Theory and Practice

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The E-Trade Baby Blues

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When I was in college I learned about a theory called “the cultural contradiction of capitalism,” which claims that capitalism calls upon the public to assume two conflicting personas. As producers, people must be rational and responsible; but as consumers, they need to be irrational, carefree, and gluttonous, so they will buy as much as possible.

I recently recalled this theory while watching one of the incredibly annoying “E-Trade baby” commercials on television. The E-Trade baby’s message is that investing is fun and easy and, by implication, even a toddler could handle it. Although I am an aspiring lawyer, I do have some degree of background on investment advising, and I consider this message absolutely irresponsible. Investing is difficult. To beat the averages and outperform the indexes (which is the only sensible goal for day-trader-type, individually managed investing accounts such as E-Trade sells), an investor needs brilliance, discipline, and a ton of luck.

Investing without understanding how to research stocks is like gambling your life savings at a casino. A rational strategy for saving for retirement would include buying index mutual funds and highly rated bonds with gold or gold-related stocks as a hedge against inflation. Picking individual stocks (even supposedly “safe” or large-cap stocks such as IBM or Microsoft) is too risky for someone investing retirement savings. It is mathematically impossible to predict future stock prices accurately enough to eliminate the risk that your portfolio will be wiped out by bad luck or short-term swings on precisely the day when you need to dip into your savings. Stock-picking is not suitable for any investor unless you spend several hours each day researching your stocks. But actively managed investing for mainstream America is what the E-Trade baby sells.

Many Americans learned the dangers of Wall Street investment when the recent recession ate their portfolios. And Wall Street is a symbol of capitalism for the American public; when retirement accounts go down, Main Street always blames Wall Street. This happened in 1929, when the stock market crash started the chain of events that led to the Great Depression and the New Deal. It happened recently when the so-called Great Recession instigated the Dodd-Frank Wall Street Reform Act.

My own opinion is that a fool and his money are soon parted. The American investing public believed that stock prices and real estate values could never go down, and that the principle of “more reward requires more risk” did not apply. The public got what it deserved. But although I blame the investors, it is undeniable that Wall Street, from Goldman Sachs to Jim Cramer to E-Trade, promoted itself as an easy, riskless way for mainstream families to make money and save for retirement. The investing public’s “irrational exuberance,” to quote Alan Greenspan, can only help Wall Street to make money. Vast fortunes are made by investment banks when stock market bubbles inflate. Wall Street is partially to blame.

What I am trying to get at here is that even though libertarians love capitalism, we do not have to love everything that results from the profit motive. My favorite movies are the original Star Wars trilogy. But George Lucas, desiring to milk as much money from his franchise as possible, has produced several re-edited versions, each more atrocious than the last, and also filmed the pathetic “prequels.” Similar stupidity was behind the decision to film “Harry Potter and the Deathly Hallows” as two separate movies instead of one, dooming the two movies to artistic ineptitude. Generally, whenever a novelist or movie studio produces something good that people like, sequel after sequel follow, for no other reason than to make easy money and feed off the brilliance of the original.

Even though libertarians love capitalism, we do not have to love everything that results from the profit motive.

From a different angle, consider the widespread use of “intro rates” to persuade people to buy cellphone or cable TV services or six-month intro rates on credit cards. Are consumers so stupid that they don’t plan more than six months ahead? Ads full of colorful sights and sounds and subliminal associations but empty of facts and information about why their product is superior are the rule on television, not the exception. The stupidity of the public makes advertising easier. It is easier to sell car insurance by building a brand image around a jingle or a cartoon character than to produce a product that can be objectively demonstrated through scientific testing to be better than its competitors. Ads paid for by businessmen are a huge part of what shapes American culture and the American media — which helps explain why American culture is so strongly slanted in favor of shallowness, stupidity, and irrationality (though this is not a complete explanation, but merely one piece of the puzzle). America is full of instances in which businessmen appeal to consumers not on the basis of reason and logic but through gimmicks and psychological manipulations. Judging by the widespread success of ads like the E-Trade baby, many members of the public make some horribly irrational choices, in their consumer goods no less than their political beliefs.

You can’t blame capitalism for the fact that people make bad choices. Consumer irrationality is not a valid excuse to strip people of their freedom to choose. Wall Street gives us a far higher standard of living than any of the Soviet states ever achieved, and capitalism is the only system with a proven track record of prosperity and progress.

Nevertheless, the moral of this story is that the profit motive has a dark side. I know that some would say that the desire to make easy money by appealing to irrationality is not actually in any businessman’s long-term rational self-interest. I completely agree. Yet it is natural for people to seek to make money as easily as possible, and we see what results. Instead of blindly insisting that the profit motive can do no wrong, we should take the more refined approach and recognize that the fault lies with the people themselves, not with freedom as an economic system.

So I support the profit motive — but supporting the profit motive does not mean supporting everything that results from the profit motive.




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EVs: Not So Green After All

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The Australian has reported the results of a fascinating British study. It turns out that electric cars (EVs), those holy icons of the Green religion, may actually produce more atmosphere-destroying emissions over their lifetimes than regular, gasoline fueled cars — when you do the commonsense thing and factor in the energy it takes to produce the necessary batteries.

To be precise, the study (which was funded by the Low Carbon Vehicle Partnership, a group that is, in turn, supported by both the British government and the British car industry) showed that the average EV would have to be driven over 80,000 miles for it to produce a net savings in carbon dioxide over the standard internal combustion engine. Considering that EVs have limited ranges (they average about 90 miles per charge), it is not clear that many EVs will last that long.

This study was the first to look at the whole lifecycle emissions of EVs, including their manufacturing, driving, and — please note — the tricky matter of disposal of their used batteries. These batteries are the culprits. They contain metals that are expensive to produce, and they have to be replaced every few years.

The study found that a mid-size EV produces about 23.1 tons of carbon dioxide during its lifetime, scarcely less than the 24 tons produced by a regular, gasoline powered car. This is in part because the emissions from manufacturing EVs are about 50% higher than those from manufacturing regular cars.

What the British Department for Transport will make of the report it called for is anyone’s guess. The Department is currently lavishing $7,700 grants on people who buy the damn things.




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Education and Underemployment

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It took a German to speak truth to power.

Eric Spiegel, CEO for German engineering giant Siemens’ US operations, was talking with reporters while waiting for Treasury Secretary Tim Geithner to visit a Siemens facility in Ohio late last month. Spiegel caused considerable consternation when he bluntly asserted that Siemens and other high-level manufacturers were having trouble finding adequately skilled workers, despite America’s high unemployment rate.

As Spiegel put it, “There’s a mismatch between the jobs that are available . . . and the people who are out there. There is a shortage [of workers with the right skills].”

Spiegel went on to say that the hidden problem of finding qualified employees among the hordes of the unskilled and unemployed exposes the weaknesses in the American system of education and job training. He noted that Siemens has had to turn to over 30 “headhunters” (professional job recruiters) to find qualified American workers, and is also trying to hire workers from abroad.

Now, with an unemployment rate that just went back up to 9.2%, and an anemic recovery that created only a laughable 18,000 jobs last month (with a pathetic 500,000 net new new jobs in the past two years of “recovery”), it may seem strange to say that there is a shortage of trained people.

But a recent survey by the major employment agency Manpower shows that over half of all the top American firms are having trouble finding key staff. It’s a dramatic increase from as recently as 2010, when only 14% reported recruiting difficulties.

Ironically, the need for skilled workers is greatest in an area of the American economy that has long been considered defunct: manufacturing. The number of manufacturing jobs available for the high-skilled has risen from 98,000 in early 2009 to 230,000 today.

The Obama regime has of course responded — by proposing to expand the “Skills for America’s Future Program.” That is, throw more money at the problem.

So far, this government program has miserably failed to provide correctly skilled workers in the requisite numbers. The idea of dramatically increasing school choice, so that schools could spring up that would work with various industries to give them what they need, and what is profitable for the students, seems like a better place to start. But that’s not likely to happen.  To speak an absurd understatement, this regime shows little stomach for free markets in education — or anything else.




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Clowns of Industry

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This June, President Obama began celebrating the success of his auto industry bailout. In a speech at an Ohio Chrysler plant, he bragged that he had saved the industry from collapse. Under a brilliant "tough love" plan engineered by his Auto Industry Task Force (Team Auto), GM and Chrysler are turning a profit, hiring more workers, retooling for a "new age," and paying back TARP money — all at very little cost to taxpayers. Now, they are patting themselves on the back and taking bows before cheering media — for brashly spending over $80 billion in a hamhanded attempt to save two companies whose combined market capitalization was less than $10 billion. I can think of only one profession for which clumsy jokes, tricks, and illusions earn praise.

 The president's claims are hopeful pronouncements and disingenuous statements. GM and Chrysler are not hiring and paying back TARP money on the scale of his victory manifesto. The Washington Post (“The Fact Checker”), usually a staunch supporter of Obama's policies, said of the self-congratulatory speech, "What we found is one of the most misleading collections of assertions we have seen in a short presidential speech." President Obama's boasts of recovered TARP money (e.g., Chrysler has paid back "every dime and more") identify payments on TARP loans made only during his administration, but the reality is that to date only $39.61 billion of the official $80 billion TARP total has been repaid. Much of the rest is unlikely ever to be recouped by taxpayers, especially if GM goes broke awaiting the huge, future demand for green energy cars foreseen undauntedly through the rose-colored glasses of Team Auto. The bailout has been a circus run by elite bureaucrats to rescue unions more than auto companies and nudge us to an imaginary green economy more than to real prosperity. 

And the tinkering may make meaningful success permanently elusive. What is the long-term viability of an industry hastily restructured by a task force with no auto industry experience? What is the so-called new age, and when is it to arrive? Where is the brilliance in concocting what certainly must have been among the costliest and most insidious of bailout solutions?

Charged with overhauling the US auto industry, Team Auto was composed of cabinet members and Obama administration officials with extensive auto industry, well, inexperience and ineptitude. Headed by investment banker Steven Rattner, it included experts in energy, transportation, commerce, environmental protection, climate change, and “economics.” The team's industrial expertise resided in Ron Bloom, a former United Steelworkers Union advisor. According to the Wall Street Journal, team members underwent "a crash course in the myriad woes plaguing the US auto industry" and "spent days trying to understand the complexities of the hundreds of companies that supply the car companies with axles, seats and other parts."

Days! Imagine. No wonder they are patting themselves on the back. They learned in days what thousands from the executive ranks of American industry evidently failed to learn in decades — an extraordinary achievement, even for whiteface clowns. Unfortunately for taxpayers, the crash course didn't include a tutorial on Ford's recent turnaround. Ford not only succeeded, it succeeded with private capital and restructuring costs of less than $12 billion. And it succeeded quickly enough that, two years later, it did not need a bailout. To save GM, anyone but a Team Auto wizard might have chosen a similar approach. Then, by recruiting a CEO such as Ford's Allen Mulally and paying the restructuring costs from the $13.4 billion already allocated by the Bush administration, GM could have been rescued with money left over.

A successful GM bailout using $13.4 billion is barely commendable — after all, Ford did it with less. I would expect a truly qualified team to do it for much less. But with incompetence exceeding that of GM management and intransigence exceeding even that of its labor unions, Team Auto couldn't find a solution under $65 billion, which is $5 billion more than GM's highest market cap of $60 billion, reached back in 1999. Brilliant! And they are bragging about it. Perhaps,in a lapse of frugality, the madcap buffoons rejected even more wasteful, corrupt, and extravagant gags.

The recent ascent of the automobile industry is more a descent into the new "too-big-to-fail" abyss. Team Auto pranksters usurped the normal bankruptcy process, cobbling together daffy, impromptu rules to reward two American auto companies and the UAW for decades of foolery and an Italian auto company for its "valuable technology," while punishing legitimate creditors, private bidders, and taxpayers. The rights of creditors, including holders of secured bonds, were subordinated to those of the UAW. Private bidders for GM or Chrysler could not be found. That is, Team Auto could not find investors who would match its political favors, bankruptcy manipulations, and financial pratfalls. For example, GM was allowed to write off, in future years, up to $45 billion of past losses (an under-the-table write-off worth up to $15 billion), and more than $4 billion of Chrysler's debt was immediately forgiven (also under-the-table). All those years of losing money finally paid off — in a financial sleight of hand amounting to $19 billion, ratcheting the bailout total to $100 billion.

After more than two years of "tough love" spending, nine of the 12 vehicles on Forbes' "The Worst Cars on The Road" list for 2011 were from GM and Chrysler.

Team Auto had no trouble gaining Fiat’s cooperation, regaling the company with managerial control and 20% ownership of Chrysler, along with the ability to increase its share of the property to 51% and beyond. And the largess continued. A call option was granted allowing Fiat to buy up to 16% of Chrysler stock at a reduced price, provided Chrysler paid back at least $3.5 billion of the remaining $7.6 billion owed to the Treasury Department. At the time, private banks were afraid to lend Fiat more money. But audacious Team Auto member Steven Chu (Secretary of Energy) pulled a low-interest Energy Department loan out of his green hat for Fiat to develop fuel-efficient vehicles. Magically, it was just the right amount, $3.5 billion. As a result, Fiat will develop a green economy car for Chrysler. It is expected to get 40 mpg — almost as much as the economy car I bought in 1978. Such was Team Auto's assessment of Fiat's advanced technology. Unfortunately, its opinion of Chrysler automotive designers was lower than the demand for Fiats.

The call option giveaway and the sordid $3.5 billion Energy Department loan to pay the Treasury Department loan enabled Fiat to accumulate a majority stake in Chrysler (up to 57% by the end of 2011). Thus, Team Auto rescued Chrysler, an American company currently worth $5 billion, at a cost of $6.44 billion (the $4 billion cancelled plus the amount owed to the Bush administration) and converted it into an Italian company in the process. More brilliance, more bragging.

Splurging money on companies does not create pressure to build a quality product that people want. After more than two years of "tough love" spending, nine of the 12 vehicles on Forbes' "The Worst Cars on The Road" list for 2011 were from GM and Chrysler. None, it should be noted, were from Ford. This is an indicator of the malfeasance of Team Auto's intervention and is fraught with an irony appreciated, no doubt, by sad clowns everywhere. Equally important, it does not bode well for the sustained profitability needed to repay taxpayers. Nor does GM's market valuation. To recover the remaining GM bailout money, it is estimated that GM's stock price must reach $55 a share. Opening at $33 a share last November in Team Auto's IPO, GM closed at just over $29 a share on the day of president Obama's speech.

That GM and Chrysler have shown recent quarterly profits is clearly a favorable development. Nevertheless, the bailout hatched by Team Auto is an appalling mockery. With $100 billion, a group of professional clowns could have produced a quarter or two of profit after a run of two years, probably doing so without giving Chrysler away to a foreign automaker. But they would have had the decency not to brag about the tax money squandered. When I hear President Obama and Team Auto members boasting of their success, I hear a loud, obnoxious clown horn — much like the one I imagine they used to end each tutorial session and to inaugurate each brilliant idea they came up with in formulating the scam.

Ron Bloom boasts that the bailout will "ensure America wins the future." Steve Rattner is peddling the book he wrote about his experience and crowing, "The bailout was a bargain for taxpayers." Obama is so enthralled by his self-declared success he plans to use it as a centerpiece of his 2012 campaign. I imagine that as the election nears, there will be a highly publicized ceremony awarding Team Auto for its sterling performance. Task force members will arrive at the White House and, one by one, with grotesquely painted faces, ruffled collars and pointed hats, clumsily but endearingly emerge from a single, little green economy car.




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We See Through You, Mr. President

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Reverend Obama, when he was running for the office he now decorates, preached the need for transparency and honesty in government. In particular, he derided “the cynics, the lobbyists, the special interests" who held sway in the District of Columbia. He promised to stop the practice of rewarding donors with political favors.

Well, scratch another promise. As iWatch News has reported, about 200 of Obama’s biggest contributors (each raising anywhere from 50 to 500 grand) have gotten top jobs in his holy administration, big contracts for their businesses, or various other payoffs.

Interestingly, iWatch News is a news outfit supported by the Center for Public Integrity, a nonprofit organization whose avowed goal is to produce nonpartisan investigative journalism that will help achieve transparency in government.

And here’s the stinger. The Center for Public Integrity is funded by a number of primarily left-liberal donors, most notoriously one George Soros, the leftist billionaire and Obama booster.

That’s worth a chuckle, no?




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Electrical Fairy Tales

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The marketing hype behind new electric vehicles (EVs) such as the Chevy Volt and the Nissan Leaf makes me think of the title of the 1901 children's novel by L. Frank Baum, The Master Key. Promotions and testimonials designate the EV as the "master key" to environmental harmony, evoking the vision of a green economy in which zero-carbon-footprint EVs shuttle us to sustainable clean energy jobs as our dependence on foreign oil is whisked away in the contaminant-free breeze. But it's the novel's subtitle, "An Electrical Fairy Tale, Founded Upon the Mysteries of Electricity and the Optimism of Its Devotees,"that I chiefly have in mind. It exquisitely captures the substance of the unfolding EV hoax.

The optimism of EV devotees is manifested by the expectation that simpleton consumers will see the absence of tailpipe fumes as the absence of emissions and pollution; that EVs are worth their exorbitant cost, particularly if they eliminate our reliance on OPEC; and that, in EV-world, we will all live happily ever after.The support of simpleton politicians guarantees fairy tales.

The scientifically illiterate media (also devotees) never mention the pollution and carbon emissions created at electrical power plants when EV batteries are being charged. Odd that these distant plants are now electrical mysteries, when not that long ago shrill environmentalists frequently reminded us that they were mostly coal- and gas-fired monsters, belching forth devastating fumes as they generate 44.46% and 23.21%, respectively, of our electrical power. Apart from toxic particulates, they release a national average of 1.2 lbs of CO2 for each kWh generated.

The Chevy Volt, to cite one example, can travel 35 miles on its fully charged 16 kWhbattery. Thus, charging the battery by means of the average US power plant creates 19.2 pounds of CO2; in effect, 0.55 pounds of CO2 per mile. The EPA rates the Volt's gas-only fuel economy as 37 mpg. Since a gallon of gasoline produces about 19.6 pounds of CO2 , the Volt produces 0.53 pounds of CO2 per mile. Incredibly, the Volt's carbon footprint is 0.02 pounds per mile larger when powered by its battery — another electrical mystery.

An optimistic devotee might argue that carbon footprints can vary. But an average of 0.55 pounds of CO2 per mile is a long way from clean, and fraudulently far from zero. As to footprint variation: charge an EV in a state such as West Virginia, where coal generates 96% of the electrical energy. There, the Volt will emit 0.95 pounds of CO2 per mile. — almost twice the emission of a gasoline engine.

Wherever you live, if you use your EV for anything much more than occasional errands, battery charging will be a big part of your life. It makes one wonder why charging requirements are trivialized, if mentioned at all — unless it's because of the mysterious nature of electrons. Their activity while the battery charges throughout the night is invisible, as is the charging cost, at least until the utility bill arrives. If you drive an EV, say, 700 miles a month, it must be fully charged at least 21 times each month. In a recent thousand-mile Edmunds road test, the Volt averaged 33 miles on a fully charged battery. In the Northeast, where electricity is 16.09 cents per kilowatt hour, the monthly charging cost would be $54.61; in the Southeast (at 9.57 cents per kilowatt hour), it would be $30.24.

Born of political expediency and founded on bad economics and science, the electric vehicle is a colossal burden for taxpayers, an expensive fantasy for buyers, and a cruel joke on planet savers.

According to the Edmunds review, charging an EV battery by using a standard 120V socket "is like filling a swimming pool with a syringe." Optimistic devotees cite charging times of 12 hours. But charging from 0% to 100% (typical of electric mode only drivers) takes about 20 hours. Edmunds expects that most buyers will need the 240V Level II charging stations, which can complete the charge in less than half the time. They are available for $490, with an additional cost of about $1,500 for home installation — in addition to the $33,000 to $109,000 you paid for your electrified transportation pod. But what's another $2,000 or so when you're saving the planet?

Electrical utilities also anticipate Level II chargers, salivating over the revenues they will produce. But they worry because turning one on is equivalent to adding three homes, all with air conditioning, lights, and laundry running at the same time. Two or three of them running simultaneously in a grid sector is likely to burn out the transformer, blacking out service to the entire sector. Ironically, safety experts want EV manufacturers to add a simulated "vroom" sound alerting pedestrians to the presence of EVs on the street. The added cost of bumper-integrated speakers is a small price to pay for the warning. Presumably, there will be no extra charge for the sound of transformers mysteriously popping as they burn out, alerting sleepers to the presence of EV chargers in the neighborhood.

Our taxes pay for a $7,500 credit to entice less optimistic buyers, and huge subsidies to help EV manufacturers stay in business. Lithium battery companies must be salivating as much as electrical utilities. Last year, for example, a Michigan company was awarded $251 million in federal and state stimulus money. Its plant is expected to employ 400 workers, costing taxpayers $625,000 each. And it is owned by a Korean firm. But imagine the graft that American "entrepreneurs" are getting. Companies are also lining up at the trough for EV battery research and development subsidies. Despite over a century of technological advancement, battery performance is economically inadequate for EVs. Maybe battery designers will have better luck in the next 100 years.

President Obama is among the most optimistic of EV devotees. His test drive last July was ominous. Steering a Volt for about 10 feet at about 2 mph appeared to reaffirm his green economy concept and his campaign pledge to put one million EVs on the road by 2015. He is working diligently behind the curtain of political favoritism and crony capitalism to promote the EV as an integral part of his green economy.

But the EV is a hoax. Born of political expediency and founded on bad economics and science, it is a colossal burden for taxpayers, an expensive fantasy for EV buyers (converted, coerced, or bribed), and a cruel joke on planet savers. Everyone will pay higher taxes, EV buyers will pay at least twice the cost of comparable gasoline powered cars, and their electricity bills will, as President Obama has famously said, "necessarily skyrocket." The fact that the EV actually violates the clean-energy justification for its purchase demonstrates the fraudulence of Obama's plan. EVs result in little or no net reduction in pollution or greenhouse gas emissions. This is equally true for a $109,000 Tesla and a $41,000 Volt. And it would be true if there were a $10,000 model.

It would also be true if a million US drivers bought such a car by 2015, or if enough millions more were thereafter coerced to bring us to the day when we could say goodbye to OPEC. The problem is that this would also be the day we would say hello to Chile, Argentina, and Bolivia, the Saudi Arabias of lithium. Will OLEC (the Organization of Lithium Exporters) treat us any better than OPEC has?

President Obama's plan for the EV is unfolding like an electrical fairy tale of unprecedented magnitude. It calls for millions of Americans to buy uncompetitive, exorbitantly priced, high-maintenance EVs that are not meaningfully cleaner than the vehicles they are supposed to replace — all the while paying higher taxes and electricity rates to finance a scheme that, even if wildly successful, would accomplish nothing beyond enriching electrical utilities and battery manufacturers instead of oil companies and refineries and making us dependent on lithium instead of oil.

This plan is a costly, inane indulgence in fantasy. If the curtain were pulled back, it would reveal a fatuous illusionist, feverishly operating the levers of subsidies, tax credits, and regulatory mandates to orchestrate the scam. Did I mention that Baum also wrote The Wizard of Oz? It is an excellent book to read by candlelight, during EV-induced blackouts.




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Taxing the Ether

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Here’s the instinctive mindset of the Democratic Party: “If it moves, tax it. If it doesn’t, tax it even more.” If you need proof, consider the frantic attempts by desperate Democrat governors in high-tax states to tax commerce conducted on the internet.

One story about this comes out of California, notoriously one of the most economically ignorant and fiscally incontinent states in the nation. It appears in a Los Angeles Times editorial lauding the efforts of Democrats in the state legislature to try to apply California’s outrageously high sales taxes — nearly 11%, counting state and localities together — to purchases on the internet, targeting especially the dominant internet retail giant Amazon.com. The LAT (always an affirming voice for redistributionist tax-and-spend government) argues that the state is “owed” millions in tax dollars for sales over the net. The paper, natch, supports a bill by Berkeley Dem Nancy Skinner to require internet retailers to collect sales taxes.

The LATviews this as fair — what is the difference, it asks, between buying your shoes at the local store and purchasing them at a store based in Nevada? And, the rag pompously avers, this is the law.

It cites the 1992 Supreme Court ruling (Quill Corp. v. North Dakota) that held that out-of-state mail-order companies (and presumably, by inference, internet retailers) with no physical presence (i.e., no actual stores or warehouses) in a state could not be compelled to collect sales taxes from customers in that state — although the court allowed states to try to collect taxes from such customers directly. So this is the law.

According to the LA Times, people who buy over the internet are both legally and morally (morally?) obligated to pay sales taxes on their purchases. It argues that Amazon and other online stories deliberately encourage consumers to evade their legal and moral obligation by failing to inform them of that obligation on their websites. Not only must the internet help to suck in taxes; it must also lecture people about their ethics.

In an effort to grab more taxes — as opposed to cutting spending — Gov. Quinn cost his state jobs.

The LAT not only endorses legislation that would require any internet company to collect sales taxes from purchases by Californian customers if that company has any affiliates (suppliers) in the state; it also recommends a national bill that would explicitly require all internet companies to collect sales taxes on half of all states that want their citizens’ purchases taxed—and which of them wouldn’t? The LATconcedes that so long as the Republicans have a check in Congress, such a bill won’t ever be passed, but the grand vision is of every vendor of five-dollar trinkets to become an IRS agency, assiduously divvying up its surplus value in accordance with the 50 tax codes of the 50 states, plus Puerto Rico, Guam, and the District of Columbia.

At the time the LAT piece was published, rumors were circulating out of Sacramento that the state Board of Equalization — the agency responsible for collecting California state taxes — would be hiring computer geeks to find out ways of looking at internet traffic to discover which criminal Californians are daring to buy on the web. This, needless to say, caused considerable consternation—not to mention considerable concern about the morals of internet aficionados who would thus be involved in killing the internet.

But the LAT’s case is patently defective. Why the devil should a business like Amazon, which uses none of California’s police or fire services (since it has no bricks-and-mortar locations in the state), much less its educational enterprises, have to pay the state a nickel? And why should Amazon customers within the state have to pay any more than they do right now? They already support the schools with their property taxes. Their sales taxes, collected at the stores that actually exist within the state, support the police, the fire department, and the other agencies that protect those stores. Where does one’s moral and legal obligation stop?

And the consequences from trying to tax the internet are likely to be counterproductive to the states that do it, as a piece in the Wall Street Journal reports. The WSJ — which understands economics approximately a thousand times better than the LAT understands it — points out the obvious: if a state (like California) tries to saddle (say) Amazon with collecting sales taxes for that state because Amazon has affiliates within it, then Amazon will just drop those affiliates.

Indeed, as the WSJ piece recounts, this is just what happened recently in Illinois (a state in even worse fiscal shape than California, if that be possible). The tax-happy Democratic Governor Pat Quinn signed a law applying the state sales tax to internet purchases in Illinois, and it took Amazon only a few hours to announce that it was immediately halting purchases from and affiliation with the 9,000 small Illinois businesses with which it had been doing business — business profitable for Illinois as well as for Amazon.

So, in an effort to grab more taxes — as opposed to cutting spending — Quinn cost his state jobs. Either a discontinued affiliate will stay in Illinois and see its sales plummet (which will then necessitate cutting its workforce), or it will — as some are already doing — move to an adjacent state (such as Indiana) that manifests less tax madness.

Rhode Island, which like Illinois and a few other states (Colorado, New York, and North Carolina), had earlier passed an “Amazon tax bill,” has collected only peanuts in extra sales tax revenues. A study by the Tax Foundation shows that when you factor in the lost jobs from affiliates cutting back, closing down, or moving away, the state probably lost revenue.

The LAT editorial suggested that to prevent internet companies from dumping affiliates in a state that imposes an Amazon tax, what we need is a federal law forcing all internet companies, wherever located, to collect taxes from all customers, wherever located, and remit those funds to the customers’ respective states.

That insipid argument is based on the absurd premise that if we pass a national Amazon tax, Amazon couldn’t drop all of its national affiliates. But it sure as hell could, and just move its central operations to (say) Mexico and all its affiliations to businesses in other countries. That would be yet another example of government greed, triumphant.




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Doomsday Update

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May 21 has come and gone, and so far as I can tell, Judgment Day has not occurred. Whether that’s good or bad is a debatable question.

What is not debatable is the discrediting of one of the world’s best publicized prophecies, and one of the few prophecies specific enough to be fully disconfirmable. I refer, of course, to the Family Radio network’s prediction that the Rapture and the beginning of Judgment would occur on May 21, 2011.

Harold Camping, Family Radio’s “Bible teacher,” went down with his flag nailed to the mast. Throughout last week, he told callers on his daily call-in program that he wouldn’t even consider questions about the possibility that the Rapture wouldn’t happen on the 21st. On May 17, for instance, he remarked, “If you were talking to me three or four years ago, I would have said, well, there’s a high likelihood [of climactic events in 2011]. . . . But beginning about three years ago, God has shown us proof after proof and given us sign after sign. . . . I know absolutely, without any shadow of a doubt whatsoever, that it is going to happen on May 21. . . . It is absolutely going to be May 21. The Bible guarantees it, without any question. So we cannot countenance any other idea. It is absolutely going to happen.”

Liberty provided one of the first nationally published heads-ups and explanations about this matter in its December issue, in the article entitled "An Experiment in Apocalypse." Early this month I continued the discussion. The topic has proven surprisingly interesting to our readers, as it has to millions of other people, worldwide. I am receiving a lot of requests for updates, and I will provide them.

The really interesting thing, of course, isn’t the fact that Family Radio has been proven wrong. The interesting thing is seeing how individuals and institutions respond to the disconfirmation of ideas that they regarded as fully justified by reason and authority. Full evidence about Family Radio’s response will take a while to come in. Its offices were closed over the weekend (starting on Friday, May 20), and all or almost all programming from then till now has been prerecorded. (I write in the early evening of May 22.) The swarm of media attention simply washed over the recumbent form of Family Radio, occasionally sweeping out one or another follower who discussed his disappointment in vague, colorless terms.

But we can expect to learn more, and I have already learned some things. One interesting thing to me is the fact that throughout May 20 and 21 — even as late as 6:30 p.m. on the latter day — the station was still broadcasting invitations to call up and order “Judgment Day, May 21” pamphlets and bumper stickers — thus making itself even more ridiculous than it would have become, had it simply ceased all ads for mail-order material several days before.

Nevertheless, even the most ridiculous things in life happen because somebody decides to make them happen. Somebody — and a number of people would have to be involved — decided to keep running those ads. Somebody scheduled them. Somebody provided them to local stations. Somebody at the local stations ran them. In only one instance (at 1:25 a.m., PST, on the purported day of Rapture) did I hear evidence that an ad might have been spiked by the national network or my local station, with four minutes of music substituted. As I write, Family Radio’s website still declares in bold letters: “Judgment Day, May 21, 2011: The Bible Guarantees It!”, and its clock says there are “00 Days Left.” Yet someone at Family Radio switched Camping’s prerecorded lecture, which runs on Saturday evening and Sunday afternoon, from one of his constant Judgment Day diatribes to a discussion of divorce (he’s against it) that was broadcast “25 or 26 years ago,” according to the prerecorded announcement — which also says that copies of the divorce lecture will be “available this week” if you call or write for them. Divorce is exactly what would interest you, on Judgment Day or immediately afterward, right? It should be noted that on May 10, a woman called in to ask Camping about that very topic, divorce, and he told her that “it’s all academic,” because the world was ending and her husband wouldn’t have time to divorce her anyway.

Absurdity upon absurdity. But what do these absurd contradictions mean?

They may show the depth of institutional inertia, even within a relatively small, voluntary organization, an organization, mind you, that is operated by zealots, not by the pension-pursuers at the DMV. The thinking may have been, “We’ll just keep running whatever we’ve been running, whether it makes sense or not. That’s what we do” — even if it makes our own cause ridiculous. If Family Radio can achieve inertia like this, imagine what a government can do, in the face of all the evidence against its theories and programs.

The contradictions may, however, indicate something exactly opposite to inertia, but equally significant. They may indicate that dissenters within Family Radio, of whose existence there has already been a good deal of evidence, decided to assist the organization in rendering itself absurd, thus making the ousting of its current leadership more likely. These people could have halted the post-Doomsday ads for Doomsday literature; they could have snaked out some lecture that wasn’t about (of all things) divorce. But they used their individual initiative to do something more complicated.

That’s a guess. But here’s the idea, in brief: what happens within organizations and individuals is a contest between inertia and initiative, each with its own set of rewards: security, stability, and conservation of energy on the one hand; new opportunities (for power, for revenge, for simple rightness) on the other. If enough data emerge, the next stage of Family Radio’s existence will constitute a fascinating experiment in conflict, institutional and individual.

I will keep on this beat. My own prediction is that Mr. Camping will be ousted from leadership during the coming week by irresistible forces of change in the organization he founded. But this prediction is disconfirmable. Stay tuned.




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Strauss-Kahn, Exemplar of Socialism

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The libertarian critique of socialism, or “social democracy,” has usually gone something like this:

The socialist program demands a planned economy. A planned economy can result only from plans. Plans must be made by a group of experts who are not subject to the vagaries of the electoral process. To form and implement their plans, the planner-kings must know everything crucial to the economy. They must know everything significant to their own plans, and be able to predict everything significant that may result from them.

But that is impossible.

This being true, the people who become planners will be those who are either stupid enough to believe that Plans can succeed or cynical enough to care only about the personal power that can be acquired by Planning.

The libertarian critique has a logic that no socialist program ever possessed.

Now we witness the reductio ad absurdum of the socialist idea: Dominique Strauss-Kahn, head of the International Monetary Fund, chief honcho of the French Socialist Party, and prospective president of France, who was arrested Saturday on charges of trying to force a maid in his $3,000 a night hotel suite to have sex with him.

Suppose that the charges turn out not to be true. Suppose that Strauss-Kahn’s nickname, “the great seducer,” means nothing. Suppose that consensual sex is nobody’s business but one’s own. Suppose all these things — the last of which is certainly true. The $3,000 a night hotel remains a problem.

As a self-chosen representative of socialism, and an anointed planner of the world's economy, Strauss-Kahn has supposedly devoted his life to the good of the people. How, then, $3,000 a night? On what premise must the people of the world pay for that?

I’ll tell you. The premise is that Strauss-Kahn, a product of those inner-circle French schools whose graduates automatically get high government jobs, deserves his perquisites of office, because he is somehow qualified to plan the world's economy.

Is he?

No. And anyone who thinks that he himself is so qualified, and uses that idea to justify his perquisites of office, is likely to present a strange moral profile.

World economic planning is allegedly justified on humanitarian and charitable grounds. Planners, allegedly, exist to help people, especially the deserving poor. Planners are supposed to be performing an altruistic work, the modern form of a religious mission. Yet among these managers of the world economy there is a strange absence of people who live in modest circumstances, practice some kind of religious or ethical discipline, or have anything to do with normal human beings, except when the maid arrives a few minutes early in their $3,000 a night hotel suite.

There are plenty of smart people in this world. Many modest people, skeptical of their own conclusions because they are actually in touch with their fellow citizens and knowledgeable about their lives, are also smart people. Strangely, many of these smart people are socialists, but their ambition is not to become world socialist leaders.

Why?

Because the idea that a small group of people is smart enough and knowledgeable enough to plan the financial lives — in fact, the lives — of six billion people is an idea that no one with any ethical understanding would apply to himself. An ordinary moralist would ask, “Who am I to do that? I don’t know enough. I could never know enough.”

Strauss-Kahn presents little evidence of any such moral or practical reflection. But what he did with his life was predictable, under the modern socialist system. A beneficiary of unmerited advancement, he did his best to “stabilize” the world’s economy by using political means to get the productive countries to support the spendthrift countries. He who wasn't producing anything himself.

I don’t presume that an alcoholic is incapable of becoming a good author. Faulkner did. Hemingway did. And I don’t presume that a “great seducer” is incapable of becoming a great thinker. Plenty of examples argue otherwise. But I do not presume that a drunk will be good at running an airline. I do not presume that a person who lacks discretion even about consensual sex affairs will have enough discretion to plan the future of six billion humble families.

To put this in another way: how did someone as stupid as Dominique Strauss-Kahn become one of the small group of people appointed to oversee the fiscal life of planet earth?

The answer is: the logical necessities of the socialist idea. If you want socialism, you are voting for fools like Dominique Strauss-Kahn. You may not know it, but you are. Otherwise — I’m sorry, you can’t have socialism on any other terms. The fact that Strauss-Kahn rose to the top is only a sign that the rest of the candidates were actually less competent than he.

To conclude: if you want someone running your life, and the life of the world, you can be assured that it will be someone like Dominique Strauss-Kahn — and if not him, then worse.




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