Free Markets, Free People

Dale Franks

Dale Franks’ QandO posts

Observations: The QandO Podcast for 03 Oct 11

In this podcast, Bruce Michael, and Dale discuss el-Awlaki killing and the Social Contract.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.

"Social Contract". You keep using that phrase. I do not think it means what you think it means.

This week seems to be the week for the more leftward-leaning members of the political elite to try to sneak past a unilateral revision to the "social contract". Bruce pointed out one example from Paul Krugman, and now I want to address another one, from Elizabeth Warren, formerly of the Obama Administration and now candidate for U.S. Senate in Massachusetts. Ms. Warren opined:

“I hear all this, you know, ‘Well, this is class warfare, this is whatever. No. There is nobody in this country who got rich on his own — nobody.

“You built a factory out there? Good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police-forces and fire-forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory — and hire someone to protect against this — because of the work the rest of us did.

“Now look, you built a factory and it turned into something terrific, or a great idea. God bless — keep a big hunk of it. But part of the underlying social contract is, you take a hunk of that and pay forward for the next kid who comes along.”

Let’s unpack this idiocy a little bit, shall we?

There is nobody in this country who got rich on his own — nobody.

This is a meme the Left has been pushing in recent years. The trouble is that it’s not just wrong, but it’s self-evidently wrong. It wasn’t "society" that gave Mark Zuckerberg the idea for Facebook, any more than it it gave Dale Carnegie the idea of teaching public speaking, or turned Bob Williamson from an alcoholic, drug-addicted homeless drifter to the Founder and CEO of WASCO and Horizon Software. Nor did society have to do much with Steve Jobs and Steve Wozniak selling homemade computers out of Woz’s garage. There are any number of lists of people who started with little or nothing, and who became extraordinarily wealthy due to their drive, entrepreneurship, and talent.

"Ah," say the Lefties, "but without society, none of this would have been possible!"

Now, this is perfectly true, I suppose, but not in any way helpful to their argument. Without society, half of children would die in infancy, life expectancy would be somewhere in the low 40s, a significant number of people would be eaten by wild animals. Pretty much everybody else would be carried away at a young age by disease, infection, injury, or roving bands of sadistic steppe horsemen. So, sure, society helps, in the sense that the Zuckerberg/Winklevoss dispute wasn’t ended when their craniums ended up a pile of skulls deposited by a detachment of Genghis Khan’s hordes after razing their small farming village, but in courts of law to which everyone has access.

But the Progressive argument about the usefulness of society is different, and silly.

You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police-forces and fire-forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory — and hire someone to protect against this — because of the work the rest of us did.

But, of course, those roads didn’t get built, and those workers didn’t get educated so that capitalists could oppress the proletariat. That stuff got built because they were universally seen as a positive good in and of themselves. Millionaires aren’t taking advantage of roads, everyone is. For instance, it’s how the millionaires get all that food delivered to our supermarkets, and iPods to our electronics stores. We benefit from the millionaire using the roads in delivering stuff we want to us. The only reason millionaire is using our roads because we want the stuff he makes and that’s how he delivers it to us.

Everyone uses the roads. Everyone benefits from education. Everyone benefits from fire and police protection.  We have those things not because they are a positive good—though they are—but because they comprise the minimal requirements for maintaining a civilization that we all derive benefits from.

So, not only do the millionaires not derive some additional benefit from their existence, we would still want them even if millionaires didn’t use them at all. And we’d still pay for them, because we all derive an equal benefit from having them. They provide no special advantage to the millionaire that the rest of us don’t enjoy.

What the millionaire does—the only reason he’s even a millionaire—is to provide us with goods and services we willingly purchase. If we didn’t buy his product, he wouldn’t be a millionaire. Whatever advantages he accrues comes not from some benefit he derives from our roads, or teachers or our police. He accrues them because of our desire to give him money for his product. We are the beneficiaries, because we put a higher value on his product than we do on our money, or on someone else’s products. We choose to make him a millionaire, because we value his product more highly than other things. He doesn’t send hulking thugs to our door demanding our money. We go out and buy his product intentionally.

And let’s dispense that the millionaires are using services "the rest of us" paid for. The millionaire is using services that he paid for along with us. And he probably paid more for them, in absolute terms, than most other people. He also indirectly pays for maintaining society through the salaries for all those "workers the rest of us paid to educate". The payments those workers provide to maintain society only exist because the millionaire’s business provided their jobs. Without those jobs, society’s overall wealth would be smaller, and our ability to maintain that society would be proportionally lessened.

Now look, you built a factory and it turned into something terrific, or a great idea. God bless — keep a big hunk of it. But part of the underlying social contract is, you take a hunk of that and pay forward for the next kid who comes along.

That’s not the social contract. The social contract is "We maintain civilization because we all benefit from it. And we all have a responsibility to pay for it." Ms. Warren’s version of the social contract boils down to, "You have to pay more for maintaining our society because you can, and we outnumber you, and can force you to do so." That’s not a contract. That’s just extortion by majority. The millionaire’s responsibility is not to "pay forward" any more than any of the rest of us, because he doesn’t benefit any more than the rest of us.

To the extent that a "social contract" even exists, it is to provide the minimal necessary public infrastructure—physical and legal—for society to maintain itself. Ms. Warren’s concept of the social contract is that the millionaire derives some special benefit from society, so he should make special payments. But, since no special benefit actually exists, there is no excuse for extraordinary payment.

But, even so, the millionaire does make an extraordinary payment. As we’ve harped about endlessly here, the top 20% of income earners, with an average income of $264,700 per year, pay 69.3% of all federal income taxes. The "rich" are already covering 70% of the cost of "society"—loosely defined—at the federal level.

But Elizabeth Warren thinks they’re too stingy, and the "rest of us" deserve more.

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Dale Franks
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Economic Statistics for 30 Sep 11

Today’s economic statistical releases:

Personal income unexpectedly declined by -0.1% in August, while personal spending rose by 0.2%. The report also indicates that overall prices are 2.9% higher than the same period last year.

The Reuter’s/University of Michigan’s consumer sentiment index rose to 59.4 from 57.8. Consumer assessment of both current and future conditions improved.

The ISM Chicago Index rose to 60.4 on a sharp increase in new orders at firms in the Chicago area. A reading above 50 generally indicates an expansion. This report is always reviewed for indications of what the national ISM report will be. The national ISM Index will be released on Monday.

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Economic Statistics for 29 Sep 11

Today’s economic statistical releases:

The Commerce Department’s final estimate for second quarter GDP was revised upwards to 1.3% annualized, compared to the previous estimate of 1.0%. It’s a mediocre revision to an unimpressive number.

A big 37,000 decline in initial jobless claims last week pushed the total down to 391,000. Claims seem to have been inflated by Hurricane Irene’s aftermath in prior weeks.

The National Association of Realtors reported that the pending home sales index fell 1.2 percent to 88.6. Credit and appraisal problems are on the rise, which indicates future weakness, as well.

Corporate profits in the second quarter were revised upwards to an annualized $1.470 trillion, up 0.3% on a year-over-year basis.

The Bloomberg Consumer Comfort Index dropped to -53 in the period ending Sep 25. That’s the second-lowest reading ever for the index. Confidence by homeowners and part-time workers fell to the lowest level since 1990.

The Kansas City Fed’s Manufacturing Index improved slightly to 6 in September from 3 in August. Readings above 0 generally indicate expansion in activity.

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Economic Statistics for 28 Sep 11

Today’s economic statistical releases:

Last week, mortgage rates dropped, and the Fed announced a switch to longer term treasuries. This sparked a rush of refinancing, as well as new mortgage applications. The Mortgage Bankers Association reports that mortgage applications rose by 9.3%, led by a 11.2% rise in re-fis, and a 2.1% increase in purchases.

Durable goods order fell –0.1% last month, both overall and ex-transportation,  though they were still 12.3% higher than last year.

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Economic Statistics for 27 Sep 11

Today’s economic statistical releases:

ICSC Goldman reports retail sales slowed for the 2nd consecutive week, down 0.2% for the week, with the year-on-year rate down to 2.7%. Meanwhile, Redbook reports slightly below trend retail sales growth of 4.2%.

The S&P Case-Shiller Home Price Index held steady for the last week, with no change in prices from last month, on a seasonally-adjusted basis. Year-over-year, however, the price index is down -4.1%.

The State Street Investor Confidence Index, despite a rough couple of weeks, shows a boost in confidence to 89.9 from August’s revised 88.1.

The Richmond Fed Manufacturing Index shows the third consecutive drop to -6 from last month’s -10, as manufacturing in the Richmond Fed’s district continues to contract.

The Consumer Confidence Index rose to 45.4 from 44.5 last month. Despite this, consumers report deteriorating current conditions, which bodes ill for the September employment report. On the other hand, the 6-month outlook rose, while inflation expectations fell, bringing the overall index higher.

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Economic Statistics for 26 Sep 11

Today’s economic statistical releases:

New home sales fell to a 295,000 annual rate, compared to 302,00 in July. This is a nine-month low for new home sales. Of course, without any serious mortgage lending by banks, we can expect home sales to remain depressed.

The Dallas Fed’s Texas Manufacturing Outlook Survey index of general business conditions slipped to -14.4 from last month’s -11.4. The production index rose, however, from 1.1 to 5.9 as factory activity increased.

The Chicago Fed National Activity index fell to minus 0.43 in August from plus 0.02 in July. Employment-related indicators fell to -0.08, and consumption & housing slipped to -0.35.

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Observations: The QandO Podcast for 25 Sep 11

In this podcast, Bruce Michael, and Dale discuss the Republican presidential field, and the apparently inevitable Greek default,

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.

The Deniers rear their ugly heads again

Researchers at CERN, the big European physics laboratory, have released some interesting findings that, if true,would  cast doubt on a fundamental conclusion made by Einstein’s theory of relativity.

From 2009 through 2011, the massive OPERA detector buried in a mountain in Gran Sasso, Italy, recorded particles called neutrinos generated at CERN arriving a smidge too soon, faster than light can move in a vacuum. If the finding is confirmed by further experiments, it would throw more than a century of physics into chaos.

For over a century, since Albert Einstein published the Special Theory of Relativity (SRT)—buttressed further in 1916 by the General Theory—it has been settled science that the speed of is nature’s ultimate speed limit.  As an object approaches the speed of light, its mass increases. At the speed of light—were it possible to reach it—the object’s mass would be infinite. That would require, of course, an infinite amount of energy to propel the object.  Hence, moving faster than the speed of light is a physical impossibility.

Since 1905, through direct experimentation, mathematical modeling, and, later, measurements taken during the space program, as well as computer models, science has time and time again proved that the Special Theory of Relativity does, in fact, accurately model the way the universe works. The entire foundation of modern physics is built upon SRT. It has been proven correct over and over again. Clearly, SRT is settled science. An attempt to overturn it is, essentially, an attempt to overturn the entire body of physics that has been so painstakingly established over the past century.

Obviously, SRT is true.  Its conclusions are beyond questioning. Again, the science is settled, and there is almost universal scientific consensus about the truth of SRT.

Since that is so, one wonders what purpose the experiments at CERN might be. SRT needs no further validation, so there must be other motives. Who is funding this experimentation? Why are they so interested in denying SRT? If SRT is overturned, the implications throw cosmology in general into disarray. Out would go the Big Bang theory. Is this new experiment real science, or is it just another ploy of Big Plasma to overturn the settled view of cosmology?

These "scientists" at CERN say that more experimentation is needed to validate these results. But, they are so clearly wrong, it’s difficult to see what purpose further experimentation along these lines would serve. This transparent attempt to return physics to the limited and primitive world of physical experimentation, rather than the modern use of sophisticated mathematical models, is deeply subversive.

Now, there are calls for trying to replicate this experiment—at US taxpayer expense—at the Fermilab, here in the US. I see no reason to risk the scientific integrity of our premier physics laboratory pursuing the dreams of these SRT deniers at CERN.

SRT’s proof is incontrovertible, and any attempt to prove otherwise is a perversion of science. The science is settled. Consensus is almost universal. So, let’s not pursue these silly, pointless experiments. The important thing to remember about science is that, once you question the received wisdom proven repeatedly in the past, the result is chaos. It is vitally important that we do not throw all of modern physics and cosmology into disarray over some odd experimental results that really have no real-world application.

That would just be silly.

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Dale Franks
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