Tuesday, July 31, 2012

Maybe Mr. Buchheit does not understand why capital markets exist...

One of my friends posted this article on Facebook. The author's first big lie that he attempts to debunk is :

1. Higher taxes on the rich will hurt small businesses and discourage job creator.

Mr. Buchheit goes on to say " As for job creation, it's not coming from the people with money.  Over 90% of the assets owned by millionaires are held in a combination of low-risk investments (bonds and cash), the stock market, real estate, and  personal business accounts ." His point is that investing in these assets is not as good as being an angel investor for start ups.

My response to Mr. Buchheit is this (originally wrote as a comment on Facebook):

What kind of bonds? Municipal bonds? Which are sold so that communities can build schools, repair roads and sewer systems, engage in economic development etc. Or maybe corporate bonds, which allow companies to build new factories, modernize equipment, engage in research and development, or hire a new shift of workers. Or perhaps they are buying federal bonds to support the massive deficits the federal govt keeps running.

What kind of real estate are they buying? Apartment buildings that supply people with shelter? Office buildings that give start ups a place to work? Retail space for a new Starbucks or Subway?

Since when do jobs created by recipients of angel investing count more than a job created by Starbucks, GM, JP Morgan, or Wal-Mart? Or a municipality who hires workers to build a new school or fix an old sewer system?

I never thought this before but perhaps the problem with people like Mr. Buchheit is a fundamental misunderstanding of the purpose of the bond market, the stock market, and the real estate market. Anyone who downplays their importance compared to venture capital or angel investing is either blatantly misleading people or is ignorant as to why they exist.

Tuesday, July 24, 2012

If making money is so easy, why doesn't the government do it?

Here is a good article from Jim Powell of the Cato Institute about Obama's recent "you didn't build that" comment (see my 7/21 post). My favorite line from the article:

"Obama thinks it's easy to make money and therefore you should pay more taxes. But if it's so easy to make money, why does the government seem to lose money on almost everything it touches?"

Several examples of the government's ineptitude are described in the article.

Saturday, July 21, 2012

Support Gary Johnson for President

Here is the link to his website:


Gary Johnson is a former 2 term governor of New Mexico. Here is what he has to say about creating jobs:

 “I didn’t create a single job,” said the former Governor of New Mexico."

“Don’t get me wrong,” Johnson said in a statement. “We are proud of this distinction. We had a 11.6 percent job growth that occurred during our two terms in office. But the headlines that accompanied that report – referring to governors, including me, as ‘job creators’ – were just wrong.”

“The fact is, I can unequivocally say that I did not create a single job while I was governor,” Johnson added. Instead, “we kept government in check, the budget balanced, and the path to growth clear of unnecessary regulatory obstacles.”

“My priority was to get government out of the way, keep it out of the way, and allow hard-working New Mexicans, entrepreneurs and businesses to fulfill their potential,” he said. “That’s how government can encourage job growth, and that’s what government needs to do today.”

This is a guy who gets it.

Atlas is shrugging

Barack Obama, July 13th, Roanoke, VA.

 "They know they didn’t -- look, if you’ve been successful, you didn’t get there on your own.  You didn’t get there on your own.  I’m always struck by people who think, well, it must be because I was just so smart.  There are a lot of smart people out there.  It must be because I worked harder than everybody else.  Let me tell you something -- there are a whole bunch of hardworking people out there.  (Applause.)
     If you were successful, somebody along the line gave you some help.  There was a great teacher somewhere in your life.  Somebody helped to create this unbelievable American system that we have that allowed you to thrive.  Somebody invested in roads and bridges.  If you’ve got a business -- you didn’t build that.  Somebody else made that happen.  The Internet didn’t get invented on its own.  Government research created the Internet so that all the companies could make money off the Internet."

 Ayn Rand, Atlas Shrugged, chapter 9, page 1. (A conversation between Dagny and James Taggart)

James: “He didn't invent iron ore and blast furnaces, did he?”

Dagny: “Who?”

J: “Rearden. He didn't invent smelting and chemistry and air compression. He couldn't have invented his Metal but for thousands and thousands of other people. His Metal! Why does he think it's his? Why does he think it's his invention? Everybody uses the work of everybody else. Nobody ever invents anything.”

D: She said, puzzled, “But the iron ore and all those other things were there all the time. Why didn't anybody else make that Metal, but Mr. Rearden did?”

 Why indeed?

Sunday, July 15, 2012

New name

As my blog has developed I felt a new name was in order. When I first started this blog my plan was to post interesting articles that I had read and some short, pithy commentary. Thus the word chatter (minus the unimportant connotation) seemed appropriate and gave the blog a lighter, less serious feel. Now, as my posts have become longer and more detailed, I do not think that the title Libertarian Chatter fits.

I hope that the new title more accurately reflects what the reader will find in the posts, which are the views of a dedicated yet still evolving libertarian.

Thursday, July 12, 2012

Michael Jordan and inequality

In an op-ed for the WSJ, recent Harvard Law grad Matthew Schoenfeld uses a Michael Jordan basketball analogy to demonstrate why inequality itself is not bad. I have made this statement before on this blog, but his NBA analogy is clever. From the article:

" And that brings us to Michael Jordan, who starred for the Chicago Bulls from 1984 to 1998. In 1986, the Bulls' median player salary was $300,000. The team's lowest-paid player made $135,000, and its highest-paid player made $806,000. The team's Gini coefficient was 0.36. But Jordan's superstardom increased the team's popularity and revenues, and by 1998 salaries looked different. The median income was $2.3 million, the lowest was $500,000, and the highest (Jordan's) was $33 million. The Gini coefficient had nearly doubled, to 0.67. 

Jordan's salary of $33 million consumed over half the payroll, but everyone was better off. The median player in 1998 made more than seven times what the median player made in 1986, while the income of the lowest-paid player in 1998 quadrupled that of his 1986 peer."

(FYI, the Gini coefficient is a measure of inequality, with 0 being perfect equality and 1 being complete inequality. If interested you can find more info here.)

 Mr. Schoenfeld did not use real income, but assuming a 4% rate of inflation it would take roughly 18 years for prices to double so even 3.7 (500,000/135,000) times more nominal income over 12 years is certainly an increase in real income.

Thus every player on the Bulls, even the lowest paid player, saw an increase in their real purchasing power due to MJ's greatness.

Mr. Schoenfeld closes the article with:

"Certainly there are reasons for concern if lower-income Americans aren't able to save or acquire sufficient capital to pursue innovative ideas, or to see their children attend decent schools. They will suffer, and the country will lose out on significant intellectual capital and growth opportunities. But this should not be confused with inequality."

I completely agree. We need to focus on improving our education system (vouchers!) and growing the economy, not senselessly worrying about how much more the top has than the bottom.

Wednesday, July 11, 2012

Obama has done some things over the last 4 years...

David Boaz of the Cato Institute recounts some of Obama's first 4 year accomplishments. Some of the highlights:

1. Most deportations
2. Most troops in Afghanistan
3. Most medical marijuana raids
4. Most drone strikes

I do not think that many people would expect to see a Democratic President lead in these 4 categories (most comparisons are made to Bush 2 but some include Clinton, Reagan, Bush 1, and Carter).

It makes me wonder who is voting for Obama. I know conservatives are not. And it is hard to understand why liberals would once his first term is examined. Drone strikes? Marijuana raids? Those are not the rallying cries of social liberals.

I am against drone strikes, more troops in Afghanistan, and marijuana raids for sure (still forming an opinion on deportations). And these are three reasons why I will certainly not vote for Obama in 2012.

Who will I be voting for? Not sure, but Gary Johnson is very appealing.

Monday, July 9, 2012

Free trade is good people!

Here is a link to a good article by John Tamny of Forbes. Mr. Tamny calls out the Romney economic team for agreeing with Obama's recent complaint to the WTO about China.

But more importantly, Mr. Tamny does a pretty good job of explaining why trade with China, in both jobs and goods, is good for America. From the article:

"We’re once again exceedingly rich in the U.S. precisely because unskilled workers around the globe take on the labor that investors don’t value, and this allows us time to toil in areas that investors do. Backwards moving economies are capital repellents, there are no jobs and no wages without capital, so the American ability to constantly migrate away from the jobs of yesterday is what makes us so prosperous."

 I think that the bold part is key. It is America's ability to be at the frontier, to move things forward, that make us so wealthy. Why are so many people infatuated with low skilled manufacturing jobs? It is amazing to hear people talk about the good old days of standing on an assembly line for 10 hours a day putting irons, dryers, toasters, etc. together. And now people are upset because Americans aren't doing the boring job of putting ipads together? I don't get it.

Another quote I like from the beginning of the article is:

"Unemployment is a wholly unnatural phenomenon always and everywhere caused by government error"

I think that is a pretty valid statement. I would qualify it with involuntary perhaps, because some people will always choose to be unemployed, but other than that I think it is spot on. If the government stayed out of the labor market wages would adjust to meet the supply of available workers. This means that wages might fall to some low level in an economy like the current one, but everyone who wanted a job and was willing to work at the prevailing wage would have one. Governments create unemployment, not businesses or corporations.

Wednesday, July 4, 2012

Freedom and equality together?

Senator Sherrod Brown sent me a 4th of July email today and the opening sentence was:

"Two hundred and thirty-seven years ago, farmers, merchants, laborers, and soldiers celebrated a new nation – fixed in freedom and equality."

Notice the bold section. Now if Mr. Brown is referring to equality of opportunity, maybe that it is true (assuming you were a white male, but we will ignore that for right now). But I do not think that is what Mr. Brown meant. Judging by his other emails and his political views, I think he means equality of results, or at least equality of results up to some arbitrary level that he finds acceptable. The problem is that you cannot have equality of results and freedom

Contrary to what you may hear on TV or read in books, we are not all created equal. Some of us are tall, some are short, some are smart, some less so. Some of us are natural athletes, while others have a hard time jumping over a pencil. In order to create some level of equal results among such different people, the best of us must be brought down. It is impossible to make me as talented as Lebron James, Gary Becker, Larry Ellison, or Paul McCartney. They have each earned a lot of money and prestige, while I likely will not. In order to make our lives even remotely similar wealth must be taken from them and given to me. Society cannot take the least talented and transform them into the most talented. It can only work the other way.

While the above is an extreme example, it is no different in principle than taking assets from those who use their talents to earn over 250K/yr and redistributing them to those earning less. In each case, coercion (jail, fines, etc.) must used to bring about some equality of results. And where there is coercion there is certainly an absence of freedom.

So the next time you hear someone say we need equality and freedom, as them what kind of equality they mean. Because if it is equality of results that they are looking for, then they might as well be saying that they would like to have their cake and eat it too.

Sunday, July 1, 2012

Do we still have a government of laws, and not of men?

On Thursday the supreme court ruled to uphold the Patient Protection and Affordable Care Act, aka Obamacare, on a 5-4 vote, with Chief Justice John Roberts siding with the 4 liberal justices.

The good news is that the mandate was ruled unconstitutional under both the commerce clause and the necessary and proper clause. From Roberts' majority opinion:

The Constitution grants Congress the power to “regulate Commerce.” Art. I, §8, cl. 3. The power to regulate commerce presupposes the existence of commercial activity to be regulated......The individual mandate, however, does not regulate existing commercial activity. It instead compels individuals to become active in commerce by purchasing a product, on the ground that their failure to do so affects interstate commerce.....Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority.... The Framers knew the difference between doing something and doing nothing. They gave Congress the power to regulate commerce, not to compel it. Ignoring that distinction would undermine the principle that the Federal Government is a government of limited and enumerated powers. The individual mandate thus cannot be sustained under Congress’s power to “regulate Commerce.”

So that is good news. Hopefully this part of the ruling will keep congress, especially democrats, from trying to mandate any other purchases.

And as for the necessary and proper clause:

Nor can the individual mandate be sustained under the Necessary and Proper Clause as an integral part of the Affordable Care Act’s other reforms. Each of this Court’s prior cases upholding laws under that Clause involved exercises of authority derivative of, and in service to, a granted power.
The individual mandate, by contrast, vests Congress with the extraordinary ability to create the necessary predicate to the exercise of an enumerated power and draw within its regulatory scope those who would otherwise be outside of it. Even if the individual mandate is “necessary” to the Affordable Care Act’s other reforms, such an expansion of federal power is not a “proper” means for making those reforms effective.

Both of these rulings prevented a huge new shift in power from the people and states to the federal government, and for that I am grateful. You can find Roberts' whole opinion here if you care to read it.

Unfortunately, despite the mandate being unconstitutional under both the commerce clause and the necessary and proper clause, Roberts' upheld the mandate as a tax and ultimately upheld the entire law. Some might say argue that congress cannot tax us for doing nothing and Roberts' addresses this in his opinion:

First, and most importantly, it is abundantly clear the Constitution does not guarantee that individuals may avoid taxation through inactivity. A capitation, after all, is a tax that everyone must pay simply for existing, and capitations are expressly contemplated by the Constitution. The Court today holds that our Constitution protects us from federal regulation under the Commerce Clause so long as we abstain from the regulated activity. But from its creation, the Constitution has made no such promise with respect to taxes. See Letter from Benjamin Franklin to M. Le Roy (Nov. 13, 1789) (`Our new Constitution is now established . . . but in this world nothing can be said to be certain, except death and taxes’).”

While I always enjoy a good Ben Franklin quote, I am a little confused about how it applies here. Regardless, there is a history of capitations (or poll or head taxes) being used in the United States and you can find some more info about that here.

This piece of the opinion is basically saying that even if the government can't directly force you to buy something, they can tax you if you don't. That doesn't sound too good. I guess liberty lovers can take comfort in the fact that it is probably a lot harder to pass taxes than mandates, so hopefully there won't be too many of these taxes. But that is really not that comforting is it?

Ultimately, I am a disappointed in the ruling. I think that health care in this country definitely has to change, but I just do not think that Obamacare is the best way, or even a good way, of changing it.

More than that though, I think that Chief Justice Roberts dropped the ball on his duty. Many pundits have talked about how Roberts feels it is his duty to maintain the image of the court. By upholding Obama care, he has shown judicial restraint and has put the ball in the court of elected officials and the people. Some conservatives have even talked about this being a strategic move by Roberts, as summed up by Jonah Goldberg:

"Some of Roberts’s defenders claim he’s outmaneuvered everyone. By upholding Obamacare, he’s made future conservative decisions unassailable. He’s poisoned the well of the Commerce Clause for liberals. He’s removed the court from being an election-year issue. He’s gift-wrapped for Mitt Romney the attack that Obama has raised taxes massively, violating a host of promises and assurances. And, again, he’s saved the legitimacy of the court."

But Mr. Goldberg is not buying it, and I am not sure I do either. Mr. Goldberg concludes his column with this:

"That’s all very interesting, but it leaves aside the real issue: None of those concerns are what was asked of the court."

I agree with that. We do not ask the court to think strategically. We do not ask them to worry about their image. We want them to uphold the constitution. And sometimes that means overturning laws, no matter how many people want the law to hold. Just because 90% of the country wants a law to hold does not mean that court should look the other way and try to come up with some interpretation that would allow it to stay in place. Sometimes the minority needs to be protected from the elected majority. Supreme Court Justice John Marshall said it well in Marbury v. Madison:

"The government of the United States has been emphatically termed a government of laws, and not of men. It will certainly cease to deserve this high appellation if the laws furnish no remedy for the violation of a vested legal right.”

Part of me feels that with Roberts legal maneuvering we have become a government of men.