April 22, 2019

Here Comes Another Recession Wrongly Blamed on Capitalism

recession-comingThe stock markets sold off on Friday, and financial media headlines were dominated by an inverted yield curve, a key recession indicator for the past several decades. Was the selloff just a pullback as equity prices consolidate before heading for new highs? Or is this the top of a dead cat bounce after the December market meltdown?

Economic indicators are somewhat mixed. Unemployment remains low at 3.8 percent, although it is always important to consider what kinds of jobs people are doing, what they are producing, and why. Unemployment is always low just before a bubble pops, as monetary inflation leads to unsustainable expansion.

Meanwhile, February saw a nearly subterranean jobs report, and December’s much-ballyhooed number was revised downward from 312,000 jobs to just 227,000. Holiday retail sales, reported as “heating up” during December, ended up declining by 1.2 percent, the biggest drop since 2009.

That a recession is coming is a certainty. The question is when. And whether it hits in 2019 or 2020, you can bet it will take center stage in the political arena, with Democratic presidential hopefuls climbing over each other to blame President Trump and the Republicans. The GOP will find it hard to fight back after taking full ownership of the tail end of this ten-year, inflation-fueled bubble.

As ridiculous as we free-market types always find it, a recession during a Republican presidential administration is always characterized by our opponents as an indictment of capitalism, even though the business cycle is driven much more by monetary policy than anything presidents of either party do. And the Federal Reserve is not a capitalist institution. It’s an economic central planner Karl Marx considered a vital part of moving society towards communism.

Read the rest at Foundation for Economic Freedom…

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

Amazon’s NYC Pullout Shows Economy Is Rigged, Just Not the Way Most People Think

cuomoandbezos4Amazon announced Thursday it will not build a new headquarters in New York City, citing the backlash from union leaders and some lawmakers over the nearly $3 billion in government incentives included in a deal to bring the company to NYC. Those leaders treat Amazon’s decision as a victory. For Governor Andrew Cuomo and NYC Mayor Bill De Blasio, it’s a defeat, as they led the effort to lure the company to New York.

No matter how it’s spun, the facts don’t change. This decision represents billions in lost tax revenues for the city and state, over and above the $3 billion in incentives. Amazon won’t be employing an estimated 25,000 additional New Yorkers. And many millions more in business with local vendors will not occur.

To opponents of the deal, a principle has been defended: Giant corporations like Amazon shouldn’t be offered tax “subsidies” to come in and “exploit” local workers and the community. But this theory raises several questions.

Read the rest at Foundation for Economic Education…

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

I, Interest Rate

interestIt is often said, “Don’t kill the messenger,” but that is precisely what everyone seems to want to do in my case. I’m not sure why because the news I bring is neither good nor bad. It is simply the truth; and it is a very sad day when telling the truth can foster such ill will. There are some who go so far as to declare my very existence wicked simply for providing information people use to engage in a specific type of voluntary exchange that, although of immense benefit to society, has somehow acquired an unsavory reputation.

As you may have surmised, I am the rate of interest, the price difference between present goods and future goods. Now, many economists mistakenly identify me merely as the price of borrowing money over time, but that is only one of the many messages I carry. I also represent the price spread in the various stages of production, where capitalists purchase present goods in the form of factors of production in the hopes of selling what is produced by those factors for a higher price than what they spent. I am also this difference in price.

Nobody but me can gather the information I gather, for my message is determined by billions of individual transactions occurring simultaneously all over the economy. I consider the individual supply and demand schedules of hundreds of millions, sometimes billions of individual consumers and producers, along with the uncertainty involved in every time transaction, to determine the current price levels for transactions that involve time at any given moment.

In the case of individual borrowers, the uncertainty I mentioned includes that borrower’s previous behavior, which is generally called a “credit rating.”

While it is only one of the many prices I make available to the market, an inordinate amount of attention is paid to the price of borrowing money. That is likely for two reasons. One, as I said, is that most people erroneously believe it is the only information I impart. Two, people seem to be borrowing a lot more than they did previously in history for reasons I will explain shortly. As a result, it is regarding the price of borrowing money where I am most slandered and abused.

Because this price of borrowing is above zero, there are some who consider my existence alone as evil. They say I’m a party to a crime they call “usury,” which is a very strange concept. When everyone is acting honestly, money is a scarce commodity, so any loan by Person A to Person B requires a sacrifice on the part of A. Person A must forego consumption in the present in order to lend to B.

It is no different than if A were saving for a new car or some other expensive item for himself. He must forego eating out as much, or buying new clothes, or going on vacation this year in order to put aside money to buy the expensive item next year.

By loaning money to B, A is allowing B to skip this sacrifice and purchase the expensive item now. It seems a very peculiar notion that A should forego spending his own money on himself only to let B use it for free when needed. How did this obligation to serve B free of charge come about? Aren’t all men created equal?

Read the rest at Foundation for Economic Education…

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

Should Social Security Be Means Tested?

383px-Ponzi1920Ken Langone told CNBC on Wednesday Congress “has to have the courage” to make Social Security means tested, arguing a billionaire like him shouldn’t be getting $4,000 a month (he and his wife) from the government when entitlements are 71% of spending.

In a way, means testing would be a good thing, as it would finally cure the delusion that Social Security is anything other than a welfare program, although I’m not sure the public wouldn’t make peace with that rather quickly, rather than consider turning off the spigot.

What it wouldn’t do, unless the benefit cutoff threshold were very low, is make a difference in the program’s basic insolvency. The problem with Social Security isn’t just that it’s welfare, but that it’s welfare for everyone – “Everybody plunders everybody,” as Frederic Bastiat would say. There are currently 62 million currently receiving checks. For 60% of them, Social Security makes up half or more of all their income. Millions more have come to depend upon the benefits, even if they make up a smaller percentage.

It might make people feel good to know millionaires and billionaires will no longer receive Social Security checks, but it won’t make much of a fiscal difference. There aren’t enough of them to significantly lower the payouts. To affect Social Security’s bottom line, people who would miss the money are going to have to take a hit.

There are only two ways out: default or bankruptcy. Either way, it’s going to be ugly. Social Security really is an evil mess that can’t but end badly. Ditto for Medicare, times ten.

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

But without government, who will plow the snow?

web-GMCSierraSnowPlow03Many of my southern friends who have never lived in the north may not know how snow removal works up here. What if you’re elderly or disabled and can’t shovel/snowblow your driveway? Or what if you just don’t want to?

As usual, capitalism saves the day. There is a vibrant market of snow plow contractors who will guarantee your driveway is always plowed for an extremely reasonable rate – usually $300-$350 for the entire winter for the average suburban driveway. If it snows too many times, they lose money. If their projections are accurate, they make a profit.

They take 100% of the risk to do something most people don’t want to do, in the hope of making some extra money during winter slow periods for their regular businesses (many own lawn service/landscaping businesses).

Purchasing their service is 100% voluntary. No one but you votes on how much they are paid or whether you buy their services at all.

To every guy or gal out in a truck right now, likely up and working long before dawn, THANK YOU FOR YOUR SERVICE AND MAY YOUR MARGINS BE HIGH!

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

The Best Argument Against Minimum Wage Laws: You Don’t Own Other People

min wage article picWith Democrats about to take control of the House, it is likely we will see an increase in the federal minimum wage pass the lower chamber, even if it has no chance of becoming a law. We will just as surely hear opponents making completely sound economic arguments against minimum wage laws.

Minimum wage laws cause unemployment, these opponents say, because they price those workers whose skills don’t justify the minimum wage out of the market completely. If a worker only has the skills to produce $14/hour worth of benefits to an employer, the employer is better off not employing that person rather than losing $1 dollar/hour doing so, if the minimum wage is $15/hour. And regardless of where the minimum wage is presently, any increase in the price of labor will result in less demand for labor, all other things being equal.

That’s basic economic reasoning and wasn’t even controversial until recently when, for political reasons, economists like Paul Krugman began contradicting their own earlier writing on the same subject. But as economically sound as the unemployment argument against minimum wages may be, it ignores a previous and much more important one: you don’t own other people.

Read the rest at Foundation for Economic Education…

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

Tucker Carlson Feeling the Bern Illustrates Conservatism’s Hostility to Free Markets

screenshot-2018-08-31-at-92959-amTucker Carlson is feeling the Bern on at least one well-established left-wing narrative: that corporations are robbing everyday Americans by paying their workers so little that many of them qualify for food stamps or other welfare benefits. Thus, the founders of Amazon, Uber, Walmart, and other corporate behemoths get richer while taxpayers are forced to pay part of their labor costs.

Carlson appears honestly surprised to be saying “Bernie is right,” referring to U.S. Senator Bernie Sanders, who plans to introduce legislation forcing corporations to “pay back” the government by taxing corporations at 100 percent of all food stamps, public housing, Medicaid, and other federal assistance paid to their employees.

He shouldn’t be.

Conservatism shares the same hostility to laissez-faire markets as modern liberalism. Both are ultimately collectivist philosophies, hostile to liberty in general, albeit for slightly different reasons, and prone to economic fallacy to rationalize that hostility.

First, to the economic errors. It’s hard to believe Carlson could get so many things wrong in under five minutes, starting with his general premise. He and Bernie argue the problem is the corporations not paying enough, resulting in taxpayers having to pick up the slack. But business enterprises in a free market are supposed to seek the lowest prices they can find for labor and other inputs. That’s how market economies drive down the costs of consumer goods and make all members of society richer.

The problem isn’t businesses acting in their economic self-interest; it’s the existence of the welfare programs themselves. They are an intervention in the market that distorts the price of labor. If they did not exist, the market would naturally set labor prices higher because employees wouldn’t accept jobs that didn’t pay them enough to cover the necessities currently subsidized by the programs.

Read the rest at Foundation for Economic Education…

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

Society is in every state a blessing, but government…

DENVER, CO - JUNE 16: The TSA security lines in the main terminal are crowded with vacation travelers on June 16, 2013, in Denver, Colorado. Located 25 miles from downtown, Denver International Airport is the largest airport in the United States. (Photo by George Rose/Getty Images)

DENVER, CO – JUNE 16: The TSA security lines in the main terminal are crowded with vacation travelers on June 16, 2013, in Denver, Colorado. Located 25 miles from downtown, Denver International Airport is the largest airport in the United States. (Photo by George Rose/Getty Images)

This thing we call “society,” which Thomas Paine correctly observed is separate and distinct from government, is basically an economic arrangement. The basis of and primary reason for society is people exchanging their various goods and services with each other.

I wonder how many hundreds or thousands of years more it will take for people to realize what should be blatantly obvious: that every set of exchanges in which government is heavily involved, by either subsidizing, regulating (aka “protecting established firms from new competition”), or downright monopolizing it, is painful. All these sectors (education, health care, air travel, etc) share the same characteristics: poor service, no accountability, high prices, incredibly outdated, bureaucratic procedures (paper forms, long lines, etc), and lack of choices or options, just to name a few.

Conversely, every industry in which government has low or zero involvement has precisely the opposite characteristics: constantly lower prices, better and always improving service, absolute accountability (you go to a competitor if you’re not happy), cutting edge technology (phone apps, automated texts, etc) and constantly improving ease of use and convenience.

Anyone not completely blinded by their emotions (mostly envy) can see glaringly obvious cause/effect relationships that lead inevitably to one conclusion:

All advancement in human happiness results from markets and other voluntary cooperation and virtually all human misery is rooted in government.

One would think a light bulb would go on sooner or later for most people and government would be banished from most or all human interaction.

Instead, it’s “Thank you sir, may I have another!” ad infinitum.

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

 

The Jobs and GDP Growth Aren’t There Because Taxes Weren’t Really Cut

s and p one year triangleU.S. stock markets remain volatile and their direction uncertain, although the S&P 500 may have broken out of what technical traders would call a “bullish triangle,” which began forming after the market fell approximately 12 percent in early February from a high of 2,872 the previous month. However, traders will also tell you every technical pattern can tell at least two stories. One must look to the fundamentals for confirmation, and they have been anything but unanimous on the underlying economy.

Stagnant Growth

Corporate earnings have been strong, but that may not be a real indicator of economic growth as much of the earnings per share increases are due to stock buybacks rather than organically increasing profits. And jobs numbers continue to disappoint. Not only did April’s number come in lower than expectations, January’s number was adjusted down by a whopping 63,000 jobs.

Job growth for the first four months of 2018 is still ahead of 2017, but by a lot less than previously thought and we don’t know if March and April numbers will be adjusted downward. Consumer spending remains weak, and surging energy prices, especially gasoline, may continue to eat up what would otherwise be discretionary spending dollars for average households. While unemployment is at or near record lows, so is workforce participation, a statistic conservatives seem to have completely forgotten about since President Trump was inaugurated.

GDP growth slightly beat expectations at 2.3 percent but is far below the 5.4 percent predicted by the Atlanta Federal Reserve just two months ago. Despite missing the real number by a country mile, the same institution isnow predicting 4.0 percent growth for Q2. Why should anyone expect this “irrational exuberance” to be any more accurate than last quarter’s?

Tax Cuts?

The trump card (pun intended) is supposed to be tax cuts. Although they obviously haven’t delivered the jobs or growth promised to date, sooner or later the supposedly smaller slice the government is taking must result in more domestic investment, jobs, production, and growth.

The problem is taxes haven’t really been cut. They’ve simply been deferred. The federal government is going to spend more this year, and every year for the foreseeable future, than in any year in U.S. history. That spending is ultimately going to be paid with taxes, either now or in the future.

Read the rest at Foundation for Economic Education…

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

Why the Bull Market May Be a Jedi Mind Trick

Publication1The Bureau of Labor Statistics reported Friday that over 300,000 jobs were created in February, making it the best single-month total since July 2016. And unless you’ve been exploring the Arctic Circle or were kicked off Twitter for expressing politically incorrect views, you know that’s just the latest “great” news about the booming economy, bull market in stocks, and, best of all, the significant new job creation since Donald Trump became president.

Certainly, there is no denying that the stock market has continued to rise, with the S&P 500 up over 27 percent since 11/7/2016, as of this writing. But as for the overall economy and, specifically, job creation, even the Trump-hating liberal media seems to have fallen for an economic Jedi mind trick. Regardless of single-month spikes like the one that occurred last month, it only takes one click of the mouse to see that job creation continued to fallin 2017, as it had the previous two years. Looking at yearly totals over the past ten years, job creation looks a lot more like a protracted version of the last business cycle leading up to the 2008 crash.

Read the rest at Foundation for Economic Education…

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.