The Cliff Part 5

This is like a daytime soap opera, but who is the bad guy?  Is there a good guy?  All we know for certain is that neither side seems to want to appear to have lost this.  And as a result, we will go over the cliff.

But what does that mean?  On January 1st will you actually notice anything different?  Probably not.  It will take time for the changes to be noticed.  Maybe on the first paycheck some might notice, but most won't feel it until next year.  Which is what the players, or as we tagged them in other posts, the royals, are depending on.  Most people, probably 60% or more do not pay close attention to the news, and they probably don't know we are going over the cliff.  However, when they do their taxes next year and realize they are not getting a refund, or even worse they have to pay additional taxes, that's when most will feel it. 

These tax payers also help support the economy.  The economy is weak now, while technically not in recession, it hard to tell from Main Street that it is not.  Tax refunds are what these tax payers use to buy some larger thing to improve their lives.  Maybe a appliance, or furniture, perhaps a new computer or other electronics or a car.  When they do not get a refund two things will happen:  They will be mad, and they will not have the funds to buy what they intended.  This is a direct impact on our economy.  The royals should know this.  So are they oblivious to the economic facts, or do they just not care?

I believe it is the latter, there has been a total disregard of the economy as political goals are discussed.  President Obama even went on vacation.  The power play is for the next Congressional elections.  That is why the plan advanced by Nancy Pelosi and forwarded by John Boehner is rejected at the White House, Conservatives in the House, and by Harry Reid in the Senate.  How much more bi partisan can you get?  The leading Liberal, former Speaker, and the some what Conservative current Speaker.  No one, in either party is willing to support it. 

We go off the cliff, and in a year, if the economy is not bustling, we go back into recession, or worse depression.  The Republicans will blame the Democrats and the Democrats will blame the Republicans.  But Republicans have a track record of losing the blame game, ever since the Great Depression of the 1930's.  The Progressive Liberals know this, why else would they gamble their power base through inactivity?  Is it their hope that the economy will collapse?  Then they can install their vision of utopia?  Who knows, but history suggests that that may be it.  Are we prepared for another Utopian experiment?  It didn't work for the Soviet Union, it is problematic in China, if you even want to call China a Utopian experiment.  It isn't working for Greece or most of the rest of Europe.  It didn't work on this continent either.

Whoa... on this continent?  Yes indeed.  Socialist Utopia was tried here.  Read the Mayflower compact.  And that was written centuries before Karl Marx.  It wasn't until the Pilgrim society was amended offering people control over their productivity that the colonies began to thrive, the first harvest after this in commemorated each year in November, it's called Thanksgiving.  Taking away the individuals ability to control their own destiny, also saps them of their productivity.  Without a challenge, why bother?  Without individual productivity, the Soviets built concrete boxes and generations of families lived together in small apartments.  Without individual productivity, Soviet grocery stores were near empty most of the time.  Without individual productivity, China's forced labor is forced to plead for help with messages in the product they make.  Without individual productivity, riots happen in Greece.  The European Union is thrown into chaos.  The world struggles to feed all the people. 

Are we even seeing some of the results now?  People feeling helpless so they shoot up a school.  And in China, with gun control, hack up a school or run down students.  Shots at a movie theater.  A neighborhood blown up.  Occupy Wall Street.  The Tea Party.  With the exception of the Tea Party, each of the mentioned events were violent and deadly.  Why would we want that?  I believe We the People don't, but they the royals really don't care how they achieve their goals.  As long as their power and wealth improves, they will do what they think expedient.

It's 2 years until we have a chance to register displeasure, so what can we do?  We need to write, email, call, telegram the royals with our displeasure now.  The thought of losing their power base may be enough to stall the impending power grab past the next election.  Short of that happening, be sure you defend the 2nd Amendment to the Constitution so we don't get treated like the Chinese of Tianemen Square or the souls who perished in Soviet Gulags, or the minorities in Nazi controlled areas of Europe.  The list goes on and on, even to crucifixions by the Romans in occupied territories at the time of Christ.  And please, some one tell me the definition of "fair share".

Stay tuned to this channel for more exciting episodes of The Cliff!

The Cliff Part 4

So in the 10 days since our last post, neither side seems to be giving.  The President continues to take his tax the 'rich' approach, and Mr. Boehner is trying to save as much of the current tax rates as possible.

Back earlier this year, Nancy Pelosi, the previous speaker of the House, and the Democratic leader in the House, suggested a plan in a letter to Speaker Boehner.  In that letter she proposed holding current rates for all tax payers under $1 million.  Her verbiage said that the Democrats want the 'rich' to pay their fair share.

Mr. Boehner's last proposal was identical to the one proposed by Leader Pelosi earlier this year.  To which the Leader said:  “It’s a tactic, but it’s not a serious proposal,” and the President's response was by White House spokesman Jay Carney who said Plan B idea would not meet Obama’s top priority of protecting middle-income earners.  “The Speaker’s ‘Plan B’ approach doesn’t meet this test because it can’t pass the Senate, and therefore will not protect middle class families, and does little to address our fiscal challenges with zero spending cuts,” Carney said.

The last post here was critical of both sides.  Even when one side half hearted proposes a plan identical to one proposed by the other side, it is rejected.  Face it friends, we ARE going off the cliff, it's what the politicians royals want.  They do NOT want to do their job, they do NOT want to be the one who cuts a program, even though any sane person with a minimal economics understanding knows that we can not continue spending with no plan to repay the debt.

That takes us back to the previous post.  The royals in Washington, will party while the economy burns.  This is a similar scenario that cost the King of France his head, as well as the heads of his wife and court.  It is a similar scenario to what cost the King of England a big chunk of his North American holdings.  It is what brought down the former Soviet Union.  Do I need to go on? 

Shortly after the election in November, succession petitions started cropping up on the White House petition site.  I found it daring that potential rebels would actually put there names on a site controlled by the government, can you say black list?  All wars are fought over primarily economic reasons.  WWII was fought because of the punishing reparations placed on Germany.  Could we be witnessing the very beginning of the Second American Civil War?  I sincerely hope not.

And is exactly why We the People need to take radical actions.  My Grandfather was a staunch Democrat, I know staunch Republicans, what we have in Washington is not working.  Third parties don't seem to be the answer, none have been able to crack the stranglehold of the two major parties.  So what I propose is that in the next election, we vote.  In primaries vote for opponents to the incumbent, cross party lines if you need to.  In the general election, vote against the incumbent, regardless of their party, or your party affiliation.  If enough lose their jobs, and by the way don't feel sorry for them, they will be taken care of for the rest of their lives, they made sure of it, perhaps just perhaps the message will be delivered to the ruling royals, We the People want sanity in government.

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Those royals were sent to Washington by their constituents, and then were indoctrinated by party leadership and vote like sheep along party lines.  Then they come back to us, and say look what I got for you, like that new federal building? or I didn't do that, or the one I really liked last election:  I'm proud to ranked number 50 in the Senate.  Of course her state is quite red, and she supported at least half of the Progressives proposals, including the Health Care Act, demonstrating her disregard of the voters.  Most no longer represent us.  So we need to clean the House, and the Senate.  If this plan works, in the next congressional elections the house will change to Democrat control and the Senate to Republican control.  But the most important thing is new leadership will emerge.  Then maybe we can focus on the things that really matter to the majority of the people, jobs and economic opportunity, instead of gay marriage, free cell phone, food stamps, and tax the 'rich' (and I would still love a definition of rich).

The Cliff Part 3

Three weeks left.  Neither side is blinking.  Do they just not care?  Does the President want to go over, as some suggest?  Are Boehner and friends in Congress being too intransigent?  How can we know?  Actually we may never know.  All of Washington, and I do mean ALL, is being driven by money and special interests.  We the People have no voice any more in our capitol.  Our media only reports what they feel like reporting.  There is no digging to get a 'juicy' story.  They seem to be in lock step with the royals (modern day politicians).  The problem seems to be systemic.

And this is all about economics?  It is primarily two systems of economics battling it out.  It is about a redistribution system, going up against a capitalist system.  So let's take a moment to look at both, then perhaps discover a course of action.

The redistributionist, sometimes called Liberals, or Progressives, or Socialist, or Left wing, or what ever they change to next, believe that the only fair way for society is if all economic out come is balanced.  The State should control the means of production, and dole out resources in areas where they feel it needs to be.  Can you remember the stimulus?  That money was doled out, and who got it?  Those companies with connections in DC.  And those who had connections with those doling it out got the bulk of the money, which then was funneled back as campaign donations.  Because the President is Democrat, companies like Solyndra and GM received the hand outs.  And these handouts were just adding to the debt.  And for it, we got bankruptcies.  How is that helping a child eat or Grandma get affordable health care?  And no jobs to boot.

The Capitalists, Conservatives, Neo Cons or what ever they are calling themselves, one would think, would be protective of capital.  Not entirely true, because if this were the case they would be negotiating to take uncertainty out of the market, giving capital a chance to work more productively.  Some say that the Capitalists are being played by the President.  I do not believe that to be the case.  The Bush administration would have been favored by the Capitalists, and yet we had TARP.  A different group, but still picking winners, a job neither side does well.  Just think AIG, which today I heard was trying to sell their airplane leasing business to the Chinese.

Throughout my lifetime, it has seemingly made less difference which party is in power.  They no longer look at the United States as a sovereign nation they are sworn to protect.  They all, and again I mean ALL, seem to be in it for the power and prestige.  And a fair percentage to get rich.  Think about it.  The Presidents salary is $400,000 a year.  Yet between President Obama, and Mitt Romney they spent over $2,000,000,000 to win the election.  Four years of salary is $1,600,000, grant it a tidy sum, but it hardly warrants spending $1,000,000,000 to get it.  So why would they spend so much?  And I would suggest if we lowered the salary to $0 there would still be a fight to be President.  Bill Clinton wasn't particularly rich, but in retirement he lives pretty well.  A big house in New York, travel, an office staff, I imagine George Washington is turning over in his grave.  This is not to pick on President Clinton, I'm sure the other modern presidents have done well too, look at the big libraries.

Because our government has strayed so far from the Constitution, the job means money and power.  The same applies to serving in Congress.  A member of Congress makes $174,000; leadership slightly more.  It is not the salary, but rather the ability to cut deals that enrich themselves, their families, and their friends.  I have come to the opinion they they don't give a hoot about their constituents.  That is sad.  To win a seat in Congress is like winning the lottery.  But winning is less about qualifications, and more about networking.  Charlie Crist announced he was a Democrat, after being the Republican Governor of Florida, that makes my point doesn't it, they really don't care, as long as they win.  It is NOT a philosophical battle going on, rather it is an economic battle; not our economics, but theirs.

Where I see sanity is in the people.  While I might disagree with Washington State's legalization of marijuana, they voted yes.  Now what happens?  The politicians are writing regulations, and figuring ways to tax it.  Most new jobs in this time of economic stress are government.  More and more common people are just not looking for work any more, that is why the unemployment rate reported on the news is going down, not because of the strength of the economy.  And this is hurting Main Street, the Mom & Pop businesses, even mid level business; and that sucks the will out of producers.  They, the politicians, are coming after your money, regardless if you're rich, poor, or middle class.

So what can or should we do?  Thomas Jefferson, the original Democrat, said a little revolution is a good thing.  Now, I do not believe we should take up arms against government.  Ours can be a peaceful revolt through the ballot box.  At the very least, vote against incumbents.  And past that, consider running for office.  I'm serious, if the ballot has multiple choices instead of one or two, the chances of taking money out of the equation is greater.  It would be much too hard to run a negative campaign against 10 people, than it is to run one against one opponent.  At that point maybe we would hear legitimate campaigns on just what will be done if you win, not what bad things your opponent will do if elected.  There might even be coalitions developed, moderating the extreme views we have now.

The Health Care law that was the crowned jewel of the President's first term, does little to help those in need of health care, but it has so far generated 159 pages of IRS regulations.  Is that health care, or a money grab by those in power?  We need to take money out of government, and by that I'm not talking salaries.  If government is put on a short leash, and are required to follow the Constitution, then this ridiculous spending can stop, the current political class WILL NOT do this, not now, not ever.  No matter their party affiliation.

The 'Cliff' - Part 2

This was more than I expected when I started the cliff part one.  In that blog I said there was a couple things we could do, and went on to discuss mainly one, the issue of taxation and whether it should go up or what is fair.  Now I would like to turn our attention to a second discussion, which no one seems to be having:  Spending Cuts.

Spending cuts is another way to deal with our financial crisis, but it is a little more difficult because the dollars spent here do affect peoples lives.  Or do they?

The Federal budget has several sections to it.  One section, called discretionary spending, are the things like defense, foreign aid, or anything that is not 'locked' in place.  Discretionary spending is 40% of the budget.  Defense appropriations are discretionary.  Mandatory spending is spending that has been set by law.  Mandatory spending includes things like Social Security, Medicare, Medicaid, and other programs generally considered 'entitlements'.  And mandatory spending accounts for over 60% of the budget.  And this is where laws would have to be modified to accomplish cuts.  This is also the area that would bring the lobbyists down on Congress en masse.  And it is spending we as a country must tackle in order to put our fiscal house in order.

Interest on the national debt is a mandatory spending item, it goes to our character as a nation.  The only way to reduce interest expense is to lower the debt.  Nothing currently being presented in Washington has any debt reduction.  Balancing the budget does not necessarily reduce the debt.  Past Congresses have spent money they didn't have, that is debt.  The debt has been accumulating primarily since the last world war.  To put things in perspective, lets look at a typical family.  They can deficit spend by using credit cards, but they then have interest to pay on those cards.  If they continue to overspend then eventually the interest eats up their entire paycheck, that is bankruptcy.

Congress has used the credit card for too long.  Some people are not capable of wise use of credit, Congress is one of them.  There is not one program we can 'cut' that will solve our problem.  Defense could be eliminated and there is still a problem, foreign aid dropped to zero and still there is a problem.  That problem is that Congress, and this is both sides, is drunk with spending money. 

To illustrate this, we need no more than to look at history.  In 1992 Bill Clinton was elected.  The electorate was so disillusioned with his performance, and that of his party in Congress, that they changed the whole shape of Congress in 1994.  For the first time since the New Deal, the House and Senate were controlled by Republicans.  With Republicans being considered the 'conservative' party, one would think that the debt would have shrunk.  It did not, it did slow down as surpluses were run in the budgets, but over all debt grew.  The Republican Congress, like previous Democrat Congresses, found that spending money was fun. 

Up until the early 1900s, there was no debt problem at the federal level.  And there are times when running a deficit is good, and required.  It is when there is no intention to ever pay that debt off that Congress becomes in my book criminal.  We hear all the time about how much each person owes as their part of the debt, problem is that blame is never assigned to those who run up the debt.  To personalize this, if I went wild with the credit cards similar to Congress, my wife would have me committed and the cards burned.  But Congress never seems to get blamed for spending too much, only for spending too little.  Until that changes, which may be never, the really big problem in the room will not go away.

So what is the solution?  I have ideas, but there are probably many more.  The thing is, will the solutions ever get to Washington.

The Cliff

Can't listen to the radio, or watch TV or read a paper, or surf the net without hearing about the impending 'fiscal cliff'.  And this is economics, so yours truly is in hog heaven!  I thought I would weigh in on this.

Last year, pre election, the two major parties in the US, refused to agree with each other on just how to mend our economy.  So, as politicians often do, they appointed a bipartisan committee of unelected political animals to work out a deal.  And, of course, they refused to compromise in a political year, so they put off the hard decisions until after the election.  Now they are locked into a political battle, which neither side wants to cave.  Basically Democrats wish to tax the pants off the rich, and Republicans want to prevent that.  There are a couple of things to look at here.

First, do we need tax increases?  It is one way to deal with deficits, but even the progressives in Congress, are not proposing enough increases to end the deficit.  We do, however, need economic sanity.  The debate will roll, and in the end, tax increases will probably happen.  Why?  Because that's what the people want.  Honest, see elections mean things, and in this case it means the people voted divided government, but with the progressives controlling the White House and Senate, the House will probably be bullied into accepting tax increases.  But wait, you say that they only want to tax the rich!  They need to pay their fair share!  It's the 1%! It's Wall Street!  It's the bankers!  It's Bain Capital!  They won't tax me right?  Wrong.  Corporations never pay taxes, they only pass your money to Washington.  It is an expense of doing business, so the price of things you need will be going up.

Add to that the tax increases in the Affordable Health care Act and the Alternative Minimum Tax, and the middle class Will be socked.  But wait, as the hawkers on TV say, so will the poor.  How can that be?  How uncaring!  True, but the taxes passed down through increased costs will hurt the very poorest the hardest.  The rich?  They will be OK.  Because they have options.  Perhaps it will be a minor inconvenience, but their life style will not be significantly impacted.

So the Middle Class and the Poor will shoulder the burden.  They are already struggling in a weak economy.  That is not fair.  So what would be fair?

As I was reading a article on line this week, the comments on the bottom always interest me, it is a great way to gage the left and the right.  One commenter said that the rich need to pay up, that tax rates are historically low.  I researched that claim, and it is a lie.  When Income taxes were first instituted the highest tax rate was 7%, a far cry from 35%.  Rates did peak higher, up to 94%, but that was to fund World Wars.  They stayed high until John F. Kennedy lobbied Congress to drop them in the 1960s.  The 1950s and 1960s were good economic times in the US, so why lower the rates?

The main reason our economy surged in the 1950s and 60s is because we were the only game left.  Europe was a shambles, as was Japan and most Asian countries.  America was the only place to buy manufactured goods, especially capital goods.  Toyota was non existent.  Volkswagen was rebuilding.  English factories were bombed out shells. 

Now Progressives, or socialists, or Liberals say we should be more like Europe.  Oh really?  Why?  But in some ways Europeans have it pretty good.  Centralized Health Care (Britain announced that patients will be Skypeing with their doctors to save money), $5 per liter gasoline, to just name a couple.  Is that what we want here? 

And we need to put a number on what is the fair share.  We have continually heard that said, without offering what that number is.  When taxes go up, and spending goes up, we will again hear "they have to pay their fair share".  I want to know exactly who 'they' are, and exactly what is their fair share.  Progressives, define yourself!  Maybe I would agree, but somehow I think they are afraid to tell you who 'they' are or what is fair, perhaps for political reasons?  Higher taxes are nothing more than a money grab by the political class, and that is why in the end your taxes will go up.

All this does is freeze you into your current class.  That means if you are poor, there will be no way out.  If you are middle class, you may go down, but never rise up the economic strata.  Same with the rich, they can move down, but not up.  Only those who control government will benefit.  We see it now, look at housing prices in Washington DC, or most state capitals, those are the markets doing well.  Now look at Detroit, or Las Vegas, they are not doing so well.  If you get the chance, watch an episode of Doc Martin on Netflix.  It is filmed in a coastal town in Britain.  Compare what you see to most of our coastal towns. 

So now we all have health care, and higher taxes, and higher costs, and a weak economy.  Think that will help the unemployed find a job?  But it's OK our masters in Washington will take care of us.

Spend well!

Black Friday Economics

Wow, I woke up this morning, dressed and headed to work, yes some people have to work on Black Friday.  We own a small retail store, and contrary to popular opinion, Black Friday is one of the slowest days of the year for small, family owned retail stores.  Primarily because we cannot compete with the big boxes out there who scream their sales and bargains for what seems like 2 weeks in advance now.  People line up outside Walmart, Best Buy, Kohl's, Target, Macy's, JC Penney, Victoria Secret, and the rest to get "the bargains".  Funny, but I'm not so sure the bargains are there this year, however, they still go and buy stuff that they probably don't need all that bad, to gift next month at Christmas.

I grew up thinking Christmas was the time of ultimate peace.  But I was met with these headlines as I logged on to the Internet.

'Gang fight' at Black Friday sale...
Man Punched in Face Pulls Gun On Line-Cutting Shopper...
Woman busted after throwing merchandise...
Thousands storm VICTORIA'S SECRET...
VIDEO: Insane battle over phones...
Mayhem at Nebraska mall where 9 murdered in 2007...
Shoplifter tries to mace security guards...
Men Steal Boy's Shopping Bag Outside BED, BATH & BEYOND...
Heckler ridicules shoppers, calling them zombies...

Is this peace?  Although, I do like the last headline, because that's what it has become in recent years.  In the spirit of total honesty, I have been in those lines in the past, call me recovering! 

What is the economics of Black Friday?  It comes from the actual name.  Black Friday is the day that most retailers finally get in to the 'black'  instead of the red as sales take off and profits roll.  Did you ever wonder why all they ads state "at least X per store"?  Because they are promoting something that at the very least is at cost, and often below cost to draw people to their front door.  If, for example a store has a 32" LCD TV at the incredible price of $99, but limits supply to 10 per store, then after the 10th person in line, the bargain is gone.  The lines go on around the store, many more than 10.  But after 10, the store has other 'values' to entice the shopper to buy, but these values are making the store money.  And, psychologically the customer thinks they must get something, even if it is not what they really wanted.  It is just a marketing ploy to part you from your money.  Was it worth getting up in the middle of the night to be punched, pushed, pepper sprayed, intimidated, or any other such thing; just to get an average sale product?  Is it worth interrupting your Thanksgiving time with family?  Is it worth forcing the store's employees to have a shortened or non existent Thanksgiving Holiday?

While I am usually a person who disdains regulation and government intervention, I would like to propose a new law.  This law would try to put sanity into the season, without trampling on the rights of people to be stupid, or stores to run their business as they see fit.  It is a simple law, it can be added to truth in advertising regulations already on the books.  Simply put, there is no limitation on when stores can open, nor pricing they can advertise.  But require stores to fulfill all advertise items over a three hour time frame.  One hour before the store opens to 2 hours after the sale begins, any person in line is entitled to the sale price.  If the store runs out of stock, that's fine, they must issue a rain check for the product, and that rain check must be filled in a reasonable time frame.  Problem would be pretty much solved. 

From the store standpoint, they know that if XYZ Inc gets silly, then they will be hurt financially fulfilling the orders.  They can't say "sorry, your too late."  From a customers standpoint, they will know that if they show up at the opening, or shortly after, they WILL get the bargain they want.  No more camping out for days or weeks before, ignoring family life, to get a cheap TV or computer, or video game, that will be obsolete in a relatively short time.  They can enjoy their family and read ads and choose where to go the next day.  And all retail can participate, since a small store's owners would not have to stay awake for 24 to 36 hours just to have the open time, and they will have sanity in pricing which means they will have good bargains as well.

If this is done state by state, then each state can write the law to match their values, adding more sanity to the whole mess we have now.  While I was growing up, my home state, Missouri, had 'blue laws', and while I do not support reenacting these laws, if a state did, there would be no reason not to, again matching the values of people living within their borders.  The blue laws did help retailers more than they would like to admit, the laws helped control cost and offer better customer service, which translates into less shoplifting and a better overall customer experience; and less expense to cover in gross margin spreads.

If you agree with me, I would urge you to send a link to this blog to your law makers, to friends, to the press.  Let's put sanity back into the season.  As my Christan friends say "remember the reason for the season".

Be Sane!

The Holidays

Economics of the Holidays in America is a hard topic.  We all celebrate, if nothing else Thanksgiving, but Thanksgiving is the start to several religious seasons as well.  Each has its own tradition, and drive the economics during the fourth quarter each year.

Some say that this time has gotten too commercialized, that the religious significance should take precedence.  Some people find economic stress growing this time of year.  We fall into debt to try to show our love.  Debt can be good in some instances, but please be careful.  What most of our loved ones really want this season is your love.  While we can demonstrate love with that special toy or engagement ring, or any other trinket, true love is in your heart.  If you find yourself in economic bad times, make sure you show your love, even if it is in a small way.

Your economic health is one way.  If you find yourself without a job, as the unemployment rate remains pretty high, or if circumstances are causing economic stress like a foreclosure, remember the big stuff can wait.  Work your way to good finances.  And that goes for our leaders as well.  We know that there are competing scenarios for you.  Whether it comes from the free market Adam Smith side or the controlling Keynesian side, there must be compromise, and we need to kick start this economy.  Please do not be so closed minded that you cannot form policy for all of America!

It is important to consider possible unintended consequences, but know that the American people, We the People if you will, are a resilient lot.  It is these hungry masses that built this great country, so whatever you do, keep the people in mind.

It seems like we make petty things our goals, and by doing that we miss the big picture.  In the just past election, a lot went into things that in the big scheme mean very little.  In fact, much of what was campaigned on could rightly be done by the individual states.  And in my opinion done better than an over reaching federal government.

Honestly, how did contraception become a campaign item?  Or marriage?  Why not leave it to the states to determine.  That would end a lot of bickering and in fighting in our National Capitol.  That is why our founders wrote the Constitution, to tell us their vision of a nation.  And their vision was independent states, banding together for the common good.  But they only wanted the national government to be referee, or judge of disputes between states.  And to keep state governments from getting out of control.

But this is also a time to celebrate America, to applaud our accomplishments, to spread our love to our families, to honor our predecessors.  God Bless America, and Happy Thanksgiving to ALL Americans!

Black Friday Specials, and Free Naps!

Hide the Taxes

Economic facts are just that, facts.  The problem comes in how those facts are perceived.  And the ruling elite do their best to show the facts with their spin.  Is it really surprising then that the Keynesian's won the election last Tuesday?

I started thinking, because it seems clear enough that when mean income is down over $4,000 a year, and falling, and gas has doubled in price in four years, and health care costs are up over four years, AND food costs are up close to 25%, that people would have voted with their pocket book, and changed course.  That didn't happen, in fact, the opposite happened.  The question I have heard is why?  I believe the answer is two fold.  First, most people do not think they pay too much in tax.  And second, they believe government is a bottomless pool of money.

I think it has been a concerted effort by the ruling elite, on all sides since the early part of the last century to hide taxes, and to pick on small groups.  You may be confused, how can government hide taxes?  Here's how:

Income tax.  Each time we receive a paycheck we look at the amount, and deposit it in the bank to pay bills.  How many times have you studied the stub to see the withheld tax?  FICA, Medicare, Income taxes, unemployment taxes, and some local taxes all come out before you see the total.  Then you also have the payroll tax that your employer pays, so he can employ you.  You don't even see this, but if it were not there, your employer would have more money to pay you.

Property Tax.  Property taxes are assessed against houses.  If you have a mortgage, then there is generally an escrow account.  Your total monthly payment is the principle, the interest, and a payment to escrow.  When your property taxes are due, the lender writes a check to your government taxing agency from that escrow account (your money).  Most people only worry that they can afford the monthly payment, and in our minds we often have a disconnect that a chunk of it is paying a tax.  And this tax seems to grow yearly, regardless of property values, as politicians assign a value to your property, whether or not it is realistic.  In my taxing jurisdiction, schools can not lose money, if taxes collected go down, they can force, without a vote the rates to go up.  Remember, government should never have to do with less.

Excise Tax.  If you have a smoke, drink a drink, put gas in the tank, or even buy tires for your car, you are being taxed.  The tax on a pack of cigarettes goes as high as $3.76 in New York.  But there aren't many smokers left, and the money funds stop smoking efforts, and education.  If smoking is so harmful, the government is killing its people by allowing it to continue, not only that, but they are profiting from the death of their citizens.  At the very least they have isolated a small group of people, and taxing them to death.  Of course the rich are the only ones who smoke, right?  If you drink, then you are being taxed.  A gallon of beer can see up to $1 in tax, and that is before sales tax or other taxes.  Wine tax mean is 69 cents.  Your phone has excise tax imposed on it.  Your tires as well.

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Sales Tax.  Quick, what is your local sales tax rate?  Some will know, many will not.  In the 1950's in my home state of Missouri, sales tax was so small that the state produced little plastic coins you would buy to pay the tax, they were called "mils" because a mil was .001 cent.  Sales tax was almost nothing.  It might cost you $5 or $10 to pay the tax on your new car.  Now dinner for two has more tax on it.  Since sales taxes are a percent of the sale, the actual burden is easy to figure.  Missouri has gone from .001 cent to now in some locations over 7.5% of the sale.  And still they say it is not enough.

The point is, none of these taxes are usually noticeable by the average citizen.  They are hidden, or have slowly grown over time.  Most of these hidden taxes affect lower income citizens more than rich citizens.  And yet last Tuesday, there was a ballot measure to increase the tax on tobacco in Missouri.  Taxing the poor.  Where was Occupy Wall Street?

The second reason why the election ended as it did; is because of the bottomless pit myth about government.  It is real hard to imagine what $1 million dollars is, much less a trillion.  But if you get laid off, off you go to get unemployment, and or food stamps.  If a hurricane blows through; you ask what is FEMA going to do?  Government gets the money they spend in one of two ways.  First is taxes.  The second is by printing it. 

Taxes are collected two ways, either direct taxation, or mandates, mandates is another whole discussion.  Taxes take money out of the economy, for the common good.  Let's put a number to it.  If you are making $20,000 per year (well below the poverty line) and smoke a pack a day, drive 5 miles to work, and enjoy drinks after work and on the weekend, you have paid $1500 per year in taxes, that you don't even know your paying.  Sure you get a refund on income taxes, because they collected more than you owe, so they give you back your own money, without interest.  That's 7.5% of your income, and that is before sales tax, real estate tax, and property tax.  This is where our system lacks fairness.

  If the government prints money, then you don't pay right?  Wrong.  If the government prints money, then each previous dollar is worth less.  So prices increase to compensate, it is called inflation.  My grand parents bought a small, but nice house in 1952 for under $5,000.  The mean price of a house around here today is probably over $250,000.  $245,000 in inflation since the 1950's, or over $4000 per year.  So if our $20,000 earner owns a modest house, then their hidden taxes go to $5500 a year or 28%.  So we are taxing the poor 28%.  We could continue, adding sales tax of $1350, and other fees, but you get the point (35% taxes paid).  So our leaders tax the poor 35% or more, and Congress and the President say it isn't enough, God only asks for 10%.

Finally, look at the areas less affected by the recession and you will find about 51 of them.  Washington DC metro area, and each state capital.  Isn't it time we really consider making what we pay in taxes efficient?  Isn't it time we consider cutting the cost of government?  When is enough enough?

2013

This entry will talk about taxes in the United States.  I know that sometimes it is hard to understand the numbers, so hopefully I can pose it in a way that the numbers make sense.  After all, what is a Trillion Dollars? 

The US economy is forecast, according to US Debt Clock, to be over $15 Trillion dollars for 2012.  We have been running Trillion dollar deficits, that is new debt for the last 4 years.  So as you can see,  almost one third of our GDP has been borrowed over the last 4 years.  Our debt as a nation is over $16 Trillion, or more than we produce in a year.  Of course, long term debt can some times exceed yearly income.  In our personal lives, we may buy a house with borrowed money.  To use myself as an example, we bought a house in 2005 for $200,000.  My income is no where near that.  The result is a mortgage, so in 2005, I spent more than my income, however since that time I have paid the morgage, not refinanced the debt.

While it is not necessarily a bad thing to spend more than your income, you still need to be sensible.  You need to have a way to pay back the loan.  In government's economy, they have tax revenues.  But  they haven't stayed within their means for many years.  It would be like my family buying another house every year.  It is unsustainable.  Don't take my word for it, ask the Greeks, or the Italians, or the Spaniards. 

During the campaign season, both candidates say "I have a plan".  But what is that plan?  Do you know?  The Desmoines Register interviewed President Obama, and here is a quote from that transcript:
"Q: Great. Mr. President, we know that John Boehner and the House Republicans have not been easy to work with, and certainly you’ve had some obstacles in the Senate, even though it’s been controlled by the Democrats. At the time, whenever -- we talked a lot about, in 2008, hope and change. I’m curious about what you see your role is in terms of changing the tone and the perception that Washington is broken. But particularly, sir, if you were granted a second term, how do you implode this partisan gridlock that has gripped Washington and Congress and basically our entire political structure right now?

THE PRESIDENT: Well, Rick, let me answer you short term and long term. In the short term, the good news is that there’s going to be a forcing mechanism to deal with what is the central ideological argument in Washington right now, and that is: How much government do we have and how do we pay for it?

So when you combine the Bush tax cuts expiring, the sequester in place, the commitment of both myself and my opponent -- at least Governor Romney claims that he wants to reduce the deficit -- but we’re going to be in a position where I believe in the first six months we are going to solve that big piece of business.

It will probably be messy. It won’t be pleasant."*Desmoines Register

Let's look at the answer.  "So when you combine the Bush tax cuts expiring, the sequester in place...  I believe in the first six months we are going to solve that big piece of business."  Hmm, seems that as tax payers, if the president is re-elected we can expect a huge tax hike, almost  a half trillion dollars.  And, the sequester calls for 1.2 Trillion dollars in automatic budget cuts, with defense getting hit with almost half that figure.  Let's face it, we can not cut interest expense.  There are certain things we also can do little about, like Social Security and Medicare, contrary to the political commercials I've seen.  So where on Earth do we find the other cuts?  Are you ready to give up your mortgage deduction?  Health and Human Services, Housing and Urban Development and the Justice Department will all be slashed.  It's nice that we hear we need more teachers, and police, but the reality is we will lose them with this plan.

When you add the Bush Era Tax Cuts (and I really don't like that title) and the Sequester, there will be just under $2 Trillion dollars ripped from the private sector. Or about 1/7 th of our national income (GDP).  In the weak economy that we are enduring today, that would be devastating, not merely messy and unpleasant.  At the same time, if you are a regular reader, medium income is down by $4,000 and health care costs are up by almost $3,000, and gas prices have doubled.  And the rhetoric of tax the rich is not a solution.  If you confiscate all their assets it would not run the government for one year, in fact much less.  After that they would be broke, guess who's next?

Before we can heal this economy two things need to happen.  First, Congress needs to receive a physcological examination, as to why they think they have no bottom to the pile of money coming in to Washington.  And second, the President needs to accept that you can not grow an economy by taxing money away from the people.  However, by growing the economy the pie will get larger.  The excess in revenue collections should be pledged to paying down debt, not some ear mark or attempted vote buying scheme hatched by Washington insiders.

From 1981 until 2000 the economy was relatively good, few ups and downs, but overall good.  Why during that time was the debt not paid?  Why do we find ourselves over $50,000 in debt per person?  Why haven't our politicians been better managers of the money sent to them in taxes?  Let's hope that it is not too late for US to change our ways!

October Surprise

It is political season in the United States.  Politics and economics are incestuously intertwined and the very root of our civilization.  Elections in the US are based primarily on economics, there are occasional deviations, but We the People will look out for our own welfare when deciding who to vote for or what to vote for.  As such, often times in October incumbents will try to reinforce that they are good for the economy, and challengers will dispute the incumbents ability to lead the economy.  2012 is a classic year.

As we look back, the last 5 years have been rather tough economically in the US.  Gas prices have more than doubled.  Health care costs are up.  Unemployment is up, real unemployment not the unemployment that is being reported by major media.  GDP growth is lethargic.  Food Stamp or SNAP participation is up.  There are more people on disability.  Women's income is down.  Lower earning individuals have been stressed.  Mortgages are being foreclosed.  Do I need to continue?

So what will be the October surprise?  I believe I saw an inkling today, gas prices are forecast to drop by 50 cents a gallon over the next few months.  And this may work.  As I touched on in previous posts, gas prices may be the most important economic statistic when it comes to voters.  All voters are affected by energy prices in general, and gas prices in particular.  Gas prices are advertised on many street corners throughout the land.  And high prices hurt the most economically vulnerable first.

Why do these economically vulnerable get hurt worse?  Primarily because they are least able to afford rising costs of anything.  They generally drive older, less efficient cars, and often times when energy prices rise, sales fall bringing lay offs.  High energy prices drag our economy, like it or not we are an energy based economy, and the energy that we use most is petroleum and other fossil fuels.  This is what makes President Obama's refusal to encourage more oil production on our own territory perplexing.  I know that President Obama is a progressive or liberal, or what ever the label is today.  Progressives see oil as the cause of global warming and environmental destruction.  Oil is what drives our economy at this point in history, and the price of oil can determine the outcome of our elections.

Bill Clinton may have said it better than any other President, or candidate I remember, "its the economy, stupid".  And since the price of oil is so integrally part of the economy, it could be modified to say its the price of oil, stupid.  President Obama has said it is previous administrations that have caused our troubles, however, after four years of his leadership, why hasn't it gotten better?  Is not the overall economy the most important thing a President works on?  Has that not been the case since the inception of our Republic?  Think about all the issues of the past, they all have an economic basis.  Slavery and the civil war.  The whiskey rebellion.  And even before we were a country, the Stamp Act, Boston Tea Party, and our Revolution where all economically based.

Those doing well, generally do not want change.  We had loyalists during the Revolution.  Today we have what Mitt Romney called the 47%.  There is a difference, but the safety nets installed since the 60's have made people more dependent on government.  So to economically offer them more stuff; free contraception, health care, more food stamps, cell phones, or other largess, means you in effect buy their vote.  They are voting by their personal economic standing.  They are the ones most affected by energy price increases, and they are the ones that feel betrayed right now by the current administration.  That being said, the opposition scares them.  The opposition wants them to take more responsibility for their economic lives. 

Today we are more economically caste than in previous generations.  Henry Ford did not have a lot of money, until he used the assembly line.  Frank Woolworth went bust twice before he opened what we know as the Woolworth Dime Store.  August Busch almost went out of business during the prohibition.  Today, to open a modest business is very costly, many people cannot afford it.  So they are forced to "work for the man", which they feel doesn't care for them.  The current American Caste system is keeping people from thriving as in past years.

And that caste system is a political problem.  Government is a user of economic resources, not a producer.  The bigger our government gets, the less resources are available to fuel our economy.  When the government attacks the price of energy, by raising CAFE standards, it actually hurts the economy by making cars more expensive.  More expensive cars equates to less sales, and less employment, and doesn't really accomplish what the desire is, lower energy prices.  To bow to a Saudi Prince offends our sense of nationalism.  There is a simpler answer.  Control our own energy resources.  Start now by drilling, or mining.  Work toward other technologies like solar or wind, but they must be home grown.  Balance the two so as not to affect the economy, balance the budget.

Allow those who do the heavy lifting to benefit.  Do not try to pick winners.  There are still people out in their garages, working after work to find a way to harvest other energy sources.  And one day, if we do it right, petroleum and fossil fuels will be like the buggy whip of the 1800's.  But until the internal combustion engine was manufactured cheaper than the up keep on a horse and wagon, the buggy whip was a good investment.  Government didn't lead that transformation, and as much as they like to think they can lead the next, they can't, it is not what they do best.

Be a doer!

”"Do or do not, there is no try. "Yoda Jedi master
from the Star Wars film series

This is one of my favorite quotes, and yes I know Yoda is a fictional character.  But it says it all.  Last night as I listened to the Presidential debate between Mitt Romney and Barack Obama, I thought of this quote.  Ironically today, I opened my email, and there it was again.  So I was inspired to write this post.

Let's review the last four years, from an economic perspective.  First, the medium income in our country has decreased by around $4,000.  This means that people are making less money.  It also means that they have less disposable income to spend and stimulate the economy.  They are primarily living and holding back on everything else.  What else can they do?  We have to get to work, so we buy gas and a few cars.  We have to eat, so we buy food, but even there we stick to survival basics, and have not been visiting restraunts as frequently as the economy needs us to visit them.  This affects the bottom line of food sellers, restricting their expansion, and hindering employment, which stands at 23 million people.

Healthcare costs are up $2500 per year.  More stress on our incomes, but what if we get sick?  Yet our politicians spend their time trying to "help" us by mandating healthcare.  Yet they let us get sidetracked by the contraception arguement.  That is a minor issue, but is preventing us from taking care of the major issue.  Contraception is cheap, even if you do not have healthcare.   Walmart lists Trojan condems at $7.47 for 10, or 75 cents each.  Many pharmacies offer the "pill" for around $10 per month.  And, because of peoples passions and religious beliefs, we are easily sidetracked and lose sight of the larger picture.  Personally, if $10 a month is too much, you probably shouldn't be procreating.

Food costs are increasing, and they will increase more over the next year.  Besides using corn to put in our gas tank, driving up the price of corn, we have the results of the midwest drought to contend with.  More stress on our individual budgets.  But we have to eat...

Because of the unemployement rate there is more supply and demand pressure to keep wages down.  If you need a job, and have been earning $50,000 a year, in this economy if you are offered a job for $45,000, would you take it?  What if your unemployement insurance ran out, then how much would you accept?  Anything to feed your family?  Remember there are 23 million unemployed, and many million more who gave up on finding work.

There is no disposable income left for vacations, amusement park or any other liesure activity.  Its these elective things that can drive our economy. 

 

So how does the quote lead back?  Our current President took the stand that he was trying.  He "inherited" a bad economy.  Its not his fault.  But Mr. President it has been four years, how many more do you need to "fix" the economy?  I believe it is just a matter of economics.  The President is a follower of Keynes.  Keynes believes, like Marx, that the government can plan the economy.  At no time in history has this planning worked.  Is our President too hard headed to realize this?  I have been told the definition of insanity is doing the same thing over and over again and expecting it to work.

It didn't work at Plymouth rock, we celebrate the end of that experiment on Thanksgiving Day.  It didn't work in the former Soviet Union and eastern Europe.  It isn't working in Cuba or Venezuela.  Europe is a mess.  China is moving toward a more open economy.  Why are we going the other direction?

It's Not Just Economics

I read a news report today about a poll.  Not a political poll in the sense of the horse race, but rather a poll on our Federal Government, done by Pew Reasearch.  In this poll a full 86% of citizens are frustrated with the Federal Government.  Governments can cause this frustration several ways.

In a royal society, as France was in the late 1700's the monarch can cause it by not caring for his people, using them as cannon fodder or just as a source for his opulence.  The famous non quote from that time was "let them eat cake".  The society revolted in a bloody revolution which saw the introduction of the guillotine.  It was not a good thing.  Royalty always passes the government from generation to generation in one family line.  Eventually, there will be a stupid king, it is inevitable.

Like royal society, there are dictators.  Dictators are like royals, except they do not come from a select blood line.  North Korea is an example of a dictatorship.  In these societies, again, the people are looked at as a source of income, or an army to procure more land or riches for the dictator.  Again, and usually sooner than in a royal system, the dictator is deposed by the people.

There are tyrannies in all forms of government.  The Romans started as a republic, and devolved into royalty.  And the blood line failures eventually invited invasion, and the down fall of the empire.

In the United States, our Founding Fathers set up a republic based on commonly held virtues; Life, Liberty, and the Pursuit of Happiness.  All great societies must be vigilant to keep true to their principals, it is when these principals are abandoned that the country weakens. 

There is a second thing to notice in the above.  All the failed societies failed primarily because of economics.  They say that to ignore history is to repeat it.  This is why I write these blogs.  We as citizens of the United States still have one thing that none of those failed societies had, and that is the vote.

But our vote is threatened today.  Fraud in elections, negative advertising, out right lying about opponents is a threat to our vote.  In our busy world many people rely to heavily on political ads to form their opinions, some of these ads are outright lies.  In Missouri, one candidate for governor is actually suing the other one for lying.  In the mean time, who is watching the economy?  It seems that politicians in general do not care about the economy, just getting re-elected.  Promise to spend money, and you're a shue in.  Most congressional districts seem to judge their congress person by how much comes back to the district.  This is NOT good economic policy, it is one of the reasons we have such massive debt.

The election is getting closer, protect your right to vote by doing at least minimal research on the choices you have.  Please do not let the politicians confuse us and cost us this election.  Bottom line, I do not care who anyone votes for, but I do look down on them if they don't know why... and "because X Party is for Y" is not a good reason.  Vote Democrat, Republican, or other parties, but do so because the represent your ideals, and research to know why you are in sync with them.  I love my grandfather, but there was one thing he told me that never made sense in my adult life.  He said:  "...This voting thing is easy, just go in to the booth, close the curtain, and yank the donkey's tail."  while I am my grandfather's grandson, I respect him more than he ever knew, on this one thing we disagree.  Vote for the man or woman that represents your ideals and hold them to those ideals when they go to the jungle that is Washington DC.  And last, vote for the candidate that in your opinion is the strongest on the economy, it may save our country from failure experienced by other great societies.

The Debate

I love to observe things around me.  And while this isn't economics, who wins the Presidency does determine the tack that our economic policy will take.  Rather than try to figure out what each candidate will promote, I thought it cold be fun to try to see how different networks might cover it... Let's see if I'm right :)

This is my observations on tonight's debate, of the different networks.

 

Let's look at ABC first.

 

They will probably concede, that president Obama won the debate. They would probably point to specific questions that president answered in a way that they are in agreement with.  They will specifically point to green energy and the differences between the rich and poor in a effort to accentuate the differences between progressives and conservatives. They will ignore the fact that Romney is more in the middle of the political spectrum.

 

CBS

 

CBS will probably do a lot of what ABC does; will do with more restrained style. They will probably have a number of reporters off-site perhaps in debate watch parties primarily on the east and west coasts. Of course these people will be predisposed to favor the current administration. Their will be a lot of partying, and that will be there way of showing the president obviously won the debate.

 

NBC

 

NBC will probably suggest you go check out MSNBC, where Chris Matthews will have another tingle running up his leg. They will suggest that Romney had a horrible debate appearance, which is too bad for his campaign. They will once again play the 47% tape for the audience to hear.

 

CNN

CNN will have a score on a debate showing president Obama scored a knockout. They will probably promote the latest CNN poll showing the president with a 10 or 15% lead.  And a large map, mostly blue in color saying the election is in the bag.

 

FOX

 

Fox news will have a roundtable discussion including Juan Williams, Sean Hannity and perhaps one of their other hosts. I really don't know how they will score the debate. Fox news may even show the newest Obama tape from the last election, the tape that shows him at a speech in 2007 with Jeremiah Wright and other black leaders were even his accent changed from normal.

 

Local news

 

Local stations will follow the debate with their newscasts. Most will play clips primarily showing how the president won the debate. Then they will move on to other local things including weather and sports.

Not only Gas

In a previous post we discussed why gas prices, really oil in general, can affect the economy.  There was a story yesterday on the Federal government 'fining' hospitals if patients are readmitted to frequently. 

How many of you know where hospitals get the money to pay those fines?  And the fines are expected to average about $125,000 the first year.  Hospitals make money by seeing patients.  If they are fined for readmitting too frequently, they will do a couple things.  First, they might just refuse the business if it involves a government health care program like Medicare.  Some seniors have found that doctors no longer wish to accept patients on Medicare because of the low pay, slow pay time, and other red tape involved.  It makes it unprofitable.  Will hospitals be next? 

While the government may impose fines, they also tell the hospital how much they will pay per occurrence.  Hospitals are unable to raise rates to cover the fines, at least on government sponsored health care.  They would have some latitude to raise prices on those patients who pay cash, or are privately insured, causing those people's costs to go up.  Health care insurers, who also need profit to stay in business would have to raise rates to their subscribers to cover increased costs.  That hits the majority of people.  Is that one of the hidden taxes of health care reform?  And don't forget, if you do not have health insurance, there will be a fine collected by the IRS when you file your taxes, effectively holding up the market for insurance.  The rich and big corporations can side step this by self insuring, then carefully picking their employees to minimize risk.  The middle class will pay once again.

It is government meddling in the market that has caused health care costs to rise, government meddling will not solve the problem now.  Prior to World War II health insurance was rare.  For the most part people paid the doctor when they went to see him, or made arrangements to pay the provider if they could not afford the lump sum, remember the stories about paying with a chicken?  In World War II the government imposed wage freezes, meaning that to attract quality employees, companies could not offer more money, they could offer benefits though and the big one was health insurance. 

As more people were exposed to health insurance, they found it was a useful benefit.  After the war, insurance companies fought for those dollars and consumers benefited.  As more people used health insurance, however, it took more and more of them out of the reality of actually paying a doctor, that's what the insurance company did.  If the child sneezed, off to the doctor demand skyrocketed.  Doctors and other providers found that the insurance company did not argue much back then, just wrote the check, and doctors gradually increased their fees.  There was no market force to control costs.  At first there were slight premium increases, but as the machine started rolling the increases accelerated. 

Along came HMO's, who reduced costs by trying to control costs paid to doctors, they had negotiated rates for particular services.  HMO's could have helped reinstall the market place, but for the most part they found it was easy to pass along price increases and this never eventuated to a major degree.  As costs spiraled up ward, more and more people were being priced out of the market.  Now when they need emergency help, they show up at an ER, who are required to stabilize them and if they don't pay... whatevverrr.  So now along comes government, to try to fix the problem they created.  Regulations have not controlled costs but pushed more people off the insurance rolls.  And as mentioned earlier prevented some seniors from seeing the doctor of their choice.

Today we have a major problem, before WWII doctors were primarily middle class.  Today, they are  upper middle to upper class.  To take money away from them would discourage them from staying in the industry and others from joining it.  But if the pre WWII market forces were still in effect, we probably would not need to be discussing this as much.  To try at this point to reinstall the market forces would actually force us to declare health insurance illegal.  Then individuals would be forced to monitor their own costs, and choose health care like anything else.  But that would harm millions of peoples access to health care and I'm not sure this is a viable option anymore.

In the last 3 1/2 years median income has decreased by over $3000.  Gas prices have doubled, health care will go up soon, and the drought across the heartland this summer will push up food prices.  This will reduce disposable income and it is possible, perhaps probable that we dip in to recession, or even depression.  Even if reforms are made, the economic hurt will probably harm the economy.  But our leaders will try to do what they always do, push off the really hard things as long as they can, then set up a bipartisan commission to study the problem, then reject the suggestions of that commission.  It isn't good for getting votes...

Gas Prices

Today we want to try to explain why rising gas prices are so hurtful to our economy.  On December 29, 2007 the average gas price in the United States was $1.59 per gallon.  Today that price has more than doubled to $3.81 per gallon.  There seems to be no will in our national capital to try to reduce the price of gasoline.  That is a mistake. 

It is costing the average driver almost $1100 more in 2012 to run their car than it did at the end of 2007.  Median incomes have stayed rather flat, when adjusted for inflation. When you add to it fee increases, taxes and inflation, our average driver has a lower disposable income than at the end of 2007.  What that means is for example he no longer can afford things like a new car, high end appliances, and even my industry's mattresses.  These hard line goods are generally the engine of our economy.  The average age of a car on our roads has risen to over 10 years, the highest since 1995.  GM and Chrysler filed bankruptcy.  Auto workers are out of work.  Appliance sales have decreased in 2011 by up to 21%, depending on the appliance.  TV sales are down from the peak in 2010.  All these manufacturers and those selling the products need less employees, and less selling space.  With the increase in the price of gas, oil companies employment has stayed stable.  The jobs lost in retail and manufacturing are not showing up in oil production.  $1100 would buy a really nice TV, or perhaps a new washer and dyer set.  Multiply this by the number of households in the country and it is easy to see why our economy is stagnant. 

Our political system seems to prefer pushing solar, wind and other 'green' technologies rather than concentrate on the existing technologies that drive the economy.  And that is not to say green technology is bad, it is proper to encourage it.  However, oil leases are down in the Gulf of Mexico.  Demand on a global basis is up, which is why gas prices have gone higher.  The Chinese, Indians, and Brazilians are all using more oil.  Oil prices are primarily supply and demand.  If our economy does improve, those prices will increase more, making it harder to sustain the improvement.

When the economy is under performing, there are certain good things that become too expensive to do, and if we do them, it drives up the deficit.  Things like the social safety nets, education, or infrastructure improvement are simply more expensive as a percent of taxes collected.  We could raise taxes, but that would exasperate the problem and the economy would sink more.

How can we reduce oil prices, and then gas prices?  The best and proven way is to increase the supply of oil.  OPEC resists that, they like the price to remain high.  There are several oil rich countries like the US and Russia, that if we worked together to up our supplies, might have an impact on overall prices.  We seem to not want to up our supply, and we are suffering a bad economy because of it.

The US national election is just 2 months away, will it hinge on the economy?  Or will it hinge on Social Justice.  If we base our vote on economics, then maybe we can eventually do both.  If we vote on social justice, the economy will continue to lag, making social justice items more and more expensive. 

In the early 1980's I worked for a company called F.W. Woolworth, that company was founded in 1874 and for generations it was near the top in retailing, much like Walmart today.  They had a division of big box discount stores.  They borrowed money to expand, then had to borrow more to maintain.  Finally the banks said no more money.  That day will someday come to our government, unless we get our economic house in order.  If that day does come the poor and minorities will be hit bad, to the point that you might see social upheaval or even revolution.  Our credit rating has already dropped, the problems cannot be fixed overnight, we cannot put off finding the solution. 

But by drilling here we will put people to work, drive the economy, and make us less depended on people who could care less if we survive as a nation.  Drilling will enable workers and consumers to have more expendable income further driving the economy.  And a growing economy usually increases the amount of taxes collected by government, helping to stabilize the social safety nets.

So, Who Built It?

There is a big political debate going on right now.  The Democrats, represented by President Obama are saying if you have a successful business it is because of government building roads and such.  The Republicans, represented by Mitt Romney say that's jut simply not true.  Who is right?

Technically both could be right, but technicalities make me crazy.  Sure the government contracted with road contractors, or hired highway department people to build roads.  However, how did they pay for them?  Was it not with tax dollars?  Who pays taxes?  53% of the population pays taxes currently, and most small, medium, and large businesses.  47% pay no taxes, and even get money back (redistribution, but let's save that for another time), yet they use the roads.  They have the opportunity to use that infrastructure to make money, and build a business.  Black Markets do not pay taxes, generally, but gangs still use the roads.  And frankly, when larger businesses open a head quarters many local laws usually require them or the building's owner to improve the roads going to their building. 

My wife and I own a small business.  I have yet to have a politician volunteer to work a day in our store, so we could have a day off.  We have had about 6 days off in the last two years.  We are open about 65 hours a week.  Our family does help, but not once has a public official even offered to help us meet the rent.  We are in our mid 50's, and have never been 'rich' by any definition.  In the 1980's we lived on as little as $13,000/ year.  In the early 2000's through 2010, our income did advance to the middle to upper $40's.  But we had a dream, a dream to leave our family better off, a dream to help people, a dream to control our own lives.  Owning a business, by the way, may not be the best way to do that, especially in the economy of today.  We work those hours, we push our business, to succeed.  If we fail, then no one else loses money but us.  We believe we are building our business, and we're damn proud of it!  But, we did not pay for the roads, or is it we did not contract to build the roads, you see we have paid taxes.

This debate does highlight the two major trains of thought today.  It can be summed up by answering this question:  Who is better able to effectively spend capital to boost the economy?  If you answer government, as the Democrats generally do, you believe that individuals are unable to make decisions to benefit society.  Individuals like Thomas Edison, or Henry Ford had ideas that did benefit society, Bernie Maddoff's idea did not.  If you answer individuals, then how can we make sure that these individuals do have our interests in mind?  Aren't there a lot of money grubbing scheming business people?  For most of the United States history, the latter answer has ruled the day, then laws were enacted to keep the individual honest.  Private organizations, like the Better Business Bureau were established, again to foster honesty and fair dealing.  Unlike the modern European model, based in part on the feudalistic societies their economies came from, where government can determine what is needed and where, then if you get their approval, and live within their laws can open a business.

So the last question:  Why has the United States in the 20th and 21st century been the largest economy?  We are blessed with resources, but others have more.  We have a lot of people, but other countries have more.  Perhaps it is our Constitution and the mostly hands off approach that has made us successful.  The Soviet Union's centralized government couldn't best us.  The English government was run over by us in the days after WWII.  The Chinese are the only centralized government that seems poised to overtake us, and that government, has allowed a fairly open reform to achieve that.  And, they haven't bested us yet, only time will tell.  Open government, that writes minimal regulations to protect the population from scoundrels, but otherwise butts out of business has worked here since the beginning, there is no other system that has worked as well, why would we change now?

The Federal Reserve

The Federal Reserve has developed into The United States Bank.  Since the very beginning of our nation, a central bank has been debated.  Thomas Jefferson and James Madison were opposed to a central bank.  They  saw it as an engine for speculation, financial manipulation, and corruption.  However in 1791, just a couple years after the Constitution was accepted, the first central bank was established.  That bank was wildly different from today's Federal Reserve.  The first bank was only responsible for creating 20% of fiat currency.  Private banks controlled 80%.  This first bank lasted until 1811.  The Congress sold the nation's interest in that bank.  The First National bank was partly owned by foreigners. 

In 1817 the Second National Bank was established.  It was modeled after the First, but was privatized in 1836, and liquidated in 1841.  The government was the largest stock holder in this bank, and it worked for the treasury to pay the bills of the Federal government.  There was major opposition to it and that is why its charter was not renewed.

From 1863 to 1913 National Banks performed those duties, and in 1913 our current Federal Reserve was established.  Over the years there has been changes, and today we find that the regionalized Federal Reserve controls our money supply and because of this can have an effect on our economy.  Today it was announce the Fed was beginning QE3.  What does that mean?  We are currently in a recessionary cycle, businesses are having issues selling their wares to the public.  The people have it in their heads that bad times are here for a while, and as such they have pulled back on spending.  When that happens then factories over produce, and eventually lay off workers.  The the cycle will repeat until some way is found to encourage people to enter the market once more.  It can be things like low borrowing rates, or as simple as printing more money.  That is what QE3 does, it is keeping interest rates down, and is buying government bond, which increases the money supply.

The hope is that this will encourage people to buy higher priced goods like house, cars, or appliances.  This will put people back to work making these goods.  Those people will be more open to buy other things, which puts more to work.  And then we will reach an expansion in the economy.  The most recent expansion period began in the early 1980's and ended in mid 2000's. 

The business cycle is just that.  It cycles from recession to boom and back again on a somewhat regular basis.  These cycles are not all bad.  As long as the people prepare, then actually recessions can help fuel the expansion.  That is not to say there is not pain, there certainly is, however, recessions do make companies more efficient, bringing down prices which does benefit all of us.

Today is interesting.  It seems the most volatile prices in our economy are fuel and food.  That makes what is happening all the more painful.  The food portion is primarily as a result of two things, the drought and federal policy that diverts food crops to energy (ethanol).  Fuel is another thing, see because of our dependence on outsiders, and the emergence of economies in China and India, global demand for energy is increasing even in this recession.

Until we get energy costs under control, I am afraid this recession will drag on.  Global production of energy has to increase to bring costs down.  OPEC, works to keep prices up in oil by controlling production.  We need non OPEC alternatives.  When oil drops in price, every corner will display it.  When energy costs fall, then production will increase.  We need to produce more of our own energy, making OPEC less important to the overall energy picture.  The side benefit might also help settle the middle east. 

The Fed believes QE3 will help.  QE1 and QE2 have not gotten us out of this recession, so why would this one?  Isn't insanity doing the same thing over and over again, and expecting a different result?  By the latest catch phrase:  I'm just sayin'.

Do You Remeber?

All wars are fought over one of two things, and both of those are economic.  All wars are fought over either territory, money, or both.  Do you remember where you were when the current war began?  When the planes flew into the World Trade Center, The Pentagon, and was crashed in that Pennsylvania field by every day hero's?  We are at another anniversary of that event, September 11.

I was at work.  On the Monday prior to this, I was at a meeting in the headquarters of the company I worked for in Nashville, Tennessee.  I was packing out my suitcase, and was in a hurry, so I didn't have the TV on.  As I loaded the suitcase into the car some people started talking to me.  Which is a little odd in a big city like Nashville.  They asked me if I saw it.  I said, no what happened?  A plane hit the World Trade center they said.  For some reason I went back to my room and turned on the TV.  News coverage was on, at first they thought it was a horrible accident.  But as the cameras were trained at the crash site, another plane came into the frame and flew right into the second tower.  My jaw dropped.  At that instant I knew we were under attack.  The American way of life was in peril.  Most of us, Americans, just want to be left alone, we have no ill will towards anyone.  Perhaps our Government is a different story, but every day Americans are doing what most peoples are, trying to do, make a living.  Tears started to flow.  I sat on the end of the bed for hours watching the coverage.  At some point I guess I realized that my way of life was being threatened.  And I remember making this promise to myself, I don't remember if I said it out loud, however, I was not going to let the bastards win.  I took a few minutes to compose myself, then I went out to the car, I had sales calls to make.  It was the hardest day of my life.  But my life went on.

My kids were 7 and 10 years old, they and my wife were 500 miles away.  Each mile closer to home had a certain apprehension.  Was there to be more attacks?  Where would the next one be.  I do remember feeling some security in that President Bush, at least at first did what I was doing, his job.  He was reading to some elementary students, a political event, but he didn't stop right away, that gave me some calm.  I never understood, how later that would be seen as uncaring.  For weeks or months after, I was worried that there was another attack coming. 

So much verbiage, but how does economics play in this?  The simple answer is that the terrorists want land, and they are jealous of our money or way of life.  They see us as an ally to Israel, which we are.  They think that if they hit us we will walk away from our friends.  They want them dead.  We must fight back, again to save our way of life.  America is unique in history, we really have no designs on territory, we just want to be left alone to live our lives in the land of relative freedom and liberty.  We rebuilt our friends and enemies after WWII.  We liberated Iraq, then gave it back to the people.  We are working hard in Afghanistan to help the Afghan people, but ultimately they must choose.  We did not even ask for any territory or payments to defray costs.  That's the American spirit of help and goodwill.  It is what our enemies don't understand.  We seek to spread liberty, that worries tyrants.

Now at the 11th anniversary of that attack, the mastermind is dead.  Life is still not normal in our country, but is closer.  Maybe it will never be like it was on September 10th, but I hope it will be.  It is in living the way we wish to live that causes those who would attack us to stay on their heels.  It is the retaliation, the eagles rage, that will keep us safe.  Some day, in the future, my great grand children will ask their grandparents "what were you doing on September 11th 2001?"  And they can answer, I was in school, living my life.

Let us not forget.  Let us honor those who died, and those who risked their lives to rush in and try to save lives.  Let us remember so that if it happens again we can be sure that we will survive, and thrive.  Liberty assures that.

Thank you for your patience.