum wage has only limited benefits in the war against poverty, due in part because relatively few of those falling below the poverty line actually receive the wage.

Many of the benefits from raising the wage, a move already undertaken by multiple governments around the country as well as some big-name companies, tend to go to higher-income families….
It seems counter-intuitive, but I've written about his before. Minimum wage tends to be temporary and most of its earners are the high school and college-aged children of middle-class parents. Yes, there are single parents earning minimum wage in fast food jobs, but they are statistical outliers, not the norm.

Thinking back, when I was in high school almost everyone had a retail or food industry job. In college, we were the shift-managers and lead clerks. I worked at K-Mart, for example, and earned a raise every summer. I earned minimum wage for only six months. Though anecdotal, my experience reflects the statistical evidence.

The children of the middle class are able to get to and from jobs. They have some skills and want to build their resumes. Basically, entry-level workers are headed for better jobs.
Demographically, about half of the 3 million or so workers receiving the minimum are 16 to 24 years old, with the highest concentration in the leisure and hospitality industry, according to the Bureau of Labor Statistics. Moreover, the percentage of workers at or below the minimum is on the decline, falling to 3.9 percent in 2014 from the most recent high of 6 percent in 2010.
What about the poor? Believe it or not, 57 percent of families living in poverty don't have a single wage earner. That's astonishing to some people, but the fact is that the poor don't work (at least not for legal wages). That's a serious problem because if they don't work minimum wage jobs, they'll never develop the skills for higher paying jobs.
Neumark also points out that many of those receiving the wage aren't poor — there are no workers in 57 percent of families below the poverty line, while 46 percent of poor workers are getting paid more than $10.10 an hour, and 36 percent are making more than $12 an hour, he said.
The unemployed poor is a global problem, especially in some European nations and the United States. We have a lot of poor without the skills to hold minimum wage jobs. Even the lowest paying jobs require more and more skills as technology advances.

If we want to address poverty, we're back to education and personal responsibility. Other nations have extensive safety nets, yet they still have this same problem. Poverty becomes a cycle, as families don't develop successful habits. How do we teach the skills necessary for self-advancement? That's going to be an increasingly important question this century.

Some of my visitors have suggested in comments that the German wage and employment model would solve many other problems, not just wealth inequality. The problem is, there's no evidence that free education or employee-owned companies have decreased inequality in Germany. Nor have these policies led to better corporate citizens.

In Germany, Volkswagen has employee and regional board members. This model, widely adopted, provides leverage to negotiate higher salaries. VW is also evidence that employee and government board seats don't equal ideal corporate behavior, despite government and union ownership stakes.

The evidence is cloudy, though there's just nothing to suggest increasing wages through mandates or other means (stronger unions) will have an effect on poverty or inequality.

My fear is that wages will be increased nationally based on high-cost states and urban areas. I doubt that will happen, though, because most people do realize $15 in rural Pennsylvania or Alabama isn't the same as $15 in New York City.

More costly employees have to be worth the expense to any business. As a result, companies might avoid hiring the very people a higher wage was meant to help. Instead of hiring an inexperienced worker, I might higher a retiree or a college student. As higher-wage employers know, you get better employees for the money. That's not a bad thing.

One solution is not a higher starting minimum wage, but a bracket approach with guaranteed raises after six months and one year. This would encourage people to stay at jobs and encourage employers to invest in their workers. I dislike the idea of mandating this approach, nationally, but it might be a good compromise.