Economics

Why We’re All Doomed (Semi-Satirical)

WARNING…satire follows:

While I was catching up on the continuing Chinese meltdown courtesy of Gordon Chang, this title caught my attention:

Republicans Will Win The Government Shutdown PR Battle If They Promise Voters Private Jets

Finally!  Forbes has columnists that can be tongue-in-cheek as well as satirical, thought I.  Expecting fall-on-the-floor comedy, I was instead treated to this:

Assuming a federal government shutdown come October, there’s a surefire way for the Republicans to win the ensuing war of words. Without a hint of hyperbole, they should promise voters a future of widespread private jet ownership.

What?  Is John Tamny really serious?  Yes, he (depressingly) is:

The above proclamation is easy to laugh at, many surely will, but when Karl Friedrich Benz created the first gasoline powered car in 1885, it was exponentially crazier to contend then that cars would be a middle class good within 25 years. But by the 2nd decade of the 20th century the once inconceivable to own luxury that was the automobile had become rather commonplace. Thanks to Henry Ford’s aggressive investment and reinvestment of profits into perfecting mass production of the auto, gasoline-powered cars rather quickly became ubiquitous.

Just the same, if someone had said in 1903 (when the Wright brothers first took flight) that flying would within the 20th century become a pedestrian and often bothersome necessity, that person too would have been laughed out of the room.  But with government on all levels consuming exponentially less capital in the early part of the 20th century, huge technological leaps were taking place thanks to extra capital in the private sector funding all manner of commercial experimentation.  To deny the correlation between small government and big private sector advances is to ignore basic economics.

I’ve laid this out before, but it bears repeating for Mr. Tamny—private sector advances did not bring us the turbojet engine…Frank Whittle of the RAF and Hans von Ohain for the Luftwaffe did preceding the Second World War.  Jet engines are a technology that came to fruition 70 years ago, but today are still limited to the military, commercial air carriers, Fortune 500 companies and, dare I say it, the very rich. Furthermore, I am certain Mr. Tamny vastly underestimates just how costly flight is.

Flight is…Expensive

For the sake of example, I am assuming Mr. Tamny has a personal turbofan-powered Gulfstream (turbojet engines have been steadily retired for years due to obscene fuel burns in favor of high-bypass turbofan engines), which averages a groundspeed of 600 mph on this trip.  Mr. Tamny’s one-hour trip in his fancy jet will take the rest of us poor schlubs 10 hours by means of an economy or compact-class car.  To make this extremely favorable to the Tamny jet, I will assume the ground vehicle gets 20 miles to the gallon.  So, the trip by car burns 30 gallons of gasoline and the fuel probably costs north of $120.  How does Mr. Tamny’s Gulfstream compare?

Would the first guess be $2,300?  Mid-sized business jets supposedly average 1.3 miles per gallon (that seems inflated to me), so Mr. Tamny’s Gulfstream just burned 460 gallons of Jet A.  He could improve that with a Lear or Citation (word of warning to potential jet owners: the figures for the smaller jets look inflated as well), but considering how cramped the cabin is on those I’m assuming the big-shot Forbes columnist is shooting for better.  Seeing that Jet A in Meridian, Mississippi (random city in the middle of a state with relatively cheap fuel costs) is currently $5.35 a gallon, I am assuming finding jet fuel at less than $5 a gallon is a challenge (Jet A in the New York City area is averaging over $7 a gallon currently).  Not to mention this is just fuel costs—any used jet that is selling for less than millions of U.S.D. undoubtedly needs serious work (and if Mr. Tamny thought auto mechanics gouged him…)

Mr. Tamny probably looks to the future for American enterprise to miraculously deliver “affordable” private jets, but makes no attempt to square that with the fact that aircraft, automobile and fuel prices have all been relentlessly rising in the face of flat or declining American wages.  I have no choice: I have to declare that Mr. Tamny’s assumption that private turbofan aircraft will one day be as ubiquitous to Americans as automobiles is hopelessly insane.

Kicking US While We’re Down

Why am I harping on a single writer with a mind-boggling twisted sense of what is affordable to most Americans?  Because John Tamny, like Steve Forbes, is a true believer:

Considering general GOP rhetoric, it’s long been the true that its leading lights have talked of a federal government that needs to do that which the Framers intended, and that needs to cost less. If so, a shutdown of the federal government to something a great deal less complicated seems tailor-made for a Republican Party that always talks a good game about the need for just that. It’s time for the GOP to match its actions with its rhetoric.

After that, it quite simply must be asked what the point of the Republican Party is if it’s not regularly shutting down the federal government?

Mr. Tamny even denies the 2008 crash was in any way a financial crisis.  But that probably shouldn’t surprise anyone—Forbes fired all of the independent-thinking columnists it used to feature, such as Bruce Bartlett and Nouriel Roubini, in 2010.  So they retain…a man who actually believes private jets can eventually be marketed like Toyota Corollas.  But that pales against the backdrop of what Mr. Tamny believes the market is capable of sorting out:

The answer to the above

is that it really doesn’t matter which side is correct. Better it is to simply rely on market signals to tell us whether or not global warming presents a real threat.

Wait, what?  John Tamny cannot think the markets trump scientific consensus…

Even if we assume that all the hysterical talk about warming from Gore et al is true, market indicators are strongly telling us there’s nothing much to worry about.

Market indicators?  Oh, I think he meant indications—an engine’s tachometer doesn’t freak out constantly like the market does every time a geopolitical event occurs, no matter how unrelated to the economy’s performance.  Does Mr. Tamny even consider the impact of storms like Sandy…

Indeed, as evidenced by all the demand for New York City apartments, along with Hamptons and Malibu beach houses, the presumed “calamity” that is global warming is nothing of the sort. If what Steve Forbes once referred to as a “massive human delusion” really were the threat that Gore says it is, the latter would show up in falling prices in the locales mentioned, not to mention an inability to insure properties in those same locations.

In short, if the theory that is global warming is actually real, and even that is much debated, markets have spoken loudly that it’s not a threat.

No, he really doesn’t care.  Nor am I being glib in this conclusion:

For those still in denial about the market’s clear verdict, let it be known that this writer will gladly buy the soon to be wiped out properties at fire-sale prices.

Again, this sort of mind-altered logic is par for the course over at Forbes.  John Tamny’s pronouncements are representative of this major publication’s goal to bend actual reality into market “reality.”  Mr. Tamny’s column descending into global warming denial is in the context of “balancing” his choice to smack conservatives down for crying wolf about demographics:

Comical to this writer is that rich locales like Hong Kong, Taiwan, and Singapore can claim the world’s lowest birthrates, while always poor nations such as Somalia, Afghanistan, Rwanda, and Yemen possess some of the world’s highest rates of birth, but the procreation religion isn’t deterred by the non correlation. Indeed, while the U.S. remains the world’s richest country, supposedly our birthrate rank of 121st signals tough times ahead.

For once, Mr. Tamny has a point.  Then he flies way off course:

Yet even to the untrained, and yes, unscientific eye, one can see just how overdone is the birthrate hysteria. Markets price in the future, as opposed to the present, and if birthrates mattered much at all, it’s fair to assume that the investment outflow from Singapore would be so substantial as to force the tiny country to – wrongly – impose capital controls. But as is well known, Singapore doesn’t have an investment problem.  Trade ‘deficits’ in the U.S. similarly signal large investment inflows, and figure this is occurring despite economic policies that a birthrate-obsessed right regularly finger as anti-investment thanks to the present occupant of the White House.

So, trade deficits are just a figment of our imagination, Mr. Tamny?  In a word, NO:

The mechanics of this process are somewhat dubious in that there is very little relationship between budget deficits and trade deficits. (In 2000, when the country was running a huge budget surplus, we also had a large and rapidly growing trade deficit.) However, there is a relevant accounting identity which is always true. The trade surplus is equal net national savings. This means that if we have a trade deficit, then net national savings must be negative. The implication of a large trade deficit is that either public savings must be very low or negative (i.e. a large budget deficit) and/or we must have very low private savings. There is no possible way around this accounting identity.

More importantly, when Mr. Tamny claims that the low birthrates in Hong Kong, Taiwan, and Singapore have no correlation with their citizens’ prosperity, it depends on which citizens he’s referring to:

http://thehearttruths.files.wordpress.com/2013/05/photo-1-17.png

Chart 1: UBS Prices and Earnings (2011)

Magically, Singapore and Hong Kong bring up the very rear on the wage index (the Taiwanese would take the number three spot in this dubious chain if it wasn’t for those meddlesome Russians).  Roy Ngerng presents 11 more charts, all demonstrating that Singapore’s growth is “balanced” on its citizenry’s stagnant wages, when he veers in familiar territory for Americans:

Singapore has the highest income inequality among the developed countries in the world, after deducting for taxes and transfers (Chart 13)!

 http://thehearttruths.files.wordpress.com/2013/05/photo-4-16.png

Chart 13: OECD Factbook 2013: Economic, Environmental and Social StatisticsKey Household Income Trends, 2012

That’s right—Singapore’s Gini coefficient is higher than that in the U.S.

So, you can see that the incomes of the rich have been rising several times faster than the poorest in Singapore (Chart 14).

http://thehearttruths.files.wordpress.com/2013/05/photo-1-22.jpg

 Chart 14: The Straits Times Foreign talent policy had effect on income gap

If that wasn’t slanted enough, rising inequality is far more overt on the equatorial island than in the U.S.:

Not only that, Acting Manpower Minister Tan Chuan-Jin had admitted, “that entry-level salaries had been stagnant for five years”. The Straits Times had reported that, “In 2007, the median monthly gross starting pay for a local university graduate was $2,750 … Last year, it was $3,050, up almost 11%. Yet cumulative inflation over the same period was 21% – meaning that in real terms, starting pay actually fell 10%.”

Then Ngerng drops a bombshell:

Tan had said that “salaries had been stagnant for five years”. Do you know why? The real reason why is because the qualifying salary for an S Pass had been kept at $1,800 and that for an Employment Pass had been kept at $2,500 for several years. In effect, the government has pegged the S Pass to a diploma holder and the Employment Pass to a degree holder.

The real reason entry-level salaries have stagnated? – the government allowed it to. They had maintained the qualifying salaries rigidly at a fixed amount, even as inflation and prices have increased, and the cost of living has increased. Employers are thus not motivated to offer higher salaries to local graduates when they can hire foreigners at a chronically depressed rate.

I’ve got news for the Singaporeans—where do you think your government got these ideas from?  Could it be this?

All of which brings us back to the right wing obsession with birthrates. Humans are capital at which point procreation matters, but what trumps 1.8, 3.3, and 4.7 births per female by a mile is economic freedom. Singapore may have the world’s lowest birthrate, and then formerly communist or war-torn nations may have been robbed of their most productive by government, but economic freedom that includes the ability to trade with the rest of the world renders a low procreation rate very small, and a waste of brain space.

Ah, the “freedom” canard.  We asked for economic freedom, and received neither.

We’re All Screwed

Naturally, John Tamny resorts to the “economic freedom” canard whenever he can:

It’s no doubt true that they can furnish statistics showing a “correlation” between test scores and prosperity, but as the sheer economic dynamism in the U.S. and growth in China since the ‘80s clearly attests, economic freedom trumps education by a mile. In the U.S. we’re not rich and innovative because of our colleges and universities, rather we have world-renowned colleges and universities precisely because we’re rich and innovative.

Assuming China’s economic boom is real, and to visit the country is to believe it IS real, readers can rest assured that sooner rather than later China’s landscape will be dotted with top-notch universities a la its American aspiration. Rich people frequently seek status through their kids, and sending them to exclusive schools is the most frequent way that they do it.

Mr. Tamny’s Forbes colleague Gordon Chang definitely disagrees.  Don’t get me wrong.  John Tamny isn’t stupid—he’s a fanatic:

Indeed, the presumed link between education and prosperity is there, but quite the opposite of what the scholars would want us to believe. Simply put, just as rich countries can afford a lot of unemployed, so can they afford to college educate a lot of young people. To the latter we should rejoice, all the while understanding that the education/prosperity link is mythical, and should be reversed to “The Vital Link of Prosperity and Education.”

My jaw drops at the assertion that “rich countries can afford a lot of unemployed.”  What correlation does the national unemployment rate have with how wealthy a nation is overall; and if there is a correlation, wouldn’t logic dictate that high wealth = low unemployment?  But I can sum up this statement very neatly: John Tamny—the proverbial rich man that thinks he’s an everyman.  Or more clinically, a person marked or motivated by an extreme, unreasoning enthusiasm, as for a cause.

Oddly, like the mistaken correlation between education and prosperity, Mr. Tamny tacitly recognizes the source of the Singaporeans’ labor woes when he focuses on American wages:

Successful businesses constantly seek to do as much as possible with as little labor as possible, but if the tax code (this is arguably true even now) favors hiring, the availability of workers is distorted to the detriment of the economy.

Notice he writes “with as little labor as possible,” when the canard always talks about increasing worker productivity.  It may be a Freudian slip, but I think Mr. Tamny’s depiction is far more accurate.  But the reason for this is insidious:

That is so because the start-up that’s eager to grow into a corporate behemoth must compete for human capital made more expensive by the tax code. Rather than think about the ‘seen’ which is the small or large company hiring more workers thank to the tax benefits of doing so, we must consider the ‘unseen’ whereby a future Dennis Washington doesn’t take the entrepreneurial leap due to the high, and distorted, cost of labor.

Translation: low wages are required for a company to grow into a corporate behemoth, at least according to Mr. Tamny.  I question whether most entrepreneurs upon starting a sole proprietorship even know what subchapter-C or subchapter-S corporations are.  Nor am I at all convinced that more than an infinitesimal number of small start-ups are destined to become corporate behemoths; much more likely these businesses remain small or disappear in an acquisition if they have had the fortune not to join the legions of businesses that fail outright.  The very possibility that wage stagnation has caused severe macroeconomic disruptions are routinely dismissed by the investment-obsessed John Tamny.  The author seems incapable of recognizing the reality start-up businesses face.

By way of contrast, Mr. Tamny’s description of corporate hiring decisions seem, pardon the pun, right on the money.  But I wouldn’t go announcing this to the world, either.  It is something that might inflame passions.  Especially if one brings in the corporation canard:

With capital allocated based on profits over tax code distortion, more growth will reveal itself that will lead to even more in the way of hiring and equipment purchases.

Notable here, and my detractor at ATR would probably agree, is that corporations would in a perfect world not be taxed at all. Corporations are really just individuals, and as they already pay way too much in the way of personal income taxes, a corporate tax smacks of double dipping.

This is extremely irritating.  Whoever came up with “corporations are people” canard needs to answer a simple question: if corporations are really just individuals, then why the hell do you need to be a corporation?

I’ll answer my own question: corporations aren’t individuals; they are legal entities that shield human beings (mostly groups) from legal liability.  That’s why many have the LLC suffix in the corporate name.  This gives many advantages to organizations that incorporate—subchapter S’s main advantages appear to be designed for rich individuals that want access to corporate protection at all times.  Legal entities (in theory) are subject to differing sets of laws, thus why some governments tax some corporate entities (subchapter S and T corporations are exempt from the federal corporate income tax).  What sounds like double-dipping to John Tamny sounds to me like rich, over-privileged executives running subchapter C corporations whining about how they haven’t been able to strong-arm the IRS into granting the exemption available to S and T corporations to all corporate entities.  Imagine that.

More Satire (and a little doom)

I really question whether the supply-side fanaticism will ever subside.  Most of John Tamny’s diatribes are entertaining or merely irritating, but this is infuriating:

When Samuelson wrote what he did in 2011, he seemingly forgot that by the late ‘90s, Generation X had not only moved out of the house, but that it had moved into residences that were far superior to the ones it was reared in. It’s funny how a booming economy can turn goatee-rubbing slackers into Wall Street and Silicon Valley ruling centimillionaires and billionaires in a matter of years.

Mr. Tamny has identified himself as a proud member of the Generation X cohort, but he clearly doesn’t speak for every individual born between 1964 and 1980.  He isn’t even representative of its members.  The vast majority of those born into this cohort are not millionaires, let alone 100 or thousands of times more wealthy.  It is supremely arrogant that those who have wealth, prestige and power also believe that they (or is it he?) has the right to speak for an entire generation:

Furthermore, it’s decidedly not a good thing when “lifetime employment” is the norm, nor is it bad when “low performers” in companies are cut as Samuelson alludes. More realistically, lifetime employment likely signals workers not achieving their full potential in the way they would if profit-focused businesses forced the laggards out of work situations that don’t match their skills.  In a growing economy workers are constantly on the move, whether by choice, or by the choice of employers whose ‘ruthless’ cutting of mis-allocated labor is actually compassionate.

Word of advice, Mr. Tamny—never tell someone you are firing, furloughing, or laying off that you are doing it out of compassion.  Talking about potential at all with such a person is also a really bad idea.  Voice of a generation or not, that person is liable to assault you for the perceived affront (and actual insolence).

What’s bad is what we have right now. Workers don’t struggle because “the economy just doesn’t produce good jobs anymore,” rather they struggle thanks to the policies of government spending and QE that are anti-investment, and that Samuelson approves of. In short, the problem isn’t an economy that is confused about how to grow as much as economies always grow unless they’re being restrained by policies promoted by confused economists with big megaphones.

All right, I think it’s time for you to put down the megaphone yourself, Mr. Tamny.  What is meant by “good jobs?”  Mr. Tamny has shot through with holes the concepts of job security and defends corporations’ perceived need for cheap, wage-stagnant labor.  What else is there?  Obliviousness, apparently:

To state what’s obvious, Republicans should talk about how much better our lives will be, how much more we’ll earn, and how much more often we’ll be blown away by staggering technological innovations if the federal government is consuming much less of our hard-earned money. In short, Republicans should talk about the private jets we’ll all eventually own if the economy-suffocating growth of government is reversed by the Republican Party.

This statement, Mr. Tamny, drips with idiotes.  The Greek literally means “private person:” in context the modern synonyms are amateur, unskilled, unprofessional.  Asserting that widespread future jet ownership is in the cards without laying out how exactly one proceeds to this mythic nirvana (other than off-handed platitudes to “staggering” aviation technological innovations that were all militarycentric prior to plateauing four decades ago) is far less than sensible.  The roots of innovation are complex and varied, but without a doubt putting groups of skilled inventors in communication with one another (preferably under one roof) is absolutely essential.  In essence, innovation is a product of community.  What is the likelihood community will flourish under the policies you expose, Mr. Tamny?  I would put the chances in the vicinity of 0%…community in this country is breaking down.

The situation is worse on a global scale.  The danger that supply-side true believers/fanatics never seem to consider is the real detrimental aspects of their own preferred policies.  Consider this: I would postulate that trickle-down economics is not possible without wage increases (what trickles down if wages stagnate other than debt and misery)?  Wage stagnation is on the march all across the world, and the effects are not pretty.  Stagnation has been engineered in some cases, namely Singapore, to facilitate strong economic growth.

Inequality also rises, which conservatives roll their eyes at, except when unequal societies like Pakistan and Somalia degenerate into unspeakable acts of violence (Mumbai, Nairobi).  Another question: could economic growth coupled with wage stagnation have triggered this violence?  If so, isn’t this a direct result of following the laissez faire and neoliberal policies this country proudly exposes all over the world?  By extension, do all Americans, of all economic and political persuasions, have blood on our hands?  Last question: how can we not?

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