Notable Quotes: Kel Kelly

notable-quotes

Consider this remarkable irony: we citizens put our faith in government—the entity that steals from us, causes wars, imprisons and starves innocent citizens, and is an absolute monopoly—to provide for us and keep us safe. At the same time, we see businesses—which have eradicated diseases and starvation, engaged in peaceful exchanges instead of war, are fully restrained by hungry competitors (in free markets), produce virtually everything we currently own and enjoy, and pay us our wages and provide capital for us to improve our productivity—as our enemies from whom we need protection. These commonly held but irrational prejudices form the very foundation of the political arguments espoused by professional anti-capitalist “thinkers.”

This is an excerpt from Kel Kelly’s “The Case for Legalizing Capitalism
Read this book here

From Mises.org: Why Devaluing the Yuan Won’t Help China’s Economy

yuan

In an article on Daily Mises, Frank Shostak writes about how the recent devaluation of the Chinese Yuan will not help stabilze the Chinese economy. While the devaluation helps the overall GDP, it will eventually lead to higher prices and less imports and results in what he terms as “economic impoverishment”. The scenario of more exports and less imports leads to the economic impoverishment in the form of a decrease in real wealth, by means of the price of goods and services to the Chinese people increasing.

Read the Mises Daily article: Why Devaluing the Yuan Won’t Help China’s Economy

Notable Quotes: Kel Kelly

notable-quotes

If the government truly wanted to create economic progress, the best way would be to create capital. This is done by lowering tax rates, abstaining from printing money and inflating prices, undoing burdensome regulation, taking off price controls, etc.

This is an excerpt from Kel Kelly’s “The Case for Legalizing Capitalism
Read this book here

A Future of Debt Slavery

debt-slavery

On July 6, Mises.org published another article on the Greek crisis, this time suggesting how the taxpayers of the country are heading towards what they termed “Debt Slavery”. The idea stems from the actions that the Greek government and the IMF have taken by “kicking the can down the road”.

The IMF referred to the Greek default as “in arrears”, instead of calling it what it really is when they missed their payment on their debt. This is just another political ploy that does not address the problem for what it is. Additionally, the Greek government continues to dangerously ignore the plain facts of their crisis, as banks continue to close and depositors are unable to gain access to all of their money. These are just some of the consequences to their reckless actions.

But, after all of these decisions are made and more debt is incurred, the future taxpayers are left “on the hook” for their irrational actions. And as it now stands, Greece owes the ECB more money than the entire deposits of the Greek banking system. You can see how this is going to turn out and how this is becoming a generational problem. A problem that will enslave future generations into a debt trap that they had no part in. The Greek citizens today are claiming theirs now, and leaving it to the future generations figure out the solutions.

Read the Mises Daily article: Greek Taxpayers Facing a Future of Debt Slavery

The Anti-Capitalist Culture

anti-capitalist-protest

On July 8th, Mises.org published an article regarding the Greek financial crisis and made the suggestion that the biggest problem that Greece suffers from is an “anti-capitalist culture”. The suggestion was made that the culture in that country is one that embraces fiscal and economic policies and practices that are contrary to sound economics. Culturally, the people of Greece live in a way (with the effects of socialized government) that stand in the face of the classic capitalism.

We can see that attitude beginning to permeate further into our own American culture, where capitalism has to be defended over and over again, despite being responsible for the increased standard of living that Americans enjoy today. I have noticed over my life time this idea becoming more and more of a mainstream idea. But, the fact remains that capitalism is the only system known to man that has rescued from poverty and improved the lives of common people. Socialism, which is the favorite alternative of opponents of capitalism does not accomplish that feat. However, we hear from our gracious leaders how capitalism destroys society and that it only benefits certain small segments of the population. Nothing can be further from the truth. In fact, socialism is the system that produces that very outcome. But, never mind the proven history of societies and nations when you want to advance a false narrative.

While the United States is not yet close to becoming a Greece, the same narrative that has plighted the Greek culture today, that of capitalism being an enemy of the common man, could work to destroy that system that allows man to pursue his own separate interests to the full ability that he chooses. And I invite you to read the article at Mises.org.

Read the Mises Daily article: Greece’s Biggest Problem Is Its Anti-Capitalist Culture

“The Law”: Revisting One of Bastiat’s Greatest Works

Frederic Bastiat

In one of the many essays written by the 19th Century Economist Frédéric Bastiat, he writes the following under the header “The Results of Legal Plunder” in his essay “The Law“:

“It is impossible to introduce into society a greater change and a greater evil than this: the conversion of the law into an instrument of plunder.

What are the consequences of such a perversion? It would require volumes to describe them all. Thus we must content ourselves with pointing out the most striking.

In the first place, it erases from everyone’s conscience the distinction between justice and injustice.

No society can exist unless the laws are respected to a certain degree. The safest way to make laws respected is to make them respectable. When law and morality contradict each other, the citizen has the cruel alternative of either losing his moral sense or losing his respect for the law. These two evils are of equal consequence, and it would be difficult for a person to choose between them.

The nature of law is to maintain justice. This is so much the case that, in the minds of the people, law and justice are one and the same thing. There is in all of us a strong disposition to believe that anything lawful is also legitimate. This belief is so widespread that many persons have erroneously held that things are “just” because law makes them so. Thus, in order to make plunder appear just and sacred to many consciences, it is only necessary for the law to decree and sanction it. Slavery, restrictions, and monopoly find defenders not only among those who profit from them but also among those who suffer from them.”

Can we not see this playing out in the 21st Century United States? As we observe the political state that we live in today, there are examples upon examples of how government (under both Democratic and Republican regimes) have used the forced hand of the law to “plunder” the people that they “serve”. As Bastiat discusses in the excerpt above, when unjust laws are put into practice, they are perceived to be just, either immediately or over time, from the mere fact that they are part of the law.

Economically speaking, laws that seek to redistribute wealth from one citizen to another would be a form of what Bastiat would consider “laws as instruments of plunder”. We see this practice in the over taxation of individuals in general. This practice seems justified by most citizens because the taxation of individual’s income above what is necessary to run the basic functions of government has been going on for a long time. By the passing of laws, these tax practices are generally accepted as moral (or just) simply because they are part of the law. The morality of something can often times be determined by whether or not it is legal to do.

Socially speaking, there are laws that by their mere existence have changed what is generally accepted as moral (just) or not. In the past 100 years, the prohibition and subsequent legalization of alcohol has proven to be a major reason for the change the view of the morality of consuming alcoholic beverages. At one time in our country’s history, alcohol consumption was viewed as an immoral act. Fast forward 100 years, alcohol consumption is generally accepted as moral by even those whose own religion would otherwise not accept.

In both cases, we see how powerful laws can be in determining the acceptance of practices (economically and socially) that are generally harmful to individuals in certain ways. Laws of over-taxation are harmful to individuals in the sense that they take what is rightly a citizen’s property to support activities that the citizen is not morally responsible to support. Alcohol is widely accepted to be harmful (even while generally accepted as moral) to a person’s health over time.

But, the fact that these things are legal in our society makes them appear to be either just or moral. That is what Bastiat argued over 200 years ago, and we see the same thing happening in our society today. There are not many new things under the sun.

Invisible Unemployment

unemployment
When governments get involved in any activity to create jobs or to create employment, they are also getting involved in the business of creating unemployment. However, the unemployment they are creating is the factor that most people do not consider. Hence, the idea of invisible unemployment.

Many people believe that money spent by the government to fund projects that ultimately require workers to be hired to fulfill the completion of those projects is good business for the government to be involved in. A superficial review of the situation may cause one to think that this use of funds can only help the economy, because the wages provided to each worker will ultimately be spent in the economy, and therefore provide a healthy boost to the economy. After all, the best thing a consumer can do for the economy is to spend money in the economy. In terms of it being “good business”, it goes without saying that most people believe that providing jobs by any means is a worthy endeavor for the government.





Furthermore, if people who are otherwise unemployed can become employed using funds that are already on hand with the government, then that seems like a winning proposition. Using this logic, this can not only be a positive endeavor for the government in terms of individuals being able to earn a wage but also for the other previously employed individuals and businesses, as they can only benefit from a stronger economy.

There are at least two problems with this idea. First, one of the most foundational ideas to understand about government revenue and spending is that whatever funds the government acquires to spend (in this case, to employ people) must first come out of the economy, in the form of taxes. Generally speaking, the government does not manufacture products nor provide services that in turn produce revenue (profits) from the natural working of the economy. There are some exceptions, but by in large, their revenue is acquired in the form of taxes (taking funds from consumers that would otherwise be used in the economy).

In a scenario where a business operates in the free market, the business obtains its funds from the business owner’s own capital, other investor’s capital or other funds that have been “saved” from previous market activities in order to start the business. The business, using its own funds, begins making products and using its own resources, employs people to assist them in carrying out the function of the business. If all goes well, the business will spend less money to make the product than it earns for selling the product and will make a profit, thus allowing them to continue the business and to continuing employing people. Notice, that in this rather simple illustration, the business obtained its capital privately, without having to take money out of the economy to ultimately employ people (provide employment).

On the other hand, in the scenario where the government starts a project (business), the funds used to start that venture or project that will ultimately require people to be hired must first be taken out of the economy. When I say these funds are “taken out of the economy”, I mean that the only way for the government to obtain funds to start these projects is to take the funds from its citizens in the form of taxation. The same $100 dollars that the government takes from an auto mechanic in taxes to fund the project, is the same $100 that will not be spent in the economy by that individual.

To get at the heart of my argument that government creates unemployment by using their projects to create employment, consider this. That $100 that was taken from the auto mechanic in taxes can no longer be used to buy a new toaster that his wife wanted. It cannot be used to buy the shirt and tie that he needed for a interview at another auto shop. These funds taken out of the control and use of the auto mechanic create “unemployment” on the backside of the equation.

And that gets us to the second problem. Whenever these arguments are made, only one side of the equation is really ever considered. Everyone loves to hear the stories of the government creating jobs for those people who otherwise would be out of work. The stories of people regaining their self-esteem, being given a chance to provide for their family and the other countless instances of goodwill are very nice to hear about. If we could consider the number of toaster manufacturing workers and garment manufacturing workers that are not employed because the government had to take the funds away from the consumer that would have employed those workers who would have benefited from the consumer’s funds, then we would have a fuller picture of the offset of job creation in this scenario. We all can see the actual outcome of actual jobs created by government because we can read the stories and see the news reports and perhaps even see our friends and neighbors benefit from them. But, we don’t see the jobs that will never be created because the government took away the opportunity for those jobs to even exist. And this is what I mean by “invisible unemployment”.

So, what we are really dealing with here is a net zero proposition. For all of the jobs that are “created” by government, there are an equal amount of jobs never created, or “lost”, because of the missed opportunity to employ people in the first place.

Note: This idea of “invisible unemployment” is further explained in a similar fashion with the timeless analogy of the “The Broken Window” in Henry Hazlitt’s book “Economics in One Lesson”. Economics in One Lesson

Tell me what you think.

Audio version:


Economics in One Lesson (Audio)- Henry Hazlitt

hazlitt_audio

The fallacy that economic decisions only affect one group of people and one point in time, in the short-run is a dangerous idea to embrace, and has been the backdrop of much of the economic failures and destruction for decades. This 7-minute audio version of Chapter 1 of Hazlitt’s classic addresses this fallacy and other “tactics” of “bad” economists.

The Minimum Wage Debate- part 3

minimumwage

A recent opinion article published on CNN’s website, written by Gov. Peter Shumlin and Gov. Dan Malloy expresses their support for a minimum wage increase. While on the surface, an increase in the minimum wage (or a minimum wage at all) would be beneficial to those minimum wage earning employees (or the economy, in general), there are some unintended consequences that need to be considered. In the article, there were 3 reasons cites as to why these two gentlemen support a minimum wage increase. In this second part of the 3-part series, I will address the second point in their article. Note: You can read Part 1 at http://thelion.us/the-minmum-wage-debate-part-1. You can read Part 2 at http://thelion.us/the-minimum-wage-debate-part-2

Their third point is:

Three, it’s the right thing to do. No American working 40 hours or more a week deserves to live in poverty. Republican governors across the country have also stood in the way of progress. Some have pandered to stereotype, suggesting that a raise in the minimum wage should be rejected because it would only help young workers rather than acknowledging that 88% of workers who would be affected by moving the minimum wage to $10.10 an hour are over the age of 20, and more are over the age of 55 than are teenagers.

New Jersey Gov. Chris Christie and New Mexico Gov. Susana Martinez went so far as to veto minimum wage hikes in their states. Wisconsin Gov. Scott Walker mocked the idea, while Florida Gov. Rick Scott described how the proposal makes him “cringe.” Michigan Gov. Rick Snyder, Pennsylvania Gov. Tom Corbett and Maine Gov. Paul LePage all oppose this common-sense change. And of course there is billionaire Bruce Rauner, running in Illinois, who went so far as to suggest slashing minimum wage workers’ salaries by a dollar an hour in order to keep the state “competitive.” They just don’t get it. Just look at Bobby Jindal, former Republican Governors Association chair and current governor of Louisiana, who recently said — in a widely-criticized partisan outburst outside the White House — that raising the minimum wage was equivalent to “waving the white flag of surrender” on the economy. That’s patently absurd. But it’s what the tea party wants to hear. A fair minimum wage was once an issue upon which Republican and Democratic leaders could agree. But now, the Republican Congress and Republican governors have embraced partisanship and right-wing ideology rather than economic growth. And that’s why we are standing with President Obama today to make clear we won’t wait for Republicans to come around — we’re going to give hard-working Americans a raise and we are going to start today.

Since this is the last installment of my rebuttal to this article, I will comment briefly on their third and last point and then make my arguments in favor of low-wage workers, which coincidentally argues against a raised minimum wage, and frankly against any arbitrarily set minimum wage at all. The reason why I will briefly comment on this last point in the article is because there is no substantial argument for the economic viability of minimum wages (raised or otherwise). Their argument is strictly political and quite frankly, unproductive. Who really cares what political party thinks the other political party is doing, contrary to their view on any economic issue, when the debate should be about how these minimum wages will affect the market, businesses and ultimately the job seekers. When it comes to arguing the economic viability of the minimum wage, the productive discussion would leave politics aside and would instead discuss the effects of price, supply and demand on jobs. While ideally, no one working full time should live in poverty, the ideal is never reality. And there are some real, economic reasons why the minimum wage works contrary to the low-skilled, low-wage worker.




First, raising the minimum wage would introduce more people into the pool of potential employees that are in competition to the low-skilled, low wage jobs, increasing the competition for those jobs. When you arbitrarily raise the wages of a low-skilled job, you make that job (which generally requires little training) attractive to a new group of currently employed workers that were making a wage above the previous minimum wage, that would otherwise not be interested in those jobs. For example, let’s say a man is working in a very labor-intensive cabinet shop making $10.10 an hour and would like to work a job that is less strenuous, but paying the same. If you offered him that deal, he’d take 100 times out of 100. Then, let’s say there is a warehouse owner that needs to hire 5 new warehouse workers at minimum wage of $7.25 an hour. He is only offering minimum wage because the work he needs them to do happens to be not so labor intensive, and worth less than, let’s say the labor of the cabinet shop worker. Then, let’s say that the government sees that the minimum wage is not fair and arbitrarily raises the minimum wage to $10.10 an hour. What happens to the man working in the labor-intensive cabinet shop when he finds out about these 5 new jobs that are paying the same that he is making now, but offer a job that is not as strenuous? This is a simple example of how raising the minimum wage can make it harder to some to find jobs, as illustrated in this scenario.

Second, having a minimum wage in the first place works contrary to the benefit of low-skilled workers, exactly opposite of what politicians and other supporters purports that it does. They claim that a minimum wage protects workers from be unfairly under-paid by businesses, an idea that stems from a complete misunderstanding of how free markets work. In a minimum wage scenario, the set minimum wage is really a detriment to the low-skilled workers because it is essentially the government telling employers how much a worker’s labor is worth, instead of the allowing competing individuals in the market determine the worth of his labor. No matter how much value you put in your own labor, your labor is only as valuable as what an employer is willing to pay you for your labor. And that’s easy to understand. For example, if you have a piece of jewelry that has been in your family for decades, handed down from generations past, it probably holds a lot of value to you. And perhaps you find out that it is not actually made of the precious metal that you once thought, but that doesn’t affect the value in your eyes. However, if you go and try to sell it to someone, even though it holds a high value to you, there is a likelihood that you will not get the amount of money. Again, in the minimum wage scenario, the minimum wage is the arbitrary stated worth of your labor, no matter how efficient or how lazy of a worker you are. Let’s face it. The fact of the matter is that there are some people making minimum wage that aren’t worth minimum wage earning (in terms of quality of work). And there are other workers that making minimum wages that are worth more.

In a minimum wage scenario, the government has already pre-determined your worth, and has gone as far as putting a price tag on your labor. In a minimum wage scenario, there is little incentive for employers to increase a worker’s wage higher than minimum. You may get token raises as a good faith rewards, but you will not see large raises, because the employee knows if you refuse to accept the wages in an attempt to leverage for a higher wage, then he can replace you with someone willing to work at the minimum wage. Again, there is little incentive for the employer to pay more than the minimum wage.

Third, and maybe the most import point is that in a minimum wage scenario, workers lose the single most important factor that contributes to any worker’s ability to obtain higher wages. That factor is the leverage of the market. Market competition (both demand and supply) is one of the driving forces for higher wages. When skilled workers (let’s say accountants) who are generally not subject to any artificial, arbitrary wage constraints (like the minimum wage), look for jobs, there is a salary range that is dictated by the market (other employees in the same industry looking for jobs and employers looking for those same potential employees in that industry). If there is a small amount of available employees with the appropriate skills, compared to the number of jobs employers are seeking to hire, then the market rate for employment (wages) will increase. The opposite will be true as well. Low-skilled workers that have wages rules by minimum wage laws do not have the market as leverage to dictate their pay. Now, having the market as leverage doesn’t mean you will be able to earn whatever wage that you think is fair or what you feel your labor is worth, just as accountant cannot dictate the same. But, what is does is it allows the worker who deserves a higher wage (by hard work) the ability (leverage) to find employers willing to pay the wage he is worthy to earn.

Please comment!

Note: You can read the original article written by by Gov. Peter Shumlin and Gov. Dan Malloy at http://www.cnn.com/2014/03/05/opinion/shumlin-governors-minimum-wage/.