The TSA: Give Us Three Options

Picture

Have you ever been in an elevator in a hurry? You are hoping that elevator doesn't stop again before you get to the ground level or your destination. If the doors do open, then your eyes go directly to the "Close" button to your right. You clamor to press it so you can get on your way again. Makes you feel in control right? What if I was to tell you that the "Close" button on the elevator didn't actually do anything at all?

The fact is: the "Close" button on the elevator doesn't actual speed the closing of the doors at all--in fact, it is provided to give you the illusion that you are under control. Illusion vs. reality. It is an interesting concept.

"Security Theater"

Security theater is a term that describes security counter measures intended to provide the feeling of improved security while doing little or nothing to actually improve it. Whatever ideological camp you find yourself in during this dialogue, there are two important questions that we need to ask ourselves as responsible citizens. The second question is contingent on your conclusion to the first one:

1) Is the TSA engaging in "security theater" or real security that is helping keep us safe?

2) If it is security theater, then what do we do about it?

To be honest, a big part of me wants to just believe that the scanners and pat-downs are ultimately good for me and our security, but I cannot ignore the facts. As the video of the guy from "Mythbusters" shows, these new body scanners and enhanced pat-downs enacted by the TSA do little to protect us from a dangerous materials. The Government Accountability Office (GAO) has already affirmed that the new full body or "naked" scanners would have likely not identified the PETN used in the underpants of Abdulmutallab. The Italian Government has already put the scanners into use only to remove them within months because they described them as "inefficient and ineffective." The fact is that there is no need to subject ourselves to be seen naked or groped in order to give the illusion of safety or of "security theater." Much like the illusion of control with the elevator.

We have devoted 2.4 billion and an increase in 5,000 TSA officials to the implementation of these full body scanners and pat downs. But, it seems that we are always fighting the last war with the TSA. There was a shoe-bomber, so now everyone has to take off their shoes. They tried to stuff explosives in ink cartridges, so now we can't bring ink cartridges over a certain size. We are reactive, rather than proactive. The fact is that terrorists are constantly trying to find a new way to penetrate, and the TSA is virtually powerless to stop it. I would rather devote the billions and new employees to focus solely on intelligence. Think about it: Abdulmutallab's father approached multiple agencies about the dangerous associations of his son and Abdulmutallab paid for his ticket in cash. Our intelligence agencies must connect these dots, not needlessly scan people's bodies.

These scanners clearly fail an honest cost-benefit analysis. So, what do you do?

What's your Solution?

Our nation is based on freedom and choice. Freedom of individuals to interact in a free market, possess private property, or raise your family defines our republic. So, why not our air travel? Or is it as many TSA officials and central planners have put it, "You give up many of your rights when you fly." Well, I do not want to accept that. Our two choices if you want to fly shouldn't be to be seen naked or to be groped. There should be a third option: to be profiled.

I understand that some people believe that "profiling" is un-American and not consistent with equal treatment under the law. That is fine, and I understand. This is a democracy, you can choose not be be profiled. Choose another option. But, I want to be profiled. I want all of my fellow passengers to know that I am just interested in getting from Point A to Point B, so check my nationality, ethnicity, religion, age, destination, prior travel experience, and so forth and ask me questions to see if it adds up. If I am not sincere, then subject me to more screening, but if I am inconsistent with a terror threat, then send me through the non-invasive metal detector and on my way. I am confident most if not just about all passengers would pick this route.

This would be easy to implement. When you come to the check-in screen to print your boarding pass, you should have 3 options on the screen: 1)Full Body Scan 2) Enhanced Pat-Down 3) Profile Me! Then, the boarding pass will print out a color coded verification that displays which of the three you want to experience during security checks. The TSA would then act accordingly.

Conclusion

This seems to me to be a sensible compromise to the policies that are in place. Although I would like to get rid of all of it, including most of what occurs under the Patriot Act, maybe this could get some traction. But, if we can't get rid of the scanners and pat downs like the Italians have already done, maybe we can just adopt another approach--just give us a third option.

Few Thoughts

1.) Quantitative easing scares me to death. The Fed is playing with fire and hoping to not get burned. Whether you agree with the Feds recent decision making or not, you better hope it works. QE2 is in the works and its window of success is small, to much and watch out for inflation. But what happens with inflation, the Fed is forced to raise rates and you can pretty much expect the economy to completely shut down. The Fed has lowered rates to so close to zero that it is having to be creative to continue any kind of monetary easing. Ill be honest, the economy is no where close to full recovery. By the way, for those not familiar with quantitative easing, it is when the Fed creates money out of nowhere to buy financial assets. Much like printing money but instead they just key in few numbers to computerized accounts. I wish I could do that.

2.) Foreclosure Moratorium. This would only postpone the pain of foreclosure to the economy. Foreclosure is a tough situation and the only possible winner is the end buyer who may get a good deal on a piece of property. Trust me, everyone else loses big in foreclosure. From the banks to the home owners. Its best for everyone to stay in their homes, but when the bills aren't being paid, banks cannot simply keep the loans on their books out of charity. Foreclosures have done a lot to depress the housing market but the process has to play out. A moratorium will only delay the inevitable and create a back log of foreclosures that will pile up during a moratorium and then all will hit the market at the same time when a moratorium is lifted, causing a shock to the market that would devastate an already depressed market. Worst case scenario, if a moratorium was instated with political motivations and a short term fix caused long term problems just for a temporary political jump.

3.)Cant remember my third one, it was a good one though.

Friedman Friday (sort of)

Link of the Day

Waivers Granted in Health Care Bill

The framers envisioned a decentralized government where you are governed by rule of law. This is rule by whim of autocracy. Health and Human Services Secretary is mentioned over 2500 times in the bill. It states "the secretary shall" around 700 times. The proper way to address this would be to repeal that portion of the law, but now they have established a precedent to give and take away privileges in the law on a whim. There is no standard but who has the most influence, or has the biggest microphone, or who they like the most. This is what happens when people who have no experience in the industry seek to make the decisions. This bill is a disaster.

The Story of Stuff

This is what is entering our schools. Over 40,000 in the last few years.

Blake

Release the Kraken

More thoughts coming later...

Waiting for Superman

Finally

"Waiting for Superman" is a brand-new documentary that is set to hit theaters in New York and Los Angeles on September 24 and nationwide later. It is made by the same filmmaker Davis Guggenheim who is best known for making "An Inconvenient Truth" about global warming. My reaction to this documentary being released and going mainstream is: it is about time.

“Superman” affectingly, movingly traces the stories of five children—all but one of them poor and black or Hispanic—and their parents as they seek to secure a decent education by gaining admission via lottery to high-performing charter schools. At the same time, the film is a withering indictment of the adults—in particular, those at the teachers unions—who have let the public-school system rot, and a boon to reformers such as Geoffrey Canada and Michelle Rhee, chancellor of the Washington, D.C., public schools, who has waged an epic campaign to overhaul the notoriously dysfunctional system over which she presides.

We have to rethink the way we look, think, and act on education in this country. Hopefully, this documentary will impact policy and the national dialogue and kitchen tables as much as "The Inconvenient Truth" has.

The Facts

9, 13, 17 year old children who take the National Assessment of Educational Progress (NAEP), the most reliable test for progress, found the following:

• Average Reading Test in 1971: 285
• Average Reading Test in 2008: 286
• Average Math Test in 1973: 304
• Average Math Test in 2008: 306

Examining a 2006 assessment, we noticed our standing in the education compared to our peers around the world has worsened :

• Mathematics: ranked 35th out of 57 developing countries
• Science: ranked 29th out of 57 developing countries
  

It is amazing to see the level of financial support that our education system has received over the very same time period. It is staggering and heartbreaking at the same time:

• From 1960 to 1995, public spending per pupil increased 212%
• Since the 1970s, federal spending per student has doubled.
• Tied with Switzerland for highest per pupil expenditures at $11,000.
  
• Spending went up 40% alone during the Bush Administration
• By 1995, the less than half of U.S. public school employees were teachers!

Standard theories cannot generally explain this stagnant growth over 4 decades with high salaries and benefits as well as better student teacher ratios:

• In 1955, student teacher ratio was 27:1
• In 2008, student teacher ratio was 15:1
• Student population increase is 8%
• Teacher allotment increase is 61%
• In 2008, the average teacher received $53,230. Two teachers married to each other would qualify in the top 20% of wage earning households in this country.

So Why Blog About This?

This is a crisis. Most people that I know, including myself, grew up in affluent areas with relatively positive experiences in public schools. The reality is that for many people in less affluent areas, the public school experience is dreadful. In the Schott Report, it found that 47% of African American students graduate from high school. After all the money we throw at education, something is wrong.

We need to change the way we do education, radically. Unfortunately, we cannot do that until the general public is aware of the pervasiveness of this problem and chooses to not accept the status quo. In my opinion, school choice attacks the status quo, and radically alters the direction of the lives of children (here is my previous blog on school choice).

For kids in the most troubling areas for schools in this country, their only hope for a quality education is that their number is called in a lottery that can send them to a high performing charter school. Otherwise, they are condemned to the failing school around the corner or in their neighborhood by the government monopoly of education. This is the elephant in the room. That is why "Waiting for Superman" is going to be so revealing. Because for most of these disadvantaged kids, the best chance for their success in life is hoping Superman comes.

Blake

Big Business

I recently made a short drive up Hwy 78 from Tupelo to New Albany and noticed something along the way that got me thinking. Off to the right side of the highway was the soon to be operational Toyota plant; a plant that is in the process of hiring 1500 employees, the majority of whom will be Mississippians. So what is significant about a new manufacturing plant in the heart of North Mississippi? Well, it is creating jobs, but to me, the significance is in that the plant is even in Mississippi at all. It is all credit to the proactive work of the Mississippi government. You see, even though Mississippi ranks near the bottom of the barrel in most economic categories, they are realizing something, something rather important to future economic viability: being pro-business is good for business, and that in turn, is good for everyone in the state. Toyota did not pick Mississippi because of its breathtaking beauty or ideal climate, Toyota decided to call Mississippi home because the State of Mississippi offered generous tax breaks and an incentive package that was not matched by any other of the possible locations. So is there something here, is it possible we could learn something from the actions of the government to promote business? Would Toyota have come to Mississippi if instead the state had decided to raise taxes on manufactures? Absolutely not. Mississippi provided a place where Toyota could be as profitable as possible and decided to work with big business and not against. And for its efforts, Mississippi will receive immense benefits that will help drive down unemployment and increase economic stature.


It is predicted, that when all is said and done and the plant is fully operational, total direct and indirect jobs created due to Toyota will exceed 10000.

I could give you all kinds of predicted outcomes and expected benefits to North Mississippi thanks to Toyota, but I’m sure someone could find fault in my numbers. So instead, ill shift from north Mississippi to central Mississippi, my home turf, to where in 2003, Nissan came to town. Under nearly identical circumstances a tax break and incentive program from the state government was put in place to bring Nissan to Madison County. The outcome: Madison County has seen an increase of over 16000 jobs, property values have increased, and living conditions have improved dramatically. I wish you could see the immense growth in the county over the last 7 years.

I don’t want it to sound like I am saying the only way to improve economically is to bring in car makers, but I am saying that being pro business is a necessity to economic growth. And I think something else very important to many of today’s arguments can be better understood by looking at this example. Is it fair for the government to incentivize a big company to come to town but not all the smaller companies that surround the area? Well, I think it is. Why might you ask? Because by bringing in the big guy, and all the jobs that it will provide, you are helping everybody. With a tax break that brings in a major manufacturer and all the new jobs, Burger King will sell more burgers, the local grocery store sells more groceries, and the local newspaper has higher demand for ad space. Everybody wins. Weird how that can actually work.

The State of Mississippi realized that to bring in jobs, it had to be competitive with the rest of the country. For America to bring in and keep jobs, it has to be competitive with the rest of the world. Raising taxes is counterproductive and will decrease our competitiveness. (Go ahead and cut that corporate tax rate to zero if you will)

The State of Mississippi faces many challenges in the future and I can only hope that the state leaders will take a proactive pro-business approach to building up the State. After spending a year as a Graduate Student at Mississippi State and sitting through countless meetings about the struggles of the Mississippi budget, I know that many thought that the proper measures to cover budget short falls was to increase taxes. But drastic tax increases will drive Mississippi businesses away from the state and make a bad situation worse. Mississippi could vote to end one of the Nissan tax breaks that saves the company $20 Million a year and funnel those funds to education, but I would not be the least bit surprised when Nissan decides to shut down shop and leave the state, giving other potential businesses reason to stay away from this state as well. And I guarantee it would cost the State much more than $20 million in lost tax revenue.

Simply put, cutting taxes works. Even if it’s only for the top. Many disagree. But it’s hard to argue that by raising taxes for those at the top, those with the most mobility, the higher taxes will simply be paid and added revenue will be generated and everyone will walk away with a smile on their face. America could cut taxes and bring jobs back to this country, I truly believe that companies would love to be here, but as is, the tax structure is making it economically unfeasible to stay and some want to make it worse.

As always, I could go on for a while but I tend to start rambling so ill give it a rest. Hope at least some of this makes sense to someone other than me.

Brett

Economics. Simplified.

Something Simple

Suppose that every day, ten men go out for dinner and the bill for all ten
comes to $100. If they paid their bill the way we pay our taxes, it would go
something like this:

The first four men (The poorest) would pay nothing.

The fifth would pay $1.

The sixth would pay $3.

The seventh would pay $7.

The eighth would pay $12.

The ninth would pay $18.

The tenth man (the richest) would pay $59.

So, that's what they decided to do.

The ten men ate at the restaurant every day and seemed quite happy with the
arrangement, until one day, the owner threw them a curve. "Since you are all
such good customers," he said, "I'm going to reduce the cost of your daily
meal by $20." Meals for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the
first four men were unaffected. They would still eat for free.

But what about the other six men - the paying customers? How could they
divide the $20 windfall so that everyone would get his 'fair share?' They
realized that $20 divided by six is $3.33. But if they subtracted that from
everybody's share, then the fifth man and the sixth man would each end up
being paid to eat his meal. So, the restaurant owner suggested that it would be
fair to reduce each man's bill by roughly the same amount, and he proceeded
to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).

The sixth now paid $2 instead of $3 (33%savings).

The seventh now pay $5 instead of $7 (28%savings).

The eighth now paid $9 instead of $12 (25% savings).

The ninth now paid $14 instead of $18 (22% savings).

The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to
drink for free. But once outside the restaurant, the men began to compare
their savings.

"I only got a dollar out of the $20,"declared the sixth man. He pointed to
the tenth man," but he got $10!" "Yeah, that's right," exclaimed the fifth
man. "I only saved a dollar, too It's unfair that he got ten times more than
I!" "That's true!!" shouted the seventh man. "Why should he get $10 back
when I got only two? The wealthy get all the breaks!" "Wait a minute,"
yelled the first four men in unison. "We didn't get anything at all. The
system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for the meal, so the nine sat down
and had dinner without him. But when it came time to pay the bill, they
discovered something important. They didn't have enough money between all of
them for even half of the bill!

And that, ladies and gentlemen, journalists and college professors, is how
our tax system works. The people who pay the highest taxes get the most
benefit from a tax reduction. Tax them too much, attack them for being
wealthy, and they just may not show up anymore. In fact, they might start
eating overseas where the atmosphere is somewhat friendlier.

Props to Brett Boothe for showing me this example. I figured I would post it since he has been absent trying to make it in the working world. Enjoy.

Blake

Friedman Fridays: Equality?

I have a few comments that I would like to share on this issue, but I wanted to get it up so that some certain people could have a video to watch at staff time!

Blake

Why Government Doesn't Work

Exhibit A

Say you stumbled upon a lot of money.. say 14 million dollars. What would you do with it? Suppose you want to make a return on your investment, what qualities in the market or in companies would you look for? Would you invest in a company that looked like this: The company is ZBB Energy. They are on the cutting edge or green energy technology manufacturing batteries and equipment to store in energy for cars and wind turbines. Sounds great so far! But, when you look at their filings with the SEC, they have been hemorrhaging money since going public. They lost $4.9 million in fiscal 2008 and $5.5 million in fiscal 2009, also $6.9 million in first 9 months of this year! It explained it had a "cumulative deficit" of $44.1 million and informed shareholders that it "anticipates incurring continuing losses." Its CEO was just asked to step down and has a new 72,000 square foot facility that is operating at 10% capacity.

The 14 million dollar question: would you invest your 14 million into this company?

You would have to be crazy!! But, guess who found it worthy?? The Federal Government. The Obama Administration actually announced the awarding of the money at their plant as a part of the 2.3 B package to promote clean energy calling it "pointing the country to a brighter economic future."

Terrific.

Exhibit B

Often pointed to as a huge success story of the Stimulus package, the Cash for Clunkers program was a case study in itself on why government doesn't work. The program took $3 Billion in taxpayers money and gave tax rebates for people who traded in their old "clunker" car for a newer, more green car. The Central Planners (Fed Government) thought it would be a great way to clean up the environment and stimulate auto sales. But, the effects of planners intervening in a free market to help are far worse than I originally thought. As Reagan once said, "the 9 most terrifying words in the English language is : 'I'm from the government and I am here help."

Here is the auto sales index over the past year. The spike is obviously from the quick and artificial demand. Over 600,000 plus sold and the central planners declared victory! Then, the consequences and details came. Pesky details. Simple arithmetic shows that each transaction cost the taxpayers $24,000. We could have just bought them new cars with the money we devoted to the cascade of government bureaucrats and paperwork to administer this farce. Now, we are entering the real consequences. Edmunds is reporting that used cars are on average 10% more expensive this year than at this point last year and over 30% more expensive for SUVs. Each buyer this summer paid an average of $1,800 more for used vehicles than at this point last year. The problem with "central planning" is that their was a real market for the cars that the Obama administration sent packing. Who looks for used cars?? People on a budget, who cannot afford to buy new. By destroying a quarter’s worth of trade-ins in three weeks and permanently taking them off the market, the Obama administration has forced an artificial inflation by supply restriction.

They subsidized new car sales that would have occurred anyway and in the process, might as well have shredded $3 Billion dollars in our faces. Sound a lot like the homebuyer's credit that the planners love. Ironically, the graph is shockingly similar to the one above. The people most hurt by this act of planning is the working class folks, who could least afford to.

Terrific. At least my air is less dirty.

Exhibit C

This is Medicaid Chief Actuary in 2008 reported these numbers:

Year (pre-PPACA)	2010	2011	2012	2013	2014	2015	2016	2017
Covered lives (millions)	40	39	39	38	35	34	35	35
Federal expenditures ($bn)	$392.6	$424.0	$457.4	$494.0	$533.3	$576.4	$623.0	$673.7
Federal share	$223.5	$241.3	$260.3	$281.1	$303.5	$328.0	$354.5	$383.4
State share	$169.1	$182.7	$197.1	$212.9	$229.8	$248.4	$268.5	$290.3
Cost per covered life	$9,815	$10,872	$11,728	$13,000	$15,237	$16,953	$17,800	$19,249
Growth rate		10.8%	7.9%	10.8%	17.2%	11.3%	5.0%	8.1%

We see that at best, it costs the government $10,000 per covered person in Medicaid, 19,000 in 2017! That is certainly more than regular health inflation. Why? Government planners are ignorant of market forces. What is the average health care plan cost per year? Massachusetts has the highest health care costs (and most gov. intervention), with the average cost being $4,400 in 2009. Government run insurance costs 2x as much as the average plan in the market. Not only that, but we spend 2x as much per person and get substantially worse care. And, Obamacare expands this awesome program by 50%? Should work out well.

In the end the government hurts the people it is most intending to help. We would be better off, cutting each Medicaid person a check and align their plans with real medical inflation than the black hole of inflation of a government program and let the market solve these problems. I want to abandon government solutions to problems not because people in need are unimportant, but because they are crucially important. 2x the cost for less quality.

Terrific. Only in government.

The Thesis

The government is generally ignorant of market forces and often creates a series of unintended consequences with the fruits of your own labors.


The Principle

The key insight of Adam Smith's Wealth of Nations is so simple: if an exchange between two parties is voluntary, then it will not take place until both parties believe they will benefit from it. The majority of economic fallacies derive from the believe that their is a fixed pie and that one party can only gain at the expense of another. As Reagan said in his UNREAL speech above, "people can't see a fat man standing next to a skinny man and not assume that the fat one got that way by taking advantage of the skinny one."The free market is a market of voluntary cooperation. Prices in the market emerge from these voluntary transactions between buyers and sellers can coordinate the activity of millions of people, each seeking his own interest, in such a way that makes everyone better off.

Capitalism means that no one is subject to arbitrary coercion by others. It requires people to be allowed to retain the resources they earn and create. Protection of ownership and property lies at the heart of a capitalist economy. Ownership means not only that people are entitled to the fruits of their labor, but they are free to use their resources without asking authorities first. The alternative is for the government to be entitled to our labors and then to decide what types of behaviors to encourage. The question is does government know what we want and consider important in our lives better than we do ourselves?

This is not to say that any one person in the market will be smarter than a bureaucrat, but it does mean that market participants (business owners and consumers) are in direct touch with their own particular corner of the market, thus responding to price fluctuations, and have direct feedback on supply and demand. Central planners can never collect all the information in all the given fields, nor are their nearly as motivated to be guided by it. Even if one person in the market is no smarter than a bureaucrat, a million people working together certainly are!

Example: if the government directs all resources to a certain kind of collective farming and it fails, the whole of society will be affected and, in the worst case, starve. If, instead, one group of people attempts the same type of farming, they alone will suffer the adverse effects and fails, then surpluses elsewhere in the market will mean no starvation. The risks of experimentation should be limited so society as a whole is not jeopardized by a few peoples mistakes. Oh trust me... they will make mistakes. But who should be making them? Individuals or government bureaucrats?


Conclusion

I know this is a long post, but it is worth it. Because.. "the more the plans fail, the more the planners plan." We need to be informed. The battle raging today is about is not just about tax rates, government spending, or your health, but it is about who should be making decisions... government planners or individuals. Looking at Exhibit A, B, and C.. I will take individuals every time.


Blake

What I Think about at Work

After some prodding from my good friend Blake, I am making my much anticipated return to the blog.


After pretty much dominating everything the Mississippi State business school could throw my way, I'm now looking for new challenges in the business world. With 6 years of college experience under my belt and my recent induction into the Mississippi State Hall of Fame, I'm pretty pumped about earning a paycheck and sending off my fair share to Uncle Sam. Been looking forward to getting soaked with taxes for years now, the day has finally come and I can’t hardly contain my excitement. Hopefully next year I will get to pay even more. Got my fingers crossed on that one though.

Don’t won’t to get sidetracked on taxation though. So, down to business. It would seem that now that I have a job I would have a perspective on taxation and the use of MY money to fund bailouts and stimulus, or maybe I would give my opinion on immigration or gay marriage or the building of mosque, but I’m gonna stray from the norm for now and save the serious stuff for a later date. Today I want to touch on a hypothetical just for fun. Since we have adopted Friedman Friday, the ideals of good ole Milton have flooded this blog. So in honor of Milt, and due to the time of year, I want to do something a little different. So without further ado, my hypothetical:

What would happen to the NFL if Milton Friedman was the commissioner????

First off, the NFL as is, is very socialistic in nature. Milton would not go for this and would change that immediately. Day one on the job, the draft would be eliminated. No longer will the worst team get the benefit of drafting first. In Friedman’s world, if you fail to perform, you don’t get a bailout. If you fail for long enough, you won’t be able to compete, and sorry Detroit, but you might not be fielding a team the year after losing every game. And if Matthew Stafford wants to stick around Georgia and play for the Falcons after college, more power to him. Milton’s league won’t ship you off to the dreadful Lions just because you proved to be the best college quarterback in 2008. Instead, every NFL eligible football player would have the opportunity to throw his name into the free agency market, not the draft. From there, the NFL ready college studs could bid there services to the highest bidder, or head to the team of his choice for whatever price that team is willing to pay. Eli Manning doesn’t have to force a smile while holding a Chargers jersey after being drafted when everybody knows he doesn’t want to be there. He shouldn’t have to be there. Friedman would make the NFL a free market, kinda like….. every other occupation in America. I wonder how it would work if the worst performing hospitals each year got the first pick in the next years Rookie Doctor Draft. Sorry, Brett Jeter, we know you excelled in Med School during your four years and since you’re the best in this year’s class, the Detroit Inner City Drug Rehab Clinic has selected you first overall because they earned the right to you because they were downright awful last year. Good luck. Day one, Milton gets rid of the draft.

Day two, the league minimum salary is out. Friedman’s not a fan of a minimum wage. Sorry Jim Sorgi.

Day Three, now that the draft has been eliminated and league minimum is gone, Ole Milt needs to address the salary cap. It would take him all of three seconds to scratch that hurdle for teams. If the Cowboys want to spend a cool billion on players, go right ahead. Might not be a good investment, but it’s not the job of Commissioner Friedman to tell teams how to spend their money. However, when Jerry Jones spends a billion on players and his new stadium only has 72 fans in attendance for games because hes got to charge $7,894 per ticket, Milton and the rest of the league won’t be there to bail him out of bankruptcy.

Day four, Milton would lay out the role of the commissioner. It would go something as follows: He will make a schedule and assign home and visitors, however, if the visitors would like to buy the rights to be the home team, that’s fine if the teams can agree to terms. He will also define a playoff structure. He will be the enforcer to ensure that all contracts between teams, players, coaches, managers, and water boys are upheld. Pretty laissez-faire.

Day five through twenty, Friedman will deal with the Players Union. That might take a little while but I feel confident Milton will make them understand his free market ideals. Guys like Vince Young might struggle with economic principles though.

Day 21, Milton will handle the exit of the Chiefs, Dolphins, Raiders, and Lions who can’t compete in the NFL and can’t survive now that the league won’t prop them up and promote their failures by giving them top draft picks after awful seasons.

Day 22, when the Jets realize that they have a legitimate shot at being a contender this year but just need a little more cash to bring in another key player or two, they are more than welcome to go public and have an Initial Public Offering and sell their stock on the NYSE to raise that cash. If they want to issue bonds to raise cash so that they can afford Darrelle Revis, maybe their fans will give them a favorable interest rate.

Hmmmm, Ole Milt would shake it up a little bit. Would be interesting to see how the league would shape up if it was treated as a free market system and Friedman was in charge.

I wonder what would happen if Obama was the NFL commissioner?

Happy Football Season to all.

Friedman Friday: Equality

This is an interesting point that Dr. Friedman brings up, especially when thinking about the morality of the death tax. We should be considering the whimsical idea of fairness and equality in a free society. Here is the thesis:

"The inheritance of talent is no different from an ethical point of view from the inheritance of other forms of property.. Yet many people resent the one, but not the other." Milton Friedman at 1:24.

Another item of note: the introduction of the famous Thomas Sowell at the end of the video destroying Dr. Piven. Enjoy.

"Americans are so enamored of equality that they would rather be equal in slavery than unequal in freedom." Alexis de Tocqueville.

Blake

Friedman Fridays: Soak the Rich?

As the debate over the Bush tax cuts looms, the dialogue in this video is very valuable.

Blake

Newsworthy News

26 Billion Bailout for States: Quick Fix

I have nothing against firefighters, teachers, and policemen--they are vital. But, bailouts for the state governments to pay workers do not encourage states to change behavior or be self-reliant. Since 1995, state payrolls have risen on average 16 percent along side a Federal Stimulus that injected enormous resources to shore up these oversized payrolls. I personally watched the State of Mississippi cut resources to Higher Ed., mental health, and a plethora of other services. Numerous other states have made cuts to balance budgets and some have surpluses!

"Why should we the taxpayers from 46 states, like MS who cut budgets and made hard decisions, pay for the extravagances of Illinois, California, Michigan, and New York?

If Gov. Christie in NJ closed a 11 B budget deficit without raising taxes, State leadership can develop better budget priorities... if they are forced to. Direct bailouts do no such thing.

Tax Cuts=Not Credible, More Spending=Credible?

Treasury Secretary Tim Giethner: "But there is no credible argument to be made that the purpose of government is to borrow from future generations of Americans to finance an extension of tax cuts for the top 2 percent."

So.. there is not a credible argument to let people keep their own money they have rightfully earned, but there is a credible argument to push for more stimulus spending on what government bureaucrats deem best? What is this? Amateur hour?


In Government, You Fail Up!

If it isn't broke, don't fix it. If it is, then throw money at it. This article makes me yearn for a true executive in office.

No, I Double Dog Dare You

Shockingly, President Obama's "open hand" extended to Iran's Ahmadinejad on nuclear talks produced no results over 18 months. But, he is trying again. As Winston Churchill once said leading up to WWII, "We are entering a Period of Consequences." I am afraid there will be real consequences to being soft on policy to Iran. But, hey! lets keep trying.


Missed Story on Prop 8: The President

I think it is unfortunate that Judge Walker ruled essentially that I was a bigot for opposing gay marriage. What is interesting is that our President holds the same views as I do. This ruling puts his position in the spotlight.

Conflict of Visions: Michelle Obama vs. David Cameron

Normally, this stuff doesn't bother me too much. But, as much as the Administration decries business leaders and greed, I just do not get this. I applaud the PM.

Charitable Giving: Conservatives vs. Liberals

Who gives more on average? Statistics say conservatives give to causes 30% than liberals.

Friedman Fridays: Minimum Wage

Fortunately or unfortunately, I am starting to read and investigate more and more and am realizing one important truth: things are not always as they seem. Reading textbooks and bumbling around my whole life, I have generally accepted notions about the world around me instead of challenging them on an objective basis. This is partly what I am going to reveal in many of my blog posts. I approach today's topic on the minimum with a reverence because it is a very personal issue when referring to someone's wages or livelihood, but I hope to reveal some truths that many if not all people in our friend groups and in our communities have not even thought about.

The Argument

In a free-market economy, employers must bid competitively for the services of workers. If an employer attempts to pay wages lower than his workers can obtain elsewhere, he will lose his workers and thus be compelled to change policy or go out of business. If an employer pays wages above the market level, the higher costs will put him at a competitive disadvantage in the sale of products or services, and again he will have to change policy or go out of business. Here is an important truth: we must stop looking at employers as greedy or inhumane. Employers do not lower wages because they are cruel, nor raise them because they are kind--not made on a whim.

Since the start of the Industrial Revolution and capitalism, wage rates of steadily risen because of the economic consequence that inevitably comes with rising capital accumulation, technological progress, and expansion, not central planning or mandates by government bureaucrats. The free market allowed for an ever-widening market for labor which increased the demand and competition for worker's services, thus driving wage rates upward. Henry Ford was offering 5 dollars a day wage rates at a time when his competitors were paying 2 or 3 dollars a day, not because he was kind, but it was in his economic self-interest for productivity.

The Consequences

As a result of government intervention into private markets by mandating a minimum wage, employers cannot afford to hire new workers, curtailing production and capital accumulation that is the main driver of economic growth. Thus, one group of workers obtain unjustifiably high wages at the expense of workers who are unable to find jobs at all. Unemployment is a direct result of forcing wage rates above their free-market level.

The Congress passed one of the biggest increases in the minimum wage between 2007 and 2009 from $5.15 to $7.25 and have seen unemployment rise to levels we haven't seen in decades. Most people will argue that that has been the result of the overall unemployment going up, but you cannot deny the percentage gap between the teen unemployment and regular unemployment.




The fact is that the minimum wage is hurting the vary people that it was most intended to help. Instead of letting a low-skilled or uneducated person be employed at a rate to suit the employer like $5 an hour, they government has made that practice illegal and is forcing a business to employ them at $7.25 an hour. The government is effectively denying low-income folks and teens an opportunity to gain experience and some cash flow that could lead to a more stable life and potential opportunities in the future.

The argument is that a family cannot be supported on the minimum wage or anything less, but the facts just do not support this argument. According to the Department of Labor, only 1.1% of Americans who work 40-hour weeks earn the minimum wage. Thus, 99% of full time workers earn more than the minimum wage because teens are 5x as likely to earn minimum wage than adults and are nearly always first-time or part-time jobs. The fact is that these jobs are taken primarily by those who do not have a family to support.

Conclusion

The notion that producers or employers can just "absorb" wage increases and mandates by taking them "out of profits" is a faulty notion. For what does expansion and future production come from than out of the profits of employers. It is economically naive to believe that the effects are not detrimental. At any rate, my man Milton can do a far better job describing this than me. But, I am sure this will spark a heated debate. I look forward to it.

Blake

Arizona and Illegal Immigration

Feel free to call this a lazy post but I want to throw the topic out there and see if anyone will care to comment or share an opinion on the matter.




Tomorrow the Arizona Immigration Law, is set to become enforceable law. However, today, at the last minute, a federal judge blocked the heart of the Arizona law and if nothing else, added fuel to the immigration fire.

Tomorrow the debates will intensify and the two sides of the argument will stand for their reasoning on behalf or against the immigration law.

So a couple of questions:

• Does the law promote racial discrimination?
• What benefits will the law induce?
• What negatives will come from this law?
• Are politicians politicizing the issue?
• What are the political implications of the law?
• Will there be any economic impact stemming from this new law?

And my favorite,

• Does Federal Law supersede State Law?

I would love to hear some opinions about this issue, even from a certain poster (no names will be mentioned but there is only two posters on this blog), who is for full illegal immigrant amnesty.

Friedman Fridays: Subsidizing Failure

Is that my man talking about bailing out Chrysler in 1979? Surely, we didn't bail them out again in 2009 did we?

"You could put a democracy in charge of the Sahara Desert. Soon the sand itself will become scarce." -- Milton Friedman

Blake

What Do You Think?

Scenario

To understand the economic environment we live in, it is useful to imagine the case of a physician trying to treat an ill patient. The patient presents herself in terrible shape; the physician has never treated a condition with symptoms quite like hers before; and the causes of the ailments are unclear. The doctor remembers reading about a similar case in medical school — and, trying to recall as much of his training as possible, he endeavors to come up with a theory as to why the patient is sick and to determine what will make her better.

In an ideal world, the doctor would run a controlled experiment: He would assemble 100 patients with similar symptoms, but the doctor does not have 100 patients — he has only one. So, based on his assessment of what is causing the patient's troubles, and the most likely remedy, he takes a risk and administers the medicine.

The patient, however, returns a few weeks later; this time, her symptoms are worse. What, then, should the doctor conclude? He might decide that he gave the patient the wrong medicine. Or he might determine that the patient was even sicker than he originally thought, and thus that the medicine should be administered at an even higher dosage. What do you think?

Stimulus Spending

President Obama is now faced with this scenario. Change approaches or go for a higher dosage? It looks like he is going higher by advocating that the unemployment rate would have been "15%" if not for his package or that "we staved of another depression." He is making the push for more stimulus in the form of jobless benefits and bailing out municipalities. In regard to the ill patient, the Administration is saying that the dose itself was not big enough. VP Biden admitted to it in this video. However, we should not just focus on "The Stimulus," but I should also remind you that we have had no less than 4 stimulus packages in the past 2 years:

1. 152 Billion -- Jan 2008. Unemployment Rate 4.9%
   
2. 61 Billion----Sept. 2008. "Stimulus for Main Street." 6% rate
3. 862 Billion---Feb. 2009. Supposed to keep rate below 8%
4. 30+ Billion--Nov. 2009. Programs like Home Credit. Rate 10.2%
   
5. Other measures bring the total to 1.085 Trillion on Stimulus Spending > Iraq War and Afghanistan War combined.
   

To be fair, a couple of these measures had bipartisan support as well as President Bush's signature, so both parties are at fault here. But, over 1 trillion was spent and unemployment still reached 10%. Germany only spent 100 Billion in stimulus money when we did, and they are entering into a v-shaped recovery and less unemployment. The debate today hinges on the ability for Americans to choose which type of economics you want to believe in.

The Question

President Obama and the Democrats subscribe to the Keynesian theory that during periods of high unemployment and slow growth there is a decrease in aggregate demand, which can be replaced by government spending. Here is the question:

• If aggregate demand in the economy is weak and the problem, then why are profits so strong?
  

Fortune 500 companies have over 1.8 Trillion in cash reserves. This is well above the high mark in the past 30 years and above their cash flow needs. Harley Davidson, to take one example, saw its profits quadruple in its last report, and it is a company that is very much dependent upon American buyers. Other firms, from Pepsi to Mattel to Ameritrade, have seen very strong profits of late. Analysts have remarked that, in terms of profits, this is one of the strongest recoveries we’ve seen in a good long while.

Profitable businesses are the most sure way of creating jobs for the long-term compared to temporary government stimulus jobs. I would rather have a job working for a Harley factory than depend on a iffy stimulus proposal like: the purchase of a polar icebreaking ship ($87 million) or new subsidies for beekeepers and fish-farmers ($150 million).

Every dollar misspent by the government is one less dollar to be spent in the private sector or saved to provide sureness to the banking system. I could spend the next 24 hours trying to talk about multipliers and what the economic models say about government spending per dollar to GDP, but I will just leave it at that.

The Real Reason: Uncertainty

The profits for businesses are there for a v-shaped recovery, so why is it not happening? Uncertainty created by government bills and intervention is the answer. Whether it is the coming Health Care Bill, Financial Regulatory Bill, Bush Tax Cuts expiring, Cap and Trade, or just anti-business rhetoric, businesses would rather stay put than risk hiring. I am going to end my post here with a comment I read about why there are no jobs right now:

• I am a building designer, used to have employees and wanted to grow my firm to about 8 people. No longer. I will be more likely semi-retired by choice from this point on because:

  Cost of Employees way up: Workman's Comp, Unemployment insurance, Health Care is up by nearly $ 8 per hour over 3 years. Health care alone now costs $4 an hour if they are young, over $5 per hour if over 50.

  Business Regulation - every purchase over $ 600 needs a 1099 form, meaning I have to get the address and the tax ID of the power company, the insurance company, Office Depot, etc. I will be going from 4 1099's to over 100.

  Health Care - I will now have to track where my employees go in the event of HazMat exposure. Did the government office they measured in for a few days contain lead or asbestos. Duh - yes, but it is supposedly safe for government employees why not mine.

  Security - I must have lots more records on my employees keyed to their SS#, but if somehow I lose my laptop I am a crook.

  I could go on and on, but my reward is:

  My marginal tax rate jumps in 2011, about 30% more than before.

  the FICA income limit keeps rising, that is 15% of net for the self employed on the marginal increase.

  It is obvious that there will be a lot more taxes coming. So my risk is way up, but the government now TAKES over half of any marginal increase. I would rather fish.

I say we change doses. What do you think?

Blake

(Thanks to the National Review, Greg Mankiw, and other articles for inspiration).

Keynesian Rhapsody

My boy Bo"Its pronounced cane-sian not key-knees-ian"Hogg enlightened me with this little tidbit of pure economic joy.

Friedman Fridays: The Free Lunch Myth

This video on the adverse and sometimes not even thought of effects of taxes on business is very important for the time we live in today. I have some more thoughts about taxes and the coming debate that I will address in an update to this post later. For the mean time, enjoy another installment of my man, Milton Friedman.

Comments welcome.

Blake

Yankees vs. Rams: The Estate Tax

Yankees vs. Rams

My condolences go out after the death of long-time owner of the New York Yankees George Steinbrenner. But, the death of the Yankee's mogul brings an important topic of debate into the arena: the Estate Tax.

In 2008, the owner of the St. Louis Rams Georgia Frontiere died and left the organization and her assets to her two children. Valued at over 900 million, the heirs were required to pay over 300 million in taxes to the Federal Gov. With obviously no way to pay the money required, the two sons had to sell the team to just pay the taxes for their mother leaving it to them!

Same thing has happened to the Kansas City Chiefs, the New York Jets, and the Miami Dolphins.

Compare that to the deceased George Steinbrenner. Bought the Yankees for 8.8 million in 1973 and has now grown it to be valued over 1 billion dollars. Due to the Tax Cuts in 2001, the estate tax is 0% this year. Fortunately for the sons of Steinbrenner, they will not have to pay 500 million in taxes to the Feds and get to retain ownership of the team.

Lets get into some specifics:

People of all political persuasions and centuries have been debating the validity of a tax on property or assests. Here are a couple comments:

President Teddy Roosevelt: "The man of great wealth owes a peculiar obligation to the State, because he derives special advantages from the mere existence of government."

Former Treasury Secretary and Advisor to Obama Lawrence Summers: "the evidence put forth by lawmakers advocating the repeal of the tax is as bad as it gets. There is no other case than selfishness."

NY Times Writer Paul Krugman: "It is a moral issue"

Harvard Economist Greg Mankiw: Consider the story of twin brothers – Spendthrift Sam and Frugal Frank. Each starts a dot-com after college and sells the business a few years later, accumulating a $10 million nest egg. Sam then lives the high life, enjoying expensive vacations and throwing lavish parties. Frank, meanwhile, lives more modestly. He keeps his fortune invested in the economy, where it finances capital accumulation, new technologies, and economic growth. He wants to leave most of his money to his children, grandchildren, nephews, and nieces.

Now ask yourself: Which millionaire should pay higher taxes?... What principle of social justice says that Frank should be penalized for his frugality? None that I know of.

My Take on the Foundation Issues

The intent of the estate tax was to render to the government a "tax" on the transfer of property or wealth to their children or heirs. Some of the big arguments centered on the fear that wealth would get concentrated in a couple families in the country and that wasn't fair. All the questions in your head can be reduced down to one simple question: Who has the right of property?

It is my opinion that the right of property is the right of use and disposal: just as a man who produces wealth has the right to use it and dispose of it in his lifetime, so he has the right to choose who shall be its recipient after his death. No one else is entitled to make that choice. The right goes to the original producer of the wealth. Others claim that the heir did not work to produce the wealth, so he has no inherent right to it. That may be true. But, if the future heir has no moral claim to the wealth, except by the producer's choice, neither does anyone else--certainly no the government or "public."

Policy Solutions and Issues

I know I have already written a very long blog post, but I think it highlights a greater issue at play: government's goals of redistributing wealth and addressing income inequality. Many wrongly see the tax as a mode of redistribution from the wealthy to the not-so-wealthy. But in reality, the death tax punishes middle and low-income Americans by discouraging new hiring and stifling new growth.

I support the full repeal of the tax on a couple grounds:

1) It kills small businesses and potential for hiring.
Here a couple testimonials:
General Contracting Co.
Grande Harvest Wines

2) Create 1.5 million jobs
Former CBO Director published a study

3) Only affects 2% of Federal Revenue
It could actually be negative revenue because families pass down fortunes early that are then taxed at much lower rates. This study outlines it.

Conclusion

I have a feeling that lots of people will disagree with me, but that is what the "Arena" is for. I would love to talk about the foundational issues of property or the policy implications of a certain tax rate or full repeal. In the words of my man Milton Friedman:

He told a young man once: "The challenge of my generation was to build an intellectual defense for freedom...The challenge of your generation will be to keep it."

Blake