Category Archives: Economics

Rule Five Why Socialism Fails Friday

Every time.  Every time socialism is tried, it fails.  You regularly here cries of “that wasn’t real socialism” or “we just need the right Top Men!” but that doesn’t change the fact that socialism fails every fucking time it’s tried.  And here’s why.  Excerpt:

The new “democratic socialists” want to make their followers believe that one could redistribute wealth and income and socialize a large part of the economy without harming production and productivity. They claim that a comprehensive control of the economy by the government would bring more justice and more prosperity. The democratic socialists want more planning and less market. Yet this postulate ignores that socialism does not fail by accident or circumstance. Socialism fails because it suffers from four fundamental design defects.

  • First, socialism eradicates private property and markets and thus eliminates rational calculation.
  • Second, socialism allows soft budgets, so there is no mechanism in place to discard inefficient production methods.
  • Third, abolishing private property and replacing it by the state distorts the incentives.
  • Four, the socialist system with its absence of private property and of free markets inhibits the economic coordination of the system of division of labor and capital.

The Importance of Market Prices

Socialism cannot bring prosperity because it destroys the market functions of private property. Under socialism, private ownership of the means of production no longer exists, and thus there are no market prices for capital goods available. Institutionally, socialism consists in abolishing the market economy and replacing it with a planned economy. By doing away with private property of the means of production, one wipes-out market information and valuation. Even if the socialist administration puts price tags on the consumer goods, and the people may own consumer goods, there is no economic orientation about the relative scarcity of capital goods.

I have one word for you:  Venezuela.

Some folks like to point out the various Scandanavian nations as evidence that the right Top Men can run a socialist nation and not crash into grinding poverty.  They don’t point out that:

  1. Personal taxes are generally sky-high, sometimes approaching 50% of income earned, while…
  2. Business taxes are generally on the low side, encouraging business growth and investment, because…
  3. Much of those state’s revenues come from extraction, mostly from North Sea oil and gas.

What works in Norway won’t work in the United States, in any case.  While there is an extraction boom in the U.S. right now, the fees and taxes from that won’t begin to cover our massive Imperial budget – and wouldn’t, even if that budget were trimmed to a more appropriate less batshit-insane level.

But in fact, we need look no further than the first bullet in the excerpt above for a reason to reject socialism.  Prosperous societies can only exist when private property rights are rigorously protected, and indeed, government really only has two legitimate reasons to exist:  To keep other people from hurting us or taking our stuff.

Socialist governments invariably do both of these things; they invariably hurt people and take their stuff.  And that’s why proponents of socialism need to be hounded to the ends of the earth.

Rule Five Airline Prices Friday

In the Imperial City, two liberal Senators are proposing to bring back price controls for the airlines – a stupid, stupid, stupid, stupid, stupid, stupid idea.  Excerpt:

If you care about keeping airline prices low, buckle up. Legislation introduced in the U.S. Senate would impose strict government price controls on airlines, disrupting the industry and endangering billions of dollars in consumer welfare.

The U.S. Senate’s version of the bill to reauthorize the Federal Aviation Administration (FAA) contains a provision by Sens. Ed Markey (D-MA) and Richard Blumenthal (D-CT) called the FAIR Fees Act. It establishes “standards for assessing whether baggage, seat selection, same day change, and other fees are reasonable and proportional to the costs of the services provided.”

At first blush, this proposal might appear to be pro-consumer. After all, what’s wrong with mandating “reasonable fees” and protecting flyers?

But despite the innocuous-sounding language, FAIR Fees would interfere with the successful business model that has slashed airfares and boosted consumer welfare. There is no shred of evidence to justify onerous rate regulation in a sector as competitive as the U.S. airline industry. As history has shown again and again, government bureaucrats are incapable of setting prices better than the market.

Ironically, the U.S. airline industry is one of the best-known historical examples of the federal government’s harmful attempts to manipulate market prices. From before World War II to the late 1970s, federal agencies tightly regulated America’s airlines, setting fares, routes, and schedules. The results were disastrous — artificially inflating prices, stifling competition, and mis-allocating resources.

Hint for Senators Markey and Blumenthal – this is what price controls always do.

Remember the Seventies?  The “gasoline shortages?”  There were no shortages.  While OPEC did screw around some with supply, the main problem was President Nixon’s imposition of price controls on gasoline and raw petroleum.  (Add this to a bunch of stupid economic wage and price controls imposed by the ill-fated Nixon Administration, which led to the economic malaise of the late Seventies – a malaise broken by the Reagan Presidency.)

Fixing an artificial price cap on any commodity will always – always – have bad consequences.  In the case of the airlines, we’ll return to what air travel was in the regulated Seventies; fewer routes, fewer flights, less service and the airlines will still find even more ways to pass rising costs onto passengers.

Now, honestly:  This bill is going nowhere.  In the current Republican-led Senate, it will never see a floor vote.  If by some fluke the Democrats do take control of Congress, passage is still not likely, and certainly not by enough of a margin to overcome a Trump veto.  This is pure and simple election-year grandstanding by a couple of Congressional economic illiterates.  (But I repeat myself.)

But it would be nice, just for once, to see a little common sense in the halls of Congress.  Just once.  That’s all I ask.

Animal’s Daily Social Security News

John Stossel describes the coming collapse of that famous third rail of American politics, Social Security.  Excerpt:

This summer, interviewing people for my new video about Social Security’s coming bankruptcy, was the first time I had heard the majority of such a group say they were aware there is a problem. One said, “We’re already at a trillion dollars (deficit) … (I)t’s almost like a big Ponzi scheme.”

Actually, more like a pyramid scheme. Ponzi schemes secretly take your money. But the Social Security trick is written into the law — there for anyone who bothers to look.

Social Security isn’t the only hard choice ahead of us. Medicare will run out of money in just eight years. At that point, benefits will automatically be cut. Social Security hits its wall in 15 years.

Amazingly, as we approach this disaster, Democrats say — spend even more.

Sen. Elizabeth Warren, D-Mass., proudly announced, “Nearly every Democrat in the United States Senate has voted in favor of expanding Social Security.”

How would they pay for it? “Raise taxes on the wealthy!” is the usual answer.

I tried that on Boccia: “Just raise taxes on the rich!”

“There isn’t enough money, even that the rich would have,” she countered, “to pay for the $200 trillion in unfunded liabilities.”

There’s an obvious answer, but it’s not one that anyone in either major political party is willing to implement.

Here is the U.S. Constitution.  Note the Tenth Amendment, which states:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

So, the if the Constitution does not explicitly allow the Imperial government to do something, the Tenth Amendment prohibits it.  Not that this has stopped the Imperial government from using the Constitution from asswipe since about 1900, but still.

The answer?  Privatize Social Security.  Do away, at last, with the insolvent shell game that is wrecking the Imperial budget.  As a stepping stone, I’d be willing to negotiate a deal where the FICA withholding is still extracted (at figurative gunpoint) but that it goes into an actual personal account managed by the taxpayer.

Chile, as Mr. Stossel points out, saved their version of Social Security by doing just that.  Why can’t we do it here?

The ideal answer would be for the Imperial government to stop the endless expansion of Imperial power and actually, you know, read the Constitution and abide by it (and it’s important to note that nothing in the Constitution prevents the several states from setting up their own versions of Social Security) but that’s probably too much to hope for.

Rule Five Economic Illiteracy Friday

Thanks once again to The Other McCain for the Rule Five links!

The daffy old socialist from Vermont is once more up to his usual shenanigans, this time proposing a universal health care scheme estimated to cost more than the entire Imperial budget.  Excerpt:

Not only has Sanders’ office not done its own serious accounting for the Senator’s signature policy objective, the maligned “Koch-funded” piece of propaganda…closely reflected other academic estimates of single payer’s price tag.  Indeed, in our post yesterday, we cited a study by the left-leaning Urban Institute that ran the math and came up with a nearly identical cost projection — via the Washington Post:

The government’s price tag would be astonishing. When Sen. Bernie Sanders (I-Vt.) proposed a “Medicare for all” health plan in his presidential campaign, the nonpartisan Urban Institute figured that it would raise government spending by $32 trillion over 10 years, requiring a tax increase so huge that even the democratic socialist Mr. Sanders did not propose anything close to it.

When right-leaning and left-leaning think tanks produce strikingly similar calculations, perhaps we should sit up, pay attention, and take the results seriously. As for the “savings” canard, the Urban Institute analysis guesstimated that BernieCare would increase overall costs by more than $6 trillion over a decade, so how can Sanders claim that the Mercatus numbers point to a multi-trillion-dollar decrease?  Economist Brian Riedl of the Manhattan Institute, an expert on these matters, explains the context: “The claims of lower total economy-wide health savings only [materialize] because Blahous charitably accepted the Bernie assumption that we can lower all payment rates to Medicare payment rates,” Riedl tells me.

Here’s the conclusion:

When Blahous applied his institutional knowledge to the math, Sanders’ fanciful savings evaporated, and a higher tab of roughly $4 trillion over ten years emerged.  And notice — again — the relatively similar projections from both Blahous and the Urban Institute.  Riedl also notes that both entities’ analysis align closely with extrapolations from state-level estimates from Vermont and California, where single-payer schemes were abandoned by left-wing legislatures due to totally untenable costs.  We mentioned in our breakdown of Ocasio Cortez’s magical thinking that she did not propose anything even remotely approaching a plan to pay for all of this.

Well, there’s are a couple of obvious answers:

  1. We’ll just add a bunch of zeroes to the currency, and it will all work out.  (The Venezuela solution.)
  2. We’ll just borrow the money!  (The U.S. Congress solution.)

The usual answer to this involves the iron fist of government being employed to slash prices at gunpoint.  That results in fewer providers entering into medical career fields; it results in fewer facilities, it results in fewer companies manufacturing devices and drugs; it results in rationing.  See the formerly-Great Britian’s National Health Service for an example.

Our own Colorado voted down a single-payer solution.  California’s loony legislature abandoned a similar initiative after seeing the numbers.  Ditto for Vermont.  And, to be honest, the daffy old socialist from Vermont’s idea isn’t going anywhere at the Imperial level, either.  He will keep on campaigning for it; his self-awareness is so low that he’s handing the GOP a gift every time he speaks on the topic.

Not that that’s anything new for him.

Animal’s Daily Iran Currency Plunge News

This came in over the counter from a regular reader; it seems the threat of renewed sanctions is causing Iran’s currency to take a nose-dive.  Excerpt:

Iran’s currency traded at a fresh record-low of 119,000 to the dollar on Tuesday, a loss of nearly two-thirds of its value since the start of the year as US sanctions loom.

The Iranian rial has been crashing in recent days as the country anxiously awaits the reimposition of full US sanctions, starting on August 6.

It hit 100,000 to the dollar for the first time on Sunday and continued its decline, losing 18 percent of its value in less than two days.

On January 1, the dollar was worth 42,900 rials.

The government has been in crisis mode, replacing its central bank chief last week.

The central bank issued a statement on Monday, blaming the currency volatility on the “enemies’ conspiracy” and vowing fresh counter-measures “in the coming days”.

And it couldn’t happen to a nicer bunch of mullahs.

We could argue the sense of our foreign policy re: Iran all day, but that last statement is the one that caught my eye:  Iran is ‘vowing fresh countermeasures “in the coming days.”

Uh huh.

Iran’s nutbars-in-charge are always vowing fresh countermeasures.  They are a paranoid bunch, and rant as they will, they just plain have no cards to play here.  The U.S., largely in part to eased restrictions and (more so) technical advances on drilling, is far less dependent on Middle Eastern oil than we used to be.  I have a funny feeling President Trump’s response to Iranian threats is going to be on the order of “knock yourselves out, cupcakes.”

Personally I’ll settle for not sending them any more pallets of U.S. currency.

The Iranian theocracy is dying at any rate.  They have an increasingly restive younger generation, their birthrate is declining, and they have bad economic problems even without Western sanctions.  Theocracies are, happily, a governing model destined for history’s trash heap.  In the case of Iran, it can’t happen soon enough.

Rule Five Fundamental Misunderstandings Friday

This guy has a serious, fundamental misunderstanding of what capitalism is.  Excerpts, with my comments, follows:

But the fact is, capitalism moves and energizes the modern world.

Sort of.  Unfettered, laissez-faire capitalism is not actually practiced anywhere in the modern world.  What we do have is a combination of cronyism and mercantilism.

And what capitalism values, our world does more of; what it doesn’t, we do less of.

Yes, this is true.  And that’s precisely how it should be.

Many of us feel like the activities of a normal life are becoming harder and harder to accomplish.

So, how many is many?  That’s a content-free assertion.  “Many” is very relative.  Three can be “many.”  I wouldn’t want to have three people standing on my tongue.  That would be too many.

So the question becomes: In a system where capitalism is a prime determinant of value, how can we preserve what we truly value as humans, what matters to us beyond money?

With free trade and free markets, obviously – in other words, capitalism.  And, as I’ve said before and will say again, there really is no “-ism” in laissez-faire capitalism; there is no underlying ideology other than liberty.  An honest free-market system consists of nothing more than free people deciding, freely, for themselves what to do with their money, their talents, skills and resources.

Here’s where the author, one Andrew Yang, goes off the rails, in defining his “reformed” capitalism:

Human capitalism would have a few core tenets:
1. Humanity is more important than money.

Again, a content-free statement.  That means precisely nothing; you can’t quantify it or even define it.

2. The unit of an economy is each person, not each dollar.

See above.

3. Markets exist to serve our common goals and values.

This is real dinger.  Yang seems to be of the stripe that “people should be free to make choices, as long as the choices are ones I approve of.”

There are no common goals or values.  Only individuals have goals and values, and those may vary widely.  You can’t define common goals or values and assign them without the iron hand of government telling people what to do.  Quis custodiet ipsos custodes applies here; there is no way to have markets “serve our common goals and values” without someone in power deciding what those common goals and values are, and imposing those goals and values on the population as a whole.

There’s only one answer to such a suggestion:  Fuck off, slaver.

Animal’s Daily Venezuelan Meltdown News

Barter has taken over, as the wreckers and kulaks in the Worker’s Paradise of Venezuela are exploring every possible alternative to the train wreck that is that nation’s “official” economy.  Excerpt:

“There is no cash here, only barter,” said Mileidy Lovera, 30, walking along the shore with a cooler of fish that her husband had caught. She hoped to exchange it for food to feed her four children, or medicine to treat her son’s epilepsy.

In the hyperinflationary South American country, where bank notes are as difficult to find as chronically scarce food and medicine, Venezuelans are increasingly relying on to barter for basic transactions.

Payment for even the cheapest of goods and services would require unwieldy piles of banknotes, and there simply are not enough of those in circulation.

But it seems the problem is just that the government is not printing money fast enough:

Economists say the central bank has not printed bills fast enough to keep up with inflation, which according to the opposition-run congress, reached an annual rate of almost 25,000 percent in May.

Once one of Latin America’s wealthiest countries, Venezuela’s economic collapse under President Nicolas Maduro’s government drove nearly one million people – 3 percent of the population – to emigrate between 2015 and 2017.

Maduro, reelected to a fresh six-year term in May in elections condemned by the United States, blames spiraling consumer prices and constant shortages of food and medicine on an “economic war” led by the opposition and Washington.

The economic meltdown in Venezuela is due to one thing:  Socialism.  Socialist systems always end in this kind of a meltdown; even in a country as enormous, as rich in resources as the once and former Soviet Union, was perpetually in the “stand-in-line-for-beets” economic stage. With socialism, it is always steak yesterday and steak tomorrow, but never steak today.

Mark Twain is reputed to have once said “History seldom repeats, but it often rhymes.”  We’re seeing it rhyme now, in the colossal socialist failure that is Venezuela.

Goodbye, Blue Monday

Goodbye, Blue Monday!

Thanks once again to Pirate’s Cove for the Rule Five links!

Some of you True Believers probably ingested some ethanol over the weekend just past, in various forms – I know I did.  The problem is, your car or truck is ingesting it too, and unlike your consumption, your vehicle’s ethanol is heavily subsidized by the Imperial government.  We could save folks a lot of money by getting rid of the whole ethanol scam.  Excerpt:

The Scientific American reports that roughly 40% of America’s corn crop goes to manufacture ethanol added to gasoline. That is more than the second largest use of corn — as feed for cattle, pigs and chickens — which consumes 36% of the annual corn crop. Is it wise to burn food for fuel, more than for feeding a hungry world?

Using so much of the corn crop for fuel has already caused world corn prices to rise sharply. That is not noticed in rich countries, but it has caused food riots in poor, Third World countries, where poor families consequently suffer hunger.

This is particularly outdated in a world flooded by oil and natural gas, due to the effects of modern fracking. That flood has already caused world prices of oil and gas to sink.

Contributing to these perverse effects is the U.S. Renewable Fuel Standard (RFS). That policy requires all transportation fuels sold in the U.S. to contain a minimum level of renewable fuels, such as ethanol.

Ethanol lobbyists say the RFS promotes economic growth. But the RFS is more like a tax increase than economic growth. The free market will always choose the least costly fuel alternative, without the need for any regulatory mandate. The ethanol mandate just raises costs above whatever the least costly alternative is.

The ethanol subsidy is, of course, heavily lobbied for in the farm states; a candidate cannot be elected dogcatcher in places like my own home state of Iowa if they don’t support various agricultural subsidies, including the ethanol horseshit.  And also, in those same places, you’ll hear a lot of rhetoric from pols about protecting the “family farm.”

But a farm – full disclosure, I come from a long line of farmers on both sides of my family – is not a holy calling.  It’s just a business, like any other.  And business models change.  Big corporate farms produce goods for consumers at lower cost than family farms, and subsidies in agricultural goods, like with any other goods, just screw up the self-regulating nature of markets and are always, in the end, inflationary.

Markets, not governments, should pick winners and losers.  That applies to fuels, foods, and everything else.

Rule Five Government Theft Friday

Let me begin by saying this:  Any government elected, appointed or hired official who supports civil asset forfeiture should be tarred, feathered and run out of town on a rail.  This family had their life savings stolen – yes, fucking stolen- by an illegitimate act of a government gone mad.  Excerpt:

Rustem Kazazi, 64, was headed to his native Albania to visit relatives in October, according to a federal lawsuit that he, his wife, Lejla, and son, Erald, filed this week in Ohio against the agency and others.
The suit alleges Customs and Border Protection used civil forfeiture laws to take the money without arresting or charging anyone with a crime.

Kazazi had planned to spend six months in Albania and buy a vacation home for retirement on the Adriatic coast, according to court documents. He also wanted to help members of his extended family, who are struggling, the court documents said.

To make the transactions easier and avoid bank fees, he reduced his family’s life savings to cash, packed it in a carry-on and brought it with him to the airport, according to the family’s lawsuit.

“He counted the cash several times, separated it into three stacks of $20,000, $19,100 and $19,000 each, and then, after counting again, labeled each stack with the amount it contained. He then placed the three stacks in a single envelope and wrote ‘$58,100’ on the outside,” the documents state.

Transportation Security Administration agents spotted the money inside Kazazi’s bag as he went through security on October 27 at Cleveland’s airport to catch a flight to Newark, New Jersey, before flying out to Albania, according to court documents. TSA called Customs and Border Protection agents, who took Kazazi’s passport and driver’s license, according to the filing.

He was put in a small private room for a body search, the documents state.

Kazazi speaks limited English, according to the lawsuit.

Customs agents “interrogated him without a translator, and then seized his family’s life savings without charging anyone with a crime,” according to the Institute for Justice, whose attorney, Wesley Hottot, is representing the Kazazi family in the lawsuit.

So, Mr. Kazazi – who is in the United States legally, legally worked and contributed to our economy and his community, wanted to take some of the resources he earned back to his country of origin to buy a home their and oh, by the way, help his family.  His resources.  Resources he earned, legally.

And government officials just seized the money.  Because fuck you, that’s why.

In what sane world are civil forfeiture laws not a gross violation of the Fourth and Fifth Amendments?  Mr. Kazazi was subjected to an unwarranted search, and had a considerable amount of property, the aforementioned $58,100, stolen by agents of the Imperial government with no due process.  Giving him a receipt for an unspecified amount of U.S. currency was just adding insult to injury.

This kind of horseshit should have been slam-dunked by the courts years ago.  Why hasn’t it been?

One my suspect the answer:  A court decision against this practice would dry up a big source of unearned increment (excrement?) for various levels of government.

If you’ve ever looked for reasons to strip government of power, this practice should be high up on the list.

Goodbye, Blue Monday

Goodbye, Blue Monday!

Thanks as always to Pirate’s Cove and The Other McCain for the Rule Five links!

Moving along:  You can’t make this stuff up.  Excerpt:

At an island resort off the coast of Singapore, U.S. event planners are working day and night with their North Korean counterparts to set up a summit designed to bring an end, eventually, to the North’s nuclear-weapons program.

But a particularly awkward logistical issue remains unresolved, according to two people familiar with the talks. Who’s going to pay for Kim Jong Un’s hotel stay?

The prideful but cash-poor pariah state requires that a foreign country foot the bill at its preferred lodging: The Fullerton, a magnificent neoclassical hotel near the mouth of the Singapore River where just one presidential suite costs more than $6,000 a night.

The mundane but diplomatically fraught billing issue is just one of numerous logistical concerns being hammered out between two teams led by White House deputy chief of staff Joe Hagin and Kim’s de facto chief of staff, Kim Chang Son, as they strive toward a June 12 meeting.

So, if that batshit-crazy Stalinist regime can’t afford The Presidential Suite at the Fullerton, why not go for whatever the Singapore equivalent is of a Motel 6?  Honestly, it’s North Korea.  The short bus of nation states.  A Motel 6 ought to be good enough for a stunted little gargoyle with bad hair.

President Trump could always call ahead, ask the hotel to leave the light on for the Nork party.

Seriously, the Imperial government may deem it worth the shekels to spring for the rooms if it will get the Norks to the table.  But that seems a damned slim justification to me.  The message here should be “we are negotiating a deal that might result in crushing sanctions finally being lifted from your looney-tunes little excuse of a country.  You can damn well arrange your own lodgings.”

But that’s just me.