Labor Day – Remembering Forgotten Heroes

Ruminations about Labor, Unions, Capitalists and Entrepreneurs

By: George Noga – September 5, 2011

         It is not far fetched to assert entrepreneurs are responsible for the rise of humanity from isolated hunter-gatherers up to and including modern man. There is one dark side to this: seeing the prosperity created by early traders and entrepreneurs, politicians created taxation. The pattern was thus established: entrepreneurs create wealth; governments destroys it. 

“Entrepreneurs create wealth; governments destroy it.”

      Entrepreneurs, creators and innovators have spawned enormous wealth, reduced poverty and increased life expectancy more in the past 100 years than in the preceding 100,000 years. Are they forgotten heroes of the world? Who did the most to benefit the common man – Henry Ford, Thomas Edison, and Steve Jobs or John Kennedy, George W. Bush and Barack Obama?

      I once took a graduate course in the history of economic analysis based on the teaching of Joseph Schumpeter who wrote about entrepreneurs: “First, there is the dream and the will to found a private kingdom . . . then there is the will to conquer; the impulse to fight; to prove oneself superior to others; to succeed for the sake, not of the fruits of success but, of the success itself. . . Finally there is the joy of creating, of getting things done, or simply of exercising one’s energy and ingenuity.”

The Legacy of the Peddler

        America owes much to peddlers; in many ways they built America. A budding peddler (entrepreneur) began by taking all the modest money he had and buying all he could fit into his backpack. He ventured into the hinterlands, sold everything and then did it all over again. He lived frugally and saved for bigger backpacks and more merchandise. When he could afford a horse and wagon, he ventured deeper into sparsely settled areas with more goods. Eventually he found a place that could support a resident peddler; he built a shack, filled it with things people wanted and lived simply in the back. Later he took a wife and started a family; they helped in the business and shared his hardscrabble life.

“Luxuries a short time ago are selling at Wal-Mart and Costco for ridiculously low prices. Government created none of this.”

        As the town grew around him, he expanded his store and eventually moved into a separate house. Most department stores and industries in America began that way. The peddler was the backbone of the American economy and society. A peddler had to have initiative, self-reliance and, above all, integrity. He paid his debts and taxes, attended church, contributed to charity and participated in civic affairs. There were no written contracts; his word was his bond. His life was orderly and scandal free. He had the dream and the will as described by Schumpeter. Are peddlers forgotten heroes?

Heroes of the World

        Do you doubt entrepreneurs are the heroes of the world? Look around you; ponder with amazement the monuments they have bestowed on the world. Gape in awe at the medical breakthroughs, technology and the cornucopia of everyday marvels. Average folks live better today than monarchs mere decades ago. World poverty has been halved in the past generation. Luxuries a short time ago are now selling  at Wal-Mart or Costco for ridiculously low prices. None of this was created by government. Is government heroic?

        Not uncoincidentally, entrepreneurs are the antithesis of socialistic and collectivistic schemes; without them we would be just like the former Soviet Union, Cuba and all the other places that elevate the state over people. Indeed, the greatest measure of the progress of a civilization is the rate at which it creates new millionaires. Creation of new wealth means society is innovating, spawning jobs, efficiently allocating its resources and serving its people’s needs.

       Are entrepreneurs truly the heroes of the world? You make the call.

Labor Unions Today – Are They Heroic?

      Labor Day was established to honor all labor not just organized labor. As conceived by President Cleveland and Congress, Labor Day was intended to serve as a reminder that work was an ennobling experience. It was placed at the end of summer to symbolize the end of seasonal indulgence and a return to work. Labor unions however have long sought to co-opt the Labor Day holiday for the minuscule segment of private industry that is unionized.

“Only in the fetid parallel universe of government is unionization growing; it extracts uncompensated value through politics that it cannot obtain on the merits.”

        Today less than 7% of private-sector workers are unionized and that percentage continues to plummet. Unionization of private workers is in free-fall for one, and only one, reason: workers independently conclude that the costs of belonging to a union are not worth the putative benefits. Only in the fetid parallel universe of government is unionization growing; it extracts politically what it cannot win on the merits.

        In economic terms unions are “rent seekers”, i.e. they accrue economic benefits via manipulation and/or exploiting the political environment rather than through the production of added value. In short, they extort uncompensated value from others – you and me; is this heroic?

Labor Day should Honor Entrepreneurs and Capitalists along with Labor

    Labor Day should honor all work as a noble experience. Let’s expand it to honor entrepreneurs and capitalists. America is the planet’s quintessential capitalist country. Let’s therefore honor capitalists who make labor more productive via investment in plant, equipment, tools and – well, capital. Finally, let’s honor entrepreneurs, those with a dream and a will to create; they are the sine qua non that leverage labor and capital, create synergies and thereby produce unbounded prosperity for all.

   The veritable horn-of-plenty that is America results from entrepreneurs, capital and the virtue of work. Let’s honor them all!

All-Time Media Hall of Shame

Nonexistent Guns, Nonexistent Defeat and Nonexistent Scandal

By: George Noga – June 1, 2011
      Media Watch is one of our regular features. Only this time I explain why and how media bias occurs. This is followed by the three most egregious examples of media bias that MLLG has reported since we began in 2007. As a bonus, I throw in a current example of extreme media bias dealing with gas prices.
     If you are like most, you assume when news happens, the editor or producer impartially assigns the story to a reporter who (hopefully) has some knowledge of the subject matter. The reporter objectively covers the story and reports the facts. The editor, also objectively, questions the reporter, fact checks and edits. The end result, even if flawed, represents a good faith attempt to report the news.
“Media organizations have, inter alia, black, Latino, gay and women’s caucuses that solely determine how any issue affecting their caucus is reported.”
      That’s not how it happens. Every substantial media organization has internal groups they call caucuses, i.e. employees who band together to determine how anything affecting their caucus is reported. Caucuses always exist for blacks, Latinos, gays and women; there may be others. Most other issues such as those involving the military, environment, guns, poverty, corporations and religion don’t require caucuses as all reporters  have been in lockstep about them since at least journalism school. Should they forget the correct slant, that’s where editors come in.
      Let’s follow a typical news story involving say abortion. The editor/producer will try to assign the story to a reporter from the women’s caucus. The reporter will write the story using only criteria and terminology approved by her caucus. If perchance the story was assigned to a reporter not part of the women’s caucus, that reporter would not submit the story to the editor without first running it by the women’s caucus. If the story was significant and involved something not previously discussed by the caucus, the reporter and/or editor would not print it without first checking with the members of the affected caucus. Nothing ever gets printed that disrespects a caucus. Now that you understand the process, let’s go to the media hall of shame.
Appalachian State: Nonexistent Guns
      In 2002 an Appalachian State student went on  a shooting spree killing 3 and wounding several; 208 newspapers reported the story, of which 204 reported the killer was stopped, pounced on, tackled or overpowered by other students. All the networks reported the story this way. When I read the story I wondered how students pounce on or tackle a gunmen. There’s one major problem: the students didn’t tackle or pounce on the armed killer. Two of the three students went to their cars and retrieved legal handguns which they used to subdue the killer.
     The role guns played in stopping the killer was well known. Over 100 reporters interviewed the students and nearly every reporter knew the positive role handguns played in stopping the bloodshed. Yet, less than 2% of the newspapers mentioned the students’ handguns. This kind of reporting is de rigeur in Cuba, Zimbabwe, Iran and North Korea. American media will not report stories with a positive role for guns although they happen 2,500,000 times a year in the US.
Walter Cronkite and Tet: Nonexistent American Defeat
     Walter Cronkite was just another anile talking head until he endeared himself to progressives by his misreporting of the Tet Offensive – declaring Tet a great American defeat and the war irretrievably lost. That’s NOT the way it was. Tet was a desperation gamble by the enemy who suffered staggering losses – 60,000 of their best men. Both then and now the political and military leaders of North Vietnam declared Tet to be a total defeat and disaster for them. Tet was a massive American victory.
“If you don’t read the newspaper, you are uninformed; if you do read it, you are misinformed.” «TWAIN» 
     Tet was the biggest story of Cronkite’s career and he got it dead wrong. The media’s distrust of America  transmogrified Cronkite into a media hero – make that saint. Cronkite achieved legendary status due to an act of gross journalistic malpractice. The crowning achievement of the media darling of my lifetime was not only wrong, it caused America great harm.
Pedophile Priests: Nonexistent Scandal 
     There never was a pedophile priest scandal; less than 3% of incidents were pedophilia. What really happened was a homosexual priest scandal. Pedophilia is rare; it involves children before puberty whose age usually is a single digit; moreover, pedophilia is mostly heterosexual. Of all the misreporting and bias in the past few decades, this story tops the charts.
     As media began to report about the emerging scandal, the gay caucuses were mortified. Gay organizations are so sacrosanct, powerful and intimidating, no one opposes them. So the media protected the priests (and by extension gays) by concocting pedophilia, which is a bogeyman everyone opposes. The church gleefully went along because it knew pedophilia was a strawman and it couldn’t dare confront the church’s culture of homosexuality.
     The lengths the media went to protect gays is legion. In the 8-page U.S. News & World Report story, homosexual was mentioned once. Instead, the magazine used sex-abuse scandal, predatory sexual behavior, youth-sex scandaland sexual misconduct; they tried to blame celibacy. All of this was misdirection. Over 95% of incidents involved boys; this rules out priests not being able to marry and celibacy as causes. But the problem runs even deeper. Gay men are attracted to the priesthood because it provides an unending supply of young, impressionable and vulnerable boys. Despite the horrific scandal, nothing much has changed; the band plays on.
Media Watch 2011 – Obama and High Gas Prices 
     It is instructive to contrast media reporting of gas prices during the Bush and Obama presidencies. Bush was hounded by the media for 8 years. At press conferences he was asked the following: “What do you say to people who are losing patience with gas prices at $3 a  gallon? “How much of a political price are you paying for $3 gas?” “A majority of Americans disapprove of your handling of gas prices.”  He and Cheney were lambasted for their former connections to the oil industry. At the end of Bush’s presidency gas prices (inflation-adjusted) were 9% lower than when he took office.
     Since Obama took office gas prices have skyrocketed. Where are the media watchdogs? Virtually no questions have been asked Obama about: (1) the high price of gas and home heating; (2) Obama’s bungled response to the BP oil spill; (3) the moratorium on domestic oil exploration; (4) the lack of drilling permits in the gulf; and (5) the loss of tens of thousands of jobs in the energy sector. The statist media is dead; it finally expired in 2008 after being comatose for many years. There are only a few places for truth these days, mainly talk radio, Fox News, Drudge and the Internet.

Inflation and Taxes – A Primer

 Inflation and Taxes – A Primer
By: George Noga – September 20, 2010

         So – you think you understand inflation and taxes? Well, you are about to read analysis you haven’t seen anywhere else. There are counter-intuitive aspects to this twin-headed monster, both heads of which are brought to us exclusively by government. This exposé about taxes and inflation is part of our focus on the crisis of spending, debt and deficits. One possible outcome of the crisis is the government will monetize the debt by printing money and presto – we have high inflation. The last inflationary spiral under President Carter peaked at 15%. It likely will be worse next time.

“Inflation is an immediate and real cost; it affects not just your expenses but also your capital.” 
          Because we mistakenly believe we are familiar with inflation, it sometimes is necessary to look at it from an entirely different perspective to gain the needed insight. We will consider two examples. The first illustrates the impact of 7% inflation on a just-retired couple age 65 with $1 million of investable assets. Our retirees have no debts and own their home with no mortgage. They take 5% (actually far too much) from their investment portfolio and receive $24,000 social security; hence, their income is $74,000. Their living expenses are a modest $4,000 per month. They have it made; don’t they?
          From their $74,000 income we subtract living expenses of $48,000. Of course, they pay income taxes which at today’s rates would be $12,000; this makes their total cash outflow $60,000. Thus, they have a cash surplus of $14,000 after their first year of retirement. They can look forward to a carefree life of leisure; right? There is one niggling oversight, i.e. they failed to account for inflation. Unfortunately inflation is an immediate and real cost; furthermore, it batters and bloodies not just expenses but also capital.
Everyone understands that with 7% inflation something that formerly cost $100 now costs $107. What precious few people grasp is that inflation also savages capital. Hence 7% of the $1 million portfolio must be viewed as the cost of inflation during the first year of retirement. This $70,000 must be deducted from our retirees’ income and added to their capital; otherwise, they are devouring their principal and their capital loses purchasing power and rapidly is dissipated.

“After properly accounting for inflation, our retirees’ $14,000 surplus transmogrifies into a first year deficit of $56,000.”

          After properly accounting for inflation, our retirees’ putative $14,000 cash surplus transmogrifies into a first year deficit of $56,000. Our retirees’ story does not have a fairytale ending. Their principal increases for the first several years; but as inflation compounds (it is an exponential function) their capital inexorably begins to plummet and all too soon their once seemingly formidable capital base is totally gone – poof!

The Grotesque Mathematics of Retirement, Taxes and Inflation

          We now move on to an example of Mr. and Mrs. Ritz, fairly wealthy new retirees with a stash of $3 million in investments. The Ritzes have no debts and no home mortgage; they spend $10,000 per month for living along with income taxes of $30,000 in the first year of retirement. With the same 7% inflation, investments valued at $3 million must double to $6 million in 10 years just to maintain purchasing power parity. At 7% inflation for ten years, the value of the dollar is cut in half. This is akin to a tax on capital of $3 million.
           But whoa! The Ritzes haven’t yet factored income taxes into the equation. They would have to increase their assets not just to $6 million but to $8 million to allow for the ≈$2 million of taxes on the phantom, tax and inflation-induced investment gain of $5 million – from $3 million to $8 million. In the Ritzes’ first decade of retirement, $3 million of capital would have to grow to $8 million pretax – or by a compound rate of 17% – just for them to remain even with the ravenous tax and inflation monster. Even if the Ritzes made the $5 million ($500,000 per year), they would have gained nothing; this is the utter horror of taxes and inflation.

“Even if the Ritzes made $5 million in 10 years, they would have gained nothing; this is the utter horror of taxes and inflation.”

          Believe it or not, it gets even worse. The preceding data assume the Ritzes do not take any money out of their investments to pay for living expenses. If they take 5% a year out for expenses, they now need to earn about 21% – 22% per year just to break even – just to tread water. This is an impossibility; even Warren Buffet has averaged only between 15% and 18%.
          The preceding discussion focused only on the Ritzes’ first decade of retirement; imagine what fate would befall them in twenty or thirty years. They undoubtedly worked hard, saved money, lived within their means and had every expectation of a lengthy, happy and worry free retirement. Instead, they were brought to perdition by their own government via the train wreck of high taxes combined with the stealth tax of inflation.

Four Horsemen of the Apocalypse

            Prominent liberals and big government apologists writing in the blogosphere have opined with approbation that a decade of high inflation could be an acceptable solution to the debt crisis. One wonders if they comprehend the mortal damage to the fabric of our republic that 10 years of double digit inflation would wreak. If they, like you now should, comprehended the horrors of inflation, they wouldn’t write approvingly.
            As noted in The Crisis of Spending, Debt and Deficits (available on our website), inflation is but one of four major possibilities after the crisis reaches critical mass. I am reminded of the four horsemen of the apocalypse from the Book of Revelation. The four horsemen appear when the lamb (Jesus) opens the first of four seals of a scroll of seven seals. As each of the first four seals is opened, a different colored horse and its rider is seen by the apostle John.

“The four horsemen of the apocalypse today could auger inflation, deflation, repudiation and economic collapse.”

            When the first seal is opened a white horse appears; its rider is holding a bow symbolizing conquest. As the second seal is opened a red horse appears; its rider holds a sword for war. The third horse is black with its rider holding scales revealing famine. The fourth seal is opened and a pale horse appears; its rider is called death. Today, instead of conquest, war, famine and death, we may substitute inflation, deflation, repudiation and economic collapse.