Dear Mr. President

The White House recently posted an “Email from President Obama: An Update on Overtime” on the whitehouse.gov website. For some reason I was not on the distribution list for that e-mail. Had I been, here’s what I would have said:

“I wanted you to be the first to know about some important news on an issue I know you care deeply about: making sure you’re paid fairly.”

By “make sure” do you mean men with guns will insert themselves into the employer-employee relationship and substitute your notion of “fairness” for ours?

“Tomorrow, we’re strengthening our overtime pay rules to make sure millions of Americans’ hard work is rewarded. If you work more than 40 hours a week, you should get paid for it”

So people that are paid a salary aren’t paid for their work? That’s news to me. Last time I checked a salary covers ALL hours worked in a week, whether that is 25, 35, 40 or 60.

You do realize that there are two sides to this equation – sometimes a salaried worker may work 50 hours in a week and sometimes they may work 30. Regardless, they are paid the same amount each week. Oddly all the focus has been on the hours above forty worked but not on those that have the flexibility to work fewer hours when needed. Over time these fluctuations averages out to a level that satisfies both the employer and employee. There are benefits to both parties to being salaried. Salaried employees have an incentive to work as efficiently and productively as possible. If productivity exceeds both parties’ initial expectations, that can then become the basis to negotiate a raise. But, if one is not allowed to work more than 40 hours in a week (something many employers will now do to mitigate the cost increases) it becomes that much more difficult to justify a higher wage.

People who earn a salary take some measure of pride in that fact; punching a clock is seen as something teenagers do, not professional adults. Earning a salary means your employer is putting their trust in your ability to accomplish the necessary tasks without constant micromanaging. But overtime laws gag the employer and make it illegal for them to treat some employees as adults – they have no choice but to infantilize them with a “non-exempt” (hourly) classification. We (Seachem) have employees that are presently salaried but who stand to lose that status with this coming change. They view it as a demotion. I hope that they, and millions like them, do understand that it is you (and your progressive ilk) that is doing the demoting, come Election Day.

It is peculiar that some businesses can legally sell their wares at a flat rate (cell phone service, gym memberships, satellite TV, all you can eat buffets, etc.) but those who sell their labor are not afforded that same measure of autonomy. It’s almost like the government thinks individuals don’t have the capacity to make the “right” choice and so require a paternalistic helping hand.

“or get extra time off to spend with your family and loved ones.”

No, no you can’t. Read your own statutes Mr. President. What you just described is called “comp time” and that is illegal under the FLSA. At least for private employers and their non-exempt employees it is. “Public” employers are free to engage in this practice. I guess private employers are not as enlightened as their public brethren and so can’t be trusted to fairly give time off in lieu of extra hours worked even if that is what the employee wants.

“It’s one of most important steps we’re taking to help grow middle-class wages and put $12 billion more dollars in the pockets of hardworking Americans over the next 10 years.”

Right, instead of raising taxes on the employer directly, we’ll just raise them indirectly by finding another way to compel businesses to redistribute even more of their profits (wages are on average four-times the size of net profit) to those that bore no risk in earning them. Remember; when a business loses money employees still get paid. But when a business makes money employees expect even more money. Heads I win, tails you lose.

But that $12 billion figure is a pipe dream. These overtime rules changes will not raise worker income anywhere near to what you believe. To the extent it does raise it for some, it will be at the expense of others that are either laid off or that can’t be hired because too much of payroll is going toward paying excessive overtime. What this rule change will do, however, is ensure that America becomes less and less productive as businesses opt to send employees home at 40 hours. Payrolls will remain the same but output will decline. Although this is effectively a raise (the same money for less work) it actually harms both parties. The employee, being constrained to only 40 hours, is now in a weaker position to demonstrate their value. Likewise the employer realizes less output for the same amount of money. On net for the country less work will be done, growth will slow down and we’ll all wonder why the private sector appears to operate more and more like the Post Office or DMV.

Capital investments, which propel improvements to productivity, are the natural method to improve workers’ standard of living. Productivity gains translate into more goods for the same amount of work and income. Effectively everything becomes cheaper and thus more affordable. But these gains have all but been eroded by 40+ years of inflation wrought by the duopolic partnership of the Federal Reserve and Federal Government.

“But after years of inflation and lobbyists’ efforts to weaken overtime protections, that security has eroded for too many families”

Inflation is a 100% government phenomenon. The US Treasury issues bonds to prop up annual budget deficits. The Federal Reserve buys those bonds (directly or indirectly through open market operations) by using money literally created from nothing. More dollars equals more inflation, and the cycle continues year after year. If the government is serious about ending wage and benefit erosion it has the power to end it by ceasing all inflationary policies. It really is that simple.

“One of the many Americans who has been working hard but struggling to keep up is a single mom from Tucson, Arizona, Elizabeth Paredes. As an assistant manager at a sandwich shop, Elizabeth sometimes worked as many as 70 hours a week, without a dime of overtime pay.”

Seen benefit, unseen harm. You really should read more Bastiat. For every worker that benefits thousands more will be harmed by lost jobs, fewer hours, or simply not being hired in the first place. Forcing her employer to pay her more makes about as much sense as raising the minimum wage to $50/hour because you found a single mother with ten children who can’t get by working for $8/hour.

If someone wants to earn more money, then they should enhance their skills and find a new job. Dissatisfaction with low-skill wages is like buying a home by the airport and then being upset about the noise. Demanding changes to overtime or minimum wage laws would then be like adding new noise regulations that would make air travel cost more for everyone; concentrated benefits for some, increased costs for everyone else. Don’t ask others to pay the penalty for your choices.

“When workers have more income, they spend it – often at businesses in their local community – and that helps grow the economy for everyone.”

It is unclear why the economy would grow more if an employee spends money vs. the employer. Is the purchase of one set of goods “better” for the economy than another? I presume this line of reasoning comes from the flawed Keynesian notion that it is consumer spending that drives the economy. This viewpoint of course ignores the fact that consumers can’t buy anything until businesses/employers have first spent money on hiring employees, building plants, opening stores and so on. Consumer spending rests on the bedrock of business spending which itself lays on the firm foundation of savings. The lower the profit, the slower the savings, and thus everything else built upon it. Consumption does not grow an economy. Only savings and investment into capital goods will do that by making it easier to produce more goods with less effort. That is what improves the standard of living for everyone.

“Americans have spent too long working long hours and getting less in return. So wherever and whenever I can make sure that our economy rewards hard work and responsibility, that’s what I’m going to do.”

The fact that a thief can improve his standing at the expense of his victim(s) does not justify thievery as a legitimate means to improve one’s condition. Employers and employees have come to mutually beneficial arrangements that both parties agreed to. The employer is free to fire the employee and the employee is free to quit. No one is forcing these arrangements. There is no rational basis to suggest a disinterested third party has the right to interject themselves in these negotiations and supplant their judgment for the judgment of both parties.

When you remove choice from either party you rob them of their agency to live as independent, free individuals. In short, you turn them into de facto children. We are not children Mr. Obama. We are free men and women. Let us live our lives as we see fit, not as you do.

June 16 / 2016

How do libertarians think they can prevent the rich from appointing people which will serve them and not the rest of the country?

Another Quora question I answered.

 

You mean like how the (insert region) government eliminates all competitors for the services it provides by using its connections with armed thugs who are willing to do whatever they ask as long as they get paid?

It always strikes me as amusing that the assumed worst case scenario of a wholly free-market/libertarian society is exactly the scenario we live under today: one monopolistic centralized group controlling nearly everything.

Yes, people with many resources (wealth, friends, connections, etc) can wield that power for underhanded reasons. But people do that in government today (witness the rampant corruption and cronyism that is perenially uncovered by the media). If that is a reason to indict a free system then it must be equally leveled against the system we have today.

The key point is that in a free system no one is the “ruler” over everyone else, so without a lot of the artificial barriers to entry that the government/state create there will be more, not fewer competitors for various goods and services. If you want to start a business no one is going to stop you, you don’t need permission, you don’t need a license, all you need to do is provide a product the customer wants to stay in business.

Ultimately if someone tries to buy all these new competitors out or off or what have you, there is a limit to how far that will go – at some point you run out of money or reach a point where more buy offs don’t make sense. Witness the US government, as wealthy and powerful as it is, it can’t buy off every country in the world to allow them to dictate policy everywhere. Granted, they try, but there is a limit even for an entity that large. So I don’t suppose in a free system where the “rich” companies would have to compete for customers first by providing products they want vs a state that can simply take (tax) the money they need that any company would rise to a size or level anywhere approaching the power of any state or national government, hence the risk of such concentrated power should be accordingly that many orders of magnitude smaller relative to the same concern one would have about a regional government over stepping its bounds of authority in the same way.

June 09 / 2016
Author Greg Morin
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How would a libertarian/classic liberal deal with the problem of global warming?

A Quora question I answered:

 

Libertarianism is concerned with only one question: Under what conditions may one legitimately use physical force? Answer: to counteract a violation of one’s legitimate property rights (e.g. if someone comes at me with a knife they are threatening my property right in myself and I may repel such attack, if someone steals from me I may use force to get my property back). In other words if someone initiates violence (i.e. aggression) then one may legitimately counteract it proportionally (i.e. you shouldn’t kill someone for briefly setting foot on your lawn).

So, to answer your question, setting aside all the controversy around climate change we will simply assume it to be entirely true and that all the dire consequences imagined will in fact occur. In such a scenario whose property right is being aggressed against? Do future generations have an inalienable right to experience identical weather patterns as we experience them today? Do they have inalienable right to experience Miami beach exactly as it exists today? No. For a right to be a right it exists for all people for all time under all conditions. That’s why one has a right to life, everyone has a right to exist and remain unmolested by others and that condition can exist anytime anywhere. It is a negative right, it does not require the action of anyone or anything. Incidentally this is why “positive” rights, such as to a job, shelter, or healthcare are not real rights, but rather mere proclamations of things we’d like to have. To obtain such positive rights YOU must act to attain those things, one cannot obligate their fellow man to provide it for them. Negative rights only require that we be allowed to do what is necessary to achieve that thing without in turn violating (with violence) someone else’s ability to do likewise.

So if a “right to climate experience” exists then our rights are being violated today as we are all unable to experience the climate that existed say 1000 years ago. Since this is obviously totally unrealistic and unworkable we can see that no such right exists.

So to “combat” climate change one is free to do whatever they believe will minimize it, they can act on their own, they can associate with others and act together (by educating others to in turn get them to change their behavior, or perhaps starting a non-carbon energy company that perfects such energy forms to the point they are less costly than carbon and then naturally everyone simply switches to it – no coercion needed.

Think about it, if non-carbon energy is truly the future then these people should be willing to put their money on the line to invest it, I mean after all climate change is unequivocally going to happen, right? It’s a sure bet. They could make billions. So it is curious that they don’t want to invest their own money but rather use the state to make everyone else “invest” in such things.

They key to the libertarian answer is because there is no rights violation you can’t use violence (i.e. the voting booth) to make a “law” and then force everyone to follow that law under penalty of death (death being the ultimate result if one resists the state’s dictates to the bitter end). But there is nothing at all wrong with engaging in voluntary activity to persuade others to your viewpoint and to act in concert with you.

In short, do whatever you want to solve it, as long as it doesn’t involve the use of someone with a gun backing you up. Which by the way is exactly what a carbon tax or cap and trade entails. These are pseudo-markets concocted by the state. An actual market involves a buyer and a seller who exchange VOLUNTARILY. A carbon tax or cap and trade is no more a real market than a board game is the actual thing it represents: e.g. Monopoly has the trappings of a market economy, but it certainly isn’t one. Cap and trade and carbon taxes are like forcing two people to play Monopoly at gun point and then saying “see, they are following the principles of capitalism, so it’s all ok”

For those that want a truly wonky expert analysis of why carbon taxes are not at all libertarian (the crux of the original question) and why they would not actually do what most imagine they would (reduce carbon) please see this link. In short a carbon tax or cap and trade is simply a new income tax that shifts money from the wealthy to the poor. The poor see no net change in their income so they keep consuming carbon just as they always have (e.g. if they spent $100 on fuel, now with a carbon tax it is $200, but they get a $100 tax rebate, so their net out of pocket does not change). The wealthy have less money and thus less ability to save and thus less capital accumulation that can be used to invest in new R&D, new technologies, new factories, new jobs, etc. It doesn’t stop those things from happening, but it slows it down such that in 100 years we will be x% less well off than we were would have been absent the carbon tax and meanwhile the carbon tax has made zero impact on use cause we just give the money right back to the people using it the most.

June 09 / 2016

Being a Jerk at Work is a Human Right, Says Labor Board

The National Labor Relations Board (NLRB) recently told T-Mobile that its policy against workplace incivility is illegal. Nope, say the bureaucrats: workers have a right to be surly on the company dime.

The Huffington Post crowed about the ruling in a recent post. The article’s title, “Your Employer Can’t Force You To Be Happy,” betrays a fundamental misunderstanding of the meaning of “force.” The only one employing force in this situation is the NLRB. The only victim of force is T-Mobile. If T-Mobile refuses to comply with the administrative law judge’s order, eventually men with guns would come and haul its executives off to jail.

You Keep Using that Word

For the record, neither T-Mobile nor any employer uses men with guns to compel people to continue working for them. The confusion here stems from a flawed colloquial use of the word “force.” The situation called life requires that we eat, which in turn requires that we work to earn an income to acquire food. That darn Mother Nature forcing us to work! By the same token, if your attitude puts you in a situation where you can’t easily find another job, then that makes your employer the bad guy. Apparently anything asked in pursuit of maintaining that job is a use of force against you.

These are not monstrous expectations.

The employer-employee relationship should be an entirely voluntary one. To the extent that is untrue today is almost universally to the detriment of the employer. Employer rights (that is, the natural right to form mutually agreeable contracts) are severely restricted by an avalanche of labor laws, rules, and regulations.

Rules run the gamut from merely annoying (pay frequency standards) to debilitating (lawsuit risks when firing someone for performance reasons because they happen to be a member of a “protected class”). Somewhere in between is the difficult task of setting even basic conduct standards for employee behavior because of the intractable minefield that is the National Labor Relations Act.

The NRLA guarantees to all employees (irrespective of union membership status) certain “rights,” chief among these being the right to engage in any and all behavior that is conducive toward forming or joining a union. Anything that could remotely be construed to restrict this right is verboten and can earn the employer the label of “criminal”.

Even a rule as simple as stipulating that company resources can only be used for company business is disallowed on the grounds that employees have a right to use company resources to communicate with each other about working conditions. Apparently suggesting employees communicate after hours and using their own e-mail accounts or photocopiers is simply too much of a burden. I mean, who has access to phone service or printers at their house these days?

Government has given an official imprimatur to poor customer service.

The recent NRLB ruling similarly struck down several provisions of T-Mobile’s employee handbook that it viewed as being too restrictive with respect to employees’ organizational rights. Among these included a rule “prohibiting employees from arguing with co-workers, subordinates, or supervisors; failing to treat others with respect; or failing to demonstrate appropriate teamwork” as well as requiring employees to “maintain a positive work environment by communicating in a manner that is conducive to effective working relationships with internal and external customers, clients, co-workers, and management.”

These are not monstrous expectations. People actually want to work in places where management discourages acting like a jerk.

The head-splitting logic employed by the NLRB “judge” is as follows. If an employee is unhappy about work conditions, he or she has the right to externalize that unhappiness to co-workers and customers.

The Right to Treat Customers Poorly?

Being “forced” to cover up unhappiness, in this view, would be tantamount to disallowing their right to free expression of their anxiety over work conditions. This raises the question: what if the employee woke up on the wrong side of the bed? This has nothing to do with working conditions. Surely that is not a protected activity. How are we to differentiate the two?

Government has given an official imprimatur to poor customer service. In a way it makes sense. Government workers are infamous for their ill tempers (think the DMV). But if bureaucrats are able to propagate their own sullen attitudes toward work and service throughout the private sector, they won’t look so bad in comparison.

There is an old workplace humor poster that stated, “Sometimes the best solution to morale problems is just to fire all of the unhappy people.” Let’s start with the scowling faces in government before they make us all as miserable as they are.


Greg Morin

Greg Morin is the CEO of Seachem Laboratories which manufactures equipment and chemicals used in the maintenance of saltwater and freshwater aquariums. He holds a PhD in chemistry from the University of Notre Dame and maintains a personal blog at gregmorin.com .

This article was originally published on FEE.org. Read the original article.

June 07 / 2016

Drive Free

Last week I was able to experience a privilege not found anywhere in this bastion of freedom otherwise known as the United States. To find it I had to travel all the way to the arguably much less free and more socialist Germany. Yes, I am speaking of the Autobahn, that driving Nirvana that every red-blooded American and teenage boy with a newly minted driving license dreams of. Now, not to burst anyone’s bubble but it is not the 10-lane super highway we all manage to conjure up as we imagine speeding along at 200 mph. In fact, it in many sections it has more in common with two lane I-20 than any roadway utopia. But the crucial (and fun!) difference is there are stretches of highway where there is no speed limit.

Like “Red” from “Shawshank Redemption” who only recognized his own “institutionalization” after he had been released I was a bit reticent at first. “Someone must be watching,” and “I’m going to get in trouble,” flashed through my mind. But then slowly I experimented. First cruising at 85 mph (the super-speeder speed here in Georgia that would get you a $700 ticket), then 95, then 100! Hard to believe, safely moving at 100 mph! That became old pretty quick and I eventually worked up the courage to hit 200 km/h (125 mph). Still a bit of a chicken I slowed back down to a mere 110 mph all while people still passed me.

And then they all suddenly slowed down. Was it an accident? Was it a cop? No. It was simply a speed limit sign (yes, the autobahn does have speed limits). And everyone quickly and uniformly obeyed it. Why? Not because they might get a ticket (indeed I never saw a single police car the entire time driving on the Autobahn – tickets are only given for speeding if you actually are involved in an accident) but because they all respected the message of the sign. In Germany the speed limit sign is not there as a matter of revenue collection, it is there as a matter of genuine safety. Their speed limit signs are the equivalent to our yellow safety signs that warn a driver that conditions might be slippery when wet, that a bridge may ice over in the winter or that one really should slow down to 45 mph on that tight radius exit. You don’t get tickets here for ignoring those signs unless you actually cause an accident, so people obey them. Speed limit signs in the US are often flouted because we all know they are for the most part set artificially too low in order to enhance revenue collection. If the rules are structured to benefit a third party more than you, they will be ignored. If the rules are structured to benefit only you, they will be respected. This respect can clearly be seen on German roads. Actually slowing down when appropriate makes the roads far safer. One is about twice as likely to die on US highways than on the Autobahn in terms of deaths per distance driven (1.7 vs. 3.4 deaths per 1 billion kilometers). And yet we are told that speed kills. While it is true that all things equal higher speed is more deadly, all things are not equal. There exist different cars, different tires, different road conditions and last but not least, different levels of driving skill.

So when Bernie tells us we should emulate the European model, I agree! Let’s copy those Germans and bring freedom back to our roads here in the States. If it could save upwards of 8,000 lives per year, why not try?

June 07 / 2016
Author Greg Morin
Comments No Comments

The Freedom Illusion

Today I write this article on Memorial Day while visiting a country (Germany) that those we honor today arguably did fight to bring freedom to. Although to be precise that was only an indirect consequence of the war. They were actually fighting to stop the military encroachment of Germany on its neighbors. Had Germany been content to stay within its borders and continue on with the fascist policies of the National Socialists it is no doubt certain Americans would have not gone there to “fight for freedom.” I have often heard the phrase “as the world watched in horror” concerning the atrocities of World War II. But that is not entirely true. Some may have watched in horror, but the vast majority of people both inside and outside those countries run by fascist regimes (Germany, Italy, Spain) simply watched and shrugged their shoulders. Nothing to see here, after all, the law is the law.

Today with our 20/20 hindsight we can clearly see the violations of human liberty that occur under such fascist regimes. Now we beat our chests about how such violations of freedom must be opposed. All the while we remain blind to the violations of liberty occurring in our midst. If we open our eyes what do we see? Well if we can manage to wipe the fog from the lenses of our rose colored glasses we can see most ruling regimes follow that same fascist template we now so heartily decry. Fascism originated in World War I Italy and came to prominence under Mussolini. Others soon followed (Hitler in Germany, Franco in Spain) along with our own FDR. Fortunately we had a Supreme Court that tempered some of FDR’s alphabet soup of new “public-private partnership” agencies, but America was clearly on a fascist path. Today we are on that path yet again. To be clear, Fascism is not Nazism. Fascism is better known today as Corporatism, or Crony-Capitalism. It is a tight alliance between business and the state wherein the state calls the shots and the businesses that are serving the interests of the state collaboratively comply (energy independence, environmentalism, healthcare, education, etc). And everyone cheers the perceived benefits of sacrificed freedom.

So on this Memorial Day honor those that believed they were fighting for our freedom by recognizing the direction the world is headed in. Consider for a moment how much freedom we have already sacrificed in our permission based society. One is not free if one must ask permission to: start a business, get a job, hire employees, drive a cab, sell a product or service, keep their income, cross a border, get married, own a home. One is not free if one is subject to search and seizure in their own home or for merely walking or driving because they might have in their possession that is not approved. And on and on.

Honor the fallen (and those still with us) by fighting to both regain freedoms lost and by not sacrificing any more freedom. What the state gives us in return is either an illusion (safety) or that which we could have achieved on our own as free individuals.

June 01 / 2016

Thought Police?

The dynamic between liberals and conservatives is more like sibling rivalry than anything remotely resembling adult discourse. It seems they are simply not happy unless they are fighting over some new outrage du jour. And as with most childhood spats it’s never really clear who started it. Such is the case with the whole brouhaha over these “bathroom laws”. It is unclear if the Charlotte, NC ordinance permitting transgender individuals to use the bathroom of the gender for which they “identify” was in response to some specific case or was merely part of the liberal agenda of memorializing into “law” a panoply of perceived “rights”. The liberal worldview: anyone who disagrees with us is a bigot and should be thrown in a cage for not sharing our enlightened views. Of course conservatives are no better; they are well known to adopt new “laws” to prevent things they find distasteful even if they have never happened. The rich irony, or perhaps it is hypocrisy, is that the normal narrative is that we of course need a strong central authority to ensure small little enclaves of people won’t do bad things. Of course the states must submit to the Feds, we’re one country after all! But when the only way to push a progressive goal is from the bottom up at the small local (city) level, such as these pro-transgender statutes, suddenly they will triumphantly tout the important role of decentralized authority. And now what a crime it is if the central authority overrides the smaller group. But if the small group were doing something “bad” then we of course need the large group to overrule them. So basically the approach to governance is that we should rely on the wisdom of whichever authority happens to be doing the thing I agree with. Here’s a novel idea – why don’t people just be allowed to live their lives as they see fit without some outside “authority” forcing them to conform to some standard.

Now, on the subject of this whole notion of transgender rights: it is all utter nonsense – in the same way that gay, women’s, worker’s and every other adjectival “rights” are nonsense. There is only one set of rights: human rights. And those rights do not necessitate the initiation of violence or the threat of violence to be upheld. If you want to “identify” as something other than what your chromosomes say you are, more power to you, I really couldn’t care less how you or anybody else lives their lives. That’s what freedom means, living your life as you see fit and leaving me to do the same. And leaving me to do the same means you do not have the right to make me “accept” you as whatever gender you think you are, you do not have the right to make me call you “zie” or “zim” or whatever silly neologism that was concocted to satisfy tender sensibilities. The possibility that someone somewhere might experience hurt feelings is insufficient cause to initiate violence in order to prevent such hurt feelings. If a business wants to permit non-gendered bathroom access that is their right and no one should force them to not permit it. And if another business wants to maintain more “traditional” bathrooms that is their right as well. If you don’t like either, then go somewhere else otherwise comply with their rules. That’s what private property means; your house, your rules and my house, my rules. Just because a business has a so-called “public” face does not change the nature of private property. “Public” is merely that adjective government apples to an activity in order that they may justify their intrusion into said activity, nothing more.

This whole trans-gender rights thing is not vey well thought out though. It is quite unlike “traditional” anti-discrimination laws which related to objective outward appearance. Transgenderism is a function of thought, not biology. So if gender exists only in one’s mind, how is one to distinguish between authentic transgenderism vs someone merely pretending in order to gain some advantage they wouldn’t normally have, like in sports perhaps? If you set the precedent that one’s gender is defined by thought then upon what basis will you keep men off of women’s’ teams or vice versa? So if Bruce Jenner decided he’s really a women I guess he could compete against other women runners, right? Oh, wait a minute…

In the end both sides will “win” as these pro or con laws will be about as effective as “Gun free zone” signs.

May 25 / 2016
Author Greg Morin
Comments No Comments

The Rise or Fall of Socialism

Is socialism on the rise (Bernie Sanders)? Or is it on the decline (Venezuela’s economic implosion, Brazil’s impeachment of their socialist President, Cuba and North Korea’s decades of abject poverty)? To be fair, one could likewise cite the relative success of China, Denmark, Norway, or Canada as proof of socialism’s success. Why the difference? Why are some putatively socialist countries not total economic basket cases whereas others clearly are? To uncover the answer we must understand why some groups of people come together and achieve their goals while others fail. In any endeavor there is a group of individuals who have tight control over the means of goal achievement. This allows them to direct those means so as to ensure an efficient operation that will achieve the desired ends. Does that not remind you of something else? Like say a business perhaps? The reality is that the modern nation-state is simply a really big company, with shareholders (citizens), a board of directors (congress/parliaments) and a president running the show. Unfortunately this is one corporate stock you can’t sell if you disagree with how the company is being run.

So if states are structured as a business, why do some fail and some thrive? For the same reasons any business might fail or thrive. Success entails the optimization of three factors: consent, control, and resources. All factors play a role, however any one of them can overwhelm the others. This is the reason we see very different outcomes in a variety of nominally socialist countries, e.g. Venezuela vs. Denmark. It is not enough to cite Cuba (excessive level of state control) as a failure and therefore close the case on socialism. Were that the case then one would be susceptible to charges that capitalism can’t “work” because sometimes a business goes bankrupt. However it is just as disingenuous for those on the left to cite oil-rich Norway (abundant resources) as proof of socialism’s success. If Cuba had Norway’s oil resources it would be faring far better. Or maybe not, as in the case of oil rich Venezuela which too suffers from excessive state control of the economy and is presently circling the drain.

Countries that exert a high degree of control (totalitarian) over their citizens will always experience less “success” than those that exert little control. Less control means greater freedom to innovate and solve problems from the bottom up rather than the top down. Formerly socialist/communist countries (China, Vietnam) that have embraced the benefits of freedom (that is, free vs. state managed markets) within their borders have seen improved standards of living relative to those that have not (Cuba, North Korea, Venezuela). As a country or business grows in size, efficient control becomes exponentially more difficult. This is due to the Hayekian knowledge problem. Stated simply it is the reason that a family farm runs smoothly but a state run collective not so much. Unfortunately, those in charge don’t realize they lack the appropriate knowledge and thus make sledgehammer style choices that only serves to undermine the endeavor. The solution to the size-control problem is to move toward less control and smaller size through decentralization. Large businesses with autonomous subsidiaries have mastered this problem well.

A critical and often overlooked factor in the success of a state is consent. Without consent the process will be crippled if participants undermine or refuse it. This is a key difference between business endeavors and state endeavors; states always compel those who do not consent to participate. Businesses cannot force people to work for them or for customers to buy their products. Apathy was not an option when it came to the rise of 20th century socialism. The motto of Russia, China, Vietnam, and Cambodia: join us or die. Democracies maintain an illusion of consent that mollifies a credulous citizenry into the quiet acceptance of being ruled. They are better than dictatorships, but not by much, and fall far short of the benefits one would see with true pluralism.

To make America great again we must recognize that while our resources are substantial our size puts us at a disadvantage. The only way to overcome that disadvantage is to loosen, not tighten, the reigns of economic control and to foster true consensual pluralism by permitting those who wish to not participate in the dominant system to work toward building alternatives that will expand, not constrain, choice.

Crocodile Tears

We often hear that that manufacturing is dying in the US because of unfair overseas competition. US manufacturers are either going out of business or shifting operations overseas. However global competition plays a role across all industries, not just manufacturing. Something else is at play. US tax policy singles out manufacturing (actually nearly any business dealing in tangible goods) with unfair rules designed to extract more tax relative to a service-oriented business with the same income albeit while claiming the same tax rate. As the owner of a small US manufacturing firm, I have sadly gained firsthand knowledge of the severe disadvantage one must contend with if they have the audacity to try and make or sell goods in the United States.

The signs of this are not immediately apparent since the nominal tax rate for all corporations (non-pass through) is 35%. The trick though is in the sleight of hand where the focus is on the tax rate while it is the definition of profit that is critical. The common definition of profit is any money remaining after subtracting all expenses from revenue. And we all know what an expenses is, right? Anything you spend in furtherance of the goal of obtaining said revenue. Well unfortunately it’s not that simple, at least as far as the IRS is concerned. In business there are both overhead expenses and capital expenses. Capital expenses are not immediately deducted against revenue but rather depreciated over many years. So if you buy a $100k piece of equipment you don’t deduct the $100k, you deduct maybe $10k that year and for the next 9 years. There may be legitimate business reasons to view the numbers that way for accounting purposes however beyond a certain minimal size a business may not use the cash method (which does not employ depreciation) for tax computation but instead must employ the accrual method which invariably yields a higher figure by shifting more future income into the present. This puts such businesses (primarily manufacturing which is a equipment intensive industry) at a severe disadvantage insofar as the part spent but not deducted accrues tax. But it gets worse. Manufacturing maintains inventory and the inventory is treated as a capital expenses as well therefore none of it can be deducted until sold. And even when sold it is not taxed at lower capital gain rates but at higher regular income rates. The IRS knows the game of “heads I win, tails you lose” quite well.

Ironically it is a rapidly growing business that is most susceptible to such tax harm as most if not all the profits are invested back into the company in order to grow the inventory to keep up with increasing sales. So if you make a $1 million but use it to buy $1 million in inventory you owe $350k in taxes even though you don’t have $350k on hand. Oops. So you either have to borrow it, incurring even greater costs, deliberately slow your rate of growth, or just go out of business. But wait, it gets even worse. If you do so well that your sales exceeds $1 million the IRS redefines expense once again (Section 263a) and says a certain percentage of your payroll, rent, utilities, insurance, etc that is indirectly associated with producing the inventory must also now be capitalized into the value of the inventory. This shifts even more money from the expense column to the profit column. So based on pure available cash flow you may have made $350k but based on IRS capitalization requirements they say you made $1million. So the entire $350k you made is sent to the IRS on your phantom $1 million income and you end the year with nothing.

Only manufacturing is subject to these absurd redefinitions of expense and profit. Service industries have no inventory and nearly no equipment so their profit more or less equals their cash flow. Farming gets a million loopholes to avoid these issues. The rules governing profit/income are far more germane to ones tax bill then the tax rate itself. If we want manufacturing to flourish in this country again perhaps we should stop punishing those who try to engage in it while crying crocodile tears about how US manufacturers are fleeing this country.

May 10 / 2016
Author Greg Morin
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Earning Freedom

With each election cycle the people grow wearier of politicians who can’t get anything “done” – perennial gridlock maintains a perpetual status quo that breeds disdain for all things political. History teaches that as a community grows into a nation, then a country and finally an empire, the ensuing proliferation of voices brings action to a standstill. This sets the stage for a strong leader with a message of salvation. Finally! Someone who will do something! People get so frustrated they almost don’t care what is done as long as someone is changing things. At least with change there is at a chance their lot might improve. Witness the broad popularity of Donald Trump and Bernie Sanders; they both tell the people exactly what they want to hear, namely that their problems are not their fault and that if you only give either one the power he’ll make their lives great again.

However, there is an alternative to resigned acceptance of a dictator in chief. To uncover the alternative we must first be brave enough to ask: why is nothing getting done? Is it because a handful is maliciously plotting to undermine good ideas? Quite the contrary. It is our greatest strength, our ideas, our freedom of thought, that is the “downfall” here. Too many ideas all competing brings about not gridlock but equilibrium. No one idea can dominate because so many are equally appealing. But this will not stand! How can one rule without dominance? Perhaps dominance is not needed because human societies require no rulers to maintain order. Witness the “anarchy” among Protestant denominations. There are over 30,000 of them and without a single Protestant “ruler” somehow it all works just fine. Is this religious anarchy a thing to be feared? Quite the contrary, we universally welcome it as part of fundamental human liberty. Odd then that political free association is not likewise permitted and is instead smeared with fear-tinged epithets such as “anarchy”.

The real enemy is the notion that government can only “work” as long as unwilling people are forced to participate. It is like if a hundred people went into a McDonalds to order but food could not be served until at least 51 of them agreed on what to eat, and then all 100 would have to have the same meal. Let’s instead go to Burger King where everyone can have it their way. If I can order a hamburger while you order chicken nuggets then why is it so hard to let me opt out of Social Security even while you voluntarily choose to opt in? Life insurance doesn’t require participation of the entire country to “work”, so then why should a simple income insurance policy need it.

What if we just let each group implement their ideas as they desired, holding only those who voluntarily consent to such rules to be subject to them. If the progressive democrats want to have a single payer, massive minimum wage, cradle-to-grave-social security system then let them. Likewise if the social conservative republicans want to have drug, alcohol, gay-marriage, abortion-rejecting set of standards then let them. Nothing is stopping them from forming voluntary associations where all like-minded people agree to abide by such rules. If either side does not want to live among those who disagree with them then each is free to form private communities (á la the Amish) where no outside ideas will intrude upon their peace. If your ideas can only work if others are forced to participate in them then it’s time to examine the morality of your ideas.

A carriage goes nowhere if some horses refuse to move, some wish to go left, and some right. Better to release those with their own ideas and move forward rather than employing brutal force to bring all in line. In order to receive freedom, you must first be willing to give it.

May 03 / 2016
Author Greg Morin
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