The Razor

Here is a classic example of how stealth inflation works.

The product is salsa for sale at Walmart. The old jar at the top is 16 oz while the new jar is 15.2 oz, a difference of roughly 5%.
Note how Walmart is advertising it as “new” in a different section away a few feet down from where it sells the old product for the exact same price. Normally Walmart doesn’t waste the effort moving the new size away from the older, larger size, but it has provided a section for the producer containing other of their products.

5% less salsa for the same price won’t kill anyone, but it is an example of how producers are hiding inflation from consumers, and how consumers pay more for products without realizing it. The company passes along increased prices to the consumer while maintaining market share that could be lost to brands that do not raise their prices. A buyer might notice a $.10 jump in the $2 price of salsa, but he may not notice when he receives $.10 less product. Hence the stealth designation.

Pretty clever, huh?

The unemployment rate is down to 7.6%, it’s lowest in 4 years. Alan Krueger, Chairman of the Council of Economic Advisers at the White House, writes “today’s employment report provides further evidence that the U.S. economy is continuing to recover from the worst downturn since the Great Depression. It is critical that we continue the policies that are helping to build an economy that creates jobs and works for the middle class as we dig our way out of the deep hole that was caused by the severe recession that began in December 2007.”

So, happy days are here again? Only if you are drinking the kool-aid at the White House. Every month roughly 150,000 more people join the workforce as they come of age or arrive on our shores as immigrants. The Bureau of Labor Statistics (BLS) says that payrolls expanded by 88,000 people last month. So why did the unemployment rate drop to 7.6%?

A record 663,000 people gave up trying to find a job and left the workforce. These people are not counted in the BLS employment statistics; only those that are working or actively seeking employment within 2 years of having a job are counted. Anyone beyond that 2 year mark is simply dropped from the statistics, as is anyone who applied for and received disability, or moved back to live with their parents while attending school.

So is this statistic really indicative of a healthy economy?

Consider the following thought experiment:

In 2017 a Republican moves into the White House. Within a few months of taking office, her policies begin to have an effect on the economy and it starts to boom. Businesses start hiring, the economy picks up, and wages rise. At the same time social programs are cut back by the Republican administration and its allies forcing those on the dole to return to the work force.

What happens as these people reenter the workforce?

The BLS begins to include them back into their statistics because they are actively looking for work. If the number of jobs is growing but the number of job seekers is growing faster because they are being forced to get a job or encouraged by the success of friends and family to get one, what happens to the unemployment rate? It rises as the number of people outside the workforce shrinks, the exact opposite of the situation today. Do you think the mainstream media will trumpet the expanding economy sucking people off their couches and back into the workforce?

Happy days aren’t here again, and won’t be while leftist ideology trumps job creation, and crony capitalism allows the wealthy to benefit from the Left’s War on Poverty.

Americans have been conditioned to believe that a low unemployment figure is good while a higher unemployment figure is bad. Such simple notions used to be true until economists and their political patrons realized it provided them with a tool to support their favored policies. They then began manipulating the figures, including this while excluding that in order to support their favored legislative agenda. A century and a half ago Mark Twain recognized the danger of statistics who wrote “There are three kinds of lies: lies, damned lies and statistics.” But today our political leaders have gone beyond lies with their manipulation of statistics, whether damned or not, into the realm of pure propaganda.

In 2008-9 our country experienced an unprecedented meltdown of its financial system brought on by the cosy relationships between government regulators, politicians and bureaucrats. In response the Federal Reserve embarked on a program whereby the it stole money from the bank accounts of 98% of the country and shifted it to the wealthiest of American society through depressing interest rates paid to savers on their accounts below the rate of inflation, meaning that for every $1,000 in your bank account you lose $30 every year to inflation. This subsidized those with money by providing them with low borrowing costs, allowing them to leverage their wealth for even greater gains in the stock market. It’s not good enough that a billionaire invests $100 million in the market; no, he must use that $100m as leverage to control a billion dollars worth of stock. The stock market has become a casino where small investors are left to chase nickels in front of steam rollers while the government funds the wealthiest segment of society. Worse, the Cyprus Model has put paid to the idea that bank savings are property and protected by the law. Instead savers have become “speculators” and their savings “investments” to be wiped out whenever banks need a bailout. It must not be forgotten that the initial bank bailout, the first put forward by the European Union, looked to steal 6.7% of guaranteed savings below 100,000 Euro. The European Union isn’t exactly communist China or Soviet Russia yet it completely ignored its own law of guaranteed deposits (the EU FDIC) and took the money. Is such an event possible in the United States? Yes. Unlikely perhaps at this point, but still possible.

To support this stock market bubble the federal reserve has flooded the markets with currency yet denied such actions, euphemistically called “quantitative easing”, are inflationary. Government bureaucracies such as the Bureau of Labor Statistics (BLS) manipulate employment statistics to make it appear as if good times are here to stay by excluding the long-term unemployed and those who have given up on finding a job, meaning that if your wife is working and you’re looking for a job, our economy will improve by you staying at home and watching daytime TV since your household will go from 50% unemployment to 0% unemployment. Similarly the BLS manipulates inflation rates by discounting the volatility of food and fuel, the largest categories all but the very wealthiest people spend their money on besides taxes and housing, and making “qualitative adjustments” that hide inflation. In addition companies are passing on higher production costs to consumer through stealth inflation, providing less product for the same money. The profusion of dollar stores are proof of the success of this strategy since shoppers at these stores believing they are getting a bargain while in reality they are paying more per unit of good than at other stores. 4 loads of Tide for a $1 might seem a deal until one goes to a supermarket and finds a 40 load box of the detergent for $7.

Not one person from the banking crisis has been indicted or prosecuted by the Obama administration or Congress, a fact that spawned a PBS Frontline show “The Untouchables.” Could this be because the federal government would be prosecuting it’s own? Former SEC Chairwoman Mary Schapiro resigned and has taken a position at Promontory Financial Group, a bank consulting group, but promises not to lobby the government she once worked for. That has led to Forbes wondering what other of her qualifications Promontory is willing to bill $1,000 – $10,000 an hour for. She’s among numerous ex-federal employees at her new digs. Check out the nifty graphic at ZeroHedge listing Promontory employees and their former positions in the government. Yet we are supposed to believe this revolving door between regulators and those they regulate is free from moral hazard. In the comments at ZeroHedge someone calls the place a “high end whorehouse.” It it were taxpayers wouldn’t be the ones being screwed.

Banks like JP Morgan-Chase and investment firms like Goldman Sachs are considered too big to fail, taking their “skin” out of the game and replacing it with the American taxpayer’s. If JPMC or Goldman’s risky investments turn out well, it’s “capitalism” and their corporate managers and shareholders are rewarded; if they bomb it’s no big deal. The shareholders or managers are still rewarded as they were in January 2010 when banker bonuses were “bigger than ever” according to the New York Times even after the economic collapse of 2008-9. The American worker will simply work a few hours to provide the taxes the firms need to be bailed out, that is if she has a job. It’s a great system if you are Lloyd Blankfein GS’s CEO who earns upwards of $100 million a year at Goldman Sachs. It benefits Democratic politicians like Hillary Rodham Clinton and President Obama too since Blankfein is a large donor to the Democratic party.

Then there’s the debt. To call it a “mountain of debt” is to betray a shallow awareness of the world’s topography. Here are some neat visualizations of our debt in $100 bills, and an impressive sounding statistic that’s hard to visual: a line of $1 bills would stretch from the Earth to Uranus. We’ve reached a point where analogies lose their meaning, although the current debt being greater than the country’s entire output in 2011 must be at least a bit sobering to even the drunkest Keynesian economist. The best way to consider the debt is by making it personal. Since 2008 the debt has expanded by $26,000 per person. Multiply that number by those in your household and ask yourself if you feel that amount richer over the past 4 years. That would mean an extra $78k for my household, enough to drop the Wife’s med school debt by 40% or replace our aging cars, each with over 150k miles on them, as well as buy a new car for the Kid. If you don’t see that money, where did it go? Ask yourself: are you better off today than you were 4 years ago? Then ask Lloyd whether he is.

The system is corrupt yet we do nothing about it. We are told happy days are here again, that the stockmarket is at record highs, yet those of us who dabbled in the market prior to 2009 have still not recovered from the losses suffered then, leaving us on the sidelines of this rally. Small investors piled into the market and out of the market late back then, proving they were the “greater fools” and some are doing so today as the market skyrockets and smart money looks for the exits. Sure our 401K’s are expanding, but the numbers are meaningless for anyone other than those planning to retire in the coming months before this bubble bursts. Self employed people and contractors like myself don’t have 401K’s, we just have our wits and an ever sharpening skill set that we use to stay employed, but both are slowly being eroded by time as we age and the younger cohorts below us grow hungrier and more competitive. Time will unravel us, and when it does we will be poor and destitute, remembering the hundreds of thousands of dollars of taxes paid that could have gone, should have gone, into our retirement funds but didn’t. At that point we’ll be on the side of the 47% who don’t pay taxes, but by then the government will be completely broke. We shouldn’t expect any sympathy from the generations coming up in our shadows, since both Left and Right are in agreement that theirs will be the first generations to have lower living standards than preceding generations. It doesn’t help that we’ve sent them to substandard schools whose sole purpose seems to be to employ Masters of Education degree holders instead of actually teaching our children the skills they need to succeed in life.

The collapse of our education system is proof of our sick society, one that raids the education budgets for the young to pay for the guaranteed pensions of the old, one in which the only people who treasure marriage these days are gay and everyone else hooks up like a shed-full of feral cats in heat, with an increasing percetage of the products of these unions are on ADHD medication. I’d need to be medicated too if I was forced to sit still with a body full of hormones and brimming with youthful energy, taught by teachers who, like the children of Lake Wobegon, are all above average, all 98% of them. Conversely, Walter Russell Mead points out ”only 78.2 percent of American students graduated high school in 2010. Sixty-seven percent of all fourth graders could not read at grade level in 2009. And only 32 percent of eighth graders and 38 percent of twelfth graders were reading at or above grade level that same year.” Of course if we measured education aptitude by the number of body piercings and tattoos we’d lead the world.

David Stockman, former Reagan budget director, is getting beaten up in the press for his book The Great Deformation: The Corruption of Capitalism in America. Journalists, products of the Masters of Education employment entities described above, look at the highs of the Dow and discount Stockman’s thesis that the system we have today is more akin to the monopolies and crony capitalists that spawned the progressive movement over a century ago rather than some Randist free market anarchic paradise that they instinctively fear. The treatment of Stockman is similar to that shoveled out to Bob Woodward for daring to criticize President Obama game of chicken with the sequester, as J-school graduates leaped in defense of their icon in the White House attacking Woodward with various ad hominems that any of the profs would have failed them for had they used them in class (or rather, a class where failure was an option – evidently a rarity these days where students can pass without actually studying.) Watching Woodward, a man whose politics I disagree with yet whom I respect for helping pull off the greatest journalistic story of the century, being attacked by the likes of Andrew “I’m here, I’m queer, blah blah blah” Sullivan was like watching a fine thoroughbred horse attacked by a swarm of flies fresh from their home in a dung pile. But such is the fate for anyone who dares call “shenanigans” in the current climate where anyone who can’t continue deceiving themselves is lampooned, debased, or in the case of Woodward, threatened.

Our problems aren’t just economic either. The Obama administration has fled the Middle East and attempts to appease Iran by refusing to support the rebellion against the Assad regime in Syria.

“I think that the United States has not taken a more active role in Syria from the beginning because they didn’t want to disturb the possibility, to give them space, to negotiate with Iran,” Javier Solana, the former European Union foreign policy chief, said Monday at a Brookings Institution discussion about this week’s talks. Solana, who was a top negotiator with Tehran in the nuclear program until 2009, added, “They probably knew that getting very engaged against Assad, engaged even militarily, could contribute to a break in the potential negotiations with Tehran.”

As Walter Russell Mead notes this could be a catastrophic mistake.

If Solana is right that this policy has been driving the White House all along, this is Obama’s initial Iran failure—remaining silent during the 2009 Green Revolution—on steroids. Weakness doesn’t win you the friendship of bullies. And if this dispatch is right, we should expect some ugly repercussions from the Sunni Arabs, the Israelis and the Turks. All these powers want to see Iran’s claws clipped and they want Assad to go; all of these powers chiefly view the value of their US ties at the moment in the light of the confrontation with Iran. If they come to feel that the United States is willing to throw the Syrian lamb to the Iranian tiger, their trust and confidence in the United States, and consequentially America’s power to get things done in the region, would go into a deep eclipse.

Things don’t look any better on the other side of Asia with North Korea promising to attack the United States. So far the US response has been mild, yet that hasn’t stopped the press from asking White House spokesman Jay Carney if that hasn’t provoked a communist dictatorship whose people are being starved to death on a steady diet of leftist propaganda and grass. But their carbon footprints are tiny, for now. How much carbon will be released by a nuclear strike on Osaka or Guam? Quite a bit I suppose. In any event we soon might find out if North Korea acts on its threats.

A whole industry is set up to use imagery and fantasy to modify our behavior so that we buy something, yet somehow a related industry employing the same techniques but for entertainment purposes ie exempt from responsibility when an admittedly sick individual dresses up as villain of the violent movie being shown to the audience he then commences to massacre. The Roman Catholic Pope is labeled as an extremist for calling abortion murder while a doctor who performs late term abortions and keeps the tiny feet of his victims in a jar as memento mori is lauded as a hero. The billionaire mayor of New York City makes it his personal mission to rid the city of large soft drinks while the city’s crime rate rises and the city becomes less friendly to all but society’s richest and poorest.

But when all is said and done, who is to blame for this mess that we find ourselves in? We are.

We didn’t demand for the bankers to be tarred and feathered (well, we did but failed to hold our elected leaders accountable for allowing the bankers off scot-free.). We continually vote in the politicians who offer us platitudes instead of common sense and plunder the public purse for the benefit of the monied elite regardless of their party affiliation. We engage in bitter fights over issues that don’t impact us directly (I’m not gay, on medicaid and I can’t get pregnant, so honestly just how worked up can I get about gay marriage, social programs and abortion?), yet ignore the issues that unite us and affect our daily lives. We vilify other Americans for their differences yet are willfully blind to the commonalities. Intellectual laziness encourages us to accept stereotypes and straw men built by those who feed on hatred the way a maggot feeds on the flesh of an open wound instead of putting ourselves in the other’s position, or to use an old cliche, “walking a mile in the other man’s moccasins.” We have Obama himself saying, “It’s not surprising, then, they get bitter, they cling to guns or religion or antipathy to people who aren’t like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations,” accepting a stereotype and succumbing to a form of elitism and intellectual laziness by belittling his opponents instead of attempting to understand them and winning them over. We’ve accepted the low standards of education because we’ve been trained that “fighting city hall” or in this case the school board is futile. So our kids read less than we do, they can text faster and know the special combo to beat the god Zeus in the “God of War” video game. They’ll be alright. Right? We keep our heads down, do what we are told and hope that our dreams come true, the way they do on TV between the ads for drugs to help men get it up and women feel not so down.

We should be ashamed for what we’ve done, or more importantly, not done, expending the effort to fight for accountability from our elected officials and receiving their heads in baskets after they ignored us 4 years ago. Today the problems are even worse, the threats greater, yet we continue on the way we did before the 2008 financial meltdown and on September 10, 2001, fighting among ourselves without giving the other the benefit of the doubt or the dignity our opponent deserves. To paraphrase my late mother-in-law, we chose this path, and we did so because we are idiots.

The exact importance of the theft of euros from Cypriot banks this past weekend is difficult to determine at this stage but cannot be understated. The European Union government is stealing the private property from citizens and handing it to the wealthy backers of the banks. It is a bank robbery in reverse as this cartoon below shows:

The EU spin machine is trying to hide this truth, calling the 6.7%/9.9% theft a “wealth tax.” Mark J. Grant writing at ZeroHedge puts the lie to this bit of obfuscation:

Let’s get some things straight and look what has happened directly in the face. There was no tax on the bank accounts in Cyprus. There still is no tax; the Cyprus Parliament has not passed it and will not vote on it until tomorrow so whatever action takes place it is retroactive. Next, this was not enacted by Cyprus. The people from Nicosia did not go to the Summit and ask to have the bank accounts in their country minimized to help pay the bills. Far from it; the nations of Europe, Germany, France, the Netherlands and the rest, demanded that this take place, a “fait accompli,” the President of Cyprus said and Europe annexes Cyprus. Let’s be quite clear; the European Union has confiscated the private property of the citizens in Cyprus without debate, legislation or Parliamentary agreement.

If someone breaks into your home while your away and steals 10% of your possessions, we call it burglary and Society prosecutes and jails the thief if caught. If you run a small shop and the local mafia sends some thugs to extract a 10% “business tax” to do business on their turf, it’s called “extortion” and authorities prosecute it as a crime. In the United States the Fifth Amendment of the Constitution states citizens “shall not be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation,” but even this has not prevented the abuse of eminent domain laws, most recently in New London Connecticut in a case that reached the US Supreme Court (Kelo v. City of New London). Europeans love to take Americans to task for our outdated or overly-restrictive constitution, yet that piece of parchment does at least stand between an abusive government backed by force and the powerless citizen.

The EU spinmeisters will also tar Cyprus with the same brush they use on the Greeks, Italians and Spanish – the southern EU states that spend too much and work too little, while the industrious and spend-thrift northern EU states (e.g. Germany) bail them out. But let’s not forget what a bank bailout does and does not do. A bank bailout does not punish debtor nations for laziness, it rewards the investors and owners of banks for their failures to practice due diligence and lend accordingly. Bank bailouts shift the losses the wealthiest would suffer onto the balance sheets of governments and the taxpayers who fund them. Since the vast majority of tax payers are of modest means, bank bailouts benefit the rich at the expense of the poor. Germany isn’t bailing out Greece because it’s generous; it’s bailing them out because wealthy Germans who own the banks would lose their shirts if the banks were allowed to go bankrupt.

For months, really years now, the world has watched the EU try to hold itself together, not because it worried about Greeks or Spaniards starving in the streets, but rather to protect the rich who fund the banks and also exercise undue influence on the government. Cypriots would not lose 10% of their money if the banks failed because the banks are covered by deposit insurance, but the wealthy Germans who backed the banks would lose their investments. Similarly if Greece refused to pay its debt and left the euro, Greeks would be freed from the burden of austerity measures dictated by Germany and be able to prosper with a devalued currency, but the German investors who back the banks who lent money to Greece would suffer.

In 1992 the European Union heralded a new beginning for the continent promising economic cooperation and prosperity for its peoples. Two decades on the EU has become a grotesque caricature that resorts to petty theft to survive in order to protect its wealthy elite. Pathetic.

UPDATE: Walter Russell Meade disagrees, writing, ” Any sentient depositor in a Cypriot bank had to know that things weren’t right. The dubious nature of the Cypriot banking system has been a notorious fact for almost a generation; during all this time Cypriots seemed perfectly happy that their country was running an offshore money laundry for some of the nastiest people around.”

I respect Meade a lot, and you will will find more links to his articles on this site than any other, but I believe the good professor is wrong in his conclusions. First, as recently as July 2011 Cypriot banks passed European Banking Authority (EBA) stress tests. It’s not as if everyone knew Cypriot banks were wobbly and it was only a matter of time before they collapsed. Second, these banks were operating under EBA rules and authority so if they were indeed “running an offshore money laundry for some of the nastiest people around,” they were doing so under EU regulation. Finally, if these accounts were held by “nasty people” why didn’t the EU charge them with crimes or go to court to confiscate their money? There are all types of nasty people sitting in jails around the USA waiting for their day in court, and that day will come and they will be afforded due process and allowed to defend themselves. Would Meade support pronouncing all of them guilty and order them to serve prison sentences simply because they were nasty?

I don’t care a wit about how the money was acquired in those bank accounts. What I care about is the unprecedented decision to steal private property without due process. There are ways that dirty money can be tracked and expunged from the banking system. Within the USA there are numerous processes in place that prevent funds being funneled to rogue regimes like Iran or nasty characters like Mexican drug lords, but everyone, drug lord and drug abuser are afforded due process before their money is confiscated.

By stealing money from bank accounts, the EU is courting a disaster whose scale threatens world prosperity. A bank run in Europe would destabilize the entire economic system, from Cyprus to South Africa and New York to Nanjing. The international economic system is robust but it is not indestructible, and History has shown time and time again that the Achilles Heel of the system is the banks, and their weakness is the freedom of depositor to take their cash. Break the trust with the depositor, and the results are always catastrophic.

Update 2: The Cypriot parliament has told the EU to take a long run off a short pier. No one knows what happens next. Interesting times.

Imagine waking up one morning and finding out that while you were asleep someone accessed your bank account and stole 10% of your money.

That’s the rude awakening the citizens of the island nation Cyprus had this weekend, after the European Union presented the Cypriot government with an offer it could not refuse – confiscate 9.9% of bank deposits over 100,000 Euro, 6.7% of anything below that – or watch their banks go bankrupt. The Cypriot government, in power for less than a month, chose the former route, and the people of Cyprus ran to ATMs and drained the machines of as much cash as they could before the machines ran out; all attempts at electronically transferring funds were cancelled by the government.

But fear not, “European officials said it would not set a precedent.”

Funny thing about precedents: they tend to set themselves regardless of what an unelected bureaucrat in Brussels says. Banking is a fragile affair that relies on trust. People hand their money over to the bank and trust they can get it back. Once that trust is broken in Cyprus, who’s to guarantee the trust in Ireland, in Italy, Greece or Spain will remain? The same group of EU bureaucrats who broke it in Cyprus?

It’s difficult not to think a rubicon has been crossed, that punishing depositors to allow lenders to avoid the consequences of their poor investment decisions will remain localized in Cyprus. Is it the fault of depositors the banking sector is 8x bigger in Cyprus than elsewhere? Without trust, people will pull their wealth out of banks and stash it under their mattresses. They will convert it into foreign currencies not threatened by confiscation, or transform it into gold and silver.

In order to counter these moves governments tend towards oppression, banning forex transactions, limiting transfers of money abroad and confiscating and banning the ownership of precious metals, tactics used by the United States government under the administration of Franklin Delano Roosevelt in the 1930s. Such tactics may annoy the wealthiest citizens of a country, but they don’t suffer much. With armies of attorneys and tax accountants at their disposal the wealthy are able to shield their assets from the thievery of governments. Lacking those resources the middle and lower classes are the ones who suffer the most.

For years the fragility of the European Union has been on display, with agreement upon agreement announced on a seemingly monthly basis. The Cassandras who have been predicting the collapse of the Euro have been shouting for so long that their din has disappeared into the background. But eventually anything that is under enough strain will break, and do so suddenly and in unpredictable ways. It’s worth remembering that on the eve of World War I, war was expected yet it began not with a massive attack on a large country like Austria or France, but with the assassination of a minor Austrian nobleman in the far-flung province leading to the declaration of war against tiny Serbia. The single bullet that killed Archduke Franz Ferdinand set off World War I which in turn laid the groundwork for the following World War. Could this be the single bullet that sets the death of the European Union in motion? Have the Europeans finally broken their own economic system by stealing from the Cypriots? The confiscation is predicted to net 6 billion euro against a 13 billion euro bailout package. The relatively insignificant sum raised by the confiscation may come to haunt the Europeans for days, weeks, perhaps even decades to come just as the ghost of Archduke Ferdinand haunted Europe through the trenches, the blitzkrieg, and the Holocaust that followed decades later.

It will be interesting to see how depositors respond in Spain, Ireland, Portugal, Greece and Italy over the coming days. These economies are so fragile to begin with that it is unlikely the EU could survive even a small bank run or investor panic. It is quite likely, though I’m not foolish enough to say exactly when, the EU will unravel very soon, with countries refusing to abide by the dictates of Brussels, drop out of the Euro, and face the world on their own. There’s even a chance the government of Cyprus will renege on the deal, and the nation be forced out of the Euro. Such an action would in the short term be worse for Cypriot depositors, who could see losses of 25% or more as their Euro assets are changed into Cypriot Pounds, but over the long term such devaluation would allow Cyprus to recover at its own pace without suffering the draconian economic program demanded by the EU.

At the very least it makes one realize how little governments respect the hard work and sacrifices of their own citizens, and that the gold bugs aren’t completely nuts after all.

Update: Via ZeroHedge, RBS analysts explain the situation (I’ll pretend to forget that RBS itself went down in flames only to be resurrected by bailout a few years back). Cyprus deposits total €126.4bn, or over 7-times GDP. Much of that money is of Russian origin, which is why the EU thinks the Cypriots will swallow the medicine. But Russians aren’t the ones draining ATMs, Cypriots are. When Spaniards, Italians and Greeks see the freak out in Cyprus, even the dullest of them will question whether their assets are safe from EU bureaucrats. And it will also be interesting to see how Russia takes the hit. Russia isn’t the most magnanimous nation, so expect it to gain something from the mess – like a Mediterranean port.

Recently Marketplace on NPR did a segment on the possible taxation of bullets. Both the reporter of the piece and the anchor of the show seemed surprised a box of fifty 9mm bullets could be had for $20 plus state and local sales taxes. It was clear neither knew much about guns; $20 sounds cheap to anyone who hasn’t gone through a hundred dollars worth of ammo in less than an hour at the gun range. They also assumed that one shot equals one kill, a strategy that works in movies, video games and the elite snipers in the military but completely ignores the reality of shooting. Just as a photographer only improves by taking pictures, a shooter only becomes a marksman by sending rounds down-range. And not just a few dozen. It takes tens of thousands and no one is killed or injured in the process.

When liberals can’t ban something outright they love to tax it, something they learned in fairness from Conservatives who championed “sin taxes” on cigarettes and alcohol. They support their logic by pointing out Society pays a cost not borne by the consumer of the product, such as deaths and injuries from accidents caused by drunk drivers or the warming of the planet caused by fossil fuel burning. Taxes shift that cost back onto the consumer, and in response the consumer uses less. Of course this argument assumes the consumer is price sensitive which is only the case for the poor and middle class. The wealthiest can afford to do whatever they want, but that only reinforces the natural paternalism and aristocratic tendencies of the liberal who tends to be wealthier and believes he or she knows what’s best for the less fortunate.

Conservatives could learn a thing or two from Liberals and use the same logic to propose their own taxes.

Tax Abortions – All bullets do not kill people, but all abortions do. The lifetime earnings of a child lost to abortion is $1.8 million for a college graduate. Of course raising a child costs money as well, about $200k in the USA, so subtracting that figure from the $1.8 million leaves us with $1.6 million in lost wages. Assuming a 25% tax rate on those earnings, each abortion costs the state $400,000 in lost revenue. By murdering a future taxpayer who would work to provide Social Security benefits to the elderly, abortionists and the women who use them are burdening society with fewer children at a time when it needs all the young people it can get to support the retiring Baby Boomers. Contraceptives could be taxed for similar reasons. Such a tax could not make up for the hundreds of thousands of dollars in tax revenue, but it would encourage people to have more children which are needed to allow Baby Boomers to live as long as possible without contributing anything to Society beyond their excessive narcissism. At the very least raising a potential tax on the practices would also teach the anti-gun rights lobby who happen to be pro-abortion that undermining an actual right in the Constitution can also endanger the imaginary right underlying the legality of abortion.

Tax Movies - Between the end of World War II and the mid 1950’s movies were taxed at a 20% rate. This is the same industry that floods our society with ultra-violent movies which dehumanizes and encourages violence. It is time Hollywood pays its fair share to clean up the mess it has made. In a similar vein we should apply the 20% tax to the recording industry which is straight out of the feudal era, enslaving tens of thousands of artists through the RIAA while encouraging sexist and homophobic behavior in rap music. What is the cost to our society of rap music? Is 20% really enough to pay for the damage caused? And what about the damage caused by insipid acts like Grace Jones-wannabee Lady Gaga?

I thought about taxing porn but since no one pays for it anymore I figured doing so was pointless.

An Apple Tax – If you can afford an Apple product you can afford another 30%. It’s not that Apple products are bad gadgets. They are well designed and innovative at times. But they cause three problems. First, the fan boys who raise the blood pressure of anyone unfortunate enough to be stuck working with them or worse, living with them. Has the CDC quantified the number of lives lost due to heart attacks/strokes caused by Apple fan boys? If not why not? I suspect it’s because the CDC is full of people listening to Lady Gaga on their iPods. And what about those poor unfortunate Chinese slaves making their products at Foxconn? You know, the ones who are so overworked they’ve taken to throwing themselves off any ledge taller than they are? Then there’s the environmental damage caused to the Chinese countryside. Do Apple owners understand that their products are not crapped out by unicorns fed marshmallows by elves, and instead have played a significant role in the destruction and poisoning of the environment in China? Do you know what chemicals Foxconn uses to produce the chips and circuit boards it uses in Apple products? Would you be willing to drink from a river downstream from a Foxconn plant? How about inhale deeply near one?

Tax fuel efficient vehicles – The gas tax has traditionally been the way our state and federal governments have paid for the upkeep of roads, from the local winding country road nearby to the massive interstates that bisect the country. Imagine two cars, say a Nissan Xterra that gets 15 mpg and a Toyota Prius that gets 45 mpg. Both cars travel the same interstate 450 miles, so the Xterra uses 30 gallons of fuel verses only 10 gallons for the Prius. While both cars traveled the same road the same distance, the Xterra paid 3x the amount of tax than the Prius. Is this fair? Yes the Prius uses less gas but since it doesn’t drive less it’s actually avoiding taxes – freeloading on the system. “So buy a Prius,” the Prius owner might say, but if the Xterra owner does the state would still lose 20 gallons worth of tax on that 450 mile journey. How is it going to make up the shortfall? The solution is easy: force the Prius owners to pay an extra tax to makeup for the lost revenue caused by their selfish behavior.

Tax public sector workers who take jobs in the private sector in industries they used to regulate. Called amakudari or “descent from heaven” in Japanese, this practice weakens regulatory authority by rewarding public servants for helping companies undo or avoid the regulations they put in place while working for the taxpayer. It also encourages bureaucrats currently in their posts to avoid harsh regulations or penalties opposed by the companies they expect to join in the future once their tenure in public service draws to a close. One way to discourage this practice would be a 50% tax on salary and bonuses over ten years earned by bureaucrats who work in industries they regulated. Such a tax would encourage bureaucrats to act in the public’s interest instead of their own.

Tax regulation proposals - The Tragedy of the Commons teaches us anything free will be abused and that includes regulation. Because there is no cost to a bureaucrat or agency to propose a regulation or levy a tax, regulations and taxes proliferate. Such red tape strangles innovation while doing little to conserve public resources, but how to tax it? One way would be for elected politicians to propose a ten percent budget “tax” on every state, local and federal agency, then offer tax deductions for each regulation that is sunset and taken off the books. This would provide an incentive for bureaucrats to remove outdated, contradictory and badly written regulations from the books.

Tax Wall Street (Seriously) – The usage of tax policy doesn’t have to be a partisan issue. There are some issues such as a transaction tax on Wall Street trades that have been proposed by liberal Democrats which Conservatives can agree on. The flash crashes caused by high speed trades using algorithms that few understand have roiled the markets and weakened capitalism. While such a tax, only a third of one percent as proposed in the latest bill, would net the Treasury little, it would curb excessive speculation by deterring the practice of leveraging time and other market differential to hold a position for a few instants before selling it at a profit, a process euphemistically known as “chasing nickels in front of a steam roller.” Besides, Wall Street long ago switched its allegiance to the Democrats (see Barney Frank, Chris Dodd and other politicians who should have been jailed for their roles in the 2008 economic meltdown). Obama’s ties to Goldman Sachs are deeper than the man he replaced in the Oval Office, so why should Conservatives pursue policies that benefit Wall Street at the expense of Main Street? If that sounds like an Occupy Wall Street meme, it is what it is. Crony capitalism is not a conservative virtue; in fact it is the antithesis of everything Conservatism stands for.

Conservatives and their libertarian allies dislike taxes as a matter of political philosophy, but they need to recognize their power as a weapon in political combat. Liberals have, which is why conservatives are on their heels after the past election. Proposals such as those above would make any such budget discussion a fair fight.

Speaking of insanity, when will Republicans stop their fetishistic devotion to the wealthy after the party has been abandoned by them? As Victor Davis Hansen point out, 8 of the 10 wealthiest counties in America voted for Obama in November 2012, yet the party continues kowtowing to the uberrich by most recently exempting Hollywood from animal cruelty laws. Hollywood isn’t exactly supportive of the GOP, yet that hasn’t stopped the party from cosponsoring and supporting legislation such as the DMCA even going so far to fire  Derek Khanna, formerly of the Republican Study Committee for daring criticize the legislation that protects the film and music industries at the expense of artists and consumers.

It’s time to cap the tax exemption on charitable giving. Why not a cap on say, $10 million? Everything beyond that is taxable. Such a cap won’t hurt charities like Goodwill or AmVets, two charities that are largely supported by small donations from individuals, but it will put a dent in giving to large high profile charities and foundations supported by liberals that in return support liberal causes. Hansen suggests limiting the mortgage interest tax deduction to a single mortgage on the primary residence to the first $100k with no interest tax deduction on second or vacations homes. After all why should taxpayers subsidize mansions and multiple homes of the wealthy? Also, disallow the tax deduction for state and local taxes. For the average taxpayer this won’t result in much, but it would kill those who live in Blue states such as California, Illinois and Connecticut who are allowed to deduct their high state taxes from their federal taxes, in effect forcing people living in low tax Red states to subsidize the wealthy in La Jolla and the Hamptons. As Ann Coulter states, “You want high taxes, New York and California? Then pay them — with no deductions for state and local taxes on your federal returns.”

Coulter also points out that the reason why capital gains are taxed at a lower level than wage income is that most people pay taxes on their labor and then invest the money, so capital gains are a form of double taxation. But for the likes Warren Buffet who are compensated completely through capital gains, they do in effect pay a lower rate than the doctors, engineers and others who have to work to get the cash they need to invest. She writes, “Close that loophole. Almost no Republicans will be harmed in the making of this tax change. (There’s a reason Sen. Chuck Schumer fought so hard to save it.)”

Then there’s the Hollywood excise tax that Instapundit Glenn Reynolds has suggested re-instituting the excise tax on Hollywood that was repealed in the 1950’s. Hollywood has replaced the blacklist and slavish devotion to anti-communist ideology of the 1950s with their leftist equivalents today. The industry provides an outlet for a leftist interpretation of history (watch any Oliver Stone film to see what I’m referring to) while enjoying the benefits of conservative tax policy. As Reynolds notes, “Why should movie stars and studio moguls, with their yachts, swimming pools and private jets, not at least shoulder the burden they carried back in Harry Truman’s day—when, to be honest, movies were better anyway.”

Update: Victor Davis Hanson weighs in.

If the country is going to turn redistributionist, then we might as well do so whole-hog — given that eight of the wealthiest 10 counties in America voted for Obama. Why not limit mortgage interest deductions to just one loan under $100,000 — while ending tax breaks altogether for second and third vacation houses?

Under the present system, the beleaguered 99 percent are subsidizing the abodes of Hollywood and Silicon Valley “millionaires and billionaires” — many of whom themselves have been railing against the one percent. Should the government provide tens of thousands of dollars in tax breaks for a blue-state one-percenter to live in tony Palo Alto or Newport Beach when there are plenty of fine homes far cheaper and sitting empty not far away in Stockton and Bakersfield?

Blue states usually have far higher state income taxes that are used as deductions to reduce what is owed on federal income tax. Why should working folks in Nevada or Texas have to pay their fair share, while Wall Streeters get huge federal write-offs from their New York or Connecticut state income taxes?

What is the purpose of government?

Is it to provide for the collective needs of the citizenry that the people cannot provide individually for themselves, or is it to exist for the purpose of improving the lives of those working for the government itself?

This is an answer that California is determined to learn. According to former governor Arnold Schwarzenegger, as reported by Bloomberg, half of the state’s budget is devoted to government employee salaries, health care and pension benefits and other compensation. According to the Census Bureau, in March 2011 there were 671,942 full time public sector employees in California. The state also employed an additional 310,298 part-timers for roughly a million workers. The Census estimates in 2011 California had a population of 37,691,912. The 2011-12 state budget was $85.9 billion. So if what Bloomberg reports is true, 2.7% of the population of California is gorging on 50% of the budget while the remaining 97.3% makes do with the rest.

The public sector unions, of course, see nothing wrong with this situation. Bloomberg reports:

“At the time we accomplished our biggest gains, I actually felt I was losing the recruitment war,” (Jon Hamm, chief executive officer of the California Association of Highway Patrolmen, the union for CHP officers) said in an e- mailed statement. “I think it is clear that when our biggest gains were negotiated I did not feel they were ‘excessive;’ in fact, almost the opposite was true.

So the high compensation was necessary to recruit the best and brightest. Where have we heard that argument before? With CEO pay, another group whose pay some, such as the Soros front group ThinkProgress, have argued is unjustifiable. Note to Lefties: When you start using your opponent’s defense as your own, guess what? You have become your opponent.

Albert Einstein reportedly said the definition of insanity is doing the same thing over and over again and expecting different results (I think this guy says it best.) When Democrat Gray Davis took the governorship the state had $12 billion surplus. Gray immediately went on a spending spree, throwing money at every possible Democratic constituency in existence. He did the job so well the damage outlasted his successful recall from office and blighted the terms of the governors who followed him. But instead of revolting against their politicians they keep electing the Democrats over and over again. Today the state is a one party Democratic state. There is no opposition to these policies that enrich the few while causing the many to suffer. The California GOP lacks any power to fight the continued plundering of the state by the rapacious minority of public sector workers belonging to unions who support the Democratic party alone.

Californians choose this of their own free will. It is a damning testament to Democracy, one that undermines faith in the form of government elsewhere in the country. It would be easy for conservatives and libertarians who believe in the separation of federal and state power and live in the remaining 49 states to write the state off as a basket case and wash their hands of its problems, but doing so ignores the sheer economic weight of the state. At a GNP of $2 trillion, 1/7th the entire US, the state’s economy is tied with Italy’s for eighth largest in the world. We may smirk as the EU struggles to maintain its cohesion and even compare California’s fate to the supposedly lazy Greeks, but California’s economy is 5 1/2 times the size of Greece’s.  That means we have over five Greeces, an EU sized mess,  in our own American back yard. An economically dysfunctional California isn’t just a threat to itself, it could wreck the American economy for years.

It is only a matter of time before California goes cap in hand to Washington DC, and when it does it will be met with howls of protests from conservatives and libertarians – and rightfully so. But the truth is California isn’t going to go away; we can’t kick it out of the Union the way the Germans are contemplating doing to Greece, but at the same time we can’t ignore it either. It is in our own interest and the interest of the country’s to help get the state back on its feet and to do so while balancing the needs of its people while getting them in touch with the responsibilities they shirked in the past.

I’m fascinated by unexpected outcomes of simple arguments. Here in the USA we are in the midst of an ideological fight between the Republicans who want to increase tax revenue without increasing tax rates and Democrats who want to add money to the treasury by increasing tax rates alone.

The British have already had this fight, and the Labor Party won. In 2011 the UK introduced a 50% tax on those making over a million pounds. In tax year 2009-10 there were 16,000 taxpayers. Today there are 6,000 taxpaying millionaires, a decline of over 60%. Worse from the government’s perspective the increase in the tax rate cost the government £7 billion in lost revenue.

So raising tax rate results in lost revenue? Simple argument; unexpected outcome for a liberal. All too predictable for a libertarian/Republican.

I’m not a fan of Steve Forbes but his essay President Obama, Clinton Prosperity Requires Clinton-Sized Government is proof that even a blind squirrel finds a nut sometimes. In it Forbes counters the unspoken assumption by Democrats returning to Clinton era tax rates Clinton era growth will follow, pointing out that the federal budget back then was half a trillion dollars smaller and the Fed wasn’t printing dollars like a bunch of coked up monkeys running the printing presses.

In 1998 the budget for fiscal year 1999 Clinton submitted contained $1.7 trillion in spending and $1.8 trillion in revenue for a $9 trillion economy. It was the first balanced budget in 30 years, and resulted in a $124 billion surplus.

Contrast this with Obama’s 2012 budget. $3.8 trillion in spending and $2.5 trillion in revenue resulting in a deficit of $1.3 trillion. To put it another way the 2012 deficit alone is roughly 3/4 of Clinton’s budget. The US economy has grown to $15 trillion in 2011, making it about 66% bigger today than it was in 1999, but the rate of government spending has increased 124%, almost double economic growth that period.

So where has the money gone? Defense obviously. In 1998 when the ‘99 budget was being formulated American troops were deployed on a peacekeeping mission in Bosnia-Hercegovina. Today the world is different and America has deployments not only in Afghanistan but covertly in Libya, Syria, Yemen, Northern Africa and wherever Islamic terrorists like to hang out, so in my opinion the expense is justified to a degree. But I am not averse to defense cuts. How long do we have to protect Europe from the Germans or Russia? Isn’t 70+ years of American boots on the ground enough there? I’ve even advocated drawing down troops in Japan and South Korea, although these nations may not be so keen to see our backs given China’s rise to superpower status.

By comparing the 1999 and 2012 budgets by budget function, what’s interesting is the lack of divergence between functions over the 13 year period. As a portion of the total budget defense’s portion grew by 2.56% between 1999 and 2012, the largest positive shift of budget resources. Considering how things have changed in the world a 2.56% allocation to defense seems modest. Other notable changes include a nearly 9% decrease in Net Interest – a fact that strikes me as some kind of budgetary gimmick or error, and a 2.53% decrease in Social Security payments (don’t we have a higher percentage of elderly in our population today than in 1999?)

Comparing the FY1999 to FY2012 US Federal Budgets

When I look at the budget figures for both years, nothing leaps out at me and says “Here’s why we’re $16 trillion in the hole.” Bush didn’t add a whole new category of spending, and neither has Obama. The reason our budget mess is not apparent in these figures is because it’s a problem of scale. To use another analogy, it’s not as if any slice of the pie has grown over the others, the entire pie has grown beyond inflation and outpacing the economy. If the government grew at the same pace as the economy in the period 1998-2011 the federal budget in 2012 would have been $2.50 trillion dollars, $1.3 trillion less than the actual 2012 budget and coincidentally, the same figure as last year’s deficit. The entire federal government expanded and I find that disturbing because that implies uncontrollable growth, and a single statistic proves it.

How much does federal spending make up the economy? Dividing the 1999 $1.7 trillion budget by $9 trillion GDP results in 18%. Using the same numbers for 2012 and we get 25%. The federal government now owns 7% more of the economy than it did in 1999. 7% of an imaginary number like $15 trillion is meaningless on the face of it, but when we realize that while we weren’t looking the federal government added to itself an economy the size of Mexico (2011 GDP $1.15 trillion) or South Korea (2011 GDP $1.11 trillion) that it didn’t possess in 1999 and things start to look a bit more serious. Perhaps those Tea Partiers weren’t as crazy as the mainstream media portrayed them as after all, unless of course you assume government control of the economy isn’t necessarily a bad thing.

If we add state and local spending, the situation gets worse for a Tea Partier, better if you are a socialist, adding another 14% of GDP for combined government spending of 38.9% of GDP. Ranked against other nations in the world that puts us roughly tied with Canada, a few points ahead of Japan and Australia and a few points behind Spain and Ireland, two nations that are struggling to stay afloat in the EU.

Total US Govt (federal/state/local) Spending as Percentage of GDP 1903-2011

It is ironic that the administration of President Bill Clinton, a man so detested by the GOP establishment they tried to have him forcibly removed from office would serve as the epitome of small government at the same time as his Democratic successor strives to emulate his tax policies to fund an even bigger government. But it is what it is; up is down right is wrong, good is evil and the Clinton era stands as a shining example for small government libertarians and conservatives to strive to recreate. So party like it’s 1999 and embrace the smaller government ideals that underlaid its prosperity.
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Calculations used in this article can be accessed here in their entirety.

To understand the workings of American politics, you have to understand this fundamental law: Conservatives think liberals are stupid. Liberals think conservatives are evil. – Charles Krauthammer

It’s interesting to be hated. I’m a white male, married to the same woman for over two decades. We love rescuing animals in the US and working on conservation and health projects in Africa. Together we don’t make enough to qualify for the top 2% of wage earners, but we are uncomfortably close. She works 50+ hours a week in health care, has had her life threatened twice for failing to prescribe narcotics, and daily faces patients who act like their ordering off the ala cart menu at a Chinese Restaurant, “I’ll have the MRI with antibiotics I don’t really need, oh and a side of Vicodin.” I work at a job that I enjoy for similar hours but as a contractor don’t know where I’ll be working from one month to the next. The only job security I have comes from the combination of my skills, wits and luck.

Aside from being white and conservative (libertarian actually) we are hated because we obviously don’t our fair share. Now granted, technically we’re excused from this requirement because we are not part of the minority being mugged, currently set at the top 2% of taxpayers, but I don’t trust technicalities to protect my family. For example the targets of liberal ire initially were the billionaires and millionaires; then it was 1% for awhile before some of the brighter liberals realized that you can’t soak the top 1% and get all the free healthcare and cell phones you need, so it became 2%. How long before it’s 5%? 10%? Anyone with more than anyone else except those who are more equal than me?

Nobel Prize winning Paul Krugman argues that we should bring back the 91% tax rate. Krugman’s argument in essence is that the American economy grew in the 1950s under the tax rate, workers were safely empowered by unions and as a result of both company executives enjoyed modest remuneration. Of course Krugman doesn’t mention other aspects of the 1950s that may have had something to do with prosperity, such as Republican control of Congress and the White House, and its darker side segregation although the treatment of Col. Allen West by the liberal establishment serves as a reminder of that last item. He does mention that the 91% number is a sham though, writing, “The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent, twice what they pay today.”

Wait, top .01%? Didn’t he mean 1% or 2%? No, but today we are talking about a minority 200x larger? And no one paid 91% even though it was on the books. Why? For the same reason we’re in a mess today: the tax code is riddled with loopholes and taxbreaks that the average 2%er isn’t privy to or can’t use.

Cats Love Villains: Paul Robin Krugman and Ernst Stavro Blofeld

Contrary to what I may think about Paul Krugman personally, I doubt he’s stupid. While I don’t know exactly how much he earns per year, I would guess it’s in the low millions, putting him the under 1% category, but nevertheless appear on the surface he’s advocating for higher taxes on himself. I’ve wondered this about the Democrat leadership: Nancy Pelosi, John Kerry, Hillary Clinton, all of them are extremely wealthy as are their top-tier supporters, billionaires like Nazi-collaborator George Judenrat Soros, Ian Fleming’s inspiration for Blofeld if Fleming lived today, Warren Buffet and Penny Pritzker. Why are the begging to be coerced to pay more money to the IRS?

It’s because they aren’t.

If Krugman, Pritzker et al truly believed the Federal Government needed their money more than they did they would have handed it over already. There is nothing preventing a them or a anyone of lesser-worth from cutting a check to the US Treasury for 91% of their income. Has Whoppi Goldberg, Opera Winfrey or other members of the Hollywood elite pledged to do this? If not why not?

Because they know that these laws will not impact them. Krugman hints at this when he mentions the “effective federal tax rate of more than 70 percent.” How does one go from a 91% on paper to actually paying 70%? Through deductions and loopholes. How does one find those deductions and loopholes? Well GE CEO and Obama supporter Jeff Immelt knows: he has thousands of tax accountants and lawyers at his disposal who are so good at their jobs they have allowed GE to avoid taxes altogether according to the New York Times. It’s also especially ironic watching a liberal arguing for a return to the “old days” while conservatives are urging tax simplification and the closure of deductions and loopholes, progressive ideas that haven’t been tried before. Up is down, left is right and apparently I am evil in our doublespeak world of Oceania. I haz a sad...

Liberals support these tax rates because they know they won’t be subject to them. They won’t be subject to them because they write the laws and will make sure they won’t. Unfortunately I know that their return to the past will mean paying more for me because I can’t afford to send money offshore or hire an accountant. The money we earn goes quickly and the little that we save usually ends up in the pockets of locals we hire to improve our home.

I have been told, “If you don’t like abortion don’t have one.”* But I can also use the same twisted logic about taxes:

If you don’t want to pay lower taxes, don’t. Don’t waste time collecting receipts to itemize your taxes. Have your employer withhold the maximum, then when tax time comes around, send in a check with an extra 25% of your income. Bask in the afterglow of helping all those less fortunate than you and paying your fair share.

If you like Big Government, stand in line for me at the DMV or for someone else applying for disability at the Social Security office. If you want higher taxes, by all means pay them. But if you don’t want me to tell you what to do with your body, don’t tell me what to do with my money.

UPDATE: Mickey Kaus notes this about Krugman’s 91% figure.

Hmm. Something seems off here. Did this super-rich hundredth-of-the-1% in the ’50s really a) pay anything near those super-high 91% marginal rates, or did they b) employ accountants and loopholes to avoid them (as the conventional tax-reformer wisdom would have it)? If you read Krugman’s paragraph you’d probably conclude (a)–high income tax rates really sock it to the rich! But the truth is closer to (b).

According to this CRS study, that 91% marginal rate produced an effective income tax rate on the top o.o1 percent of only about 45%. Krugman himself appears to be relying on Piketty and Saez–but they come in with an even lower figure, 31%. They only get to 70% by including corporate taxes, which Krugman mentions, and estate taxes–which he doesn’t mention at all.

But it’s okay. Unlike Krauthammer’s observation I don’t think Krugman is stupid. I think he’s evil.

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I’ve started saying the same thing about guns to them, “If you don’t like assault rifles, don’t buy one.” After all the Second Amendment is a right specified on parchment in the Constitution – the “right to abortion” is not, and the more assault rifles around the cheaper they’ll be for me and others like-minded to buy them. Assault rifles. Such a scary term… I own one, an MP15 in .22 caliber that would be quite useful if my house were attacked by an army of squirrels, but against even a lightly armored vehicle or assailant I’d be toast. So of course I have back up, but assault rifle… Sheesh. The only thing these rifles assault is my bank account from the cost of ammo.

18,500 workers are getting schooled on free market capitalism this morning after Hostess, maker of American icon the Twinkie, filed papers liquidating the company after weathering strikes by unions refusing pay cuts for their workers in order for the company to exit bankruptcy. Hostess had already reached an agreement with its largest union, the Teamsters, which reviewed the company’s finances and warned the smaller Bakery, Confectioners and Tobacco workers, and the Grain Millers international union that the company was in dire straits, recommending acceptance of the company plan to stave off liquidation. Unfortunately for 18,500 union and non-union Hostess employees the unions ignored company threats to liquidate, and now are facing unemployment as America awakens to life without the Twinkie for the first time in 82 years. I’m sure First Lady Michelle Obama and New York City Mayor Bloomberg will be rejoicing given their vilification of snack foods, some of which has dented the snack maker’s profitability. 18,500 unemployed workers also means 18,500 more on unemployment, waiting for positions to open up in the lucrative high-tech fields of grain milling and tobacco working. To make the time pass quickly they might want to check out the Ludwig von Mises Institute or pick up a copy of Atlas Shrugged.

By the time most of you read this the outcome of tomorrow’s election will be known. Regardless of who wins America’s health care system is still a wreck and closer than ever to the river catching fire point of no return where revolutionary change is inevitable – and even welcomed by some including me.

Recently a local non-profit hospital announced changes to its health insurance plan as it has every fall for years. With each announcement its employees inevitably pay higher premiums for a higher deductible that covers less. It’s a situation that employees in the private sector are familiar with, at least those that work for companies that are large enough to provide access* to health insurance.

To set the stage of the current benefit situation requires a quick review of recent history. Earlier in the past decade the hospital underwent expansion, adding scores of beds and a complete revamping of the ER. It also went on spending spree, buying up private practices and recruiting doctors to the area to open new ones. I’m not sure what drove this expansion. The hospital sits in one of the poorest areas of North Carolina that has for decades suffered high unemployment and increased dependence on government programs such as Medicaid at a time when payments to providers by Medicaid have been cut. Word was that there was a generation of doctors planning to retire, and that may have influenced the hospital’s plans. But the declining stock market and insurance reimbursement cuts meant that many of those physicians are still practicing today because they can’t afford to retire. In addition, the hospital competes with other rural regional hospitals less than 30 minutes away, plus the cancer, pediatrics and state-of-the-art trauma centers at Wake Forest and Baptist in Winston-Salem less than an hour away. The result of this expansion is a massive overhang of debt, a tiny patient census, plus the massive drain caused by too many providers chasing a decreasing pool of privately insured patients.

The HR department had assembled some of the hospital staff for a benefits presentation. As the changes sunk in the audience turned hostile, shouting at the presenters and demanding that the plan be rescinded. The HR representative took the podium and reportedly said, “Y’all are lucky we provide health insurance at all.”

She had a point. Starting in 2014 the hospital could opt out of providing access to health insurance and pay a penalty for each employee. I’ve looked around to determine what that penalty is (it’s $2k for small business owners for 50 employees or less but I haven’t been able to find it for companies with more than 50 employees), but if the cost of providing access is less than that penalty the hospital could save money by paying the penalty rather than offering access to insurance. Paying the penalty would not only save it the costs of subsidizing  insurance, it would also reduce administration expenses because administering the payment of a variable health insurance payment every paycheck is a lot more expensive than simply paying a flat penalty once a year to the IRS. Knowing what I know about back-office operations of large companies, the cost of administering health care is likely a significant chunk of that $2000 penalty per employee, so such a fine would have to be double or perhaps triple the small business tax for it to deter ending health coverage and dumping employees into the public pool.** If I were the CEO of the hospital it’s an option I’d consider as many CEOs of companies are doing. Expect this number to rise over the coming months before the provisions go into effect in 2014.

In an economically depressed area the hospital, being the area’s largest employer has the economic upper hand when it comes to lower-skill staff. But the same is not true of its physician assistants, primary care doctors and highly trained specialists. These people are also employees and notice when their insurance premiums go up, but have a much more mobile, in-demand skill-set than medical assistants, orderlies and the like. Working in a rural setting isn’t very popular among these groups to begin with, which is why rural doctors are supposed to earn more than their urban and suburban peers. When that premium disappears, these highly-trained professionals will disappear too, voting with their feet and moving to more lucrative positions elsewhere. Doctors are human; they get sick and need treatment, and when their co-pays on medicine rise to $50 per prescription per month, they notice it. Rural charm only goes so far and unfortunately can’t be used to pay down $300k of student loans. Doctors aren’t happy with the current system as providers, and when they aren’t happy as patients either you know the system is screwed.

But people have been predicting the doom of the American health care system for at least 20 years since the HMOs appeared on the scene and were supposed to reign in costs, and we all know how well that worked. I have opposed Obamacare since its inception, but the more I examine the legislation the more I believe that it may in the end be “good” for the American economy in the longer term by bringing about the end of the American health system as we know it and allowing us to start from scratch.

The Paranoid wing of the Obamacare Opposition believes this is what Obama intended all along, that expanding Medicaid while cutting reimbursements to doctors and at the same time driving companies out of providing access to health insurance the President would wreck the system to the point where people would be clamoring for a federal government takeover of Medicine. It’s not a bad idea if it wasn’t for the fact that a) it requires a complex game-plan built using information that could only be predicted in retrospect (had Ted Kennedy not died chances are Obamacare would have been much more socialist), and b) the government is broke bailing out Obama’s well-connected friends the rest of the Economy that the only way to do it is it to kick Zimbabwe off their printing presses and print dollars like the North Korean Army on a methamphetamine binge. Far more likely that Obama handed the task to Nancy Pelosi and Harry Reid so that he could play golf and read glowing pieces on his greatness in Rolling Stone and Vanity Fair, and that the Democrats made sausage out of their hopes and dreams distilled from liberal utopias in the states of New York, Illinois, Massachusetts and California. Since these states are all now circling the drain financially a federal government takeover of the health care system is impossible. It’s a shame because laissez-faire libertarian I may be, I have in the past argued for socialized medicine. The citizens of Japan paid for the birth of the Kid, and since they nearly shot my father dead in a foxhole in the Philippines during the War I’ll consider us even. The Dean’s World’s archives are scrambled so all traces of these arguments are wiped out, but I still believe that prior to the massive federal takeover of the economy caused by the financial meltdown in 2008-09 a sound argument could have been made for socialized medicine. Not so today, and definitely not by me.

Obamacare has forced us to the end of the American health care disaster. Employers will soon quit the insurance access business, forcing people to purchase insurance from the government. For the first time they will know how much they are being paid by their employers since their benefits package won’t contain more than a few worthless baubles and trinkets. Transparency is good. As a contract worker I know exactly what my skill-set is worth, something that a full time employee does not. I can then make decisions about my future that are grounded in reality. Obamacare will expand the rolls of Medicaid, forcing millions into a program that providers lose money on. At my dentist’s office I was paying my bill when the phone rang. The receptionist picked up the phone, listned then told the caller that the office no longer accepted Medicaid patients. There was another pause and the receptionist recommended the caller contact the county health department. The experience of the caller will not be atypical as health care providers “go John Galt” rather than lose money by treating Medicaid patients. This will increase the burden on the states who will then go cap-in-hand to the federal government which is $16 trillion in the hole. By 2014 when Obamacare goes completely into effect it will probably be closer to $24 trillion. Those printing plates at the Fed better be made of titanium because they’re going to be getting a workout. Maybe they can hire the North Koreans to help. Of course by then the Norks will have moved on to printing something of value, like yuan.

The collapse of the American health care system will be nasty, brutish and hopefully short, and we will have President Obama to thank for it. What comes afterward is anybody’s guess but whatever does it has to be better than this mess we are in. For that no matter what happens tomorrow, Obamacare opponents like me will owe President Obama a debt of gratitude as we man the barricades and hoist the flag of revolution over the land.

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*Let’s get something straight: Hardly any employers provide free health insurance these days. What they provide is access to group plans which they subsidize to a degree, something that mystifies my European readership (all 3 of them). The tie between access to health care and employment puzzles me too. Why the tie? Why aren’t we tying car insurance or life insurance to employment too?

** It just dawned on me that the cost of the penalty to avoid providing insurance will factor into the benefits offered the employee. Having worked for businesses large and small, I know a thing or two about how jobs are created. When a company decides to hire, it sets a budget for hiring that employee. That budget will include salary and the cost of all benefits. So if a firm budgets $50k for a position, the highest offer it will make to the employee will be Salary + Penalty=$50k or for a small business, $48k + $2K=$50k. So in essence the employee pays the penalty by not receiving the full $50k s/he would if Obamacare not been enacted. Existing employees may also face the prospect of not only having their insurance dropped, but having to pay the resulting penalty themselves. Irony… Mmmm…

Growing up in the Midwest during the 1970s and 1980s was like living in a musical desert. St. Louis had a pop music station, a hard rock station, a classical music station, a black music station, a country music station and a smattering of adult contemporary stations playing Air Supply and Captain and Tenille. That was about it. If your tastes varied from that menu, then you were pretty much on your own. There was a single college radio station run by Washington University, and most of its programming was devoted to classical music and jazz. But for an hour or two a week it played what was then called new wave and punk rock. The show was called Pipeline, and on that show I was exposed to a veritable smorgasbord of alternative genres, from the punk rock of the Sex Pistols to the synthpop of Depeche Mode and Duran Duran. The first time I ever heard Madonna was on that station, and Pipeline provided a taste of The Specials, Siouxie and the Banshees and the Cure that sent one scurrying to the local record stores like Vintage Vinyl, West End Wax and Euclid Records to buy what was heard or even something similar recommended by one of the knowledgeable hipsters behind the counter.

It wasn’t until I moved to San Diego that I could tune into a radio station that played music I liked, and even that came from south of the border, 91X based in Tijuana. Things actually got worse when I landed in the Philadelphia area. Philly didn’t even have a classical station, and the rock stations could often be found playing the exact same song at the same time. There was little variety in that market, so as soon as I could afford it I purchased a CD player and pretty much never looked back. Today I have switched to MP3s loaded on a USB stick, 16 GB of everything from the hard-rock of The Cult to seizure inducing Skinny Puppy mixed in with lots of electronic dance music from DJs like Christopher Lawrence, John 00 Fleming, and DJ Apsara.

Several months ago The Kid introduced me to Pandora. For those who don’t know, Pandora is internet radio that plays music based on the selection of a particular band one likes. As I understand it, Pandora then plays songs by similar bands or bands liked by listeners who share interest in the band. For example, I have a Frankie Goes to Hollywood “channel” (I’m too old to be embarrassed). It loads up and might start with the band’s greatest hit, Relax, but then might follow with a song from The Fixx or Duran Duran, bands that are also liked by 80’s nostalgia freaks like me. I have several stations for African music, ska, industrial, techno, and hard rock. Pandora is streamed to my smartphone across Verizon’s 3G network, and I connect my phone to the car stereo. It’s like having your very own radio station but one for any particular mood you find yourself in.

It is a customized radio experience, and it is one of the ways I know I’m living in the 21st century. 30 years ago I couldn’t have even conceived of such a thing, but here it is, and what’s even crazier is it’s free. It’s paid for through advertisements targeted at the demographic of people who like a particular artist, so I end up getting a lot of Home Depot and Over 50 Singles ads directed at me.

Congress of course is still stuck in the 20th century, and tries to regulate internet radio in ways favorable to Clear Channel, the dominant force in dinosaur radio. But once you hear new music that appeals to you on your very own radio station, why would you go back to listening to dinosaur radio where you only hear what the record labels pay to be played? It doesn’t matter what your tastes in music are, or even your taste in music at this moment, Pandora and it’s competitor Spotify, will provide you with music. Welcome to the future.

I am not against teachers per se. My favorite sibling is one, a public teacher no less. She’s also a raging Democrat but still is my favorite sibling no matter who she votes no matter how misguided she may be. At least she voted for Reagan in the 1980s unlike yours truly.

Still, as the parent of a kid in public schools teachers are more often than not a stumbling block to the Kid’s education. I have had several run-ins with teachers, not because I’m an asshole (I’ll admit that I often come across as one) but because I’m seeking answers to basic questions like, “What are you teaching my son?” “Why are you teaching him using a particular method?” “Why are you punishing him for using a different process than the one you teach that arrives at the same answer?” After a decade of this I’m coming to believe that I made a terrible error trusting public schools with the education of my child. Maybe I am against teachers after all.

So I guess it’s no surprise that I think the demands of Chicago teachers currently on strike are outrageous. They are either the number 1 or number 2 highest paid in the nation (extra credit: are they the number 1 or number 2 most effective when it comes to SAT scores, graduation rates or student-teacher ratios? Answer: Not even close.) depending on whether you believe the Mayor’s office or the Union. Either way $70k for 3 seasons worth of work plus benefits seems like a racket to me, especially when there is no shortage of teachers around.

The teachers are demanding 16% more. 16% is a shade above a decent tip one leaves at a sit-down restaurant. But have the teachers earned their tip? Have they provided good service? Mayor Rahm doesn’t think so. Of course, since Mayor Rahm doesn’t send his kids to public school, he may not know for sure. But he is the one picking up the check.

I guess I’d care less if my children attended an expensive and elite private school in Chicago like Mayor Rahm’s do, or one in Washington DC like President Obama’s children do. I’ll admit I’m jealous: I wanted to send my kid to a school like University of Chicago Lab Schools or Sidwell Friends but couldn’t afford to. One of the reasons I couldn’t afford to was the fact that my tax burden is running at 27%. In fact I would have had no problem paying $26.5k tuition at University of Chicago Lab Schools had my taxes been lowered. With serious reform I might even be able to buy my own Chicago public school teacher, at least until their next contract negotiation.

My feeling is that if Chicago teachers want a tip they should get a job waiting tables. Otherwise they should be happy with guaranteed jobs that pay them the equivalent of $100k year plus benefits, a salary that few make in the private sector.