Faust's Bargain: Charity and Government

The latest edition of Columbia includes an article by Alton J. Pelowski entitled "In Defense of Life, Love and Freedom" describing the problems when a private charity becomes dependent on public funding.  Similarly, Catholic Charities in Illinois are closing their adoption services because of new requirements to change their screening criteria to accept gay couples in order to receive government funding.

Although I empathize with their distress, American Catholics who have traditionally supported government-sponsored social programs have only themselves to blame.  Non-profit organizations who have been happy to trade arduous fund-raising for siphoning tax revenues are likewise guilty.

"Free money" is always hard to resist, but there's always a catch.  Once you've accepted the money you lose the freedom to run your organization as you like (which is why some organizations like Hillsdale College eschew public funding).

Indeed, the Catholic charities are faced with a dilemma of their own making.  If they refuse to  compromise their principles for money, they must either close their doors or return to the days when they relied on their own voluntary fund-raising efforts.  The latter option is obviously more difficult; a consequence of diverting funds from private donations to publicly mandated tax revenue.

Instead it looks like they're taking the easy option: quitting.

Gift Cards and Federal Notes for the Holidays

With little fanfare in the US, another pair of countries have announced another move away from the dollar.  China and Japan will no longer use dollars to transact between the two countries.  This follows a similar agreement between China and Russia as well as talks developing with India and Brazil.  Smaller but still notable countries making noise along those lines also include Vietnam, Qatar and Iran.  So why should we care here in America?  To understand the problem, consider the sale of Holiday gift cards...

Gift cards (like rebates) work because the merchants that issue them expect a certain percentage to never be redeemed.  Thus, they can bring in cash and never worry about giving a portion of their customers anything in return.  To crunch the numbers, merchants have made $41 billion in "free money" by selling gift cards.

This is small potatoes though.  Uncle Sam has "sold" $4.45 TRILLION to foreign countries, in exchange for real goods and services, with the hope that they never redeem their gift certificates / Federal Reserve Notes.  Three of the biggest holders of those gift cards?  You guessed it: Brazil, China and Japan.

We're still pretty safe for the immediate future, but places that need dollars to do business are slowly becoming fewer.  Eventually places that *want* dollars will also diminish.  And when that happens, everyone who has dollars is going to come shopping at the US of A to redeem their coupons, competing with domestic demand and inflating prices through the roof.

Freedom in the Market

When people say “Capitalism has failed,” mentally replace “Capitalism” with “Freedom” and then consider what they’re saying. After all, capitalist was the label used by Marxists to describe those who believed in the free market. Even “free market” is a misleading term because it conjures up an image of some separate entity acting on its own without our involvement. It would be more accurate to describe it as the freedom to act within the market, i.e.: the principle of free exchange.

Capitalism is just another word for economic freedom.

Of course those calling for the eradication of capitalism aren’t asking to give up their own freedom. They still want the right to negotiate their wages and purchase (or not purchase) products as they see fit. What they really want is the ability to negotiate other peoples wages, force others to agree to their desires, and split the tab for things that they want to have but don’t want to pay for. They’re eager to see shackles placed on others, not realizing they may wind up wearing them in the end.

“He that would make his own liberty secure must guard even his enemy from oppression; for if he violates this duty he establishes a precedent that will reach to himself.” - Thomas Paine

Government Motors Wins Again

Let's recap, shall we?  Taxpayers were tapped to provide bailout money to cover for GM's poor decision making.  Then bondholders and pensioners were pinched to cover for GM's unsustainable union contracts (and potentially as a political "thank you" from the previous election).  Then taxpayers were hit up again to subsidize the Volt program specifically, whether they wanted to pay for an electric car or not.  After all of this, we wind up with a car that still costs about $10k more than its target market and randomly catches on fire.  Da Komrade, the system is working fine!

http://www.bloomberg.com/news/2011-11-29/gm-s-volt-battery-fires-threaten-to-knock-moon-shot-off-target.html

Freedom of Consent

We have to remember that the people in government are just like people in the corporate world.  They're ultimately self-interested.  They need to feel the connection between their actions and their consequences to make good decisions.  The difference is that we've entrusted them with coersive power; the authority to use force to compel us to do or not do certain things.  And power once ceded is rarely given back.  We really ought to remember that before inviting them into every aspect of our daily lives:

The problem... is that government is no different from any other organization in society -- it seeks its own aggrandizement. AT&T, General Motors, and Microsoft would love to have world monopolies, controlling all the resources and expanding into every corner of people's lives. But they are limited by competition, the dynamics of the marketplace, and the need to win people's consent in order to market their products.

Government is different. It expands by fiat, through legislation, through taking advantage of emergencies, and by declaring that private entities can't be trusted and government intervention is necessary. Most of all it grows by raising taxes and hiring more and more people so that soon its voter base approaches a majority of the electorate.
http://spectator.org/archives/2011/09/26/the-moochers-credo/

Let's face it.  It's easier to convince a majority of 435 people in Washington D.C. than it is to try to win the consent of millions of consumers exercising their freedom in the market.

An American's Creed

An American's Creed - by Dean Alfange

I do not choose to be a common man
It is my right to be uncommon...
If I can. I seek opportunity... Not security.

I do not wish to be a kept citizen,
Humbled and dulled by having the state
look after me.

I want to take the calculated risk;
to dream and build, to
Fail and succeed.

I refuse to barter incentive for a dole.
I prefer the challenges of life to the
Guaranteed existence; the thrill of
Fulfillment to the stale calm of utopia.

I will not trade freedom for beneficence
Nor my dignity for a hand out. I will
Never cower before any master nor bend
to any threat.

It is my heritage to stand erect,
proud, and unafraid; to think and act for
myself; enjoy the benefits of my
creations; and to face the world boldly
and say, "This I have done with my own hand,
I am a man. I am an American.

Bad, Productivity! Bad!

Are Workers Too Productive?

Increased productivity is exhausting the workers?  Yet the source of the increase in productivity is tools which multiply the effects of their labor... which creates more output for the same effort. Really?  Yeah, that doesn't quite jive when you think about it...

You can find similar doom-and-gloom predictions in historical documents from the agricultural revolution and the industrial revolution (and I'll bet all the way back to the Bronze Age "Woodcutters will be WAAAAY too productive!"). Times of change often result in displaced workers, which eventually frees up enough people to shift into new or expanding industries. Productivity in one area or another may create saturation in that particular market, but I can't believe that we've exhausted the capacity of human demand. First, that doesn't mesh well with accusations of "boundless capitalist greed" and it also conveniently ignores large parts of the world where people's wants and needs for goods and services are certainly not being met.

The big factor here is globalization. Localized industries (like retail and other services) remain little changed, while easily transferred industries (like manufacturing and export) shift to developing countries. But with 15% annual salary growth in India, how long do you think it will remain profitable to shift jobs there? The short term impacts are unsettling, but the long term result will be more countries with populations that produce things that we want and that want things we produce. The alternative is to condemn entire nations of people to living in squalor and subsisting on handouts: much better to allow them the dignity of work.

Grading Solyndra on the Adoption Curve

So Solyndra goes bankrupt and the taxpayer is left holding the bag, to the tune of five-hundred million dollars ($500,000,000).  This really isn't a surprise and is a stellar example of why the free market, rather than government, is much better suited to speculative investment.  This is especially true in the case of technology.  Now, I'm a dollars and sense kind of guy, and I'll adopt "green" technologies when it makes sense.  Kinda like the commercial where all these folks are badgering this guy to "save the planet" and finally the technician says "The money you save on the washer will pay for the drier" and the guy says "Why didn't you say that in the first place?"

For example, ten years ago I looked at hybrids and there was just no way; they were too expensive.  Five years ago I looked again and I actually considered it; but the numbers still didn't quite work out.  I imagine in a few years the return on investment will be there and I'll buy some sort of low fuel consumption vehicle.  Until then, I'll keep driving my 27 mpg sedan.

This is known as the technology adoption curve:















Full Size Version

Once something becomes indisputably efficient and easy to adopt, it becomes mainstream and the majority of consumers buy it.  Until then, people buy the technology for other reasons: because it's "cool" or a status symbol, they like "new" things or because they want to make an investment (and possibly make a profit).

Those early adopters can afford to throw money away, and it's their choice to do so.  However, when government gets into the game it makes ALL of us into early adopters, whether we want to or not, whether we can afford it or not.  This sort of "venture cronyism" is a bad parody of its free-market equivalent.

I accept that businesses fail.  That doesn't bother me.  What makes me mad is that someone else forced me to cover a throw of the dice and they came out snake-eyes.

Successful Subsidized Energy? Not so fast...

The news coming out of the German energy market is a fascinating case study but it follows the typical pattern. Central planners decide they want to influence the supply and demand by manipulating producers and consumers. They are successful in that they get more of what they subsidize and less of what they penalize. However, they also have unintended consequences. In this case it is surpluses and shortages, reminiscent of the gas shortages of the 70s in the US and numerous other examples in the USSR. Laws are in place preventing the individuals from making adjustments to address the imbalance, in this case compulsory preference for the intermittent energy sources (solar and wind). Consumers still need a reliable source of energy that can pick up the slack when solar and wind are unavailable, but government interference is discouraging investing in conventional plants. Since the people are bound by law from fixing the problem it falls to the central planners to develop a solution. Their answer is as typical as it is ironic; subsidize coal plants.

But wait! Consumers are getting paid to use energy! They're getting it for free, right? Well not exactly. The subsidies aren't free; they are simply obfuscated by the tax code. Furthermore they represent a compulsory cost; what people pay to subsidize the energy industry is disassociated from their purchasing choices or their actual energy use.

The definition of insanity is doing the same things and expecting different results. Central planning consistently results in shortages and excesses, increased collective costs borne by the taxpayer, disenfranchising of the consumer and empowerment of the centralized planners and their crony capitalist / special interest lackeys. This latest example from Germany is no exception.

http://www.bloomberg.com/news/2011-09-29/utilities-giving-away-power-as-wind-sun-flood-european-grid.html

Financing a $447 Billion Stimulus Injection

A recent article phrased the new stimulus plan as “injecting $447 billion into the economy,” which made me stop and think. Where exactly is this money coming from? I doubt the politicians in Washington are going to pay for it out of the vaults at Fort Knox (which would only cover about $278 billion or a little over half the bill anyway). That just leaves us with the three usual suspects; taxes, treasuries and the printing press.

Raiding private investment capital, ie: raising taxes, in order to “create jobs” is absurd. If the money was actually directed towards funding projects, it would simply mean diverting money from privately planned investment into politicians’ pet projects (a time-honored way of ensuring reelection). This plan will also use that money to extend unemployment checks, which is just as foolish. I would rather let someone buy a boat, thereby paying someone for building the boat, then tax the money away and hand it out as an unemployment check. However, this plan also includes tax cuts (without accompanying spending cuts), which leaves us with the other two options.

For the past few decades, we’ve gone to foreign investors to finance our government spending. The problem with this approach is two-fold. First, by competing for foreign investment dollars we crowd out private investment. In other words, businesses that are looking to finance expansion and real job creation are competing with the Federal government for the same scarce resource of investment capital. Secondly, those bonds incur interest payments down the road. That interest will have to be paid in the future from the same three sources (taxes, debt or inflation) which is the sort of kick-the-can politics that Washington D.C. loves.

That leaves the final source of funding; the printing press. The treasury prints the cash to cover the portion of the debt financed by the Federal Reserve. In simple terms, printing new money makes the money in savings and circulation worth less. Some people support this, since it makes our products cheaper for export. However, it makes everything we import (which is quite a lot these days) more expensive. It also hurts people living on fixed incomes and makes a joke out of long-term investment planning. In other words, it contributes to job-killing instability.

“Injecting” $447 billion really means deciding between taking domestic investment capital, competing for foreign investment capital, and pillaging our remaining savings. Instead of reactionary short-term fixes and more government controlled pork-barrel projects, we need to be thinking long-term. Stop spending taxes frivolously. Stop jerking the economic steering wheel by meddling with the currency. Return control (and money) to consumers and small businesses.  Let them drive the economy the way they’ve driven it since our national inception. They don’t need to be “stimulated” to make that work.

Make Mine Freedom

This is a fantastic cartoon.  It was true sixty years ago, just like it was true two hundred years ago and just like it's true today:

http://nationaljuggernaut.blogspot.com/2009/09/this-cartoon-seemed-far-fetched-in-1948.html

Mom & Dad and the Credit Downgrade

The recent credit downgrade shouldn’t come as a surprise to anyone who has ever had to run a household budget. This probably explains why it’s absolutely shocking to politicos in Washington, but I digress. The media claims that the downgrade shouldn’t have happened because Congress ended up increasing the debt limit and that it was really caused by the debate that took place beforehand, shaking investor confidence. It actually happened because raising the debt ceiling did practically nothing to address our fundamental inability to pay for our bloated government.


Imagine Dad (Republicans) and Mom (Democrats) are faced with a dilemma; they’ve maxxed their credit cards. Naturally, a debate ensues (which probably includes some accusations and name calling, ignoring all the times they both agreed to spend more money). Mom tells Dad he needs to get a second job to pay for the credit card bills. Dad tells Mom she needs to start spending less money. Neither suggestion is well received. Finally, with the due date to pay the bills rapidly approaching, they reach a compromise. They agree to call the credit card company and increase their credit limit. In return they agree to consider establishing a balanced budget and they agree to consider maybe possibly spending less money… next year.

After watching this whole episode, the neighbors are well aware that Mom and Dad have made no attempt to live within their means. Furthermore, they’ve done absolutely nothing to reduce the likelihood of having this same argument next year when they max out their cards… again.

Why the downgrade after raising the debt ceiling? Because for once it looked like having a deadline was going to force the politicians to roll up their sleeves and face the grim reality that Uncle Sam spends like a drunken sailor (no offense; sailors are much more responsible even when intoxicated). Instead, they made some vague promises about the future and failed to make any fundamental changes today, kicking the can down the road. S&P downgraded the US of A because Congress just missed a huge opportunity to demonstrate real fiscal discipline.