Free Markets, Free People


Guess what TIME blames for what it sees as America’s decline?

My guess is most of us would agree that America seems to be in decline, but not for the reasons TIME magazine does.  Much of the decline is centered in the politics and policies of the governing party.

But TIME is pretty sure that, given the study that they cite, the reason is … capitalism.  Here’s the “it was great, but” reason:

“We looked at very broad measures, and at individual measures, too,” said co-author Hershey H. Friedman, a business professor at Brooklyn College – City University of New York. The most dangerous sign they saw: rising income and wealth inequality, which slow growth and can spark instability, the authors say.

“Capitalism has been amazingly successful,” write Friedman and co-author Sarah Hertz of Empire State College. But it has grown so unfettered, predatory, so exclusionary, it’s become, in effect, crony capitalism. Now places like Qatar and Romania, “countries you wouldn’t expect to be, are doing better than us,” said Friedman.

I wish those who opine about this sort of thing would begin to delink capitalism and “crony capitalism”.  Because as soon “crony” is added, “capitalism” is no longer evident.  Instead you have powerful corporate/social/political constituents helping write laws that raise bars to entry in a markets to impossible heights.  You have the same entities suggesting regulations which have the same effect.  Capitalism, in its barest essence, is a voluntary transaction between two free people which ends profitably for both.  That’s it.  When government begins intruding with regulations and laws designed to limit and protect certain constituencies, from corporations to unions, that’s not capitalism, whether you stick “crony” in front of it or not.

It is certainly cronyism.  The government attacks, for instance, on Uber are rampant cronyism.  They’re designed by government to protect an existing constituency that doesn’t like the competition (and has had a government granted monopoly for decades).  Of course, in the end, it is the consumer – i.e. the citizen – who is hurt by this sort of cronyism.

And it appears that cronyism has gotten worse and worse over the past few years.  So while America may be in decline, it isn’t because of capitalism.

It’s because of cronyism, government favoritism, or whatever catch word or phrase you wish to tag the phenomenon with.  But leave capitalism out of it.


The power of the market, proven again …

We were told that while oil prices were high, shale oil could be produced at enough of a profit to drill, but to expensive to continue if the prices dropped.

But efficiency and technical innovation have overcome that bit of conventional wisdom as Shale Energy Insider reports:

US shale companies have increased the number of rigs in the field for the first time in nearly seven months when oil prices were trading around $70 per barrel, compared to under $60 per barrel in the current market.

The number of rigs rose in almost every main shale basin across the US according to data gathered by Baker Hughes.

Industry experts have suggested that as a result of last year’s price crash, shale exploration firms have cut their break even costs by anything up to $20 per barrel.

As much as anything else, the rise this week is a testament to break-evens coming down just over the course of this year,” said James Williams, president of energy consultancy WTRG Economics.

Shale is a lot more resilient than we thought it was, and it means we’re going to be able to keep producing shale oil at a lower cost than we thought we could.”

Adding rigs is the primary way to gauge whether or not it is economically profitable for energy companies to drill for and pump the oil  According to one analyst, the companies have been able to streamline their operations to the point their breakeven costs have dropped by about $20 a barrel.  That’s huge:

A Bloomberg analyst suggested that the cost of drilling services have fallen between 20% and 50% with break even prices in parts of the Permian and Eagle Ford below $40 per barrel.

And what does it mean overall?

Director of upstream research for Wood Mackenzie, Scott Mitchell forecast that producers could add up to 100 oil rigs by the end of the year.

Drilling rigs and fracking require a quite specific technical workforce, and there were a lot of layoffs as a result of the drop in activity.

We may find the supply of people becomes short very quickly if activity ramps up, leading to price increases again,” he predicted.

That’s right … jobs and less expensive gas.  Of course, most if not all of the shale oil drilling has taken place on non-federal land, and the market has been able to function without a great deal of governmental interference.  It is providing both employment and a very important commodity at less expensive prices.  Additionally, as it lowers its breakeven point, it buffers us against volume drops as the price of oil comes lower and other sources stop producing oil.  With the lower breakeven point, they’ll continue to pump past the point where they’d have quit previously because doing so is still profitable for them.  That helps ensure lower prices at the pump will be more common and more stable.

The market … a wonder we need to allow to work without interference much more often than we do.


Observations: The QandO Podcast for 01 Jun 14

This week, Bruce, Michael, and Dale talk about Ukraine, the Bundy case in Nevada, and the increasing arbitrariness of the Federal government.

The podcast can be found on Stitcher here. Please remember the feed may take a couple of hours to update after this is first posted.

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Observations: The QandO Podcast for 19 Dec 14

This week, Michael and Dale just talk about stuff.

The direct link to the podcast can be found here.


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.

Observations: The QandO Podcast for 01 Dec 13

This week, all of us just talk about stuff.

The direct link to the podcast can be found here.


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.

Observations: The QandO Podcast for 17 Mar 13

This week, Bruce, Michael and Dale discuss the moral case for capitalism and CPAC & the future of conservatism.

The direct link to the podcast can be found here.


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.

Quote of the Day – Fine Arts and Capitalism edition

Or perhaps it could be called the wages of the liberal cant (Camille Paglia):

Capitalism has its weaknesses. But it is capitalism that ended the stranglehold of the hereditary aristocracies, raised the standard of living for most of the world and enabled the emancipation of women. The routine defamation of capitalism by armchair leftists in academe and the mainstream media has cut young artists and thinkers off from the authentic cultural energies of our time.


Thus we live in a strange and contradictory culture, where the most talented college students are ideologically indoctrinated with contempt for the economic system that made their freedom, comforts and privileges possible. In the realm of arts and letters, religion is dismissed as reactionary and unhip. The spiritual language even of major abstract artists like Piet Mondrian, Jackson Pollock and Mark Rothko is ignored or suppressed.

Thus young artists have been betrayed and stunted by their elders before their careers have even begun. Is it any wonder that our fine arts have become a wasteland?

I’ve truly never understood how one does what is routinely done by those who denounce Capitalism – live on and enjoy it’s benefits while calling for its destruction.  I don’t see how anyone who would describe themselves as intelligent could live with the contradiction.

Unless, of course, they have a completely twisted and warped understanding of what Capitalism is.  And, frankly, that’s precisely from what most of them suffer.  They’re spoon fed this ignorant pap without opposition.  They get the one side.  They have Capitalism defined and characterized as something it’s not and leave believing that definition to be true.

Obviously that mischaracterization would fall mostly within liberal academic pursuits I’m guessing (because they’re unlikely to be pursuing business or economic courses in those pursuits, and thus would never be exposed to what Capitalism is really).  So Paglia’s point makes sense.  These students are indeed “indoctrinated”.  I don’t know how else you describe “teaching” with no balance, with no valid opposing view presented, as anything but indoctrination.

Of course, she describes the result of such a twisted orthodoxy.  Art which must conform to the orthodoxy and, as a result, is mostly rejected by the vast majority of the real world.  It has gone from being “edgy” and “out there” or a “comment on our culture/society/whatever” to being another example of the same old thing – bashing what others hold sacred or dear.  They can’t imagine why others don’t like it or want it.

Of course, when it doesn’t sell, well, that’s Capitalism’s fault.

And why shouldn’t these enlightened few demand subsidies for their “art?”  After all, we have no taste and certainly don’t have the intelligence to discern what is or isn’t profound.  We owe them such support.

Capitalism?  Well that stands in the way, doesn’t it?  It requires they produce something of value to others, not just of value to themselves, doesn’t it.

Down with Capitalism.

Twitter: @McQandO
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Capitalism, cronyism and corruption

Gallup has a new indicator poll out that shows the nation’s national priorities according to its citizens.  It’s interesting in many ways, but primarily because one of the highest calls for action is to address “corruption”. 


corruption poll


(As an aside, notice the bottom two “priorities).

Notice carefully how the corruption question is phrased – “Reducing corruption in the federal government”.  What sort of corruption?  Well, one type, that most fair minded people would identify, is that which we call cronyism.  As we listen to the uniformed continue to say we’ve been ravaged by the “free market” system, one can only shake their head in wonder that anyone would identify what we have as a “free market system”.  Rarely, if ever, are markets allowed to function as they should in this country (or any others for that matter). 

What we have is a system of cronyism (I’m removing “capitalist” from the description since there’s nothing “capitalist” about such a system) that is part of what is killing us economically.  David Henderson gives us a good description of the system under which we must operate.

What is the difference between free markets and cronyism? In free markets, buyers and sellers are free to agree on price; no government agency restricts who can buy or sell, and no one is told how or what to produce.[1] In contrast, under cronyism the government rigs the market for the benefit of government officials’ cronies. This takes various forms. Governments sometimes grant monopolies to one firm or limit the number of firms that can compete. For example, most U.S. municipalities allow only one cable company to operate in their area even though there is no technological reason more could not exist. The same is true for most other utilities.

Governments sometimes use quotas or tariffs to limit imports with the goal of protecting the wealth and jobs of domestic producers who compete with those imports. President George W. Bush did this in 2002, for example, when he imposed tariffs ranging from 8 to 30 percent on some types of imported steel.[2] Governments sometimes subsidize favored producers, as the Obama administration did with the politically connected solar-energy firm Solyndra. Governments may use antitrust laws to prevent companies from cutting prices so that other, less-efficient companies can prosper: For example, beginning in 1958, the U.S. government prevented Safeway from cutting prices for a quarter of a century.[3]

The entities governments help with special regulations or subsidies are not always businesses; sometimes they are unions. The federal government’s National Labor Relations Board’s (NLRB) complained against Boeing in April 2011, for example. In response to a complaint from the International Association of Machinists and Aerospace Workers (IAM), the NLRB sought to require Boeing to produce its 787 Dreamliner in Washington State rather than in Boeing’s chosen location of South Carolina. According to the NLRB, by saying that “it would remove or had removed work from the [Puget Sound and Portland] Unit because employees had struck” and by threatening that “the Unit would lose additional work in the event of future strikes,”[4] Boeing was making “coercive” statements to its employees. As a matter of fact, it was not. Boeing was simply telling the employees some likely consequences of the union’s actions.

The Boeing-IAM case is not as simple as most of the press implied. It turns out there was a prior case of cronyism. The government of South Carolina promised Boeing “$900 million in tax relief and other incentives” in exchange for moving production to South Carolina.[5] Such is the tangled world of cronyism.

As we discussed on the podcast last night, we have given, or at least allowed government to amass, power to do what it is doing.   We have, over the years, allowed them to use tax exemptions and other favors, etc. to lure businesses to our states (and we’re then thankful for the jobs created) not understanding that by doing so, we empower politicians to be the decision makers in areas that should be the function of markets.  And what does that foster?  A culture that is incentivized to seek out politicians to grant such favors.   To ask for, and receive, subsidies.  To allow politicians to leverage that power into favoring businesses that fit their political agendas.   They become the focus because we have given them the power necessary to grant those favors.

We see the same sort of game played at a national level as described by Henderson.  That has nothing to do with capitalism folks.  It has nothing at all to do with “free markets”.  In fact, it is the antithesis of both.

Probably the most blatant and disturbing example of cronyism came in the auto bailout:

Of course, a much larger instance of cronyism under the Obama administration, one that makes the Solyndra case tiny by comparison, is the bailout of General Motors (GM) and Chrysler. Bush and Obama together diverted $77 billion in TARP funds to GM and Chrysler. In organizing their bailouts and bankruptcies, Obama  violated the rights of Chrysler’s creditors and gave a sweetheart deal to the United Auto Workers union.

Law professor Todd Zywicki provides the details:

In the years leading up to the economic crisis, Chrysler had been unable to acquire routine financing and so had been forced to turn to so-called secured debt in order to fund its operations. Secured debt takes first priority in payment; it is also typically preserved during bankruptcy under what is referred to as the “absolute priority” rule— since the lender of secured debt offers a loan to a troubled borrower only because he is guaranteed first repayment when the loan is up. In the Chrysler case, however, creditors who held the company’s secured bonds were steamrolled into accepting 29 cents on the dollar for their loans. Meanwhile, the underfunded pension plans of the United Auto Workers—unsecured creditors, but possessed of better political connections—received more than 40 cents on the dollar.

Pure cronyism.  The bankruptcy rules were thrown out by government in order to pay a favored constituency – labor.  Henderson explains:

Moreover, in a typical bankruptcy case in which a secured creditor is not paid in full, he is entitled to a “deficiency claim”—the terms of which keep the bankrupt company liable for a portion of the unpaid debt. In both the Chrysler and GM bankruptcies, however, no deficiency claims were awarded to the creditors. Were bankruptcy experts to comb  through American history, they would be hard-pressed to identify any bankruptcy case with similar terms.20

Why did the Chrysler bondholders not object? Many did. But, Zywicki notes, the federal government (in this case, the U.S. treasury secretary) had enormous power over financial institutions through TARP, and these institutions owned much of  Chrysler’s secured debt.

While this has been going on for quite some time, never has it been as blatant as with this administration.  And that blatancy is what has pushed the corruption priority up the list to where it stands second to job creation in this horrific economy.

What can be done to remedy this cronyism “corruption”.  Only one thing, and unfortunately, those enjoying the power are where the remedy must come:

There is only one way to end, or at least to reduce, the amount of cronyism, and that is to reduce government power. To reduce cronyism, we must abolish regulations and cut or abolish special government subsidies. That way, there is nothing to fight about. For example, the government should not bail out companies or give special subsidies and low-interest loans to companies like Solyndra that use technologies or produce products that the government favors. It should have unilateral free trade rather than tariffs, import quotas, and other restrictions on imports.

Will it happen?  No.  Those who tout the power of markets and demand they be given priority are now considered “radicals”.  Just listen to President Obama talk about the former administration and try to convince you “we tried their way before and look where it led”.    Spinning a regime prior to his that was as wrapped up in cronyism as is his and claiming it represented free markets is standard, disingenuous, leftist boilerplate with nary a leg to be found standing in reality.  It is pure, fatuous BS.

The “corruption in the federal government” isn’t lobbyists.  They’re a  symptom of that corruption.  The problem resides under the Capital dome and within the offices of the executive branch.  They have the power that is sought by the lobbyists.  No power and there would be no petitioners.   Instead, we see the number of petitioners for favorable treatment by government (usually at the detriment to their competitors) continuing to expand.

So while the public has finally identified a major problem (thanks to the blatancy of this administration) it has a long way to go before it realizes the means by which it must be fixed.  Stripping the federal government of its power to grant favors to its cronies is almost an impossible task, given we have the fox in charge of the hen house.

I see nothing in the future that says those who must fix this are willing to divest themselves of the power to grant favors (see recent farm bill, an orgy of subsidies and pay offs (earmarks), for a perfect example).   Show me when they’ve ever divested themselves of any meaningful power they’ve accrued.

And so cronyism will continue and we will continue to circle the drain of economic collapse.    Meanwhile, Coke and Pepsi will fight about the marginal nonsense that won’t make a significant difference and make all the usual promises about being the panacea for all our ills that voters have been pining for so long.

Or it is “kick the can down the road” politics as usual.

Happy Monday.


Twitter: @McQandO

Robert Reich’s attempt to redefine Capitalism

I’ve often said that what the left attempts to do is redefine words to blunt the impact (and fool the people) of what they’re trying to accomplish.

On the occasion of a Socialist winning France’s Presidential election, Robert Reich, of all people, is out to reassure the masses in America that Socialism is not the answer, Capitalism is.

However, upon closer reading, well it’s not the Capitalism we’d recognize.  Here are his opening paragraphs:

Francois Hollande’s victory doesn’t and shouldn’t mean a movement toward socialism in Europe or elsewhere. Socialism isn’t the answer to the basic problem haunting all rich nations.

The answer is to reform capitalism. The world’s productivity revolution is outpacing the political will of rich societies to fairly distribute its benefits. The result is widening inequality coupled with slow growth and stubbornly high unemployment.

Note the focus – ‘“fair” distribution of its benefits’.  Anyone – what about Capitalism calls for the “fair distribution of benefits.”

And if you change laws and require such a thing, can what you end up with be fairly called “Capitalism”?

Back to Reich.  He claims that workers are being replaced by “computers, software and the Internet (damn that Al Gore).  Consequently, jobs are at a premium and, well, that’s just not fair.  Besides (prepare for tired old song):

In the United States, almost all the gains from productivity growth have been going to the top 1 percent, and the percent of the working-age population with jobs is now lower than it’s been in more than thirty years (before the vast majority of women moved into paid work).

Inequality is also growing in Europe, along with chronic joblessness. Europe is finding it can no longer afford generous safety nets to catch everyone who has fallen out of the working economy.

And, apparently, the top 1% a) bury the money in cans in the back yard and b) don’t pay 37% of all income taxes collected (the top 5% pay 59%).  That’s just not sufficient anymore to keep the bottom 50%, who essentially pay no income taxes, in the lifestyle to which they’ve become accustomed.  And Reich thinks that’s wrong. However, and this is the whole point of his pitch, that’s not Socialism.Obama_Socialists_01_250px

Really?  A “fair distribution of benefits” so neatly defines Socialism, I’m not sure what’s left to say.  Except Reich wants us to somehow swallow the premise that it is also a principle part of Capitalism (it’s not) and we must reform Capitalism to conform to this newly discovered, er, inserted principle.

So what does Capitalism do?  Well, you’ve heard it said many times that the tide of Capitalism “lifts all boats”.  I.e. the “benefits” are distributed by a system that makes life better for all.  It does that by rewarding innovators, risk takers and entrepreneurs.  And those rewards can be very rich.  But:

Consumers in rich nations are reaping some of the benefits of the productivity revolution in the form of lower prices or more value for the money — consider the cost of color TVs, international phone calls, or cross-country flights compared to what they were before.

Indeed, we live better now than we did 30 years ago because of what?  The “benefits” of Capitalism as they’re traditionally defined.  Even Reich has to admit that.

However, that’s not good enough for the left.   Those not in the 1% are apparently “victims” and due much more simply because they exist.  And those who do take risks and succeed are those that owe the victims this “fairness” by giving up what they’ve earned.

You see the left’s forte is class warfare and that, frankly, is the cornerstone of Socialism.  Their traditional enemy is,  you guessed it, Capitalism and Capitalists. 

What Reich is offering is a new sort of a smoke and mirrors approach.  It’s hard to fight their traditional enemy on the basis of performance – we are a very rich nation and even our poor live better than most nation’s middle class.  So that won’t work.

Instead, it’s the politics of envy that has been employed and the siren song of “fairness” or “equality” as the required (not desired) outcome.  Oh, and that there is only one entity that can enforce either or both – government (mostly through punitive taxation).

That’s Reich’s pitch.  That’s the snake oil he’s trying to peddle.  Reassure everyone that he’s a big Capitalist (he’s not).  Pretend the problem with our system right now is it is unfair because Capitalism has gone wrong (it hasn’t).  But, with a few tweaks and reforms via government we can fix that (and end up just like Europe).

Of course we can certainly do all of that, can’t we?  And when we do, it will be called “Socialism”, won’t it?


Twitter: @McQandO

Davos elite: Capitalism is the problem

That is certainly the premise at work in Davos as “political and economic elite”, who’ve served us so well to this point, meet to plot discuss modifications to capitalism.

Economic and political elites meeting this week at the Swiss resort of Davos will be asked to urgently find ways to reform a capitalist system that has been described as "outdated and crumbling."

"We have a general morality gap, we are over-leveraged, we have neglected to invest in the future, we have undermined social coherence, and we are in danger of completely losing the confidence of future generations," said Klaus Schwab, host and founder of the annual World Economic Forum.

"Solving problems in the context of outdated and crumbling models will only dig us deeper into the hole.

"We are in an era of profound change that urgently requires new ways of thinking instead of more business-as-usual," the 73-year-old said, adding that "capitalism in its current form, has no place in the world around us."

Show me “capitalism” at work somewhere, please?  Social welfare, in its current form, driven by high taxation and deficit government spending, is what “has no place in the world around us”.

The dirty little secret these “elite” won’t admit was that their premise that capitalism could forever fund their social welfare states is absolutely wrong and failing.  They’ve killed the goose that laid the golden capitalistic eggs.  It isn’t “capitalism” that is failing.  It is their social welfare system that is “outdated and crumbling”.

These are just the same people who got us into this mess trying to shift the blame from unsustainable policies founded in socialism to something which has kept their socialist utopias functioning for more years than they would have had it not been there.

And we should also be precise about what it is that has kept them stumbling along this long … a mixed economy, not capitalism.  A mixed economy which has featured less and less capitalism as the years have gone by.  Capitalism in its defined form exists in few, if any places in this world.

Margret Thatcher’s warning that the only thing wrong with socialism is you eventually run out of other people’s money has come true … again.  The agony was only prolonged because some free market mechanisms were left to at least partially function over all these decades that the Europeans (and now Americans) were constructing their little social welfare houses of cards.  The elite simply refuse to see that reality and now seek another target to which they can shift the blame.  The ultimate in “can kicking”. 

The eurozone’s failure to get a grip on its debt crisis and the spectre this is casting over the global economy will dominate discussions.

"The main issue would be the preoccupation with the global economy. There will be relatively less conversation about social responsibility and environment issues — those tend to come to the fore when the economy is doing well," John Quelch, dean of the China European International Business School, told AFP.

"The main conversation will be about a deficit of leadership in Europe as a prime problem," he added.

The deficit in leadership isn’t just found in Europe.  It is found worldwide.   And it isn’t a deficit of leadership from capitalists, but instead a deficit of leadership within the ranks of the political elite.  They continue to do or try to do the same things that have gotten us into this mess and expect different outcome.   We all know how Einstein defined such activity.

It is interesting to note, too, that the Euro elite are now ready to pitch “social responsibility (however they define that – does that mean the welfare state?) and environmental issues” over the side.

But, in fact, it is more than just that which they should be considering abandoning.  The problems they face do not find their root in a capitalist system or within capitalism itself.   In fact, capitalism could be their savior, if they only gave it an opportunity.

However, they’d also have to abandon most of the social welfare state to do so.

No, their primary problem is to be found with the institution that has attempted to control their economies and which constantly gets in the way of any capitalistic successes in the name of social justice. 

Government.   And more to the point, government spending driven by high taxes and borrowing.  It requires a deficit in intelligence not to understand that.

In essence Davos will be the elite – the social welfare elite – trying their hardest to shift blame on a system they’ve done the most to try to kill over the decades (even while using it to extend the life of their social welfare states).

Controlling government, taxation that provides disincentives to business, labor rules that prohibit firing bad employees, mandated early retirement and generous welfare benefits are not the problem of capitalism.

They are the problem of large, intrusive and socialist leaning governments.

But, apparently, that won’t be a part of the discussion in Davos.


Twitter: @McQandO