MLLG

Socialism and Bottled Water

Socialism and Bottled Water

A simple bottle of water explains socialism’s failure

GEORGE NOGA

Water began to be sold in single serve bottles in the USA during the 1970s. There always had been a small market for sparkling water and for bottled water in parts of the world where tap water was unsafe or of poor quality. But who would have fathomed that Americans would shell out good money for bottled water when safe, good quality water runs scot-free out of faucets, fountains and coolers?

bottled water

I am educated in economics and would like to believe I would make the best possible decisions to serve my fellow man. However, if I were a 1970s era socialist government planner, I would not have allowed our economy’s scarce resources to be used to produce and to distribute bottled water. After all, no one would buy it; right?

I would have been dead wrong; consumption now is 1 million bottles per minute.

Today, bottled water is the second largest beverage sold – ahead of both milk and beer. In 2022 Americans spent over $30 billion to buy 16 billion gallons. That pales in comparison to China which consumes nearly 100 billion bottles annually. The world market is over $300 billion and is forecast to hit $500 billion by 2030. Every day, people across the globe consume 1.3 billion plastic bottles, or about 1 million per minute. A Harris poll showed that 94% of Americans buy bottled water. Worldwide, 600 million households (about 2 billion people) drink bottled water. Whew!

All of my economic training, smarts, logic and pristine intentions would have failed dismally in discerning the preferences of my fellow man. I would have completely misjudged the creativity and ambition of entrepreneurs and the behavior of consumers armed with a free choice. Had I been the chief central planner for a socialist government in the 1970s, there would be no bottled water today.

One million bottles of water are consumed every minute!

However, as dead wrong I would have been about bottled water, no one would ever have known of my mistake because it would have been impossible to know what would have happened with free people in free markets.

Of course, it isn’t just about bottled water. There would be no copy machines, personal computers, smart phones, internet or a host of other products we take for granted today. IBM originally estimated the world market for copy machines at 5,000 and for personal computers at 100. The cognoscenti of the time believed the internet would be used only by government and universities.

No socialist government would have produced copy machines or personal computers or facilitated the internet. If perchance they had produced copiers or PCs they would have been shoddy – just like their cars (the Trabant comes to mind) that had less horsepower than today’s riding lawn mowers.

The humble bottle of water, available in any store for around one dollar, shatters the myth, arrogance and fatal conceit underlying socialism and all command economies.

© 2023 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

MLLG

Adam Smith Tricentennial

Why there is no capitalist manifesto
GEORGE NOGA – JUN 25, 2023

This month is the 300th anniversary of Adam Smith, born June 1723 in Kirkaldy, Scotland. Adam Smith was not the father of capitalism, as he often is called, but the first to articulate its principles. He is known for his invisible hand metaphor explaining how self-interested individuals operate in a system of mutual interdependence and direct economic life more effectively and fairly than government intervention.

a statue of a man standing in front of a building

Adam Smith did not invent capitalism because it evolved organically. No intellectual ever wrote a capitalist manifesto. Capitalism doesn’t require pointy-headed professors to theorize; it just happens naturally. To the eternal pique of liberal elites, no one is capable of controlling capitalism, whereas socialism requires controllers, i.e. the same progressive savants who castigate capitalism. Capitalism is egalitarian and rewards those who best serve sovereign consumers; i.e. their fellow man.

Capitalism evolved in prehistoric times

Capitalism evolved organically. For example, Paleolithic fishermen worked incessantly, spearing just enough fish to survive. Then along came one nascent capitalist who thought of a net. Since neither he nor anyone else had any capital he could borrow, he worked longer hours for months to accumulate enough surplus fish (his capital) to give him time to make a net. With his net he generated a fish surplus to trade for other goods. He also financed others who, in turn, specialized in different skills, with the resultant benefits from the division of labor. Our first capitalist became wealthy, but his capital also made everyone else much better off.

“It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interests.”

In sharp contrast, socialism never has happened organically. All the failed attempts throughout history to achieve Utopia, Xanadu, Zion and Valhalla were spearheaded and financed by some ivory-tower dreamer. That explains, as well as anything, why capitalism always succeeds and why all forms of collectivism always fail.

More Wisdom from Adam Smith

Adam Smith wrote many other pithy statements about economics and capitalism, which continue to have relevance for those of us in the twenty-first century. His point in Wealth of Nations about comparative advantages of trade still resonates.

“By means of glasses and hotbeds, very good grapes can be grown in Scotland and very good wine too can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries.”

Smith’s statements about the role of government also are valid 300 years on.

“Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes and a tolerable administration of justice: all the rest being brought about by the natural course of things.”

“To hurt in any degree the interest of any one order of citizens, for no other purpose but to promote that of some other is evidently contrary to that justice and equality the (government) owes to all the different orders of citizens.”

“The statesman who attempts to direct private people in what manner they ought to employ their capital would not only load himself with unnecessary attention, but assume an authority which could be entrusted to no council, and which would nowhere be so dangerous as in the hands of a man who had the folly to fancy himself fit to exercise it.”

Perhaps my favorite Adam Smith quote applies (in spades) to today’s virtue-signaling progressives, private-jetting climate alarmists, greenwashing corporations, limousine liberals and their ilk. Adam Smith had their number 300 years ago when he wrote:

“The man who has performed no single action of importance, but whose whole conversation and deportment express the justest, the noblest and most generous sentiments, can be entitled to no very high reward. We ask him, what have you done.”

Adam Smith’s genius lie in being first to clearly explain an economic phenomenon that is as old as our Paleolithic fisherman who first generated an economic surplus. Remember, no one ever wrote a capitalist manifesto because it wasn’t necessary. Unlike all forms of collectivism, capitalism is organic and consistent with human nature. That explains why capitalism and free markets succeed and socialism fails.

© 2023 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

MLLG

Taxes – Showerheads – School Choice – Economics

The total wealth of all US billionaires would fund government for only 158 days.

Taxes – Showerheads – School Choice – Economics

By: George Noga – January 30, 2022

 

Biden’s inflation tax devastates ordinary Americans: Biden’s tax hikes hit middle- income Americans and even low-income Americans who pay no income tax. Inflation is the cruelest tax of all and it falls disproportionately on low and middle-income families. Inflation is outstripping wage gains and Americans are getting poorer each month. Moreover, unlike other political issues, inflation is impossible to spin because Americans are acutely aware of it every time they buy gas or groceries.

Taxing billionaires doesn’t work: Forbes Magazine counts 614 US billionaires worth a total of $2.95 trillion. If you taxed each $1 billion, it would fund government for 33 days. If you confiscated all the wealth of every billionaire, it would fund government for 158 days – and then it would be gone forever. The narrative of taxing billionaires is pure class warfare intended to disguise from where the money really is coming.

Why some corporations pay no income tax: The poster child for this is Amazon, which paid no federal income tax last year. That’s because Amazon suffered humongous losses in prior years and was able to carry those forward to offset later profits. FedEx paid no tax due to accelerated depreciation on its fleet of aircraft – in accordance with laws passed by Congress to encourage investment and job creation. However, both Amazon and FedEx pay billions each year in payroll, state, local and foreign taxes.

Corporations that pay little or no federal tax are acting in furtherance of laws passed by Congress. It takes chutzpah for politicians to rail against tax laws they passed. Further, per a congressional committee, 98% of corporate taxes are passed through to low and middle-income families, including those who pay no income tax, as higher prices.

Biden is regulating your bath: Prior to Trump, each showerhead could emit no more than 2.5 gallons per minute. Trump eliminated that restriction. One of Biden’s first moves was to reverse this and also to extend the limit to apply to all showerheads in the aggregate – even though fewer than 1% of Americans have multiple showerheads. This is a minor issue in the cosmic scheme of things, but it exemplifies progressives’ desire to regulate every aspect of your life and to diminish your personal liberty.

School choice is a winning issue: It is incandescently clear from polls and elections that K-12 education is the wedge political issue in America today. Parents are shocked and mortified by what they learned during the pandemic including: (1) school boards and PTAs as adjuncts of teachers unions; (2) pornography in grade school libraries; (3) the 1619 project; (4) mask mandates; (5) critical race theory; (6) encouraging young kids to question their gender; (7) vaccine mandates; (8) school closures; and (9) huge gaps in learning versus private schools and other nations. Union control of education has wrought nothing short of total disaster. Universal school choice would immediately end all dissonance about the nine aforementioned issues. School choice demonstrably is a winning political issue as well as the civil rights issue of our time.

Economics: Roger Ream upon receiving the 2021 Bradley Prize in Economics: “Taught properly, economics provides a lens to understand how the world works. It is about how humans interact and make choices and how an undirected market process unleashes the forces of invention, innovation, imagination and improvement. The result is nothing short of miraculous. We ignite a spark in the minds of students as we show them how Adam Smith’s invisible hand motivates a self-interested individual to promote an end not part of his intention and thereby to serve the needs of others.”

– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

Next on February 6th: Chauvin, Rittenhouse, Smollett, et. al.
More Liberty Less Government – mllg@cfl.rr.com – www.mllg.us

 

MLLG

Ludwig von Mises 140th Birthday – Part II – Wisdom From the Greatest Social Thinker of Our Time

“Freedom is indivisible; once it is restricted, a decline begins which is difficult to stop.”

Ludwig von Mises 140th Birthday – Part II

Wisdom From the Greatest Social Thinker of Our Time

By: George Noga – October 3, 2021

Ludwig Heinrich Elder von Mises, born in 1881, was an Austrian School economist, historian, logician and sociologist. He wrote and lectured extensively on the societal virtues of classical liberalism and is best known for his work on human choice and action. He is revered today because his body of work has proven accurate about the success of free market capitalism and the failure of collectivism. He was a mentor to Friedrich Hayek, author of The Road to Serfdom. Von Mises died in 1973 at age 92. Note: please visit our website at www.mllg.us to read last week’s Part I on von Mises.

The legacy of von Mises is kept alive today by the Ludwig von Mises Institute, located at Auburn University. It maintains a website with a blog, books and publications, podcasts and a graduate program in Austrian economics. The institute also publishes a free daily (M-F) newsletter chock full of articles applying von Mises’ teachings to today’s issues. You can subscribe to the newsletter at https://mises.org. This is one of a very few publications I look at each day. It can be a bit wonkish – but give it a try,

More Wisdom from Ludwig von Mises (lightly edited)

Socialism: “The champions of socialism call themselves progressives, but they want a system characterized by rigid observance of routine and resistance to every kind of improvement. They call themselves liberals but they are intent on abolishing liberty. They call themselves democrats but they yearn for dictatorship. They call themselves revolutionaries but they want to make government omnipotent. They promise the Garden of Eden but they plan to transform the world into a gigantic post office.”

Dictatorship: “Nobody ever recommended a dictatorship aiming at ends other than those he himself approved. He who advocates dictatorship always advocates the unrestricted rule of his own will.”

Marx and freedom: “The Marxian love of democratic institutions was a stratagem only, a pious fraud for the deception of the masses. Within a socialist community there is no room left for freedom.”

“Socialism is not what it pretends to be. It is not the pioneer of a better world, but the spoiler of civilization; it does not build, it destroys.”

Status of workers: “In Lenin’s eyes workers were only workers and not also customers. He believed they were slaves under capitalism and their status did not change under socialism. Socialism substitutes the sovereignty of a dictator or a committee of dictators for the sovereignty of consumers. Workers are no longer men, they are pawns in the hands of the chief social engineer. Even freedom to rear progeny will be taken.”

Von Mises sampler: “If history teaches anything, it is that private property is linked inextricably with civilization. . . . . . Making undeveloped nations more prosperous cannot be solved by material aid. It is a spiritual and intellectual problem. . . . . All people, however fanatical they may be in their zeal to disparage capitalism, implicitly pay homage to it by clamoring for the products it turns out . . . . . Economic knowledge is an essential element to human civilization; it is the foundation on which all moral, intellectual and technological achievements have been built. If men disregard its teachings, they will stamp out society and the human race.”


Next up is our politically incorrect celebration of Columbus Day

Click here to join our mailing list

More Liberty Less Government – mllg@cfl.rr.com – www.mllg.us

Facebook ‌ Twitter ‌ LinkedIn

The Spending Crisis: Reductio ad Absurdum

Given current trends, the annual interest on our debt will exceed GDP; let that marinate!

The Spending Crisis: Reductio ad Absurdum

By: George Noga – May 10, 2020

OF THE 600 POSTS I HAVE AUTHORED DURING THE PAST 13 YEARS, NONE IS MORE CONSEQUENTIAL THAN THIS ONE! Usually I limit posts to 600-700 words but did not wish to break this one into two parts; hence, it is twice the normal length. I used my time at home due to coronavirus restrictions to research and to prepare an expanded, fresh and gripping analysis of the spending crisis.

       For the first time, I employ an apagogical argument that proves a contention by deriving an absurdity from its denial. Specifically, reductio ad absurdum disproves an argument by following its implications to an absurd conclusion. The fallacy lies in the argument that can be reduced to absurdity; reductio ad absurdum merely exposes the fallacy, in this case that the US can continue spending and borrowing.

       What makes this analysis so different and riveting? (1) I have taken a much deeper dive into the data; (2) Assumptions about the composition of the debt are changed; (3) Realistic assumptions are used instead of optimistic ones; (4) More recent data are available; (5) The reduction to absurdity argument is adduced; and (6) It explains why, at its beating heart, the spending crisis is moral rather than economic.

Assumptions About GDP

       GDP for 2019 was 21.4T (trillion); for 2020 I used the latest Goldman Sachs forecast – a 6.3% reduction from 2019. For the first time, I assume mild recessions (4% contractions) once a decade in 2026-27, 2036-37 and 2044-45. Other than recession years, I assume GDP grows at 2%, in line with the past decade, and then slowing to 1.5% in later years. These are middle-of-the-road, Goldilocks assumptions.

Assumptions About Debt

      Public debt at year-end 2019 was $17.2T. To that I add coronavirus spending Phases I, II and III of $2.3T (total) and my Phase IV (infrastructure, etc.) estimate of another $2.0T. I also must add the 2020 structural deficit of $1.0T and the additional operational deficit due to coronavirus of $0.8T. This results in a public debt of $23.8T at year-end 2020. For future years, I assume the debt grows at a rate in line with the trend of recent years – with appropriate adjustments for recession years.

“Before long, public debt and total debt will be one and the same.”
Public Debt Versus Total Debt

         Here I make a notable departure from the past. Previously I have counted only the public portion of the debt, which is $7T less than the total debt. The difference consists of intragovernmental debt owed to Social Security, FHA and other agencies. Before now I excluded such debt because it is non-marketable, accrues (but does not pay) interest and is notional in nature. Before long however, the government must begin issuing public debt to fund the intragovernmental debt for, inter alia, paying future Social Security benefits. Therefore, I now assume that intragovernmental debt of $1.0T is converted to public debt each year from 2021 through 2027. Thus, public debt and total debt will be one and the same by the end of 2027.

Government Sponsored Enterprises (“GSEs”)

        Fannie Mae (FNMA), Freddie Mac (FHLMC) and a few other GSEs are owned by the federal government. In a rational universe, they would be consolidated into the accounts of the federal government. Although the feds are not legally liable for the debts of Fannie and Freddie, there is an industrial-strength implicit guarantee based on precedent. Fannie and Freddie guarantee $7T of debt; in a crisis they would need trillions in bailouts. For this analysis, I have not included any debt for GSEs.

Unfunded Liabilities and Obligations

       The Treasury Department estimates federal unfunded liabilities are $122T; this means the government has made promises to pay that amount without providing any funding. Over time, these obligations come due and must be financed with – you guessed it – more debt. I have not counted any of this $122T in this analysis. I once studied unfunded liabilities and concluded that a more realistic estimate is double the Treasury number, or one-quarter of a quadrillion dollars. In even more cheery news, state and local governments have another $10T in unfunded pension liabilities.

Reduction To Absurdity

        Based on the assumptions described supra, following are the Debt/GDP ratios for select years. The GDP and debt are in trillions of dollars. Data for 2019 are actual.

Year             GDP              Debt             Ratio
2019             21.4               17.2                80%
2020             20.1               23.8              119%
2025             22.2               37.5              169%
2030             22.6               59.7              264%
2040             24.4             161.2              659%
2050             26.4             588.4           2,226%

       In five years the ratio is projected to be 169%; within a decade it is 264%. In twenty years the ratio skyrockets to an absurd 659%, while in 2050 it is a preposterous 2,226%. The US has passed the point-of no-return. The Titanic has hit the iceberg and there is no way to unhit it; now it is but a matter of time until the inevitable happens. Because of the humongous coronavirus spending, the advent of the crisis has been advanced by five to ten years – all in just the past few months.

       By reducing to absurdity the future spending and debt, this analysis proves it is impossible to sustain our spending and borrowing for much longer. It is risible that the US can have a ratio of 2,226%, or even 659%. Moreover, the 2030 ratio of 264% is tinctured with absurdity; even the 2025 ratio of 169% is problematic. Even with a powerful tailwind from MMT, it seems like we have fewer than 10 years left.

        While trafficking in the absurd, let’s peek at interest on the debt. At the current US composite rate on its debt (2.5%), annual interest on the debt will reach $1 trillion circa 2026 – in just over five years. If the interest rate to service our debt increases to 4.5% (a low number historically) interest payments would exceed GDP by 2050. Let that metric percolate for a while; our annual interest on the debt would exceed GDP!

“We always chose the easy path. As a nation, we failed morally.”

        It is impossible to look at the data and analysis presented herein and to imagine we have more than five or ten years left before the spending crisis reaches critical mass and discombobulates our lives for the next 20-25 years, i.e. a lost generation. It will be worse than the dot-com bubble, the great financial crisis and coronavirus combined. Great and sustained sacrifice will be required until all the excess debt is purged. The gargantuan spending cuts necessary (20% to 30%) will rend the social fabric of our nation; we will be lucky to avoid anarchy and to maintain the rule of law.

The Moral Root of the Crisis

        Ever since I began writing about the spending crisis, I have posited that, at bottom, it is a moral crisis, not an economic one. Historically, the US has borrowed heavily only to finance wars. Our national debt in 1980 was less than $1 trillion and our debt ratio was under 30%. Inexplicably, that’s when we began our debt binge.

       We gave some segments of the population huge tax cuts to beguile them into accepting massive spending on other segments of the population. We spent vast sums on certain cohorts of Americans to bewitch them into tolerating the tax cuts on other cohorts of Americans. We have repeated this pattern up to the present in a futile  attempt to avoid tough choices and to buy social peace via massive borrowing.

         The decades of the 1980s and 1990s were prosperous. There were no major wars, natural disasters, pandemics or financial meltdowns. The baby boom generation constituted 38% of the population and was in its peak productive years. There were few retirees and Social Security and Medicare generated massive fiscal surpluses. The Berlin Wall fell and the USSR collapsed, unleashing an enormous peace dividend.

         The period since 1980 should have been the easiest time in American history to balance the budget; instead, we kept borrowing feverishly and never stopped. We danced while the band played on. We must plumb the depths of our souls to understand why we became so addled and addicted to spending and borrowing. For whatever reasons, we always chose the easy path and, as a nation, we failed morally.

       We believed politicians who promised us the moon was Stilton, wishes were horses and pigs had wings. They promised abundance for all by robbing Peter (our children and grandchildren) to pay Paul. They promised social peace by avoiding the confrontations inherent in making choices. They promised no man must ever pay for his sins. But even in this brave new world, water will wet us and fire will burn, and the Gods of the Copybook Headings, with terror and slaughter, will return!


The final paragraph uses snippets from Kipling’s, The Gods of the Copybook Headings.
Next on May 17th, we blog about school choice and the LGBTQ issue.  
More Liberty Less Government  –  mllg@mllg.us  –  www.mllg.us

Modern Monetary Theory and Coronavirus

MMT likely will influence the amount the US can spend and borrow before crisis begins.

Modern Monetary Theory and Coronavirus
By: George Noga – May 3, 2020

          We have long planned a post about Modern Monetary Theory (“MMT”) as part of our intermittent series analyzing the issues in the 2020 election. The coronavirus epidemic has added a palpable sense of urgency to plumbing the depths of MMT because the untold trillions in new money being created by the government in response to Covid-19 will provide an acid test of MMT much sooner than contemplated. This post focuses on explaining and analyzing MMT – a daunting task even for us.

Our next post May 10th is among the most consequential of the 600 posts we have written over the past 13 years! It presents an up-to-the-minute projection of the US Debt-to-GDP ratio incorporating the multi-year impact of the mammoth new debt and deficits that result from the effects of coronavirus. The analysis in the May 10th post is new and different than anything we previously have written about the spending crisis. This truly is a blockbuster and one you definitely don’t want to miss.

Just What is Modern Monetary Theory?

        First off, MMT is not so modern; the accepted origin is a book “Soft Currency Economics” by economist Warren Mosler published in 1993. However, as with most economic theories, its underpinnings can be traced back for centuries.

         The main tenet of MMT is that any government that issues its own fiat currency can create and spend unlimited amounts without the need to finance it via either tax revenue or debt instruments. Such a government can never be forced to default on debt denominated in its own currency. Further, any such monetization does not compete with the private sector or cause higher interest rates. The only problem acknowledged by MMT proponents is that inflation can get out of hand under some conditions.

        In layman’s terms, MMT asserts that the USA has much more leeway to spend money than previously thought; it can’t ever go broke; and the debt to GDP ratio is immaterial – provided inflation is managed. Progressives like Sanders, Warren and AOC believe MMT is the Holy Grail of economics which can be used to finance the green new deal and the rest of the progressive wish list – all at once. Beware however, MMT makes for strange bedfellows and it also has many conservative adherents.

Is MMT Valid and Does It Work?

        The strongest case against MMT is millennia of human experience. From Rome to today, many countries with their own fiat currency have defaulted or suffered other terrible economic fates, MMT notwithstanding; the lengthy list includes, inter alia,  Weimar Germany, Argentina and Zimbabwe. Logically, MMT defies understanding; how can we create and spend money ad infinitum without adverse consequences? If MMT works, why doesn’t every country use it? It appears to be pie-in-the-sky or like finding a unicorn at the end of a rainbow. Many top economists and businessmen including Bill Gates, Jerome Powell and Warren Buffet believe MMT is claptrap.

      To its credit, MMT explains certain economic phenomena better than classical economics. The USA and Japan among others have seen budget deficits skyrocket and bond markets respond in accord with MMT; yields on government bonds decreased despite sluiced up supply and trillions of dollars of quantitative easing. Massive government borrowing has not crowded out corporate debt or raised interest rates. Simply, some markets are acting in ways that can best (only) be explained by MMT. The chief economists for Goldman Sachs, Pimco and Nomura believe MMT is valid. The top investor of our era, Ray Dalio, attributes much of his success to MMT.

         So, how can such diametrically conflicting theories, logic and data be reconciled? Economic principles that have stood for millennia are not going to be replaced by MMT nor will countries be able to borrow unlimited amounts. Nonetheless, thanks to MMT nations may be able to borrow more – much more – than previously thought possible. Moreover, the recent behavior of bond markets and interest rates can’t be reconciled with other economic theories. MMT provides much better explanations for what is happening. In short, MMT works in certain areas where other theories don’t.

         Although MMT may permit more borrowing, this is a double-edged sword. The increased debt will make the resultant crisis deeper and longer. Another disastrous result of MMT is that it vastly diminishes the power of markets and central banks to allocate money and credit and to control the money supply and interest rates. To a corresponding degree, MMT increases the power of politicians. Progressive politicians could use such power to control the entire economy and spend the USA into oblivion.


DO NOT MISS OUR NEXT POST ON MAY 10TH; IT IS A BLOCKBUSTER!
More Liberty Less Government  –  mllg@mllg.us  –  www.mllg.us

Wanted: More Millionaires and Billionaires

Newly minted millionaires and billionaires are essential for a thriving society.
Wanted: More Millionaires and Billionaires
By: George Noga – April 7, 2019

         Alexandria Ocasio-Cortez condemned “a system that allows billionaires to exist“. Her chief of staff tweeted “Every billionaire is a policy mistake.” Pocahontas called billionaires “freeloaders“. Bernie Sanders said “Billionaires’ insatiable greed is having an unbelievably negative impact on the fabric of our country“. The economic illiteracy of such people is staggering. Even the laughable commie economists (oxymoron) of the old USSR understood that new millionaires were vital to economic success.

      In a market economy, one becomes rich only by creating a product or service voluntarily purchased by sovereign consumers. The more people helped, the greater the wealth. Sam Walton, Bill Gates, Steve Jobs and Jeff Bezos became billionaires by improving the lives of hundreds of millions, or even billions, of people. Newly created wealth is the best metric for gauging how well a society is innovating and serving the needs of its people. A society with no new wealth creation is stagnating.

        Many who well understand that wealth creators are vital to America’s prosperity, nonetheless believe inherited wealth is evil. They are wrong; however, we leave that issue for another day. We do note however that almost all great wealth is dissipated within three generations due to the ever-increasing number of heirs, estate taxes, charitable bequests and poor decision making. Also, much of the motivation of the original wealth creators was to provide financial security for future generations.

        Not only is the latte left dead wrong about wealth creation, its positions on many other economic issues – tax rates, minimum wage, free college, Medicare for all and rent control – are voodoo economics and nothing short of modern day witchcraft.

Income tax rates/minimum wage: These were subjects of full postings on March 3 and 10 respectively and are available on our website: www.mllg.us. In those posts, we showed that higher tax rates do not result in more tax revenue and that minimum wages are insidious and harmful, especially to the people they purport to help.

Free college: Social science degrees from overcrowded schools, with courses taught by graduate assistants, are cruel hoaxes. The inevitable result is a surfeit of psychology, sociology and hyphenated-studies majors driving for Uber. Free college devalues all college degrees and the added competition from more degrees suppresses wages. There will be more degreed people seeking the same number of jobs requiring degrees.

Rent Control: Government creates housing shortages by restricting development and then compounds it by enacting rent control. They blame landlords when the problem is due entirely to government failures. Ultimately, it leads to more homelessness.

Medicare for all: The bill Democrats introduced in Congress provides for rationing and reinstitutes the dreaded Obamacare death panels. Even the Canadian system, which is better than many, is a failure; see our July 22, 2018 post entitled “Canadians Flock to Whitefish“. In Canada, the median wait time between referral and treatment is 21 weeks and years in some provinces. Over one million Canadians (3%) are on wait lists when same day service is inexpensive and readily available in the USA.

        Progressives prefer to attack the wealthy rather than to improve the lot of the poor; they care more about appearances, class warfare and political talking points than about results; it is much easier to demagogue billionaires than it is to reduce poverty. Instead of billionaires being policy mistakes, good economic policy fosters creation of more billionaires. Most Americans don’t resent success, they want to achieve it!


Our next post challenges Hillary Clinton’s claim to winning the 2016 popular vote.

The $15 Minimum Wage

Progressives believe putting poor people out of work is now a moral imperative.
The $15 Minimum Wage
By: George Noga – March 10, 2019

        Jerry Brown said raising the minimum wage “puts a lot of poor people out of work”. He elaborated, “Economically, minimum wages don’t make sense, but morally, socially and politically it makes sense“. This was a rare moment of truth for liberals, who believe creating unemployment among the poor now is a moral imperative.

         The minimum wage has been a liberal leitmotif for 80 years, since its inception in 1938 at $.25 per hour, even though it is antiempirical and thoroughly discredited by economists of all persuasions, who are near unanimous that it is economic poison, harming the people it purports to help. Even children with lemonade stands understand when the price of anything (labor) goes up, there will be demand for less of it.

        As with all progressive causes, there are two groups of supporters. At the core, there always are special interests, in this case labor unions, whose contracts contain automatic differentials over minimum wage. Unions also support it because it prices the poor and minorities out of the labor market, thereby reducing competition for lower paying jobs. The second group are virtue signallers doing it for self esteem. Like all other warm, fuzzy, feel-good bromides, it enables soft hearted and soft headed liberals to retreat into their plastic bubbles and to revel in their pristine intentions.

         Following are but five of the problems with the minimum wage:

1. It is bad economics, disproportionately harming the poor, minorities, young and low skilled by putting them out of work. Every time the minimum wage goes up, hundreds of thousands of jobs are lost. Each increase further incentivizes businesses to relocate and/or to automate. More robots anyone? It leads to greater inequality in America.

2. It involves less than 1% of workers. Most who earn minimum wage do so for six months or less; virtually no heads of household or full time workers are affected.

3. Most minimum wage workers are not poor. The average household income for a family with someone earning the minimum wage is over $50,000; they are spouses and teenagers living at home – like the kid who delivers pizza to buy gas for his BMW.

4. Those in poverty need jobs, not a higher minimum wage. A majority of those in poverty don’t work and raising the minimum wage makes it harder for them to find jobs. Remember: the real minimum wage always is zero, zilch, nada, niente.

5. The earned income tax credit is reduced. By lowering the EITC, the benefit of a higher minimum wage is substantially negated and creates disincentives to work. Moreover, those receiving unemployment and welfare do not benefit in any way.

          In our last post on Hauser’s Law (on our website: www.mllg.us) and this post on minimum wage, we sought to address timely economic issues in an insightful, factual, principled manner not usually found in the media; I hope we succeeded. Please feel free to email us at mllg@cfl.rr.com with any questions or comments; we will try to respond, but please allow some time as we do not frequently check that email.

       Of course, we couldn’t resist taking our usual jabs at progressive politics even though we have many left-leaning readers, who I appreciate and from whom I hear regularly. I would like to believe that this blog prompted some of them to reconsider their positions about raising marginal tax rates and the minimum wage.


Next on March 17th: SunRail, AOC, Covington KY students and incivility.

Hauser’s Law: Why You Can’t Soak the Rich

Taxpayers are not sheep docilely waiting to be shorn.
Hauser’s Law: Why You Can’t Soak the Rich
By: George Noga – March 3, 2019

        There are 7 reasons it is impossible to soak the rich by raising income tax rates; there is only one way it can be done – revealed herein. Full disclosure: I have firsthand knowledge of this by virtue of being a CPA tax professional and, during the 1970s and 1980s, the founder and CEO of one of the largest tax shelter firms in America.

Why You Can’t Soak the Rich With Higher Tax Rates 

1.  Hauser’s Law: Tax revenue remains constant at 18% of GDP (20% in good times, 16% in bad times) regardless if the top rate is 28% or 92%. This has been true for the 75 years since WWII. Later in this post we explain why Hauser’s Law works.

2. Elasticity of Taxable Income: ETI is a variant of Hauser’s Law and is measured by comparing tax returns before and after tax increases. For incomes above $500,000 the ETI is -1.2, which means the higher rate collected less money than before. For capital gains and dividends, the ETI shows that virtually no added tax is collected.

3. The rich are not the same people: The highest bracket taxpayers are not the same people each year. Someone who runs a family business with modest income suddenly becomes rich for one year when the business is sold. It is precisely such ordinary people (rich for one year only) who get caught in the crosshairs of high tax rates.

4. There is no way to identify the rich: Government (thankfully) has no data on wealth, only on certain types of income – which is a poor surrogate for wealth. It is impossible to soak the rich if there is no way to know who they are. Also see #3 supra.

5. Corporate taxes are not paid by owners: Businesses and corporations collect taxes but the money they pass along to government is not their money. Nearly all business taxes are passed along to consumers as higher prices – extremely regressive.

6. There aren’t enough rich: Not only are they different people from year to year, there just are too few of them to make soaking them worthwhile. The only way to raise significantly more revenue within the current tax code is to tax the middle class.

7. The income of the truly rich is not taxed as ordinary income; it is capital gains.

Why Hauser’s Law Works and ETI is Negative

        Hauser’s Law appears counterintuitive; why would government collect the same percentage of taxes when the top rate is 92% as it collects when it is 28%? The answer lies in human behavior; people are not sheep docilely waiting to be shorn. Higher rates incentivize people to go to great lengths to reduce taxes. They will work, save and invest less; barter, retire earlier; hide, defer and underreport income, convert ordinary income to capital gains and not realize capital gains without offsetting losses.

        They employ tax shelters; shift income to lower bracket family members; seek out tax-free income; change the amount, location and composition of taxable income; exploit ambiguities and loopholes; shift income to corporations; lobby aggressively for tax breaks, move from one place to another – even outside the US; move into the occult economy; employ top tax lawyers and accountants and much more – mostly legal.

How to  Soak the Rich – Using the Tax Code

       There is only one way to soak the rich and that is with lower tax rates. It works for the same reasons that Hauser’s Law works; the rich become disincentivized to take measures to reduce their tax bill. Whenever rates drop, the rich pay a much higher share of taxes than before. The 2003 Bush tax cuts resulted in the largest tax increase on the rich in American history; they paid over double what they paid when Carter was president. It works every time, but you won’t hear it from AOC and her compadres.


Our next post debunks another liberal shibboleth, the $15 minimum wage.  

American Birthright Accounts: Readers Respond

This post compares American Birthright Accounts to Social Security and responds to readers’ questions about seeming too good to be true.
American Birthright Accounts: Readers Respond
By: George Noga – June 17, 2018

       Reaction to our May 20th post about American Birthright Accounts (“ABA”) was extensive and spirited. If you missed the original post or wish to reread it, you easily can access it on our website: www.mllg.us; however, we provide a summary in the next two paragraphs. Reader responses (addressed herein) centered on (1) comparisons with Social Security; and (2) questioning whether ABAs were too good to be true.

       American Birthright Accounts are an original MLLG idea, although the name is borrowed. ABAs are simple and affordable. Every child born in the USA receives a professionally managed, tax-free account funded by government for $5,000 at birth and $500 per year thereafter until age 65. If the account grows at 7% net of inflation, which mirrors the average annual performance of markets since 1930, the account will exceed $1 million at age 65 and generate $6,000 per month of retirement income.

         A retired couple, both with ABAs, receives $12,000 a month tax-free, equivalent to $200,000 per year taxable. They own their own accounts and have $2 million to bequeath to their heirs – all tax-free and in today’s dollars. The cost to the government is equal to one-half of one percent of the federal budget, or 25% of what we will spend this year just on food stamps. ABAs also would vastly reduce inequality in America!

How Do ABAs Compare with Social Security?

       An American working from age 20 to 67 earning the median income ($60,000) pays $430,000 into Social Security (“SS”) and receives a real (net of inflation) rate of return of 1.2% (per Heritage Foundation) resulting in a notional value of $738,000 at retirement. The average SS beneficiary receives $16,000 per year, or a rate of return of 2.2%. Because SS is 85% taxable, the benefit is equivalent to $13,000 after tax – equal to a real return of 1.8%. Finally, SS benefits are unsustainable at their present level and after circa 2030 beneficiaries can expect to receive only 75% of present benefits.

        Let’s put SS side by side with an ABA. The average cost of SS is $430,000, for an ABA it is only $37,500 ($5,000 at birth and $500 a year for 65 years). Average SS benefits are $13,000 per year after tax; for ABAs the comparable number is $72,000. At death, the value of your SS account is zero, zilch, nada; the value of your ABA is over $1 million. Everyone benefits equally from an ABA, whereas the benefits vary wildly for SS. I could go on ad infinitum in this vein, but I believe you get the drift.

Are ABAs Too Good to be True?

      Some readers had trouble with the mathematics of ABAs, wondering how it is possible for everyone to be a millionaire? The math is straightforward; the initial $5,000 increases to $435,000 and the $500 per year grows to $573,000 for a total of $1,008,000, all computed from standard compound interest formulas. ABAs compound from birth for 65 years, whereas SS doesn’t begin until 20 years later. ABAs grow at a market rate, while SS grows at the much lower short-term government bond rate.

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

      There is a much larger lesson here. ABAs succeed due to the power of markets, while SS fails because of the evils of government. Progressives oppose privatizing SS, fearing market success will turn workers into nascent capitalists by giving them a big stake in the free-market economy. Liberal poseurs oppose making everyone rich because it doesn’t fit their nihilist, tribalist, class warfare, identity group narrative.


Next up: The Supreme Court decision to permit sports betting.