Income inequality is not the problem.

Income inequality is not a problem in and of itself.  As long a people earn their income through honest, peaceful and voluntary exchange, then there is no moral reason for our government to redistribute that wealth.  What is a problem is when government places its thumb on the scale and unfairly helps the rich to get richer, or hurts the poor and makes them poorer.  To the extent that a person gains wealth by unequal preferential treatment by government, it is morally correct for government to use its force to take away that wealth.

One good example of the many unfair government policies that wrongly favor the rich is the special low income tax rate on “carried interest” income earned by hedge fund managers.  They call it carried interest, but it is nothing more than a bonus based on performance.   In any other situation, this type of income is taxed at regular income tax rates. Somehow, hedge fund managers have sold politicians on the idea that carried interest is a special kind of income that should be taxed at lower rates.  Another example is the Oil Depletion Allowance for oil companies.  Another is farm subsidies for rich farmers.  We do not need to raise tax rates on ordinary income, we do need to do away with the unfair preferences, tax breaks, and subsidies that go mostly to the wealthy.

A good example of government policy that hurts poor people is that of keeping interest rates low in order to prop up housing prices.  If housing prices had been allowed to fall to their free market levels, housing would be much more affordable for poor people.  Instead, our government tries to fix the problem that it helped to create (unaffordable housing) by giving rent subsidies to the poor – creating more dependency on government, but not fixing the underlying causes of the problem.

To misquote Walter Scott, “Oh what a tangled web we weave when first we practice to use our government to achieve social goals.”  The solution to many of our economic problems today is to reduce the size and scope of our government.  Many unfair crony capitalist subsidies and tax breaks exist because our government has expanded far beyond its Constitutionally limited powers.  The primary just powers of government are to protect our lives, liberty and property; and to resolve disputes.  The scope and powers of our current federal government are clearly way beyond the limited government that our founding fathers created.  Lets start by closing unfair tax breaks and lowering spending to match.

Food Stamp reduction is okay.

Republicans propose to reduce food stamp spending by $20 billion to $40 billion over the next 10 years.  As reported in the Des Moines Register, we currently (2012) spend about $75 billion per year, up from $ 15 billion in 2001.  The number of people receiving food stamps has gone from 17 million in 2001 to 46 million in 2012.   So, the number of people receiving food stamps has gone up 170% and the dollar amount has gone up 400%!  The $40 billion in proposed cuts over the next 10 years equals an average of $4 billion per year.  That is only a 5% cut from the current record high numbers.

Under the Republican proposal, many of those who will have their benefits cut have incomes that are too high to meet the normal food stamp guidelines.  Their states allows them to automatically qualify because they qualify for one or more other safety net programs.  Others who will have their benefits cut include able bodied individuals who fail to either work or attend job training for at least 20 hours per week.

Given the improving economy, declining unemployment, and our tremendous budget deficit, these cuts appear very reasonable.  How can we ever solve our budget deficit problems if we can’t make cuts like these?

Still no reason to subsidize crop insurance

The opinion piece by Doug Stark on 3/24/2013 in The Des Moines Sunday Register gave several great reasons why crop insurance is important and beneficial to both farmers and our economy. (See: “Another View: Crop insurance stabilizes jobs and economy” link below.)  However, he did not give a single reason why taxpayers should subsidize the premiums.  Purchasing insurance to cover various types of risks is usually a smart business decision.  Most businesses and individuals by various types of insurance to cover a variety of risks of loss.  But most businesses and individuals are expected to pay the full cost of whatever coverage they need – unless they are poor.  Most farmers are not poor.  Most farmers should not receive any subsidy.  Maybe only poor farmers should be given a welfare voucher that would provide a partial subsidy up to a specific dollar amount premium.

 

Link to Register article: http://www.desmoinesregister.com/comments/article/20130324/OPINION01/303240035/Another-View-Crop-insurance-stabilizes-jobs-economy

Stop crop insurance boondoggle!

Thanks to the Des Moines Register for the article, “Crop insurance payment soar” on 3/14/2013.  It is not right that we taxpayers are required to subsidize crop insurance premiums for farmers.   I can accept our government administering a crop insurance insurance program if there is no viable private market.  But I cannot understand why taxpayers should subsidize the crop insurance program.  Farmers make higher than average incomes.     Many farmers and farm owners are very wealthy.  Both large corporate farms and wealthy absentee owner investors get Insurance premium subsidies.  Fees and commissions paid to crop insurance companies and sales representatives appear to be very generous.   We need to stop the farm welfare.  Charging the full cost of the insurance to farmers will cause farmers to help keep cost down and prevent abuse.

Link to article: http://www.desmoinesregister.com/apps/pbcs.dll/article?AID=2013303120111

 

One way to help reduce our deficit.

To solve our government spending deficit problem, we must mostly reduce spending.  But, increasing revenues by closing unfair tax breaks for politically favored businesses or individuals is a reasonable part of the solution. We do not need to raise tax rates.  We do need to make sure that all similar types of income are taxed at the same rate.

One of the unfair tax breaks is the 15% income tax rate on “carried interest.”  Hedge fund managers not only charge a fee based on a percentage of assets under management, they also may get a bonus if they are successful in their investment results for their customers.  For example, they might get a bonus of  20% of the profits, if any, when profits are taken on an investment.  Under current law, it is called carried interest and is taxed at 15%.  In any other business, they would call it a bonus and tax it as earned income – at the full income tax rates of up to 38%.  This is one of the unfair tax breaks that needs to be ended.

 

Cut spending and increase taxes.

There may be a silver lining in the clouds of gridlock that cover our federal government.  Congress’ inability to agree to spending and taxing priorities may allow us to take two significant steps forward towards balancing our federal budget deficit.  First, the Bush tax cuts will expire and income taxes will go up for everyone.  Second, the “sequestration” spending cuts will force across-the-board spending cuts on all discretionary spending including defense.  Every State will see substantial cuts in the federal money they receive.   (See “Looming budget cuts may cost Iowa $72.5M”, The Register, 10/1/2012)  There is nothing like sharing the pain to get everyone thinking about ways solve our fiscal problems.  It might be the best thing for our country to let these taxes to go up and to force spending down.

Federal Reserve blunder.

On 9/14/12 The Des Moines Register reported that The Federal Reserve (The Fed) announced it will spend $40 billion a month to buy mortgage bonds for as long as it deems necessary to make buying a home more affordable (“Fed unveils plan…”).  The Fed is not doing this to make homes more affordable.  They are doing it to inflate the prices of houses.  If everything else is equal, lower interest rates will result in lower house payments.  But everything else is not equal.  Lower interest rates also encourage sellers to ask for higher prices and allow buyers to pay more for homes.  Lower interest rates and higher housing prices also encourage home builders to build more homes.  That means more jobs and lower unemployment.

The problem is that The Fed policy of keeping interest rates artificially low has serious negative consequences.  The Fed buying $40 billion of bonds each month will not only keep interest rates low, it will also pump $40 billion of new dollars into our economy each month.  That will certainly lead to increased inflation.  (Inflation in housing prices is what the Fed wants.)  So, The Fed;s answer to a deflated housing bubble is to try to re-inflate the bubble. Low interest rates, especially when combined with inflation, also hurts savers who try to earn interest from savings accounts, CDs, and bonds.  With interest rates so low, some savers just try to get by with less, while other savers move money into the stock market looking for higher returns.  So, both housing prices and  the stock market are being propped up by the artificially low interest rates.

The Fed’s mandate from Congress is to, “promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”  Their mandate should be changed to only promote stable prices.  That mandate alone is difficult to achieve.  The Fed’s current goal for stable prices is 2% inflation.  2% inflation will double prices every 35 years!  How does the Fed know that prices should not actually go down as we continue to become more efficient and productive?  The best answer would be a return to a gold standard so that our money supply can’t be manipulated by politicians or economists who imagine they can successfully control our economy.

Minimum wage hurts low skill workers the most.

The Guest View , “Fix the minimum wage”, by Elizabeth Rose, published in Cityview on 9/6/2012, was emotionally appealing, but logically misguided. Wouldn’t it be nice if we could simply raise the minimum wage without any unseen negative effects.

What we see are those people who get and keep jobs at the new higher minimum wage. What we don’t see are those people who just don’t get jobs because they are not economically viable at the new higher wage. Some jobs are lost because customers will simply not pay higher prices, some are lost to automation because the new higher wage makes automation economical, and some are lost to offshore outsourcing. Typically, those with the least skill are the ones who can’t find jobs.

Many of the government laws and regulations regarding employment protect big, established businesses from competition by new, start-up competitors. Established businesses are often the ones who lobby for regulations that increase costs for would-be competitors. This is much the same as unions wanting government to require a high “prevailing wage” on construction contracts – to protect the union’s higher wages. These types of laws and regulations are primarily intended to protect existing vested interests.

As we continue to have downward pressure on wages and benefits because of international competition, it is possible that the cost of living will decline too. If wages dropped 10% but the cost of living dropped 15% what would be wrong with that? At the same time, our government is doing everything it can to increase the cost of housing (housing prices) – and then subsidizing those with low incomes. It would be better for those with low incomes if our government let housing prices fall to their natural level. Many cities don’t allow homeowners to take in borders – which could lower the cost for both the owner and the tenants.

Morally and philosophically, we should not allow our government to use its force to prohibit peaceful and honest people from voluntarily agreeing to employment terms. It would be considered immoral and illegal if you used force or fraud to make someone pay you a higher wage. The same thing done by a majority through government is still immoral. The purpose of government is not to create jobs. The proper role of government is to protect our lives, liberty and property against those who would use force or fraud to take those things from us.

And If you still feel that government and taxpayers must subsidize those who earn low wages, then the Earned Income Tax Credit, which already exists, is much better than an increase in the minimum wage.

Deflation is good!

Our federal government is doing everything it can to inflate housing prices. Of course, taxpayers are on the hook for trillions of dollars in mortgages, so increasing housing prices does reduce taxpayer’s liabilities. Inflation helps borrowers and hurts savers. If homes truly increased in value, that would be a great thing. But, if housing prices go up only because our government keeps interest rates artificially low and intentionally prints more money, then any housing price increases are not real. If the price of your home doubles, and all other prices also double, then there is no real gain.

If housing prices went down like electronics and clothing, what would be wrong with that? Wouldn’t it be nice if houses became more and more affordable? I know that people who own homes feel great when they believe that their home has increased in value. I feel the same way. But it is a false feeling. If housing prices went down, more people would buy houses – just like electronics. Do you not buy a computer or cell phone because you are afraid that the price will go down next month?

No one wants to see their pay go down. What if your pay got cut in half, but at the same time all prices went down by half? Would you be any worse off? No. We live in a world where the vast majority of people make less money than those of us in the U.S. There is, and will continue to be, tremendous worldwide downward pressure on wages and costs. The key for each individual it to be productive. If you are productive, as valued by others, then you will earn a competitive income. If you do not have skills and are not productive, then you will have problems. That is true whether we have inflation or deflation.

Patents gone wild!

Patents are government enforced monopolies that are granted to encourage innovation.   There is no natural property right in “intellectual property” (IP).  Natural property rights exist in physical things.  If you create or obtain property by peaceful and honest means, then you have a natural right to keep and defend that property against those who would use force or fraud to take your property from you.  Governments are created to help protect those rights.

Throughout most of human history there has been no recognition of  patents.    Anyone could copy a good idea from anyone else.  Only Kings or other dictators bestowed monopolies to favored groups and used force to stop those who infringed on the monopoly.  The inventor of the first wheel had a natural property right in that specific wheel.  Other people who made similar copies for themselves did not take anything away from the original creator.  Why should force be allowed to stop someone from copying from someone else?  Do the ends justify the mean?  Isn’t it immoral to use force to stop a peaceful person from doing something that does no harm to others?

It is wrong to assume that people would not be inventive if they had no patent protection.  They might be more inventive and more creative.  Do a thought experiment:  What would happen if there were no patents?  Might there not be more and faster invention?  As much as possible, inventors would try to keep their manufacturing processes secret.  But keeping such secrets would be very difficult, if not impossible in many cases.  Inventors would also try to use contracts to prevent people from copying their inventions.  Contracts would give them some protection, but only against those who are party to the contracts.

Patents are supposed to be granted only for original inventions that are not obvious.  In the recent case between Apple and Samsung, one of the patents which Apple successfully defended was the “look and feel” of the IPhone, including the rounded corners and the “bounce-back” screen.  Mercedes Benz has a new TV ad where they tout that they have over 80,000 patents.  (See: http://www.youtube.com/watch?v=yc6CejduPP0)  Is that a good thing?  Today, it is becoming very difficult to create anything technical without infringing on someone else’s patent.  What government gives, government can take away.  Until we get rid of patents, our government should get much more conservative about what types of inventions get patent protection and about how much time the patent is granted for.

In the case of drugs and medical devices, I would feel much better about our government providing for our “general welfare” by funding medical research if no patents were allowed if taxpayer money is used in anyway to fund the development.  Inventions based on taxpayer funded medical and technological research, or based on research done at public universities should not be patentable, either by the States or the universities.  They should be left in the public domain for the benefit of all citizens.