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.