Econ 101

Government Investing A Recipe for Failure

Published by Papa Giorgio
  • “A fundamental principle of information theory is that you can’t guarantee outcomes… in order for an experiment to yield knowledge, it has to be able to fail. If you have guaranteed experiments, you have zero knowledge” ~ George Gilder

Interview by Dennis Prager {Editors note: this is how the USSR ended up with warehouses FULL of “widgets” (things made that it could not use or people did not want) no one needed in the real world. This economic law enforcers George Gilder’s contention that when government supports a venture from failing, no information is gained in knowing if the program actually works. Only the free-market can do this.}

From transportation to energy, and everything in between, should the government invest money in as many promising projects as possible? Or would that actually doom many of those ventures to failure? Burt Folsom, historian and professor at Hillsdale College, answers those questions by drawing on the fascinating history of the race to build America’s railroads and airplanes.

L.A. Garment District vs. Left-Coast Values

Published by Papa Giorgio

Breitbart notes the impact of the impending law via California Gov. Jerry Brown

The first accomplishment of California’s pioneering $15 minimum wage law is killing the revival of America’s clothing industry.

American Apparel, which provided 10 percent of all apparel manufacturing jobs in Los Angeles, has terminated 500 employees in the last two weeks. Chief Executive Paula Schneider also told the Los Angeles Times that “manufacturing of more complicated pieces, such as jeans, could soon be outsourced to a third-party company.”

The company did not tie the announcement directly to California Governor Jerry Brownsigning of the nation’s first statewide $15 minimum wage on April 4. But the layoffs started shortly almost immediately after Brown’s action, and were announced on April 14 as labor organizers filled Los Angeles streets with fast-food workers set to strike, supported by unionized home-care and child-care workers.

Lloyd Greif, Chief Executive of Los Angeles investment banking firm Greif & Co. told LATimes, “They’re headed out of Dodge.” He added, “They are going to outsource all garments. It’s only a matter of time.”

At the turn of the 21st Century, Los Angeles County was the “rag trade” capital of America. With 4,000 active apparel-making sites employing almost 90,000 workers, the Los Angeles area was over twice the size of the rag trade in the New York region.

Apparel-making got cut in half over the next decade, as Chinese and Asian imports coming through Los Angeles ports sky-rocketed to $46 billion. The number of local apparel-making sites fell to 2,200 and local industry jobs shriveled to 46,000.

But according to the California Fashion Association, Los Angeles apparel-making was back to growth by 2013 as a “steady inflation rate” in China, driven by higher labor costs, increasingly pushed apparel manufacturing and textile contractors to move to lower wage countries like Vietnam, Cambodia, and Bangladesh. Coupled with high sea, land, and air shipping costs, the advantage in outsourcing apparel-making versus U.S. manufacturing became much less attractive….

(read more)

White Castle vs. New York Values

Published by Papa Giorgio

(Inserted a video from Western Journalism)

Here is an excerpt of the National Review article Prager was referencing:

…White Castle, established in 1921 in Wichita, Kan., now operates more than 400 locations, with many in the New York City metropolitan area, which makes the news of New York governor Andrew Cuomo’s signing a bill that steeply hikes the minimum wage deeply personal. The wage will go from $9 to $15 an hour by 2018 in New York City, with the rest of the state seeing a more gradual phase-in schedule.

“We’ve been in New York for a long time,” Richardson says. “Castle No. 2 over on Fordham Road opened in 1930.”

Unfortunately, despite the Castle’s Empire State history, the road ahead may be difficult: “We’re disappointed. What this means for White Castle is we really have to evaluate how we manage our business,” Richardson tells me. “About 30 percent of every sales dollar covers the pay of our hourly workers, and that doesn’t include management.”

It’s our biggest investment, our biggest cost. And it’s one that if we see increase dramatically through fiat, and we don’t do anything — it’s unsustainable,” Richardson says. “We are in uncharted waters.”

Of course, Cuomo, California governor Jerry Brown, Hillary Clinton, and minimum-wage activists across the country think that dramatically raising the minimum wage will be a boon to workers and that business can handle the cost increases without too much trouble.

“By moving to a $15 statewide minimum wage and enacting the strongest paid-family-leave policy in the nation, New York is showing the way forward on economic justice,” Governor Cuomo said after signing the minimum-wage legislation on April 4. “These policies will not only lift up the current generation of low-wage workers and their families, but ensure fairness for future generations and enable them to climb the ladder of opportunity.”

But Cuomo’s idea of “economic justice” is a long way from the dollars-and-cents reality of running a burger business. If labor costs rise dramatically, White Castle will have to balance its books by raising prices or changing its business model so that it needs less labor.

“Is there any room to raise prices to cover costs?” Richardson muses. “We think we’d need to increase menu prices by something like 50 percent. It’s not something we’ve done before. It’d be catastrophic.”…

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Two graphs used in video upload:

And a third:

Larry Elder On This Election w/Some Historical Perspective

Published by Papa Giorgio

Mind you, this Larry Elder audio opens with Ronald Reagan discussing Milton Friedman.

In this fill in for Dennis Prager on Monday, Larry Elder’s first two segments of the show are really a “GOP vs Ideals” 101 course. Economics, Donald Trump, GOP nominees since 1988, Milton Friedman, Ronald Reagan, Obama, and more are covered in “Sage” fashion.

As usual I learn from Larry and I share this with you in the hopes you will as well.

For more clear thinking like this from Larry Elder… I invite you to visit: http://www.larryelder.com/ ~AND~ http://www.elderstatement.com/

Government: Is it Ever Big Enough?

Published by Papa Giorgio

Can the government ever be too big? How much spending is enough spending? And if there can be too much spending, where is that point? William Voegeli, Senior Editor of the Claremont Review of Books, explores these complex questions and offers some clear answers.

The “Evil” Rich Hide Their Money ~ Mantra

Published by Papa Giorgio

  • Was America’s first billionaire, John D. Rockefeller, a greedy robber baron, a generous philanthropist, or both? And did the oil tycoon exploit America’s poor or give them access to much-needed energy? Historian and Hillsdale College professor Burt Folsom, author of “The Myth of the Robber Barons,” reveals the truth about the Rockefeller empire.

A number to keep in your mind as you read is about how much you have to earn to be in the top 1% ~ and is why “being rich” is a fluid matter and why so many move in and out of this designation of “rich.” There is opportunity for all in this market-based system. And the rich-get-poorer while the poor-get-richer! One should note as well that this number changes by geography as well.

The richest percentile of Americans makes many hundreds of thousands of dollars a year. So how could a $135,000 salary make you a one-percenter? If you’re 31 or younger, that figure puts you ahead of 99 percent of your age group.

[….] 

This chart partially explains why the 1 percent is such a fluid club (about half of the top 1 percent flips over every year.) To stay in the top percentile, a 30-year-old earning $130,000 in 2010 would have to raise her salary by $80,000 by 35, and then another $70,000 before she turned 45.

In an article I enjoyed, “10 Myths in the Movie ‘Inequality for all‘.” I do think however that the article does not explain each point well enough. A good example of this is their point number two, that reads:

number 2

Just a quick addition to the above before getting to my example. When banks have large sums of money they invest that capital in loans, investment in the markets, and the like. This leads to funding many of the retirement packages the elderly retire on, creates job growth and opportunity for the poor, and all the other benefits that follow from it. So if all the rich did was stuff their money into banks ~ Great! However, as we will see from a oft tarred-and-feathered favorite whipping boys of the left, this just isn’t the case… in which case we go beyond saying “Great!” to “Hallelujah, I hope the rich-get-richer!”

I will use the EVIL Koch Brothers to make my point. The first point is that these uber rich persons give a lot of money to various “good works.” Here NewsMax zeroes in on the issue:

The Kochs’ critics are free to disagree with the Kansas industrialists and their libertarian ideas. However, most who despise the Kochs would be shocked by what these “greedy capitalists” do with their profits, beyond campaign donations.

For starters, the Kochs, support university programs and think tanks that try “to understand the nature of human freedom and how that freedom leads to prosperity,” as the Charles Koch Foundation (CKF) explains.

The Kochs fund cures and treatments.CKF underwrites research and teaching at Brown, Mount Holyoke, Sarah Lawrence, University of Wisconsin at Madison, Vassar, and some 245 other colleges. This includes a speaker series, reading group, and essay contest at the University of Nevada Las Vegas in Harry Reid’s home state. Koch Industries (which offers same-sex spousal benefits to its legally married employees) also donated $814,000 to the Kansas State University Office of Diversity to assist “historically under-represented students.”

David Koch survived a 1991 plane crash that killed 34 people, including everyone else in first class. He soon was diagnosed with, and then endured, prostate cancer. These challenges reinforced his passion for medical philanthropy. Among $506 million in such gifts, his major grants include:

  1. $25 million to Houston’s M.D. Anderson Cancer Center to eliminate genitourinary malignancies.
  2. $100 million for cancer research at the Massachusetts Institute of Technology.
  3. $100 million for a new ambulatory care center at New York Presbyterian Hospital. This donation actually triggered an outbreak of mental illness among leftists who decried Koch’s nine-digit check.

“Quality care, not Koch care!” unionized nurses screamed outside Koch’s Park Avenue apartment. Never mind that his contributions create work for unionized nurses.

The Kochs back the arts.

Elizabeth B. Koch, Charles’ wife, launched the Koch Cultural Trust. It has furnished $1.8 million in grants to artists and musicians with ties to Kansas.

David Koch supports PBS’ documentary series “Nova.” He also is a paleo-philanthropist, having given $15 million to the Smithsonian Museum of Natural History for a Hall of Human Origins and another $35 million to update its fossil and dinosaur displays in Washington, D.C. New York’s American Museum of Natural History will enjoy a new Dinosaur Wing, thanks to David’s $20 million gift.

David also donated $100 million in 2008 to modernize the former New York State Theater at Manhattan’s Lincoln Center, home to the New York City Ballet and the New York City Opera.

The Kochs also steward the environment.

“Koch Industries, Inc. takes a leadership role in the promotion of biodiversity, wildlife habitat enhancement, land restoration and conservation education,” according to Wildlife Habitat Council president Robert Johnson. “Koch and its subsidiaries maintain Council-certified programs at 10 facilities throughout the United States,” including Montana’s 300,000-acre Matador Cattle Company Beaverhead Ranch.

Flint Hills Resources (a Koch company) helps Ducks Unlimited maintain 36,000 acres of waterfowl habitat on 116 Minnesota lakes. Thus, Ducks Unlimited gave the company its Emerald Teal Award.

…ETC…

Another point worth making is one from my own life. I have never worked for a poor person. So let us apply this to our Koch example. Koch Industries “employs about 60,000 people in the United States and another 40,000 in 59 other countries.” These are people, real people, providing sustenance to their kids, spouse, community (in being able to donate to causes they support), and the like. In our own and in the other countries Koch Industries hires people… this job may be what is keeping said family from poverty.

NATIONAL REVIEW points out the following:

Politicians often divide Americans between “the rich” and “working people,” implying that the rich don’t work for their money. Complaining about the tax deal, Rep. Jim McDermott (D., Wash.) contemptuously referred to the rich as “trust-funders,” suggesting that most had done nothing to earn their wealth. But in reality, roughly 80 percent of millionaires in America are the first generation of their family to be rich. They didn’t inherit their wealth; they earned it.

In fact, several studies indicate that the rich work very hard for their wealth. For example, research by professors Mark Aguiar and Erik Hurst found that the working time for upper-income professionals has increased since 1965, while working time for low-skill, low-income workers has decreased. Similarly, according to a study by the economists Peter Kuhn and Fernando Lozano, the number of men in the bottom fifth of the income ladder who work more than 49 hours per week has dropped by half since 1980. But among the top fifth of earners, work weeks in excess of 49 hours have increased by 80 percent. Dalton Conley, chairman of NYU’s sociology department, concludes that “higher-income folks work more hours than lower-wage earners do.”

Research by Nobel Prize–winning psychologist Daniel Kahneman showed that those earning more than $100,000 per year spent on average less than 20 percent of their time on leisure activities, compared with more than a third of their time for people who earned less than $20,000 per year. Kahneman concluded that “being wealthy is often a powerful predictor that people spend less time doing pleasurable things and more time doing compulsory things.”

The rich are not sitting by the pool, sipping their cocktails; they are sitting in their offices, working their behinds off….

People do not realize this, but about 80% of America’s Millionaires are first gen rich, started with nothing and became wealthy. The Left has this idea of people being rich by the luck of inheritance… which isn’t bad itself. If I was able to “make it,” I would want to leave my kids my money. But the reality is more like INVESTOPEDIA points out:

  1. Millionaires Don’t Pay Their Taxes
    Fact: It is estimated that millionaires, those in the top 1% of earners, pay about 40% of all taxes. Current tax regulation shifts may change these numbers to make this even larger than that – so think twice before accusing the millionaires in America of not paying taxes. (Do you know when you’re going to retire? It might not be as soon as you think. Read The New Retirement Age.)
  2. Millionaires Just Inherited Their Money
    According to Thomas J. Stanley’s book, “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy,” only 20% of millionaires inherited their riches. The other 80% are what you’d call nouveau riche: first generation millionaires who earned their cash on their own. Many millionaires simply worked, saved and lived within their means to generate their wealth – think accountants and managers: regular people going to work every day. Most millionaires didn’t get their riches overnight when a rich relative died – they worked for the money.
  3. Millionaires Feel Rich
    From the outside looking in, you would think that millionaires feel rich and secure, but that’s not so. Most millionaires worry about retirement, their kids’ college fund and the mortgage just like the rest of us. Those worries are greatest among new millionaires, the people who just recently acquired their wealth. (For more, see Don’t Forget The Kids: Save For Their Education And Retirement.)
  4. Millionaires Have High-Paying Jobs
    It certainly doesn’t hurt to be gainfully employed, but half of all millionaires are self-employed or own a business. It does help to have a college degree, as about 80% are college graduates, though only 18% have master’s degrees.
  5. Millionaires All Drive Fancy Cars
    You can get that idea of the rich guy in a fancy German car out of your head when you think of a millionaire: they actually drive a Ford, with the carmaker topping the millionaire preferred car list at 9.4%. Cadillacs run second on the millionaires’ favorite car list, and Lincolns third according to onmoneymaking.com.Car payments are an investment with little return, which is why someone looking to grow wealth avoids high-priced vehicles in favor of a more economical set of wheels. (For more, see 10 Steps To Retire A Millionaire.)
  6. Millionaires Hang Around the Golf Course All Day
    Those millionaires are all retired, with nothing else to do but hang around the golf course, right? Wrong: only 20% of millionaires are retirees, with a full 80% still going to work. It’s not as glamorous or fun, but millionaires go to work just like you do; it’s how the money gets in the bank.
  7. Millionaires Are Elitists
    We’ve already established that most millionaires earned their money not inherited it, still go to work, drive a Ford and worry about their kids’ college expenses. Sounds a lot like the rest of America, right? Millionaires come in all shapes and sizes – some may be elitists, but most are just regular Joes who successfully managed their money.

The Bottom Line
Maybe you see a pattern here: today’s millionaires are people who live within their means, budget and spend wisely, and focus on financial independence first. These are habits that take discipline, but ones we can all adopt to begin growing wealth….

Which brings us back to NATIONAL REVIEW’S article:

…The Left also makes two other contradictory claims about the rich and their wealth. On the one hand, we are told that the rich spend their money frivolously. Perhaps some do, but this ignores the fact that frivolous expenditures often provide jobs and income for the rest of us. Back in 1990, for example, Congress decided to impose a “luxury tax” on such frivolous items as high-priced automobiles, aircraft, jewelry, furs, and yachts. The tax “worked” in a sense. The rich bought fewer luxury goods — and thousands of Americans who worked in the jewelry, aircraft, and boating industries lost their jobs. According to a study done for the Joint Economic Committee, the tax destroyed 7,600 jobs in the yacht-building industry alone.

On the other hand, we are told that lower taxes on the wealthy won’t help the economy because the rich don’t spend enough of their money. That old-fashioned Keynesian economics — which assumes economic growth is driven by consumer demand — ignores the fact that money not spent by the rich is not simply stuffed under millionaires’ mattresses. The savings of the rich provides the investment capital that funds new ventures, creates new jobs, and spurs innovation. The money that the rich save and invest is the money that companies use to start or expand businesses, buy machinery and other physical capital, or hire workers.

No doubt there are dishonest or unscrupulous businessmen who have gotten rich by taking advantage of others. And it’s hard to feel much sympathy for the Paris Hiltons of the world, flitting through life with a sense of entitlement that they haven’t earned. But most wealthy Americans have worked hard for what they have, pay more than their fair share of taxes, give generously to charity, and, most important, drive the economic growth that all of us non-rich people rely on.

That’s something to remember the next time that politicians start to beat the drums of class warfare.

What do these “class warfare” politicians do to create jobs and wealth? Not much. You can see more on this and other subjects via my ECON 101 Topics Page. In the following 11-minute audio, Radio talk show hos Michael Medved sheds some light on the Koch’s and takes a dissenting call on the matter:

Again, I will let other’s share my point about the rich with the Koch’s as my example:

  1. Koch Industries employs about 100,000 globally (60,000 in the US alone).
  2. Koch Companies support more than 200,000 US jobs and “about $11.8 billion in compensation and benefits.”
  3. Of Koch Companies’ 60,000 US employees, approximately one-third are unionized.
  4. Koch Industries and the Charles Koch Foundation’s partnership with the United Negro College Fund has resulted in a “$25 million grant that will provide nearly 3,000 merit-based awards to African American undergraduate, graduate, and post-doctorate students seeking scholarship assistance.”
  5. Globally, Koch companies “have earned 917 awards for safety, environmental excellence, community stewardship, innovation, and customer service.”
  6. Koch Industries has sponsored the Special Olympics in Wichita, Kansas for the past 33 years.
  7. “Through the Helping Heroes initiative, Koch companies have contributed nearly $230,000 to emergency response organizations in communities where they operate since 2011.” Koch’s Georgia- Pacific Bucket BrigadeTM program, “has contributed more than $1 million to fire units in communities where the company operates to meet critical needs, as well as provide educational materials to schools.”
  8. Through the David H. Koch Charitable Foundation, Koch has contributed or pledged “more than $1.2 billion to cancer research, medical centers, educational institutions, arts and cultural institutions, and to assist public policy organizations.”
  9. David Koch’s charitable foundation also provided $100 million to New York Presbyterian Hospital to build a new ambulatory care center, as well as $28 million to research causes.
  10. Yet another major Koch grant contributed $100 million to research cancer at MIT.
  11. Flint Hill Industries (a Koch company) earned a Clean Air Award from the Environmental Protection Agency.

The question is “what happens when you do tax the rich”? Well, we know from past experience:

Will Raising Taxes Fix Our Deficit Issue

Published by Papa Giorgio

Video description:

  • The government’s budget deficit in 2009 was $1.5 trillion. Many have suggested raising taxes on the rich to cover the difference between what the government collected in revenue and what it spent. Is that a realistic solution? Economics professor Antony Davies uses data to demonstrate why taxing the rich will not be sufficient to make the budget deficit disappear. He says, “The budget deficit is so large that there simply aren’t enough rich people to tax to raise enough to balance the budget.” Instead, it’s time to work on legitimate solutions, like cutting spending.

Video description:

  • When the government raises taxes, does it actually collect a larger portion of the US economy? As the U.S. debt and deficit grows, some politicians and economist have called for higher tax rates in order to balance the budget. Professor Antony Davies examines 50 years of economic data and finds that regardless of tax rates, the percentage of GDP that the government collects has remained relatively constant. In other words, no matter how high government sets tax rates, the government gets about the same portion. According to Davies, if we’re concerned about balancing the budget, we should worry less about raising tax revenue and more about growing the economy. The recipe for growth? Lower tax rates and a simplified tax code.

Video description:

  • Although it may seem counterintuitive, raising taxes on the rich does not actually increase the amount of taxes the government collects. How could this possibly be the case? According to Professor Antony Davies, it is because the many loopholes in federal income taxes, capital gains taxes, and many other taxes, enable people to partially avoid these taxes. Perhaps instead of discussing how to raise tax revenues, we should spend our energy simplifying the tax code. This would make it more difficult for people to avoid taxes and, Davies says, “The less time and money we spend trying to work around a complex tax code, the more time and money we will have available to put to more productive uses.”

Dan Bongino On Bernie Sanders, Socialism, Health-Care, and more

Published by Papa Giorgio

Video description:

First time really hearing Dan. His blog is here.

I loved his style/verve. I uploaded the second half of the program, after he got done talking about Friedmans four ways to spend money (below right).

Great stuff. Make sure to follow him on Twitter.

For more clear thinking like this from Mark “the Great One” Levin… I invite you to visit:

The animated portion of Bernie Sanders came from Sam Seder, “Bernie Sanders Through the Eyes of Your Crazy Uncle” (https://youtu.be/ZWyzGtv5jSQ) ~ Sam Seders site is here: http://majority.fm/

How Quantitative Easing Hurts the Middle-Class

Published by Papa Giorgio

Breitbart has a bang-up article talking about quantitative easing and the affect of government “spreadsheet ‘fixing'” on the middle-class:

…Even left-wingers agree, uncomfortably, that “income inequality” got much worse under Obama, as the rich got richer, while the poor… didn’t. Left-wing analysts will tie themselves in knots trying to shift blame away from Obama and his policies for this state of affairs, with arguments that boil down to “this proves we need even more central planning and socialism to make everybody equal!”

Much of the debate over the maybe-recovery concerns the manipulation of government reports: the sense our vast bureaucracy is cooking the books to make the economy look more robust than it really is. A persistent complaint concerns the way inflation has been hidden, or almost redefined out of existence. (Ed Butowsky discussed this bureaucratic sleight-of-hand on Breitbart News Radio in November, noting that the government began concealing consumer inflation decades ago with some eye-popping formula changes.)

Now comes a fascinating article from Wolf Richter at Business Insider, which brings inflation games, currency manipulation, and near-zero interest rates together, into a unified field theory of how very low nominal consumer inflation has concealed skyrocketing asset inflation… leaving middle-class and low-income workers stuck with flat wages and debt slavery.

Governments across the industrialized world made themselves look better by tinkering with the money supply, lowering the bar for macro-economic success… and sold the Little Guy shackles of debt, at discount prices.

Richter’s key insight is that quantitative easing (QE, or “central banks printing lots of money” in layman’s terms) and near-zero interest rates for loans caused very little consumer inflation, with a few notable examples, so we’ve been treated to plenty of headlines about how inflation is totally under control… but QE caused “rampant asset price inflation, with stocks, bonds, real estate, classic cars, art … all skyrocketing over the years.”

In other words, the things rich people buy and trade have inflated, but most of life’s necessities and modest luxuries have not. That’s because, as Richter puts it: “The money never went to consumers in the form of wages. They would have spent most of it, thus driving up demand that could have created some inflationary pressures in consumer prices. But they never got this money.”

Unfortunately, because QE funneled money into big corporate and investor interests, wages flattened or declined, while household spending power for the poor and middle class declined. Low interest rates made it easy for them to borrow money to make up for lost purchasing power, especially for a few big-ticket purchases that have inflated enormously over the years – particularly health care and higher education. President Obama’s mind-boggling expenditures on both of those goods have done absolutely nothing to slow their inflation – on the contrary, ObamaCare’s meddling with student loans caused that debt bubble to explode.

Richter’s sobering diagnosis of what the Federal Reserve has done to workers:

The Fed keeps a hawk’s eye on wages, especially in the lower 80% of the workers. Its goal is to provide cheap labor to corporate America. And when wage inflation ticks up, the Fed can get quite radical about rate increases.

But because cheap labor makes for bad consumers, the Fed is trying to make cheap debt available to them, turning them into debt slaves, problem solved, for the moment.

So this is one lesson we learned: QE channeled to financial and corporate entities causes asset price inflation, not consumer price inflation. And it tends to exacerbate wage deflation at the lower 80% of households.

One of the exceptions is rent. When residential property prices soar, rents tend to follow. And rents have increased sharply in many cities. But unlike stocks, people have to live in these units, and when rents move beyond their reach, all kinds of things happen, including property price crashes.

That sounds like a far more clear and terrible example of “trickle-down economics” than anything liberals have attempted to slander with the term. Obama built on years of monetary manipulation to create an economy where the government is printing dollars and stuffing them in the pockets of big corporations and wealthy investors, vainly hoping they would invest the money in a way that created jobs, while the media cheerfully pumped out politically-useful stories about a roaring stock market….

(Read It All, A Good Article)