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Archive for the ‘Capitalism’ Category

Crony Capitalism and the Political Class

Posted by Steve Markowitz on December 1, 2012

A remarkable data point to come from the 2012 presidential election was that Republican candidate Mitt Romney received 3 million less votes than John McCain did in 2008.  While neither Republican candidates were extremely attractive, this discrepancy is astounding given that Barack Obama ran against the unpopular legacy of George W. Bush in 2008 that included the Iraq war and economic meltdown.  However, this time around it was Obama who had the legacy of failure, but did not pay a political price for it.

While many conclude that the Republican’s 2012 defeat was the result of changing demographics, this logic is incomplete.  While the style of Romney and Obama were clearly differentiated, the Republicans spent much of their time running against Obama, rather than proposing game-changing policies.

One area that the Republicans failed to present a coherent case was on taxes.  Obama ran on increasing taxes on the top 2%, and easy sell for the lower 98% of the electorate.  Romney countered by offering an undefined promise to end loopholes.  However, without specifics, this sounded to many as protecting the country-club set at the expense of the common folks.

Relating to taxes and income redistribution is the subject of subsidies.  The government subsidizes many special interests.  While this includes programs for the needy, it also includes programs that subsidize wealthier Americans.  Romney and the Republicans were viewed as attacking the programs that mainly benefit the needy.  This caricature could have been avoided with a simple program to eliminate government corporate subsidies, a big part of crony capitalism.  But the Republicans were silent on this issue.

Boston Globe columnist Jeff Jacoby wrote an interesting piece titled: “Yes, slash farm subsidies — but don’t stop there.  Jacoby, a conservative writer, suggests support of a policy being proffered by the ultra-Leftists US Senator-elect from Massachusetts, Elizabeth Warren.  Ms. Warren suggests eliminating America’s federal agricultural subsidies, a view shared by Jacoby and this Blogger.  Jacoby points out the following concerning the subsidies:

  • During the past six years, farm subsidies cost US taxpayers approximately $275 billion.
  • The average farm household income in 2010 was over $84,000, 25% higher than the average for all US households that year.
  • 75% of government payments to farmers went to only 10% of farm businesses.  Some of these funds went to millionaires.

While Ms. Warren’s motivation behind cutting farm subsidies is political rather than altruistic given that few of these subsidies go to her state of Massachusetts, conservatives should back her proposal.  This could then be used as a springboard to eliminate other crony capitalism subsidies that also disproportionately benefit wealthier Americans.  Such a platform, if appropriately presented, would have wide appeal since such programs by their very nature can only benefit a small percentage of the population.

Attacking subsidies to wealthier Americans is but a first step in a broader program to limit the handout and entitlement mentalities that is taken over the Country.  However, it is a prerequisite for cutting the handouts that are the basis of power for the nanny state and the political class that runs it.  Republicans would do well to take a truly conservative position on this bi-partisan issue of the People.  But those already in power have self-interest in perpetuating the political power of handouts.

Posted in Capitalism, Government Handouts | Tagged: , , , , , , , , | Leave a Comment »

Greed of Governments and Capitalists

Posted by Steve Markowitz on July 17, 2012

Greed is one of the less positive attributes of the human makeup.  How this reality is addressed is often dependent on one’s overall philosophy relating to control.

Progressives have the misguided view that human greed is manageable and can be controlled by the imposition of government laws and rules.  Given the abject failure of this tactic for so many years, it is surprising that there are still so many who ascribe to this view.

Free-market capitalists also acknowledged the inevitability of human greed.  Unlike Progressives, they take the view that governments cannot create laws or rules that will effectively offset the ingenuity of those who pursue greedy agendas.  Given this reality, free-market capitalists take the view that the best way to control human greed in a complex and dynamic economy is to use its benefits to create the most efficient economy and best allocation of scarce resources.  Specifically, human greed can best be managed by having other greedy people stopped individuals from collecting too much power or wealth.

Free-market capitalism is not without flaws.  There have been significant economic hardships and inequities created historically by capitalism.  However, much of these dislocations have been caused by government interference that removed the natural constructs created by a true capitalist system.  This has taken many forms including subsidies for specific individuals or groups, bailouts and printing money.

The brilliant economist Milton Friedman was perhaps the most foremost proponent of free market capitalism.  The video below with Friedman’s views on greed created decades ago is relevant today.  Since Friedman made these comments, the economic world has become quite perilous, the result of government interventions that stopped the forces of supply and demand from rebalancing themselves.

Unfortunately, instead of stopping the failed interventions we continue down the path of still more.  The result will be ever-increasing dislocations that did not need to occur had we taken Friedman’s advice.

Posted in Capitalism, Government Ineptness, Governmental Intervention | Tagged: , , , , | Leave a Comment »

Buffet’s NetJets Seeks Lower Taxes

Posted by Steve Markowitz on November 17, 2011

Warren Buffet, the billionaire investor, stirred up publicity this past summer when he called for increased taxes on America’s rich, a club in which he is at the top tier.  This Blog questioned the motivation behind Buffet’s position on August 24 in a posting titled Warren Buffet’s Hypocrisy.  More recent action by a Buffet company further proves he is a hypocrite.

Bloomberg has reported that NetJets, a company owned by Buffet’s Berkshire Hathaway, has sued the United States Internal Revenue Service over $643 million taxes and penalties the IRS is attempting to collect from them.  (Buffett’s NetJets Sues U.S. Over $642.7 Million Ticket-Tax Assessment)  This suit for lower taxes by a Buffet company indicates that his earlier call for raising taxes on the “rich” was to curry favors from the most powerful man the world, Barack Obama, more of the crony capitalism that has enveloped Washington.

Posted in Capitalism, Corruption | Tagged: , , , , , | Leave a Comment »

New Government Bailout: Chicken Industry

Posted by Steve Markowitz on August 17, 2011

Jim Mahoney sent this one in calling it “Cash-for-Cluckers”.  Yes, our government is at it again, this time with a bailout of the chicken industry.

It seems there’s a gut of chickens on the market driving down prices.  Production is up 4% for 2011 according to the National Chicken Council while demand has cooled off from the previous year.  That should be good news for consumers, except the US government will have none of that.  The Department of Agriculture (USDA) announced that it will purchase $40 million of clucker products this year and donate them to federal assistance programs.

In announcing the buying of broiler (meat) chickens, the USDA said: “Broiler producers have already cut production substantially and this purchase will help them bring supply in line with demand.”  This incredible statement indicates that the USDA doesn’t have even the most basic understanding of supply and demand in free markets taught in Econ 101.  This market intervention will only distort the markets, not balance supply with demand.  Here are just a few examples of the consequences of the USDA’s intervention:

  • Purchasing chickens and distributing them free might temporary boost chicken prices, but will also depresses the prices of the other foods that may have been purchased without the government’s chicken give away.
  • Should USDA’s achieve its goal of artificially inflating chicken prices, the chicken industry will believe that the real demand for their products is greater than reality.  This will cause them to produce too many chickens next year, depressing those prices.  In fact the USDA has made this same mistake in the past buying chickens for similar reasons: $30 million in 2010 and $42 million in 2008.  This failed policy has thus become an industry subsidy, crony capitalism at its worst.
  • Consumers have paid higher prices when chicken demand exceeded supply.  They will now not receive the appropriate benefit (price drop) from the oversupply.

Capitalism is the most efficient system available for controlling complex and dynamic markets. When shortages occur, this system offers incentives to producers to increase production by raising their profits.  Alternatively, when there is oversupply, profits decrease insuring the produces will cut back production.

In America’s bailout nation, it has become the norm to bail out losers.  This is not capitalism.  While it is patently unfair since winners must pay the bills, even worse are the consequences of the market distortions created.  These distortions have directly led to the long-term high unemployment and recession in the United States and the ongoing debt crises in Europe.  As these distortions become more perverse with ever increasing bailouts, the ultimate cost of real problem resolution grows.

Posted in Capitalism, Supply and Demand | Tagged: , , , , , | Leave a Comment »

Verizon Strike Shows Inflexibility of Labor

Posted by Steve Markowitz on August 7, 2011

Last night 45,000 Verizon workers went on strike including those represented by the International Brotherhood of Electrical Workers and the Communication Workers of America (CWA).  The major issues behind the dispute are concessions requested by the company of employees for their health care and pension costs, as well as work rule changes.  Currently Verizon unionized employees contribute nothing to the cost of their health care, a benefit few America workers have.

A CWA spokesman said of the strike: “Even at the 11th hour, as contracts were set to expire, Verizon continued to seek to strip away 50 years of collective bargaining gains for middle class workers and their families.”  While such emotionally charged rhetoric has been used by unions for decades, it does not relate to economic reality.

Most of large industrial companies that were held hostage to union demands in the past have long since closed their doors, with the few that remain requiring governmental bailouts.  These companies went out of business because they became uncompetitive, in part due to union inflexibility.  For example, when Japanese steel and automobiles began showing up in United States during the 1960s and 70s, American manufacturers needed to become more efficient and competitive.  None responded to the challenge.  While management must take part of the responsibility, the UAW unwillingness to adjust to the new business climate also played a major role.  Similar to the current situation with Washington politicians and America’s need for budget cuts, union bosses do not get reelected by their members for making concessions, even if required for a company’s survival and their members’ job security.

The current Verizon strike is a microcosm of a systemic problem facing the American economy.  While labor costs are completely flexible on the upside, there are artificial impediments in place that inhibit the required flexibility on the downside.  For example, during the bubble years, wage rates were increasing faster than inflation as employers had to appropriately compete for labor that was in great demand.  Since the economic meltdown, the government continually increases time period that unemployment benefits are paid, now for ninety-nine weeks.  This generous benefit incentivizes the unemployed to stay home and collect, especially if only lower paying jobs are available to them.

This inflexibility of labor costs is one reason that the unemployment rate remains stubbornly high and the economic recovery is delayed.  There are many economic imbalances that caused the ongoing lengthy recession, including inflated labor rates.  While governmental attempts to forestall the required economic rebalancing, including some that are painful, may be based on good intentions, they are not based on any economic reality.

The capitalistic system now in place in the United States has been bastardized to the point where it is capitalism in name only.  Capitalism requires that supply and demand be allowed to set the cost of products, price of labor, and profits and losses.  Interfering with this important self-regulating mechanism, such as labor rates and bailing out failed companies, has resulted in quickening cycles of boom and bust.  It is also responsible for the historic recession that is now into its fourth year.

It is understandable that workers do not want give back any benefits they had in the past.  However, with America’s official unemployment rate at over 9%; the Verizon unions’ position is out of whack with economic reality.  America is approaching a crossroads in which it will be forced to return to its capitalistic roots or continue down a road of decline.  You can bet that the developing world is rooting for the latter as they more fully embrace capitalism.

Posted in Capitalism, Unions | Tagged: , , , , , | 6 Comments »

Light Bulbs and Crony Capitalism

Posted by Steve Markowitz on July 17, 2011

In less than six months, the sale 100-watt incandescent light bulbs will become illegal in the United States.  A year later, 75-watt incandescents become illegal the following year the 40 and 60’s disappear from the shelves.  Why?  Because in 2007 President Bush signed a piece of Progressive legislation that set up a schedule for banning incandescent light bulbs.

The Progressives who got this wacko legislation through Congress claimed it was done in the name of green energy.  But in fact it was nothing more than crony capitalism at its worst.  The New York Times reported that a few years ago “Philips [Electronics] formed a coalition with environmental groups including the Natural Resources Defense Council to push for higher standards.  ‘We felt that we needed to . . . show that the best-known lighting technology, the incandescent light bulb, is at the end of its lifetime,’ says Harry Verhaar, the company’s head of strategic sustainability initiatives.”

The formation of the coalition was the early stage of a large lobbying effort in Congress to compel Americans to buy the more expensive and profitable bulbs, such as compact fluorescent lamps (CFLs) and LEDs.  The motivation from these corporate giants was profit, nothing else.

The newer technologies are not only more expensive, but don’t’ work as well.  In the case of CFL’s, they are slower to turn on, especially cold weather ,and don’t work with standard dimmers.  They include dangerous mercury.  If a CFL breaks, a danger to inhabitants is caused.  Finally, once these bulbs are discarded, there is hazardous waste to dispose of.

In 1879, Thomas Edison invented a way to make the low-cost incandescent light bulb reliable.  This remarkable technology survived over 130 years and did not require any governmental intervention or subsidies.  Only government meddling in the markets put an end to its run.  Now, consumers will be have to pay a high price for the government gone wild.  Then there are the unintended consequences of this meddling, such as traffic lights in cold weather not being visible due to ice buildup on them.

The combination of crony capitalism and Progressivism are responsible for much of this Country’s economic problems.  As long as excessive power remains in the hands of those in Washington, these forces will continue to sap the Country’s vitality and economic strength.

Posted in Capitalism, Progressives | Tagged: , , , , , , | Leave a Comment »

Bank of America Pays $8.5 billion to Settle Claims

Posted by Steve Markowitz on June 29, 2011

Bank of America today announced an agreement requiring it to pay $8.5 billion to purchasers of certain mortgage-backed securities.  These investor lost money on securities purchased prior to the U.S. housing market meltdown.  BofA’s payment was the result of its 2008 purchase of mortgage lender Countrywide, the poster child bad boy of the mortgage industry.

While $8.5 billion is a huge number, it pales in comparison to the losses suffered by those who purchased the mortgage-backed securities.  The settlement was with 22 investors who original purchased $105 billion in securities and covered other investors who purchased bonds valued at $424 billion.

BofA paying only pennies on the dollar for the losses incurred shows a perverse problem with large public corporations and the government’s bailout of banks.  This settlement does not incentivize BofA or any other company from inappropriate behavior in the future.  In fact, it does just the opposite.  Also, it does not penalizes the high-level employees at BofA that sold the junk in the first place.  They have moved on or retired after making huge bonuses on the sales.

There are those that conclude that the large public companies and banks need more governmental regulations in order for society to be protected from future acts of fraud.  This knee-jerk reaction will fail and will likely make matters worse.  Thousands of governmental employees already charged with protecting investors proved that the government is incapable of doing so.

Fraudulent behavior by employees of large public corporations can only be controlled internally by the companies themselves and their boards.  Penalties for fraudulent behavior must include criminal prosecution of the individuals involved and their board members, not just the corporations as an entity.  In addition, bailing out any firm must be removed as a tool available to the government.

Only through the fear of failure, i.e. total loss for shareholders, and criminal prosecution of fraudulent employee behavior can large public corporations work to optimize the public good in today’s fast-moving capitalistic system.

Posted in Banks, Capitalism | Tagged: , , , , , | 1 Comment »

Overmedicating America’s Youth

Posted by Steve Markowitz on January 15, 2011

The Wall Street Journal published a report with huge implications not only for the cost of medical care in the United States, but also potentially for the long-term health of our youth.  A staggering 25% of America’s youth and teens take prescriptions on a regular basis and nearly 7% are on more than one.  These medications are being prescribed for various ailments including asthma and attention-deficit hyperactivity disorder.  Talk about a pill-popping society.

Starting with the potential health issues created by this over-use of medication, many of the medications were not designed or tested for children.  The long-term effects on children are still to be determined.  Then there are the issues relating to cost.  Assuming there is an over usage of the medications, then there is also a significant waste of funds.

Many Baby-Boomers will recall a time when it was rare for young people to be on prescription medication.  Many of those same Boomers are also now living to ripe old ages.  However, their demands for instant gratification for every malady from the government and/or medical community is driving our Country into insolvency.  Those demands in themselves are not the problem.  The problem is caused when the demands require and include government subsidies.  It is time to bring back market-based economics to control the insatiable greed of the idividual.

 

Posted in Capitalism, Healthcare | Tagged: , , , | Leave a Comment »

Fair-Weather Capitalists Killing Capitalism

Posted by Steve Markowitz on September 14, 2010

The American economy continues to be in distress.  While many point to the fall of Lehman Brothers two years ago as the starting point for this downturn, the causes began much earlier.  While the problems began long before the election of Barack Obama, he has been responsible for not allowing the economy to rebalance itself, a requirement before real recovery can occur.

The Right often blames the liberal policies of Democrats for the socialization of the American economy and a major cause of our economic problems.  Many on the Left blame the free-market and lack of government oversight for the downturn.  Both narratives are overly simplistic and incorrect.  Both political parties took the same basic macroeconomic approach, i.e. excessive debt and having government become more intrusive in the economy, but placing a different spins on it.

Irrespective of the party in power, excessive private and governmental debt was used that led to the severity of the ongoing economic downturn.  With governmental debt, Republicans often justified the debt by promoting military spending while Democrats promoted social programs.  Both parties also approved governmental policies that promoted more private debt including subsidizing Fannie Mae and Freddie Mac and pressuring the Fed to lower interest rates whenever the economy had a hiccup.  While each side found their justifications for the debt reasonable, from a macroeconomic standpoint the results were the same.

Both parties also made government more intrusive in the economy; Read the rest of this entry »

Posted in Capitalism, Governmental Intervention, Supply and Demand | Tagged: , , , , , , , , , , , , , , , , , , , , , | 3 Comments »

Congresswoman Maxine Waters Suggests Socializing Oil Companies

Posted by Steve Markowitz on April 16, 2010

The clip below of Congresswoman Maxine Waters, Democrat from California, is interesting from a few different angles.

1. First, with either honesty and/or a slip of the tong, she admits that “this Liberal” is for socializing oil companies.

2. Second, she displays some rather week since of oral skills.  Funny, I thought only the “Tea Baggers” and Sarah Palin lacked intellect.

3. Finally, the video was put together before Obama was elected.  In hindsight it sure seems prophetic.

Posted in Capitalism, Liberals, Socialism | Tagged: , , , , , | 1 Comment »