Monday, December 26, 2011

Greed vs. Giving... Trickle down charity is a recipe for real long term success

Rush Limbaugh caused a bit of a stir recently when he asked the question: “What do you think has fed more mouths, greed or charity?” The question seemed particularly untoward given that Christmas was right around the corner. Who besides Gordon Gekko might ask such a ludicrous question? Rush, obviously… and it turns out that it’s not such a ludicrous question after all.

Of course when he says greed, what he is really referring to – and he says as much – is self interest. Basically what he is arguing is that while giving charity to someone may make the donor feel good and sometimes has a positive effect on the recipient, the real way to improve the lot of people is to act in your own self interest – within the rule of law of course – and the benefits will flow to others, either directly or via giving. You might call this trickle down charity.

Not long ago I wrote a piece about Steve Jobs stating that despite giving Jack to charity, he did more to improve the lives of people around the world over the last 35 years than possibly anyone other than Bill Gates. Of course Gates has given away tens of billions of dollars, but in reality he has benefited the world far more by founding and growing Microsoft than anything he has done or likely will ever do with the Bill and Melinda Gates foundation.

To understand the level of failure that charity & giving can accomplish one need only look at Africa. In her brilliant book: Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa", Dambisa Moyo writes: “Over the past 60 years at least $1 trillion of development-related aid has been transferred from rich countries to Africa. Yet real per-capita income today is lower than it was in the 1970s, and more than 50% of the population -- over 350 million people -- live on less than a dollar a day, a figure that has nearly doubled in two decades.” Moyo argues that not only does aid actually destroy much of the potential economic development of African nations and enables corrupt leaders to maintain their power, at the same time it encourages would-be dictators to attempt to overthrow existing regimes, which in turn creates more war and poverty.

Food is one of the most brutal forms of aid. Many countries receive aid in the form of American agricultural products. The result of these gifts is that, as local farmers cannot compete with free food, their farms fail, and any chance of self sustainability vanishes. It’s the whole notion of “Give a man a fish, feed him for a day… Teach a man to fish, feed him for a lifetime.” In the case of Africa the world’s aid (and food is only part of that problem) is destroying the capacity of the recipients to become self sustaining, resulting in a vicious circle of aid, corruption and poverty.

Here in the United States the record of success via “giving” is largely the same. After six decades and trillions of dollars of government “aid” in the form of welfare and government education, the poverty problem is not only not getting any better, but it’s actually getting worse! We have record levels of people with no discernable skills, little ability to support themselves and most seeking support at the public trough. A smashing success of compassion!

None of this should be taken to suggest that giving is a bad thing. It’s not. Particularly when it’s done to ameliorate incidental or disaster induced problems, big or small. Giving however should not be seen as a long term solution to improving the condition of man. The problem is that giving typically comes with few, or poorly enforced, requirements on the part recipient, particularly when those “gifts” come from the government or international organizations like the UN or the IMF. Compare the different outcomes between 1960 and today of the Asian tigers and sub-Saharan Africa. In 1960 South Korea’s GDP per capita was twice that of sub-Saharan Africa’s, but in 2005 it was almost 24 times as much. The story is similar for countries such as Indonesia, Malaysia, Cambodia and Vietnam, who went from half the per capital GDP of sub-Saharan Africa in 1960 to five times it today. While all of these tigers received aid at some point, in Africa the aid became an end in and of itself while in Asia it was used as a step to economic growth and development.

Andrew Carnegie provides a perfect example of how both greed and giving can work together. In the late 19th century he was the richest man in the world, and in 1889 he wrote a piece called “Wealth” where he argued that the adult life of an industrialist should comprise two parts. The first part was the accumulation of wealth. The second part was the distribution of that accumulated wealth to benevolent causes. Philanthropy, Carnegie argued, was key to making the life worthwhile.

And Carnegie was no piker when it came to giving. By the time he died, he had given away 90% of his wealth (equivalent to $4.5 billion today) with the remainder to be distributed by others.

In Rush’s parlance, Carnegie fed many people via both greed and charity. By creating the heart of what became the most valuable company in the world, Carnegie provided food and shelter to tens of thousands of workers around the world and hundreds of thousands of family members. Whether you call it greed or self interest is immaterial. It supported hundreds of thousands of people and it gave Carnegie the resources to give to charity. Carnegie’s giving did not simply feed a man for a day. On the contrary. He wanted to prepare recipients to feed themselves for a lifetime. The majority of Carnegie’s giving came in the form of financing universities and libraries around the world where men could improve their lot in life through education. His was a gift, but he required something from the recipient in order to take advantage of it. Be it studying or reading, the recipient of Carnegie’s largesse was involved in the improvement of his own condition.

At the end of the day, as usual, Rush was right. The good Carnegie was able to do was driven by his pursuit of his own self interest. Same deal with Gates, Rockefeller, Ford and even Mark Zuckerberg. The result was that they improved the lives of their workers, their customers and the recipients of their gifts… but it all started with a profit motive. And it’s true on a national scale as well. America became the breadbasket and economic engine of the world through the pursuit of profit. That profit motive and the success it created allowed the United States to become by far the most generous nation in the world. But the same thing holds true here, people around the world have benefited far more from Cyrus McCormick’s invention of the mechanical reaper, the American innovation in the early auto, energy and transportation industries and Silicon Valley’s silicon and cyber advances than they have from any charity that was ever given by anyone anywhere.

While charity has its place in the world, free markets and capitalism are the keys to true improvement in the condition of man. They provide the opportunity for investment and innovation to ameliorate most problems on the planet. Not all, but many. If one’s goal is to help a neighbor, a friend or someone across the planet survive a disaster or get through a difficult moment in their lives, charitable giving is the perfect solution. If however one’s goal is to lift a family or a community or a country out of poverty, do what you can to help them participate in capitalism and a free market economy. That’s where long term, sustainable economic advances come from. Now that’s a gift that will pay dividends for everyone involved.

Tuesday, December 20, 2011

Iraq will be Barack Obama’s Vietnam

Iraq will become Barack Obama’s Vietnam. Not in the boogieman sense that the left has been using the Vietnam War for the last 40 years where every American use of force is the “next Vietnam” but rather in its aftermath.

The Vietnam War ostensibly ended in ended in early 1973 with the signing of the Paris Peace Accords. The agreement was based upon an agreement by all sides to stop hostile activities and for American troops to depart. The Americans would continue to supply the South Vietnamese military. In addition, the SVN leadership was explicitly assured that were the North Vietnamese to resume hostilities the United States would begin bombing Hanoi and other targets in the North.

Unfortunately for the South Vietnamese, the promises of arms and support were mirages. In 1974 Congress cut military aid to Vietnam from $2.3 billion to $1 billion and then in 1975 to $300 million. Thanks to the Democrat’s Case-Church Amendment, when the North had resupplied and resumed hostilities, the promised US bombing never came. In April 1975 Saigon fell and the South surrendered.

Then came the nightmare. Upwards of a million South Vietnamese found themselves in prisons, “re-education camps” or other tropical outposts where they were treated to starvation, torture and murder. Hundreds of thousands more braved the oceans in order to escape, a quarter of them never reaching shore. The effects of this nightmare reached into Cambodia and Laos as well.

And now there is Iraq.

The war in Iraq was obviously far different from the one in Vietnam. Unfortunately however, the aftermath may be similarly unpleasant.

While Iran will not invade Iraq anytime soon, the country could still become a vassal of the ayatollahs. If Iraq escapes that fate it may well collapse into a civil war that eventually draws not only the involvement of the Iranians, but of the Saudis, the Turks and other neighbors as well. Oh, and, yes, perhaps eventually the Americans again.

However one feels about the war in Iraq in the first place, the manner of the exit ensures one thing, that the American blood and treasure spent toppling Saddam Hussein and seeking to establish a viable democracy in the Middle East will likely be for naught.

Not that Saddam Hussein will be coming back anytime soon, he won’t… but the country he once ruled will likely become a basket case or a failed state.

The writing on the wall has been there for years. Candidate Obama had been a critic of the Surge and President Obama’s only priority in Iraq seemed to be leaving.

Iran was paying close attention. Although they had been heavily arming insurgents and Shia militants during the dark days of 2005-2007, by 2009 their efforts had largely been defeated with the establishment of a fledgling but credible Iraqi government infrastructure.

However, the national elections of 2010 opened the door to Iran once again. Barack Obama was inexplicably a proponent of a laissez faire policy in reference to the dysfunction in the formation of the Iraqi government following the 2010 elections. To anyone looking (and there were many) it was clear that the United States was disengaged and focused on wrapping up the operation.

Such chaos invites the efforts of a strong horse. Iran was willing to play. With an ambiguous constitution and a Chief Justice carrying Prime Minister Maliki’s water, the Iranians became the power brokers behind the new government, forcing Mr. Maliki into a coalition that included the Sadrists, erstwhile insurgents led by cleric Muqtada al-Sadr. This was only possible because of the vacuum left by the Obama administration. Had the Iraqis been confident that the United States would be standing with them until they could stand on their own, there would have been no vacuum for the Iranians to fill.

As things stand today, Iraq sits on a precipice of disaster. Within the last three months terrorist attacks have increased, sectarian infighting has escalated and two of the country’s eighteen provinces have sought semi-autonomous status, seeking to enjoy the autonomy the Kurds enjoy. Other provinces will surely follow. For a country with a weak central government and deep divisions amongst its population, such a centrifugal force is not exactly helpful. This will be particularly problematic as the national government seeks to collect and distribute oil revenues, bolster the power grid and perform other traditional tasks. Apart from the growing separatism at the local level, the federal government is a patchwork of alliances, most of which are held together by Iranian influence. That influence comes in various forms, from their covert (but hardly secret) support of terror groups Khataib Hizballah and Asaib Ahl al-Haqq, who are not only responsible for killing US troops but for targeted assassination across the country, to their overt economic, diplomatic and religious ties. As if to put a cherry bomb on the top of this powder keg, the day after the last American troops left the country, the Shiite-led government issued a warrant for Vice President Tariq al-Hashemi, the country's highest ranking Sunni official, on terrorism charges.

Of course it did not have to be this way. American Military planners had long sought to leave a force of between 20,000 to 30,000 troops to provide continued security, run counterinsurgency operations and to focus on training of the Iraqi military. Most analysts believed that number was the minimum number necessary to maintain many of the hard fought gains won over the last four years.

While 20,000 troops may sound rather small in terms of maintaining gains achieved in a country of 30 million people, the message they would have sent to the Iraqis, and equally importantly, to the Iranians, would have been crystal clear: The United States will not allow a democratically fragile Iraq to become an battleground of the Middle East or an Iranian puppet.

That however was never Barack Obama’s message. His campaign would later reveal his message: “Ending the War in Iraq: A Promise Kept

For some perspective, one might observe that leaving sizable troop levels in a theater for a period of time after a conflict in order to maintain hard fought gains is nothing new. A quarter century after the end of WWII there were 260,000 American troops in Germany and today, sixty years after the Korean War there are 30,000 US troops in South Korea. Obviously the Korean peninsula and Western Europe are different than Mesopotamia, but the notion remains that leaving troops to midwife a long term positive outcome is far from foreign. At least to most people not named Barack Obama.

Instead, the message the Iraqis and their neighbors received from the United States was one of detachment driven by a President with little interest in anything other than ending “Bush’s War”. Whereas Bush talked with Prime Minister Maliki on a weekly basis, President Obama spoke with him rarely and not at all between February 13 and October 21 of this year, critical days in the period leading up to the end of the American presence in Iraq.

After months of doing nothing the administration finally proposed in August of this year to leave 3,000-5,000 troops, far below what most believed was necessary to secure the peace. Those numbers, far too small to fulfill its mission did prove helpful to the administration however: it provided a fig leaf behind which it could hide its retreat. This fig leaf came in the form of a lack of immunity for American troops on Iraqi soil. While Mr. Maliki and other members of the government may have been willing to go to the mattresses to secure such immunity for a substantial force that demonstrated a serious American commitment to Iraq, they were not willing to do so for a token force that would provide little support or security. Even that fig leaf was too small to provide true cover because the administration could have easily put any forces in Iraq on the diplomatic rolls, which would have provided such immunity.

At the end of the day, Iraq will be Barack Obama’s Vietnam in the sense that not only will most of the hard fought gains be lost, but there will be thousands who will pay the price for his choice, starting with the innocents who will be caught in the sectarian crossfire. They will not be the only ones however. So too will a price be paid by neighbors who fear an emboldened Iran as well as freedom advocates across the region who might have sought replicate Iraq’s success and build secular, democratic governments. And then there is the world’s confidence in the United States as a long term ally in the fight for regional stability and a bulwark against Iranian intervention.

Of course all of this comes on the heels of another futile round of sanctions seeking to keep the Iranians from developing or delivering a nuclear weapon. Barack Obama has certainly conveyed a message of strength and stability to the region. “Ending the War in Iraq: A Promise Kept” Indeed.

Monday, December 5, 2011

Tea Party vs. the GOP establishment - Begging for a brokered convention...

For much of the last three years, I, like so many others who were so despondent after the election of 2008, assumed that the election of 2012 was finally going to provide the American people with a real choice of philosophies.

On the one side you have President Obama and the progressive / fascist utopia. (Fascist in the economic sense – where private property remains, but government dictates its usage – rather than the Nazi anti-Semitic / nationalist sense.) This utopia is where government plays the role of caretaker of the nation, where government tells citizens what they can and can’t do with their property, what they must buy and where they must invest, where unions have the power to coerce both government officials and private corporations that pay their members salaries.

On the other side the Tea Party was going to make sure that for the first time in 30 years a conservative nominee would be the standard-bearer of the Republican Party. The platform would include radically smaller government, less intrusive government, and lower taxes coupled with a less complicated tax code – maybe even the Fair Tax – and a strict adherence to the 10th Amendment. Life was indeed going to be good again and prosperity would soon come roaring back.

Given the failure of everything progressive, from welfare to education to the USSR to practically the entire European continent, Americans would finally be given the choice between continuing down that well trod path to failure and a going down that forgotten path of economic liberty that was the foundation of American prosperity since the revolution.

Somehow, somewhere along the road leading to that fateful, Solomanic fork in the road, something went wrong. Not on the left. No, President Obama has indeed been as progressive as most of us feared, and in some cases far worse. Actually, the problem is on the right. Where many of us were hoping that the standard-bearer of the GOP would be a clean, if not perfect, conservative, increasingly it looks as if the nominee is going to be someone other than that.

In the one corner we have Mitt Romney who to this day refuses to renounce Romneycare, the Massachusetts disaster that spawned Obamacare. He also was an early supporter of cap and trade, was gullible on global warming, opposes a flat tax or the Fair Tax and shares an unhealthy affinity with Barack Obama for class warfare.

In the other corner we have Newt Gingrich, the guy who sat on a couch with Nancy Pelosi and told us to pressure our leaders to combat climate change. Although he finally admitted that was one of the stupidest things he ever did, there are other candidates for that title. He trashed Paul Ryan’s less than radical tax plan as “conservative social engineering”, supported the individual mandate in healthcare and now wants to harness local boards to determine which illegal immigrants should be allowed to pursue a “Path to legality”. I have to wonder how effective that might be in sanctuary cities around the country like San Francisco, Austin and Denver. As if all of that were not enough, after taking almost $2 million from Fannie & Freddie and praising their work and the GSE model itself, he now wants us to believe that the only thing he did for the money was tell them their businesses were going to fail. Really?

There are of course others in the race and they too are imperfect, but at least with Perry and Bachman you know they are true conservatives mostly dedicated to a smaller government. Unfortunately for the two of them, their campaigns barely register a pulse when it comes to the polls.

At the end of the day one has to ask, what happened to the Tea Party revolution? How is it possible that the two men leading the race for the 2012 GOP nomination are big government, crony capitalist chameleons who are far less inclined to upend the Washington applecart than work with the people driving it? Why are not the leading GOP candidates shouting from the rafters that they will radically slash government spending and regulation, that they will champion a flat tax and that they will impose a strict adherence to the Constitution, particularly the 10th Amendment?

Despite the best efforts of the media and the Democrats to paint the Tea Partiers as racist rubes and the Occupy Wall Streeters as noble sophisticates put upon by the evil capitalist system, the American people recognize the truth. The fact that the PR field is so heavily tilted towards OWS, yet citizens still have a more favorable view of the Tea Party, tells you everything the GOP needs to know about the coming election. If they would simply run a candidate who proudly articulates basic conservative principles, the next election would result in the country being freed from the tightening progressive noose around its neck. Without such a candidate, with just another standard-bearer Americans can’t distinguish from the big government GOP they’ve come to know, Barack Obama may indeed triumph.

With Gingrich and Romney sitting in the pole positions, I find myself pulling for a brokered convention that results in an opening for someone other than Frick and Frack to take the nomination. Someone like Sarah Palin, or even the forgetful but conservative Rick Perry. Sure that’s an unlikely scenario, but at this point the traditional route has brought us two paper tiger conservatives leading the pack. The Tea Partiers and the country deserve an opportunity to make a clear choice between progressivism and conservatism. Let’s hope that somehow the GOP can figure out how to give that to them. Otherwise it may be another four years of hoping for change.

Monday, November 28, 2011

Looking to "experts" - How Herman Cain can revive his campaign for the GOP nomination

Herman Cain is the only person in the GOP field who has significant experience running a private company from the perspective of an operator. Yes, Mitt Romney has significant experience in business, but for the most part his experience is as a consultant or an investor rather than as an operator. When I say operator I’m talking about being in charge of making payroll, worrying about regulators – local, state and national – setting policy and executing, all while inspiring employees to succeed and earning a profit. Those are the kinds of things that Herman Cain has done – more than once. He revived a moribund Philadelphia Burger King unit with 400 floundering stores. He slashed the fat from a money losing Godfather’s Pizza chain and returned it to profitability… and eventually bought the company himself.

As an operator Cain was on the front lines of the single biggest threat to the economic health of the United States today: Government regulation. As such, Cain understands exactly what needs to be done to free up the nation’s entrepreneurial spirit. Of course he’s also led a major national organization, the National Restaurant Association, sat on the board of Fortune 500 companies like Nabisco and Whirlpool and spent seven years serving in various capacities (including Chairman of the Board) of the Federal Reserve Bank of Kansas City.

Cain’s hands on experience actually running businesses and his oft articulated dedication to a constitutionally limited government make him the best choice amongst the current GOP lineup to lead the country out of its economic malaise. Not to forget 9-9-9 as well. Unfortunately for him however, while paring back government to spur innovation, investment and prosperity is the single most important job of the next president, it’s not the whole job. As such I have two main concerns about Herman Cain today.

Firstly I’m troubled by his lack of big picture thinking on foreign affairs and national defense. From his “listen to the experts” approach to Iraq and Afghanistan to his apparent confusion about Obama’s Libya policy to his lack of clarity the Palestinian “Right of Return”, one is not left with a feeling of great confidence. I might suggest however that the “out of his league” impression he leaves might not necessarily be fatal. Given that the next president’s single biggest priority must be a “laser focus” on reviving the American economy, having someone comfortable in international affairs is not a priority. But having someone competent with a strong team is. A coherent policy on foreign affairs is vitally important in a global economy. At the same time, with an ever changing cast of rouge characters around the world, national security must be an integral part of the foreign policy equation. As such, Mr. Cain could ameliorate the reservations many have about his international relations aptitude and skillset by immediately recruiting John Bolton to lead his foreign policy team and giving him a supporting cast made up of people like Max Boot and Dinesh D'Souza.

I’ve never believed that a presidential candidate needs to know the names of every leader and would-be leader in every country around the world. They must however have (and articulate) a relatively clear general approach to foreign affairs and have a basic familiarity with the major issues of the time. By harnessing such a clear thinking, well respected and no nonsense champion like Bolton to drive his foreign and defense policies, Cain would in one decisive moment demonstrate his intent to field a serious foreign policy team that would implement a robust and American centric (as opposed to an international or global centric) foreign policy that would both comfort allies and put enemies on notice. A John Bolton led team would immediately give voters confidence that while Cain may be weak on the specifics, he understands the importance of foreign affairs and defense policy to the job he is seeking and signal his administration’s intent to give them the level of attention and resources they deserve.

The second concern with Cain has to do with the harassment accusations. As I wrote at the time, I doubt the veracity of the charges. My concern however is that given more than a week’s notice the campaign seemed to be so unprepared once the issue became public. A week’s notice and they seemed befuddled. That falls on Mark Block, Cain’s campaign manager. As does his setting up of the disastrous interview with The Milwaukee Journal Sentinel a couple of weeks later. Together these two self inflicted wounds may have sunk the Cain campaign. As such, if the campaign is going to find its footing again Mr. Cain should replace Mr. Block, or at a minimum partner him with someone like Dana Perino who’s better attuned to the what a presidential candidate should and shouldn’t be doing and saying out on the campaign trail. Loyalty is laudable, but when that loyalty endangers the raison d'être of the endeavor in the first place, it becomes a liability. The greatest thanks Mr. Cain could pay Mr. Block’s efforts would be to become President Cain rather than candidate Icarus who fell from the sky without ever achieving his objective.

Mr. Cain frequently talks about looking to “experts” on a wide variety of issues. Certainly a multitude of said experts are necessary to lead a nation of 300 million people, administer multi trillion dollar budgets and operate in an international arena of constantly shifting alliances and relationships. Candidate Cain asks the American people to have confidence in his ability to draw on the expertise and skills of others to supplement his knowledge and experience. He could earn that confidence reaching out and harnessing the skills of such experts today to help him become President Cain. If he can’t engage experts now, to help him revive his campaign and help him win the presidency in the first place, we’re probably better off not seeing how the policy would have been implemented once he entered the Oval Office.

Monday, November 21, 2011

Commerce Clause frivolity: Obamacare, NASA and your unwed pregnant daughter...

Two weeks ago the Supreme Court agreed to decide the constitutionality of President Obama’s signature piece of legislation, the Patient Protection and Affordable Care Act, better known as Obamacare.

In a surprising act of courage, the Court agreed to decide the divisive case in the midst of what will certainly be one of the most viscerally contentious elections in a century. To their credit, when they could have easily kicked the can down the road and waited until after the election to take the case, they did not. Not only did they accept the case, but they allotted an unprecedented 5 ½ hours of oral argument for it. They fully recognize that their decision will have significant political implications. Not in the sense that it will sway voters one way or another (which it will certainly do) but in that it gives voters the opportunity to take into account the consequences of their 2008 votes when they walk into the booth in November.

However the Court decides, the consequences of that election will be laid bare. It’s not often that voters get such a clear, definitive beginning, middle and potentially end of such a consequential piece of legislation – at least from a legal perspective – within one election cycle.

The central question in the case is a relatively straightforward one: Does the federal government, under the Commerce Clause, have the power to force Americans to purchase health insurance?
Article I, Section 8, Clause 3

(Congress shall have Power) To regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes;

The foundation for the administration’s argument that it does indeed have that power lay in a case handed down by the Supreme Court in 1942, Wickard v. Filburn. That case gave the stamp of approval to the Agricultural Adjustment Act of 1938, which allowed the federal government to regulate economic activity:

In 1940 an Ohio farmer, Roscoe Filburn grew more wheat than the government allotment allowed. They fined him. He sued, stating that his wheat was for his own use on his farm and therefore was beyond Congressional reach. In a legal gerrymander that would put any politician to shame, the Court decided that as Filburn’s exceeding his quotas would result in him buying less wheat in the local markets, which in turn led to less wheat traded in those markets, he was impacting interstate commerce; therefore Congress did indeed have the power to limit his production.

Twisting Fillburn’s already tortured logic, the Obama administration has decided that now it can force all Americans to purchase healthcare. The why is that society has to pick up the tab when uninsured people go to the emergency room. The how is where Filburn comes in. By virtue of the fact that the money people spend on healthcare for the uninsured (through higher taxes and higher insurance premiums) cannot be spent to purchase goods and services they might otherwise purchase, healthcare therefore impacts interstate commerce. As such, Congress has the power to regulate healthcare and can compel people to purchase health insurance.

That is the logic the Democrats used as they force fed Obamacare down the throats of the American people.

If this logic is acceptable, the question becomes, is there literally anything the government cannot do? For example, perhaps a future Congress might want to ban premarital sex? What? No way! Really? How? Here’s how: The United States spends hundreds of billions of dollars every year capturing, trying and keeping criminals locked up. Seventy percent of prisoners come from households without fathers. Given that the single biggest contributor of kids growing up without a father is out of wedlock births, the most straightforward way to ameliorate that problem is simply banning premarital sex. As the progeny of premarital sex drive expenses in the criminal justice system, which in turn reduces the amount that can be spent on airline tickets or pencils or hotel rooms, or bingo games, Congress can legislate it.

Sure, that sounds like a stretch, but then the history of the Washington borg is legion. The EPA was set up to clean the air and water and now it fines farmers for spilling milk and wants to regulate the stuff we exhale. The Department of Energy was established as a result of OPEC bringing the country to its knees with oil in 1973 and today it’s pretending to be a venture capital firm as it pours tens of billions of taxpayers’ dollars down politically connected green energy rat holes like Solyndra and Beacon Power. How about NASA? The National Aeronautical and Space Administration used to be about putting men in space and on the moon but today we pay Russia to send our astronauts into space and the agency’s number one job is to: “to find a way to reach out to the Muslim world and engage much more with dominantly Muslim nations to help them feel good about their historic contribution to science, math, and engineering”. Obviously the notion of banning premarital sex to save money on prisons is ludicrous, but based on Washington’s track record that doesn’t even matter.

The outcome of the administration’s logic suggests that there is nothing in our $14 trillion economy that could not be said to impact interstate commerce. Nothing. Growing tomatoes in your back yard rather than buying them in the supermarket; staying at home instead of going out to the movies; sewing the hole in a child’s pants rather than buying a new pair; sending your kid to a private or religious school rather than the dysfunctional public school down the street. If this expansion of the absurd logic of Filburn is allowed to stand, there will be literally nothing the government cannot make you do or keep you from doing. At that point there will be no freedom left in America. First to go will be what’s left of economic freedom, followed shortly thereafter by political and then religious freedoms. Once those are gone, how much is really left of America at all?

Monday, November 14, 2011

A trillion dollar hit job - who really wins from the Herman Cain scandal?

Having spent three quarters of my adult life working in restaurants, I can tell you that I find the accusations against Herman Cain difficult to believe. Not that sexual harassment doesn’t occur in the restaurant industry, because it does. Rather, because the industry has no shortage of itinerant and attractive young women who would be more than happy to indulge Mr. Cain in whatever peccadilloes he might have. If Mr. Cain were prone to using his position to coerce women into sexual favors, which is exactly what Ms. Bialek is accusing him of, I cannot imagine that there would not be women coming out of the woodwork with stories of his antics. Frankly, he wouldn’t have even needed to use coercion. For a man of power and influence seeking to find willing partners, the restaurant industry would be the equivalent of shooting fish in a barrel.

Instead of credible, demonstrably true charges, what we have is a handful of women coming out with specifically non specific accusations of “sexual harassment”. And the problem is, there seems to be no way for Mr. Cain to escape the attacks. It’s like being asked “Mr. Smith, are you still beating your wife?” and you respond that you’ve never laid a hand on her but the headline the next day shouts “Mr. Smith says he’s no longer beating his wife.” The accusation alone is enough. Enabled by a pliant media, these women have been able to detour, if not derail, a promising political campaign.

Who might benefit from this? Primarily two groups: The left (read Democrats) and Washington insiders of both parties.

The left does not like Herman Cain for two reasons. The first is because he’s an unabashed believer in American exceptionalism. At the end of the day he believes that a man in America has the opportunity to succeed through his own efforts, regardless of their background or demographic characteristics. The second reason they don’t like him is that he has the temerity to believe those things while being black.

That latter bit is what really makes the Democrats nervous. The fact that Herman Cain is a black conservative who is a vociferous opponent of the entitlement state creates a potential fatal crack in one of their core constituencies, blacks. Blacks make up about 13% of the population and they vote Democrat in excess of 90% of the time – 96% of blacks voted for Barack Obama. To put that in perspective, if a candidate needs 50% of the total vote to claim victory and they automatically get 90% of the black vote, they already have 11% of their 50% right there. That means that of the remaining 87% of the population, said candidate need only attract 39% of the vote. That’s a pretty good deal for Democrats.

Herman Cain puts that math in jeopardy. By demonstrating that a black man can succeed in the United States without depending on affirmative action, without being a ward of the state, without being an agitator for redistribution of wealth, he shatters the myth propagated by the left that blacks are victims and cannot succeed without government help. Once they recognize that, that 90% Democratic foundation begins to crumble.

The veracity of this fact can be seen in the way that the left treats Cain. “He’s a black man who knows his place” or he needs to “Get off the symbolic crack pipe”. They are trying to demonstrate that he is not an authentic black, his story is an aberration and that his success is not the kind of success that other blacks can aspire to or expect from themselves or their families.

Therefore, his candidacy must be destroyed. It must not be allowed to succeed because if he were to convince even 20% of blacks to vote for him, President Obama and much of the Democratic machine would be toast. A Democrat party without its most reliable constituency would crumble.

At the same time, political insiders on both sides of the isle dislike Cain for a completely different reason. He seeks to upset their Washington metro apple cart. You know, the one that has the highest income level in the United States. The one that has the power to set the rules for the rest of the country.

The Herman Cain candidacy is potentially Armageddon for those people. As a conservative, Cain believes that the government should be limited to doing only those things it is constitutionally empowered to do, rather than all the things politicians and bureaucrats want to do. As such, he would likely clean house. He would likely slash, if not eliminate, major elements of the government bureaucracy, particularly in the areas of education and energy as well as environmental and corporate regulation.

To understand why this scares insiders so much, imagine the impact of his 999 plan. By streamlining and simplifying the tax code, by eliminating most exemptions, he would immediately gut the number of accountants America needs, as well as making tens of thousands of IRS employees redundant. That proposal alone would immediately save Americans’ hundreds of billions of dollars in accounting costs. Thousands of accountants and IRS types would have to find productive jobs elsewhere. Now imagine that same level of efficiency brought to the Departments of Education, Energy, HUD and HHS.

Simply put, Herman Cain is an outsider to the Washington insider cabal. That cabal, which includes bureaucrats, lobbyists and politicians of both parties, is shaking in its boots. The prospect of a businessman not accustomed to the built in inefficiencies, the go along to get along mentality that permeates Washington, scares those people to death. Unfortunately for them, Cain worries about the effects of government employees and regulation on the American people and the American economy, not the other way around.

His goal is to remove the yoke of government from the backs of the American entrepreneur so that prosperity can return. If you are a lobbying firm who collects hundreds of millions of dollars a year to influence government, you don’t want to see someone elected who might sink your ship. Same thing if you’re a bureaucrat living in Mclean Virginia and making $150,000 a year with rock solid job security. Same if you are a politician who sits on a committee that gives you power over 10% of the American economy. If you are part of that yoke on the neck of the American people, you don’t want to see Cain get elected and would do whatever is necessary to make it not so.

Herman Cain’s unorthodox candidacy and his outsider perspective presents a sufficient threat to both Democrats and Washington insiders that they will do whatever they must in order to get him out of the race. For the Democrats it’s their party, for the insiders it’s their power and privilege and for both it’s their basic survival. At the root, there are literally trillions of dollars are at stake. Every day we read about the most heinous of crimes being committed for far lower stakes, so why then does it seem so farfetched that this just might be an orchestrated hit job to sink the Cain campaign? Maybe it’s not so farfetched after all.

Monday, November 7, 2011

The Occupy Wall Streeters should put down their copies of Das Kapital and pick up this year's Forbes 400

Back in 2000 or 2001 I read a piece in Newsweek or TIME that discussed flyers whining that they didn’t have enough storage space in the overhead compartment bins on airplanes. I remember writing a letter to the editor saying that the only reason that people had the luxury of being able to whine about such things was that flying had become so safe that flyers could shift their focus to the more mundane. Then of course September 11th came along and people started focusing on the basic reason planes exist… to get them from point A to point B in one piece.

The Occupy Wall Streeters are just like the people whining about the overhead compartments. These are the people who enjoy the fruits of the capitalist system in which they live – iPhones, Starbucks, Facebook, Twitter, Twinkies, Nikes, ATMs, MSNBC, not to mention adequate food, shelter, and transportation, yet want to destroy that very system. They vote for economic dolts in the Democrat party like Barney Frank, Nancy Pelosi and Barack Obama and then blame capitalism when they screw it up.

Not only do they have no clarity about what they want, but they are wrong about most of those claims they are making. Bankers may be SOBs, but they didn’t cause the financial meltdown, Congress did. Their college loans are so heavy because government drove up college costs faster even than the rise in health care costs, not because of the 1%. The fact that with degrees in hand they can’t find jobs is because of government regulation and tax policy, not because of big corporations.

These people could benefit from putting down their copy of Das Kapital and ask their local banker for his copy of the Forbes 400.

The annual Forbes 400 issue lists the 400 richest people in the United States, the uber 1-percenters if you will. Just to make it on the list this year you had to have a net worth of slightly over $1 billion. Strangely, this list of the most hated of the really hated 1%, includes stars in the Democratic constellation like George Soros sitting at number 7 with a net worth of $22 billion and Mark Zuckerberg, Sergey Brin and Larry Page sitting at positions 14-16. Oh, and of course there’s also Mr. Solyndra, George Kaiser, at # 31 with $10 billion and President Clinton’s buddy, Ron Burkle, at 107 with his $3.2 billion.

When you hear the Occupiers talk about the 1%, it brings to mind a banker or industrialist sitting in his office gleefully writing pink slips just before Christmas so that he can improve the bottom line and buy another Gulfstream with his bonus money. Of course at the same time he’ll find some loopholes through which he can avoid paying any taxes on the bonus he earned for firing all of those workers. As he walks to the limousine that takes him to his Connecticut estate each night, he doesn’t even deign to make eye contact with the passing workers upon whose backs his fortune was made, at least the part that wasn’t left to him by his father and grandfather.

It’s of course possible that that caricature could be found amongst the people who make up the Forbes 400. That, however, is not the story of the list. What is the single most important thing about the list? The fact that 278 of them are self made. Think about that. While you’ll still find a Rockefeller and a Ford on the list, 70% of the richest of the rich in the United States are self made. That doesn’t mean that all of them were born into poverty like Oprah Winfrey or started selling shoes out of the trunk of their cars like Phil Knight, but 278 of the 400 started out in families that would never have made it anywhere near this list.

And the question is, how did those people make their money? Did they steal it from hard working Americans in some dark alley somewhere? No. Did they set up a high tech printing press and start forging bearer bonds? No. Did they use the police power of the state to jail competitors and take their money? No. Most of those people made their money the old fashioned American way, they earned it. They figured out how to provide a good or service to Americans and people around the world at a price they were willing to exchange their money for.

Obviously, if you listen to the Occupiers, all of those services must have been in banking, where the little guy has no alternative but to put their money in Wall Street banks. Not quite true. While 95 of the 400 made their fortunes in finance of one sort or another, there is a wide spectrum of other areas from which the fortunes came…

  • 17 made their money in manufacturing… like Jim David of New Balance Shoes, a company that manufactures 25% of their shoes in the United States.

  • 27 made their money in real estate… Like Bradley Hughes who built Public Storage into a $19 billion behemoth from a single self storage facility.

  • 30 made their money in food and beverage… like Truett Cathy, who started Chic-Fil-A with one restaurant after getting out of the Army in 1946.

  • 24 made their money in retail… like Bernie Marcus & Arthur Blank who started Home Depot (a company that employs 190,000 people) after getting fired for disagreeing with their boss at Handy Dan.

  • 40 made their money in energy… like Harold Hamm of Continental Resources who started off pumping gas and working on cars.

  • Then of course there are the 49 who made their money in technology… like Zuckerberg, Moskovitz and Saverin of Facebook or Scott Cook who created Quicken after his wife complained about balancing the checkbook.

The members of the Forbes 400 made their fortunes by giving consumers, businesses and governments goods or services they were willing, if not happy, to pay for. They delivered food to stores and pizza to homes, they made shoes, software and toys, they built roads, bridges and buildings, and they entertained with movies, music and video games. And the funny thing about those 400 people is that they are only a fraction of the entrepreneurs and businesspeople in the United States who are providing those services. There are 22 million small businesses in the United States headed by people who are trying to become successful enough to make that exclusive club, and virtually every one of them understands that the way to get there is to provide customers with sufficient value to convince them to willingly exchange their hard earned dollars for their particular good or service.

The existence of guys like Bernie Madoff, Dennis Kozlowski or Kenneth Lay in no way diminishes the benefits that Americans (and people around the world) have enjoyed as a result of the efforts of the people in the Forbes 400 or the hated 1%. They may have been thieves and con artists, but none of them did a fraction of the damage done by Franklin Raines, Jamie Gorelick or Chris Dodd.

The question of the day is, would you rather have unaccountable bureaucrats and politicians using the police power of the government to decide the fate of the economy or would you rather let companies and entrepreneurs compete for your interest and money in a free market? While the Occupiers and their union and Democrat comrades would prefer the former, I'd take the latter 10 times out of 10. Things might not work perfectly, but they’d certainly work far better than if they were run by government apparatchiks.

Monday, October 31, 2011

A high IQ and a Harvard degree do not necessarily equal smart...

As the American frontier was being settled, it was not uncommon for a man to be a jack of all trades and perhaps a master of none. Often a settler would have to clear his own land, build his house, hunt and grow his family’s food as well as provide protection of life and property. Frontiersmen (and their families) were, for the most part, self sufficient. That didn’t mean they were not part of a community that often provided support in times of need. Quite the contrary, but at the end of the day people understood that they were responsible for most of the things that needed to be done in their lives.

When the industrial revolution took hold and Cyrus McCormick freed the population from the yoke of the farm, the division of labor took off took off and with it the upward march of the American standard of living.

Today, division of labor is all around us. We have scientists, doctors, computer programmers, real estate agents, policemen, accountants, and hundreds if not thousands of other specialized occupations. And it’s not just occupations; it’s the basic parts of life: Someone else brings our food to the store or our order to our table, builds our cars, ensures we have clean water, generates our power, drycleans our suits, babysits our kids and invests our money.

Today we are the opposite of the frontiersmen, we are Jacks of few trades and (maybe) masters of one. Basically, Americans have outsourced much of their daily lives to others… and I don’t mean to China. They focus on what they do well, or at least what they do, and leave the rest to others. As a nation and as individuals, we are far more prosperous as a result.

The problem however, is that as Americans spend so much time focused on their siloed lives, they have outsourced their political fate to others. As a result the government has grown virtually unchecked for half a century and today the borg of government is the single most powerful player in the life of every American citizen. What’s worse, not only have they allowed the government to grow into a leviathan, but they have also outsourced the selection of that government to campaign managers who run slick campaigns showcasing vapid politicians who speak in platitudes and make empty promises. Or to a media that largely marches in lockstep as it challenges a hated conservative or deifies the candidate of its choice.

Today we have the logical conclusion of the American outsourcing of its political will. We have someone running the American government – and using it to try and micromanage the economy and the lives of every citizen – who is literally clueless on the most basic elements of economics. How is that possible?

Strangely, American voters have done in politics something they would never do in their own lives. Your uncle may be the best accountant in the world, but you’re unlikely to let him take out your child’s appendix. Your brother may be the best basketball coach on the planet, but you are not going to let him manage your 401K. Why then would Americans allow someone with few discernable skills beyond engaging an audience to run their government?

Barack Obama was a law professor, a rabble rousing community organizer and a 1/3 term US Senator. What in that CV indicates he is even remotely prepared to successfully navigate an organization that spends $3 trillion a year and impacts the life of every single American, every day? So he gets people excited at rallies and promises hope and change… Were Americans really that stupid? Yes. And it’s not just the average Joe. Most of Silicon Valley’s money goes to Democrats and went to Barack Obama. These guys, Mark Zuckerberg, Sergi Bren and the rest are pretty smart. What gives?

Because they mistake high IQ with smart, or in this case, a Harvard pedigree with someone equipped to run the country. While the two may overlap, they are not synonymous. Jimmy Carter may have had the highest IQ amongst modern presidents, and we all know how that turned out.

A voluntary division of labor is a compact. Everyone does what they do best and everyone wins. That compact only works if the civic framework that keeps it viable and voluntary survives. That framework is on its last legs. President Obama’s government wants to tell you who can provide your healthcare, where companies can locate their plants, how property owners can use their land and how much you can earn before the government confiscates most of your income. How far a stretch would it be for them to decide what job you are best qualified for and then streamline (or steamroll) you into it?

Americans need to step back from their televisions and for the first time in two generations remember the basic notion of what a presidential election is about. It’s about two things: Who will run the federal government and what should that government do.

A vote for a president is not like a vote for homecoming king. It’s not a popularity contest. It’s a vote for how much they want the federal government messing around in their lives.

At the end of the day a voter should concern themselves with a candidate’s philosophy – how he or she sees the role government in the lives of its citizens – and their track record of leading an organization. Throw in a candidate’s integrity and those two things will tell a voter everything they need to know about a presidential hopeful. They will tell a voter what a candidate wants to do and how likely they are to accomplish it.

If Americans want to continue enjoying the economic and social benefits provided by a division of labor, where they have the luxury of focusing on things they love or are skilled at, they had better figure out how to rein in government. In 2012 they will have that opportunity. Between Herman Cain, Rick Perry and Newt Gingrich they have three candidates who are less than perfect, but who philosophically all share the goal of shrinking the government and promoting individual responsibility. That’s half the battle right there.

Monday, October 24, 2011

Legacy: Was Steve Jobs a selfish son of a bitch?

Steve Jobs passed away earlier this month with an estimated fortune of $8 billion. I have yet to see a single report about one single dollar that he gave away to charity. How is it possible that a person who was lucky enough to be born and grow up in the United States and take advantage of our laws, schools, infrastructure and patent protections could be so selfish? Compare his lack of philanthropic giving with that of other similarly rich types, past and present. Andrew Carnegie gave away virtually his entire fortune, over $350 million dollars during his lifetime – $5 billion in today’s dollars. John D. Rockefeller gave away over half a billion dollars over his lifetime – $8 billion in today’s dollars. Bill Gates has given away over $30 billion dollars and promised to give away most of the rest of his fortune while his friend Warren Buffett has promised to donate 99% of his wealth. The pair has created The Giving Pledge where billionaires pledge to donate a significant amount of their fortunes to charity. If all of these people can give this amount away, what was wrong with Jobs?

Charity and private giving has been a great force in America since its founding. Through churches and local organizations for those of modest means to building libraries, museums, or foundations for the wealthy, America has been a country where the successful and struggling alike look to support their communities as well as support the less fortunate around the world.

Apparently not so for Steve Jobs however… and charity’s not the only place he was tight. When he was alive he did everything he could to reduce his taxes. He used tax shelters to lower his tax rate from 35% to around 15% on millions. He put his real estate and other assets in trusts so they would escape the death tax.

Everywhere you look Steve Jobs was doing what he could to keep his own money. Not giving it away. Avoiding paying taxes. All while he’s taking advantage of everything America has to offer.

What’s wrong with a person who sees the misery going on around the world, from hunger in Africa to millions of poor here and does nothing to lend a hand? What kind of legacy is that?

When the robber baron Andrew Carnegie died his legacy was obvious. He had built thousands of libraries around the world, founded a university and built Carnegie Hall. By the time he died, JD Rockefeller had remade the face of modern medicine and created what was for years the largest charitable foundation in the world. Bill Gates is still very much alive, and he is remaking the face of charity. What kind of legacy is Steve Jobs leaving?

In 1977 he and Steve Wozniak introduced the Apple II, the first fully assembled personal computer. At the time the notion of a personal computer was an utterly foreign concept to 99.9% of the people on the planet. Term papers were still being written on typewriters. Math was still being done on calculators. Research was still done at the library.

In 1984 Apple introduced the Mac, the first personal computer to feature a mouse and graphic user interface. At the time most others still used the C: prompt.

In 1986 when he purchased Pixar, it was primarily a high-end computer hardware company with graphics as a side note.

In 2001 when Apple introduced the iPod, digital music was just becoming popular but most digital players were “big and clunky or small and useless”.

In 2003 when Apple introduced the iTunes Store the music industry was imploding and college students were being sued in their dorms.

In 2007 when Apple introduced the iPhone few people were able to surf the Internet on their phone and most competitors’ products were poorly designed and performed similarly.

In 2010 when Apple introduced the iPad, it essentially created the market, selling 5 times more than the rest of the devices combined.

Looking at all of this, the question to ask is, is Steve Job’s legacy going to be that he didn’t care about other people because he didn’t give his money away or let the government take it? Or is it going to be the fact that he changed the world and gave people something that is far more precious than money… more of their own time.

If you didn’t have a computer, how many hours a day would you have to spend (or would you have spent) in front of a typewriter typing, retyping or whiting out errors as you wrote a paper for class? Or doing computations with paper, pencil and a TI calculator? How much less efficient would your job be? Steve Jobs began and led the march that made the personal computer such an integral part of our lives, both personally and professionally. The value of that contribution to the improvement in the human condition is measured in the tens of trillions of hours and dollars rather than millions or billions. Add to that the value of the entertainment provided by iTunes & Pixar and the efficiency provided by the combination of mobility & functionality embodied in the iPhone and iPad and there are hundreds of billions more hours and dollars.

I never met Steve Jobs and from what I read he could be both generous and an SOB to those who knew or worked for him. Regardless of his personality or lack of a philanthropic gene, the fact of the matter is that he did far more for the world by running his business – and keeping the money generated from doing so – than he ever could have if he had “given back” every penny he ever earned or let the government tax him at the highest possible rate.

What might have become of Steve Jobs if today’s kleptocracy and regulatory straitjacket had kept him from starting his business in his parent’s garage with $1,200? Given that his return to Apple was driven by stock options and performance incentives, would he have returned if the “Occupy Wall Street” types had been setting tax policy? Or would he have decided to retire and travel the world?

We can’t know the answer, but we do know is that Steve Jobs created far more value for the world than he received in return. If he wanted to keep every single penny of it the world was still far better off. That’s how private enterprise works. It’s an exchange of ideas or products or services that others are willing to pay money for. In the end, although successful entrepreneurs and businessmen may indeed earn millions or billions, in almost all cases they do so by having provided customers or clients many times that in value. If you think Jobs was the only one, think about how much YouTube and Facebook have changed your life over the last five years. The founders of both are billionaires but the value of the benefits to the millions of ordinary citizens is many times that.

If the people at OWS or in the kleptomaniac ridden Democratic Party really wanted to jumpstart the economy and drive prosperity all they need to do is look at Steve Job’s life and give as many people as possible the opportunity to follow his path. Reduce taxes and regulations and just watch and see how many would-be Steve Jobs types come out of the woodwork.

Selfish son of a bitch? Don't know. Doesn't matter. A model for prosperity and improving the human condition… now that’s a legacy worth leaving.

Monday, October 17, 2011

Poor people will prosper under 999 - and so will the rest of the country.

Herman Cain’s 9-9-9 tax plan is imperfect, but it’s by far the best plan on the table. As such, criticism of 9-9-9 comes from all quarters.

The left is unhappy that its egalitarian nature is the opposite of the progressive tax structure we’ve had for a century. I suspect however that it is not simple tax policy that drives their antipathy, it’s revenge. You don’t have to listen very long to one of President Obama’s “fair share” speeches to recognize it. Or watch much of the “Occupy your city here” demonstrations going on around the country to see the envy. The notion of those fat cat Wall Street bankers paying the same tax rate as a single mother of three who works two jobs to support her children is simply unacceptable.

The other main criticism from the left is that poor will pay more taxes than they do now while that rich will pay less. That is simply not true. Let’s imagine the most difficult of possible situations, where a family of four has an income of $25,000 a year, all in the form of untaxed government benefits. Let’s assume they spend every dollar they have every year. As it stands today, they would ostensibly pay no taxes.

In reality however if they spend their entire $25,000 income they are actually paying $5,750 in embedded taxes. According to the people over at, 23% of every dollar a consumer spends in the United States is due to federal taxes levied on employees, on corporate profits, in the form of excise taxes, etc. If that is the case, then when that family spends its $25,000, in reality, $5,750 of that is for federal taxes.

Under Herman Cain’s 9-9-9 plan that 23% would go away. Here’s an example: Let’s assume this family goes to the store and buys $100 worth of groceries. Under the current system, $23 of that total represents embedded taxes. If you remove that $23 from the total, then the cost of those groceries without taxes is $77. That 23% of embedded taxes would now become 9% as both profits and employees have a 9% tax rate. Therefore, the price on the shelf of the goods will now reflect the 9% embedded taxes and would cost $84. At the register the 9% sales tax would be added and the final price becomes $91.50. That’s 8.5% less than they would have spent under the current system.

If you expand the $100 to the family’s entire $25,000 income, they would actually end up spending $22,962 rather than their entire $25,000. In this case they actually end the year $2,037 richer than they do under the current system. While prices would not come down the day after 9-9-9 went into effect, competition would bring them down rapidly.

As for a family with an income that actually pays taxes, in almost all circumstances they come out ahead via the 9-9-9 plan. Read Ed Morrissey’s piece over at to compare the numbers with a family of 4 earning $50,000. In the few cases where the family does not come out ahead, they too will pay less in taxes as a result of the lower embedded taxes.

From the right criticism comes in the form of suggesting that it has no chance of ever getting enacted. This is a red herring. If conservatives take the White House and the Senate, it will pass easily. And they won’t need 60 votes to get it done as Harry Reid has decided that the nuclear option is no longer particularly toxic.

A more substantive complaint from the right is the very understandable notion that they don’t want the kleptocrats in Washington to have another tool with which to beat the American taxpayer about the head, i.e. a sales tax that starts out as 9-9-9 could easily become 10-10-10 or 25-25-25. I can certainly appreciate that as our current system started out with a top rate of 7% in 1913 but reached 77% by 1918.

That rate creep danger does exist, but the truth of the matter is that it already does. If the passage of the wholly unconstitutional ObamaCare demonstrates one thing, it’s that Washington thinks there are no limits to its power already. It’s only the Tea Party and a few Republicans who are keeping a sales tax from happening today. Remember Nancy Pelosi proposing the VAT not so long ago? Besides, Cain is proposing that a balanced budget constitutional amendment be passed, and I would recommend that he adds language that requires a 2/3 majority in both houses to increase taxes. As a cherry on top, the 9-9-9 plan would eliminate the ability of politicians to skew the tax code to help their friends or harm their enemies.

At the end of the day, the thing that is most compelling about the 9-9-9 plan is the economic growth it will stimulate. This growth comes from two directions. The first is the $350 billion Americans spend each year simply complying with federal tax regulations.(here and here) That is the equivalent of a boost of 2% to the economy, or a $1,000 per person that Americans would have to spend. The second part of that is the investment and jobs that would be created. Today the United States corporate income tax rate is 35%. If the corporate income tax rate went from 35% to the 9% included in the 9-9-9 plan, you would see trillions of dollars in investment flood into the United States as companies repatriated profits held overseas and sought stronger financial results.

To put that change in perspective, under the current tax structure a company that earns $1 billion in the United States pays $350 million in corporate taxes, leaving the shareholders with a net profit of $650 million. If the 9-9-9 plan were in place those same shareholders would instead enjoy a net income of $910 million, fully $260 million more, or 40% more money in their pockets. The resulting rate would be amongst the lowest in the world and would make the United States an investment magnet for investors and companies from around the world.

Then of course there are jobs. I began this post talking about how the poor would not be negatively impacted by 9-9-9. Actually they will be positively impacted. What is the single most powerful way to turn poor people into middle class taxpayers? More and better paying jobs, of course. With a 9.1% unemployment rate there is little incentive for companies to increase the wages of their employees. There are simply too many people willing to step in and fill the shoes of any disgruntled employee. At an unemployment rate of 4% the dynamic is turned on its head where employees are far better positioned to demand and get wage increases. As economic growth creates millions of jobs and as demand for workers begins to outstrip supply, the value of those employees increases and their compensation follows suit.

At the end of the day 9-9-9 is by far the best plan on the table. It’s easy to understand, it saves Americans money via lower prices, it means more investment, a growing economy, more jobs and higher wages. If Americans really want to return to prosperity, 9-9-9 will get them there. The question is, do they have the courage to finally walk away from incremental change and do something bold?

Monday, October 10, 2011

10 for 12 - How the GOP can win the Presidency and bring back liberty and prosperity

One of the challenges in politics is going from the general to the specific. Practically every American wants the things most politicians promise they’ll deliver: more jobs, economic growth, good schools, less poverty, freedom, a coherent foreign policy, etc.

The more opaque a politician gets the better voters seem to like it. The poster child for this was of course Barack Obama in 2008. What in the world does Hope and Change actually mean? Virtually every American hopes for the things listed above, but in terms of a plan for actually addressing any of them, what does Hope and Change really mean?

Maybe this is it. From the leadership of the “leaderless” Occupy Wall Street movement we get some clarity: Free college tuition; open borders; a trillion dollars each spent on infrastructure and environmental repair; higher taxes on the rich; guaranteed living wage income regardless of employment; immediate across the board debt forgiveness for all; universal healthcare; and of course, prosecution of the ubiquitous Wall Street criminals. That sounds about right.

Hope and Change, whether the opaque 2008 version or the more clearly defined version above will probably not work in 2012. Not only does President Obama have an actual record to run against, but more importantly, voters realize that 2012 may be the most important election of their lifetime. As a result they are actually paying attention to issues and are curious about exactly what policies a politician will implement when they take office.

As such, Newt Gingrich is trying to resurrect the success he had 17 years ago with his new 21st Century Contract with America. Good luck to him. Noticing that few of the other GOP candidates have been as straightforward, I would like to help out in case they still looking for the right set of ideas.

Here is a list of the ten specific things a candidate could promise he or she will do out of the gate that will result in the economy turning around and subsequently taking off like a rocket as it ushers in a dramatic increase in jobs, productivity and prosperity. I call them 10 for 12…

1. Sunset all Federal legislation on the books (along with any consequent regulations) in eight years unless specifically reauthorized by Congress. Require every reauthorized and new piece of legislation to cite where in the Constitution Congress is given the power to pass such a law. All new legislation will automatically sunset in ten years unless reauthorized by Congress. Set this in stone by Constitutional Amendment if necessary.

2. Build a wall from Brownsville, TX to San Diego, CA. It’s not a perfect solution, but it’s a lot easier to police than thousands of miles of open land. Reform the immigration system to favor those with the skills, education and resources to find gainful employment or start a business. Allow any student who graduates from an accredited college to remain in the United States indefinitely if they either start a business or find employment.

3. Repeal the 16th and 17th Amendments. Eliminate the IRS and implement the Fair Tax. Close the Departments of Energy and Education, the FCC, the NLRB, NEA, PBS, Amtrak and dramatically slash the budget and power of the EPA. Outsource the operations of the Post Office. Sell or shutter Fannie Mae, Freddie Mac, Sallie Mae and get the government out of the home and student lending business. Sell stakes in GM and any other private sector entities.

4. Repeal Obamacare. Encourage states to allow interstate competition for health insurance and to experiment with a variety of health delivery systems. Repeal any federal legislation that hinders such competition.

5. Begin the process of eliminating all welfare programs. Set a four year timetable after which the federal government will be out of the welfare business. Provide job training for long term welfare participants to prepare them to stand on their own feet. Create a plan to empower churches and other organizations to provide assistance to those in need.

6. Implement loser pays n the federal court system and encourage states to do the same.

7. Open all unused federal lands, other than those designated as National Parks, to bidding for the purposes of exploration for and extraction of natural resources, or for conservation or development. Allow winning bidders to execute the contracts they paid for.

8. Curtail all federal subsidies. Farming, corporate, etc.

9. Eliminate Social Security for persons under 50. Establish self directed funds for individuals equal to their accrued contributions to date into the program. Introduce market competition into Medicare by creating a system similar to the one available to federal employees.

10. Define specific objectives to evaluate the continued presence of American troops in Iraq and Afghanistan. Once defined, either provide the necessary resources to accomplish such objectives or curtail the effort. Such objectives should take into consideration not only conditions in Iraq and Afghanistan, but regional objectives and national defense needs.

The consequence of these policies would be to throw the federal government into something of a whirlwind. At a minimum it would result in a flurry of activity by bureaucrats seeking to justify their continued employment... which means they could not spend much time writing new regulations. More importantly, Congress and the President would by design be forced to enter into a discussion as to the correct role of government. No longer would their hands be tied by laws that could never pass today. No longer would agencies be allowed to metastasize into a cancer on the economic freedom of Americans. At some point equilibrium would set in which balanced government rule making with forced re-evaluation of existing legislation.

The most important outcome, however, would be that Americans would once again understand they are free to focus on the pursuit of happiness without the constant fear of an ever encroaching federal government strangling their liberty while they are on that quest.

Monday, October 3, 2011

At least when a pirate takes your money, you know its going to create real jobs in the rum industry...

How much do you earn per year? $25,000? $75,000? How about $150,000? Maybe a bit more, maybe a bit less. Whatever you earn, you probably wish your check was just a little bit bigger.

Many of us look at guys like Alex Rodriguez earning $30 million a year or Johnny Depp earning $50 million or Larry Ellison earning $130 million and wish we could exchange paychecks with them. But then of course we’d have to do what they do in exchange for those paychecks, something which most of us are unlikely to be able to accomplish. That is of course the beauty of free markets, where what you earn is relative to not just the value you bring to an organization, but the relative scarcity of potential replacements who can provide that same value. Take as an example a fireman. Firemen do things that everyone values. When you are standing there and your house is burning down, you value what a fireman does more than anything Angelina Jolie, Bill Gates or Dr. Dre will ever do. Let’s say the average fireman makes $45,000 a year in salary and benefits. Does Johnny Depp’s $50 million compensation mean that his job is 1,000 times more important than the fireman’s? No. The difference is that while Johnny Depp is one of only a handful of actors who can almost guarantee to make a $150 million movie into a blockbuster, there are tens of thousands of people who can and will train to become firemen. Although Hollywood is full of actors who might be willing play the role of Jack Sparrow, the discount DVD bin at Wal-Mart demonstrates clearly why Disney was willing to pay Depp tens of millions of dollars to reprise his role.

In a free market, as what someone earns is largely determined by the value they bring to whoever is writing the check, and how many other people can provide that same value, people can do a variety of things to increase their income by increasing the value they bring to their employer. They can get more or a better education. They can train at their craft to become more skilled. They can learn more skills so they can bring value in other areas.

Wherever your skills, education and efforts have landed you, you probably feel like you work pretty hard and earn your paycheck. Now imagine on having a job paying $95,000? That sounds pretty good. Now imagine that in exchange for that $95,000 you don’t have to actually do anything. Well that was the case with Solyndra. Not that the employees weren’t working hard and trying to create a successful company, they very well might have been. The problem is that the business they were in was simply not sustainable. As is seemingly always the case with “green jobs” everywhere, they can’t survive even the most basic elements of a competitive marketplace. Of course if an investor wants to put their money there, that’s their right. Invest in something you think has legs. Maybe you’re right, maybe you’re wrong. Give it a shot. That’s how free market capitalism works.

Unfortunately however, that’s not what happened at Solyndra. The Obama Administration decided that American taxpayers should tip the scales by putting up half a billion dollars for a company that spent $6 to manufacture a solar panel that it could then turn around and sell for $3. A four year old would recognize that was a recipe for disaster. Even a few people in the Administration saw that there might be a problem. Not only did they know it was problematic before they gave the guarantees, but they had to bend the rules half way through to let the company take all of the money guaranteed even after Solyndra failed to make it’s required payments.

Just in case you think the Administration was chastened and might have learned from its mistakes, think again. Just last week the DOE handed out another $5 billion in loan guarantees to other “green jobs” companies – one of whom is owned by Nancy Pelosi’s brother in law. In the case of one of those projects, the Crescent Dunes Solar Energy Project, the Obama Administration officials signed off on $737 million in loan guarantees for a project that will result in 600 construction jobs and 45 permanent jobs. That works out to $1.245 million per temporary job or $16,600,000 per permanent job. Those numbers are getting up into the Matt Damon pay range. Of course that’s not what those workers are going to be paid, but if Solyndra is anything to go by, they will be earning $100,000 or so per year. Good for them. I’m happy to see anyone earn whatever they can earn. The problem is, however, that the companies paying their salaries are not viable entities. They can’t survive without government support. And government support doesn’t come out of thin air. It comes out of your pocket in the form of taxes. Imagine if the government weren’t wasting these billions of dollars… your $75,000 paycheck might look like $80,000. Who would you rather have that extra $5,000 per year, you and your family or the people running the next failing “green jobs” basket case?

If the American people want to spend $5 billion investing in the future, I’d suggest they follow the path laid out by PayPal founder Peter Thiel rather than the one crafted by community organizer Barack Obama – i.e. more taxes and more money to floundering green companies. Thiel is paying a handful of students $100,000 to drop out of college and spend two years becoming entrepreneurs. They get a guaranteed paycheck, they get mentoring from Thiel and others in the venture capital world, but most importantly, they spend their time seeking to create, invent and develop technologies or products or services that will change the world.

To put this is perspective, the typical VC investment scenario plays out as follows: They lose money on seven out of ten investments. They break even on two out of ten. One of the ten is sufficiently successful that it not only pays back everything that was invested in it, but it covers the losses of the seven and makes money on the whole project.

If that kind of an approach were applied to the money the DOE is throwing down the “green jobs” ratholes, at least we’d have a chance to recoup our money and maybe find a technology that could actually survive in the marketplace… Of course the best thing to do would be to get the government out of the “investing” business all together, and let you keep your money. That $5 billion giveaway to the greenies works out to about $16 per person. If you had it back you might be able to go and see the latest Johnny Depp movie and help the studio pay his hefty salary. You might even have enough left over for a bucket of popcorn.

Sunday, September 25, 2011

Palin or Cain and a government Americans deserve

In a free society citizens deserve the government they vote for. As much as I might despise the everything the liberals stand for and are doing to this country, the truth of the matter is that they did not seize power in some coup d'état… except for maybe Stuart Smalley. Nor did they come to power legally and then change the rules once they got there as Hitler did. No, they were by and large voted into power promising to do exactly what they have done. The fact that most of America is unhappy with the way things are going says more about Americans in general than it does about the politicians themselves.

Although the dysfunction of government goes back for decades, 2008 provides a perfect prism through which to understand the failure of the American people. As most Americans now recognize, Barack Obama is a complete disaster as President. While this reality may have come as a complete surprise to some, the truth of the matter is that all of the signs were there for anyone who wanted to look. From being raised by self identifying Communists, to seeking out Communist professors, from spending two decades in Reverend Wright’s church to announcing his entry into public office in the home of two terrorists to being the point man for ACORN, all of this and much more was easily available to anyone who wanted to see it. Indeed, despite the mainstream media’s efforts to ignore or whitewash such aspects of Obama’s background, many Americans decided they were immaterial. He had after all been elected to the Illinois legislature and was a serving US Senator and he gave rousing speeches. Apparently that was enough to qualify him to lead the most powerful nation on earth.

To put this in perspective, that’s the equivalent of an NFL owner inviting a sports columnist to coach his team. Just because the columnist uses the lexicon of the game and knows how to criticize what others are doing doesn’t mean he has a clue how to actually run an offense, a defense or lead a team up of alpha male millionaires in their quest to outsmart and outperform 16 other teams made up of alpha male millionaires and led by professional coaches. Not only would the team get demolished, but anyone with a functioning brain could have predicted that outcome from the start. Appropriately enough Obama’s election in 2008 began America’s march to becoming the 2008 Detroit Lions... who went 0-16.

At the end of the day, Barack Obama being elected President of the United States is nothing more than a dereliction of duty on the part of the American people and is an example of the despicable state of the American body politic. To many Americans Barack Obama was an empty vessel into which they poured their hopes and dreams. And if he could assuage their white guilt in the process, even better! The problem is, he wasn’t an empty vessel. He was a filled to the rim with everything un-American and none of it was hidden from view. To not see it one simply needed to willingly avert their eyes.

It’s not a surprise that the Tea Party movement began even before Obama’s ineptitude became apparent. The election itself started to galvanize much of the population, particularly those who were dispirited by the GOP’s nomination of the squishy John McCain but pulled the lever for him nonetheless, just to watch the “electable moderate” lose. As President Obama’s incompetence became apparent and his anti-capitalist policies began to make it into legislation and the Federal Register, more and more Americans began to understand the threat that the left in general and President Obama in particular represent to the United States. On February 19th, 2009 Rick Santelli put words to the feelings that tens of millions of Americans were experiencing… viola’ the Tea Party was born.

The question for the GOP is, do they want the 2012 election to look more like 2008 or 2010? In 2008 they nominated a “moderate” who had been the darling of the media until he vanquished any real conservative opposition… what little there was. He then was morphed into a clone of the hated George Bush. In 2010 on the other hand, when voters across the country were given a slate of largely conservative candidates, the GOP picked up over 60 seats in the house and sent bedrock conservatives like Pat Toomey, Marco Rubio and Rand Paul to the Senate.

Is the GOP going to once again bring to the dance a “moderate who can win the general election” like Mitt Romney or are they going to go with a true conservative who can make a case to the American people that the time for meandering down the road to socialism and fascism is over? Although a moderate like Romney might put on the brakes, the reality is that what the United States needs is a full stop and a return to a Constitutional government. Let community organizations run social programs; Let states and parents manage education; Let citizens focus on creating wealth and prosperity as they pursue Life, Liberty and Happiness while the government focuses on securing the borders, adjudicating contract disputes and providing for national defense.

Disgust with Barack Obama and his party is not going to be sufficient to change the direction of the country. If the GOP is going to victorious it will have to field a candidate who clearly articulates a different path and who will be able to stand up against the media’s coming full court press in support of Barack Obama. Sarah Palin should be the one making that case, but unfortunately she is not running… yet. Herman Cain is a close second. Until Saturday night his chances were rather slim. Perhaps things have shifted… we’ll see if the $25 I just sent him helps.

However things go for Cain, the debate thus far leaves much to be desired. The back and forth about how RomneyCare differs from ObamaCare is a red herring. Arguing whether the Ponzi scheme that is Social Security should be called a Ponzi scheme is a debate more appropriate for a kindergarten class. They distract from the central message of lower taxes, less regulation and basically getting government out of the way so that people can live their lives. The government that takes the oath in January 2013 will indeed be the government Americans deserve. Let’s hope GOP gives them a candidate to lead that government that they can be proud of as well.