What the Political Rhetoric “You Didn't Get There on Your Own” Means

When a politician preaches that “you didn't get there on your own” they may only be half right. That’s because our world operates on the principle of division of labor where no one really produces things on their own.

No one, on his own, even knows how to make a simple product like the pencil, as Milton Friedman explained

But what the politicians really mean is that every entrepreneurial success (wealth) has been owed to the government.

The distinguished Thomas Sowell exposes such myth or deception {bold emphasis mine]

Let's stop and think, even though the whole purpose of much political rhetoric is to keep us from thinking, and stir our emotions instead.

Even if we were to assume, just for the sake of argument, that 90 percent of what a successful person has achieved was due to the government, what follows from that? That politicians will make better decisions than individual citizens, that politicians will spend the wealth of the country better than those who created it? That doesn't follow logically -- and certainly not empirically.

Does anyone doubt that most people owe a lot to the parents who raised them? But what follows from that? That they should never become adults who make their own decisions?

The whole point of the collectivist mindset is to concentrate power in the hands of the collectivists -- which is to say, to take away our freedom. They do this in stages, starting with some group that others envy or resent -- Jews in Nazi Germany, capitalists in the Soviet Union, foreign investors in Third World countries that confiscate their investments and call this theft "nationalization."

Freedom is seldom destroyed all at once. More often it is eroded, bit by bit, until it is gone. This can happen so gradually that there is no sudden change that would alert people to the danger. By the time everybody realizes what has happened, it can be too late, because their freedom is gone.

All the high-flown talk about how people who are successful in business should "give back" to the community that created the things that facilitated their success is, again, something that sounds plausible to people who do not stop and think through what is being said. After years of dumbed-down education, that apparently includes a lot of people.

Take Obama's example of the business that benefits from being able to ship their products on roads that the government built. How does that create a need to "give back"?

Did the taxpayers, including business taxpayers, not pay for that road when it was built? Why should they have to pay for it twice?

What about the workers that businesses hire, whose education is usually created in government-financed schools? The government doesn't have any wealth of its own, except what it takes from taxpayers, whether individuals or businesses. They have already paid for that education. It is not a gift that they have to "give back" by letting politicians take more of their money and freedom.

When businesses hire highly educated people, such as chemists or engineers, competition in the labor market forces them to pay higher salaries for people with longer years of valuable education. That education is not a government gift to the employers. It is paid for while it is being created in schools and universities, and it is paid for in higher salaries when highly educated people are hired.

One of the tricks of professional magicians is to distract the audience's attention from what they are doing while they are creating an illusion of magic. Pious talk about "giving back" distracts our attention from the cold fact that politicians are taking away more and more of our money and our freedom.

Bottom line: Reading between the lines helps to protect one from getting hoodwinked by political glib talkers.

Tax Avoidance: U.S. Banks Spawn 10,000 Subsidiaries Worldwide

Below is a great example of what is called as tax avoidance which Wikipedia.org defines as

legal utilization of the tax regime to one's own advantage, to reduce the amount of tax that is payable by means that are within the law.

For the politically endowed US banks, tax avoidance means establishing numerous subsidiaries around the world.

From Bloomberg,

The biggest U.S. banks created more than 10,000 subsidiaries in the past 22 years as they expanded, using legal structures to pay lower taxes and escape tighter regulation, according to a Federal Reserve study.

JPMorgan Chase & Co. (JPM), the largest U.S. lender, has the most units at 3,391, followed by Goldman Sachs Group Inc., Morgan Stanley and Bank of America Corp. (BAC) with more than 2,000 each, the study by the Federal Reserve Bank of New York shows. Citigroup Inc. (C), the third-largest lender, has 1,645.

Critics including Thomas Hoenig, a Federal Deposit Insurance Corp. board member, say the biggest firms are too complicated to manage. The 2010 Dodd-Frank Act asked the FDIC and Fed to make sure the largest banks, if they get into trouble, can be wound down without collapsing the rest of the financial system. U.S. Senator Sherrod Brown has proposed legislation to force their breakup.

“When regulators are left to curtail the risk of trillion- dollar megabanks with hundreds of affiliates, we know that too big to fail is also too big to manage” said Brown, an Ohio Democrat and member of the Senate Banking Committee.

Well this is just the banking system, I would conjecture that many significantly sized companies, as well as, the wealthy, do the same. The rich according to CNBC has an estimated $21 to $32 trillion stashed overseas. Of course this claim has been made by political parasites eyeing to seize their property.

The lesson here is that people will respond to changes in tax regimes. So any puritanical statist idea of imposing taxes to generate revenue without considering people's responses are likely to fail.

The Fantasy of Forcing the Rich to Bail Out Europe

In the world of statism, everything operates in very simple terms. Just come up with the numbers (supplied by supposed experts), and expect every edict to deliver the targeted results.

Such insight can be gleaned from the blaring drumbeat of class warfare politics in the Eurozone where political authorities have been eyeing to tax the rich to solve the current crisis.

Writes the CNBC,

To many in Europe, the Continent has two big economic problems: Huge debt, and high inequality between the rich and the rest.

Now some politicians are advocating a plan to solve both.

The idea, first floated by a German economic policy group, calls for imposing a 10 percent tax on the wealth of the richest Europeans and forcing them to lend money to their governments.

The plan calls for placing a one-time 10 percent levy on the total assets for those with more than $309,000 in assets (or couples with more than $611,000). In addition, it calls for a “forced loan” program, in which the wealthy lend money to their governments that could be paid back over time.

Stefan Bach of the prestigious the German Institute for Economic Research (DIW) in Berlin, which floated the plan, said that: "In many countries the sovereign debt levels have increased considerably, and at the same time we also have very high amounts of private assets that, taken together, considerably exceed the total national debts of all [euro-zone] countries."

In other words, the wealth of the wealthy is more than enough to plug government budget holes.

The idea gaining popularity among European politicians. An Austrian member of the European Parliament, Jörg Leichtfried, favors the plan for forced loans, saying the rich could lend to the states at low interest rates. The loans, he said, would not be an “expropriation,” since they would be paid back. The head of Austria’s Social Democratic Group also backs the plan, saying states need to fix their budget troubles.

For statists: legalize the plunder of the wealthy, collect and the problem gets easily solved.

But there are two more problems to reckon with;

one, statists and politicians are dealing with human beings who will act to protect their own interests from political predations, and

second, if taxing has been that easy then what stops government from spending more? Having to confiscate everything else from the rich, these politicians would end up with no one else to tax. So we end up with a crisis again.

A good example of the first scenario is the recent incidents of “runaway luxury yachts”, as blogged by Dan Mitchell of the Cato Institute, where wealthy yacht owners flee Italian taxing authorities by sailing to and docking at foreign “friendlier ports”. These yacht owners would instead access their boats through “low-cost budget flights from Italy for a fraction of the tax bill they might otherwise face”.

In addition, the unexpected consequence from taxing yacht owners has been to penalize the industry which affects mostly the middle income people, who suffer from lost business opportunities.

So tax authorities essentially does an Aesop, kill two birds with one stone.

The moral of the tax story says Dan Mitchell is that

The politicians need to understand that taxpayers don’t meekly acquiesce, like lambs in a slaughterhouse.

• When tax rates increase, sometimes people engage in tax avoidance, lowering their tax liabilities legally.
• When tax rates change, sometimes people choose to alter their levels of work, saving, and investment.
• And when tax rates go up, sometimes people resort to illegal steps to protect themselves from the tax authority.

Heck, even the folks at the International Monetary Fund (a crowd not known for rabid free-market sympathies) have acknowledged that excessive taxation is the leading cause of the shadow economy.

Thus, the idea that forcing the rich to bailout Europe is just that…a statist fantasy.

Celebrity Denise Rich Abandons US Citizenship

There has been a growing trend of wealthy Americans giving up on their citizenship.

I earlier noted that this controversial trend may have been accentuated by Eduardo Saverin, one of Facebook founder.

Another celebrity, Denise Rich, has opted to vote with their feet in response to the intensifying class warfare politics which is being passed off through repressive tax policies.

From the Wall Street Journal,

Denise Rich, the songwriter and socialite who was once married to pardoned financier Marc Rich, has given up her U.S. citizenship, a move that could also help shield her from future U.S. taxes.

“In order to be closer to her longtime life partner, as well as her family and loved ones, she made the decision to become an Austrian citizen. That was in November 2011,” said Judy Smith, a spokeswoman for Ms. Rich.

Ms. Rich’s name showed up in an April 30 list of those who had given up their U.S. citizenship. She was listed under her maiden name of Denise Eisenberg. The move was first reported by Reuters.

Ms. Rich and many others adds to the statistics of nearly 1,800 Americans whom have renounced their citizenship.

The absolute number may indeed be small (yes that’s because they are the detestable 1%), but they are the source of productive capital.

Daily Reckoning’s Erics Fry rightly concludes

Surrendering US citizen was absolutely unthinkable. But not anymore. Now it is “thinkable,” albeit still relatively rare. The absolute numbers are still tiny, but the trend conveys a very large message: Discontent is on the rise.

Intervention begets intervention, taxes begets taxes, repressive actions by the desperate political class will only exacerbate. Ultimately these would affect everyone and vented through a crisis. Hence discontent will snowball.

Interesting signs of times and the reversal of what used to be seen as entrenched trends.

Will France’s Fairness Doctrine Save the EU?

From Zero Hedge

With the Great June Socialist Revolution spilling over into July, here are some details as they become available from France:

• FRANCE TO HAVE NEW TAX RATE OF 45% FOR WEALTHY
• FRANCE TO TAX INCOME OF MORE THAN EU1 MLN AT 75%, AYRAULT SAYS
• FRANCE TO TAX CAPITAL INCOME AT SAME LEVEL AS WAGES
• FRANCE TO RAISE TAXES FOR LARGE COMPANIES, BANKS, OIL FIRMS

But... FRANCE TO ANNUL PLANNED VAT INCREASE PLANNED BY SARKOZY

After all, it's only fair. In other news, we are rotating our secular long thesis away from Belgian caterers and into tax offshoring advisors, now that nobody in the 1% will pay any taxes ever again.

Politicians believe the path to prosperity is only through confiscation and redistribution. They also believe that growth comes with subtraction and division and not from addition and multiplication

They further think that the wealthy are dingbats whose actions are limited by the dictates of politicians.

Professor Ludwig von Mises was right…

Nothing is more calculated to make a demagogue popular than a constantly reiterated demand for heavy taxes on the rich…

Confiscations of capital through the legal form of taxation are neither socialistic nor a means to Socialism. They lead, not to socialization of the means of production, but to consumption of capital. Only when they are set within a socialist system, which retains the name and form of private property, are they a part of Socialism.

So the French government will spend MORE and get LESSER revenues as productive segments of society either reduces productive activities and or flee to other havens. Capital will be consumed at a more faster rate.

After all, money goes where it is best treated.

Yet under the sustainment of such political conditions, the Euro’s death warrant has been sealed.

Asia should welcome with open arms the prospective diaspora of French capital by implementing policies opposite to those embraced by the French politicians. Yes, such policy is known as economic freedom.

Video: Will Taxing the Rich Fix the Deficit?

Thanks to Tim D. Hedberg from LearnLiberty.org.

Will French Politics Swing from Socialism to Fascism?

Far right Marine Le Pen’s strong showing at the recent Presidential runoff in France may have opened the door for politics of the extreme right.

Writes historian Eric Margolis at the Lewrockwell.com

Talk about déjà vu. Such a sweeping change would return France to its pre-war political landscape, when hard Left and hard Right were locked in bitter confrontation. Marine Le Pen could well emerge as the angry voice of many Europeans – a prospect that causes shudders across conservative-ruled Europe.

She could also prove the nemesis of the European Union. Le Pen has vowed to oppose austerity pacts, quit the Euro, restore the franc, and follow economic mercantilism. Her anti-EU, anti-free trade policies are attracting many people across Europe and even in Russia.

Fortunately, Francois Holland could prove a counter-balance to the ascendant Right. He is a moderate, cautious centrist politician given to pragmatism rather than ideology. His popularity and image of geniality and caring about people will help him withstand the forces of both Left and Right trying to pull him in different directions.

Even so, Marine Le Pen and her aggressive rightists are likely to become an ever-increasing threat to the French Republic as economic conditions worsen. It seems only a matter of time before fascism rears its head again in Spain, Italy, and Portugal. Greece is already on the way. Failure to implement austerity plans will bring economic convulsions and with them the bully boys in black

Mr. Francois Holland's victory has been negative enough for domestic entrepreneurs. Many of whom have reportedly been looking for refuge overseas from the prospects of punitive tax increases, if not from asset forfeitures, by the incoming socialist government, whom has openly declared war against the wealthy.

Yet if the prognosis of Mr. Margolis becomes a reality, then the rise of fascism (based on economic nationalism or mercantilism) elevates the risk of regional war.

As the great Ludwig von Mises once admonished,

What generates war is the economic philosophy almost universally espoused today by governments and political parties. As this philosophy sees it, there prevail within the unhampered market economy irreconcilable conflicts between the interests of various nations. Free trade harms a nation; it brings about impoverishment. It is the duty of government to prevent the evils of free trade by trade barriers. We may, for the sake of argument, disregard the fact that protectionism also hurts the interests of the nations which resort to it. But there can be no doubt that protectionism aims at damaging the interests of foreign peoples and really does damage them. It is an illusion to assume that those injured will tolerate other nations' protectionism if they believe that they are strong enough to brush it away by the use of arms. The philosophy of protectionism is a philosophy of war. The wars of our age are not at variance with popular economic doctrines; they are, on the contrary, the inescapable result of a consistent application of these doctrines.

The current trend of French politics seems locked into a wretched choice between the proverbial devil and the deep blue sea. Beautiful France may not be as beautiful as she is today in the future.

Democracy, as the great libertarian H.L. Mencken said, is the theory that the common people know what they want, and deserve to get it good and hard.

Quote of the Day: Why Intellectuals Promote Statism

Intellectuals have all too often promoted these envy and resentment ideologies. There are both psychic and material rewards for the intelligentsia in doing so, even when the supposed beneficiaries of these ideologies end up worse off. When you want to help people, you tell them the truth. When you want to help yourself, you tell them what they want to hear.

That’s from Professor and author Thomas Sowell writing about the selective focusing by mainstream intellectuals in dealing with disparities, where their major thrust has been to promote the politics of class warfare.

[Gosh, this resonates much to the Philippine setting]

The Myth of the Poor as Borrowers, Rich as Lenders

“The Poor are Borrowers and the Rich are lenders” has been one of the enduring myths which the left uses to champion the Keynesian policies of the “euthanasia of the rentier” and central banking.

David Gordon quotes the great Murray Rothbard,

Often, this turns out to be the reverse of the truth. "Debtors benefit from inflation and creditors lose; realizing this fact, older historians assumed that debtors were largely poor agrarians and creditors were wealthy merchants and that therefore the former were the main sponsors of inflationary nostrums. But of course, there are no rigid 'classes' of creditors and debtors; indeed, wealthy merchants and land speculators are often the heaviest debtors" (p. 58).

Even the conditions of nations today do not support this argument.

Based on the 2010 NIIP or Net International Investment Position statistics by the IMF, which has been defined as a country’s domestically owned assets minus foreign assets, the table above reveals that the US stands as the world’s largest borrower or debtor. (source: Financial Sense)

Yet there has been NO rigidity in classes—some rich countries are creditors while some rich countries are debtors.

Class based borrowing and lending is simply based on fantasy.

As individuals, we act (save, consume or invest) based on our unique value scales and time preferences and not because of the abstraction of being “rich or poor”.

Also it would be equally naïve to say that rescuing Wall Street was about “the poor”, that’s because Wall Street thrived upon unsustainable debt acquired from rampant speculation.

It is the reason why the largest US investment banks vanished from planet earth in 2008, and is the reason for the Troubled Asset Relief Program (TARP) and the explosion of the US Federal Reserve’s balance sheet in 2008, who absorbed toxic assets from the banking and finance industry by transferring the risk to US taxpayers.

From the US Federal Reserve of Cleveland

These debts were held NOT by the poor but the real estate, financial and banking class elites who profited from Keynesian policies of the euthanasia of the rentier aimed at attaining “permanent quasi booms”, which eventually backfired.

Besides, current political institutions have NOT been designed to protect the poor.

Apart from taxes, the banking system funnels savings of ordinary citizens to finance the government through sovereign securities (treasuries) as mandated by bank capital regulations. Central banks puts a backstop on this.

And politicians spend the savings of the average citizenry partly on vote generating welfare programs and substantially on special interest groups (e.g. green jobs, military industrial complex, banking and finance, foreign dictators) which have not mainly been about the protection of the poor. The poor have perennially been used as an unfortunate tool to justify the political mulcting of society.

Going back to rescuing Wall Street, coincidentally, Wall Street houses the largest number of people who are considered as super rich.

From the Wall Street Journal Blog

Bottom line: to argue that the “euthanasia of the rentier” is required to redistribute wealth from the rich to the poor has exactly been the reverse—the politically endowed rich benefits from “privatize profits and socialize losses” policies at the expense of society.

As a reminder not all of the rich are cronies. Those who depend on political privileges should be distinguished from those who generate wealth by serving the consumers.

Importantly, those who argue from the above faulty premises are either engaged in self-deception, or if, not hopelessly bereft of reasoning arising from the obsession to politics.

Gallup: Occupy Wall Street Not Supported by Most Americans

From Gallup,

Americans are more than twice as likely to blame the federal government in Washington (64%) for the economic problems facing the United States as they are the financial institutions on Wall Street (30%).

Both of these large entities have been the target of protest groups this year. The Occupy Wall Street movement has focused on large financial institutions on Wall Street, while the Tea Party movement continues to focus mainly on the federal government.

Class warfare has been typically used as an election stratagem. And most likely this movement may have also been a maneuver used by the beleaguered and seemingly desperate incumbents to preserve their fragile hold on power which will be contested during the coming elections.

Lew Rockwell on the REAL Evil 1%

Mises Institute Founder and Chairman Llewellyn H. Rockwell, Jr. eloquently writes,

In the end, we end up with about 3 million people who constitute what is commonly called the State. For short, we can just call these people the 1%.

The 1% do not generate any wealth of their own. Everything they have they get by taking from others under the cover of law. They live at our expense. Without us, the State as an institution would die….

The State is the institution that essentially redefines criminal wrongdoing to make itself exempt from the law that governs everyone else.

It is the same with every tax, every regulation, every mandate, and every single word of the federal code. It all represents coercion. Even in the area of money and banking, it is the State that created and sustains the Fed and the dollar because it forcibly limits competition in money and banking, preventing people from making gold or silver money, or innovating in other ways. And in some ways, this is the most dreadful intervention of all, because it allows the State to destroy our money on a whim.

The State is everybody’s enemy. Why don’t the protesters get this? Because they are victims of propaganda by the State, doled out in public school, that attempts to blame all human suffering on private parties and free enterprise. They do not comprehend that the real enemy is the institution that brainwashes them to think they way they do.

They are right that society is rife with conflicts, and that the contest is wildly lopsided. It is indeed the 99% vs. the 1%. They’re just wrong about the identity of the enemy.

Parasites thrive on hosts and at the latter's expense. That’s how the causal relationship works (even in biology).

Greed and the ONE Percent

Greed.

One way to win voters during an election period is to bash a minority group and appeal to the majority for the use of institutional or organized political force to achieve social goals as ‘equality’.

This Wall Street Journal article spares me precious time to parse on the newly released 2011 Wealth report from Credit Suisse, but nevertheless reflects on the du jour political theme: Greed is evil.

Wall Street the Wealth Report Blog’s Robert Frank writes,

Here’s another stat that the Occupy Wall Streeters can hoist on their placards: The world’s millionaires and billionaires now control 38.5% of the world’s wealth

According to the latest Global Wealth Report from Credit Suisse, the 29.7 million people in the world with household net worths of $1 million (representing less than 1% of the world’s population) control about $89 trillion of the world’s wealth. That’s up from a share of 35.6% in 2010, and their wealth increased by about $20 trillion, according Credit Suisse.

The wealth of the millionaires grew 29% — about twice as fast as the wealth in the world as a whole, which now has $231 trillion in wealth.

The U.S. has been the largest wealth generator over the past 18 months, according to the report, adding $4.6 trillion to global wealth. China ranked second with $4 trillion, followed by Japan ($3.8 trillion), Brazil ($1.87 trillion) and Australia ($1.85 trillion).

There are now 84,700 people in the world worth $50 million or more — with 35,400 of them living in the U.S.. There are 29,000 people world-wide worth $100 million or more and 2,700 worth $500 million or more.

The fastest growth in the coming years will be in China, India and Brazil. China now has a million millionaires. Wealth in China and Africa is expected to grow 90%, to $39 trillion and $5.8 trillion respectively, by 2016. Wealth in India and Brazil is expected to more than double to $8.9 trillion and $9.2 trillion respectively.

The article does not specify ‘greed’ or what form of greed constitutes evil. Nevertheless, the article already suggests that the statistics presented by the study could serve as an emotional fodder for the current movement of global protests.

Yet to broaden the perspective let me add more charts from the same study

Worldwide wealth in dollar terms has been expanding

The degree of growth varies from nation to nation

Or even seen from the perspective of region to region. The point is that wealth is relative.

Alternatively, this also means that wealth creation basically reflects on the idiosyncratic structure of a nation’s political economy.

Bottom line: Wealth is NOT created equally and will never be equal.

This runs contrary to socialist utopian abstractions which tries to project ‘equality’ where everyone should not only have same degree of income and wealth or access to public goods, but also perhaps the impossibility of us having to look alike, think alike, share the same value, share similar space for our presence and spouse, etc...

A Wall Street Journal editorial expounds on Asia’s newfound wealth (bold emphasis mine),

Rising net worth ought to be a sign that a growing number of individuals are spotting productive economic opportunities and profiting handsomely in return for the big entrepreneurial risks they've taken. That's certainly how the likes of Steve Jobs or Richard Branson made their billions in the West. There's also a fair share of that in Asia.

But it's also true—and troubling—that so much wealth-creation in the region is related to various forms of government patronage. There are the Hong Kong tycoons who benefit from favorable government land-sale rules, or the Korean chaebol executives who gain from lenient treatment "for the national economic interest" when corporate fraud allegations pop up. China is especially notable for being an environment where friendly connections with government officials can pave the way through a bureaucratic labyrinth, even easing access to capital that's scarce for purely private-sector enterprises.

In a modern free economy it's false to suggest that the wealth of one entrepreneur impoverishes others—the pie can grow for everyone even if it grows faster for some. But wealth amassed through collecting government favors often does impoverish others: those who don't enjoy similar benefits. This fact, and the cynicism it breeds, is a greater threat to social stability than unequal wealth distribution.

In short, wealth is achieved either by political means or by market (economic) means.

The other way to say this is that ‘greed’ as a human trait influences BOTH the market and politics. And the process undertaken to achieve an end (‘equality’) extrapolates to a TRADEOFF between these two means.

For example if society aims to attain ‘equality’ through the markets then the tradeoff equates to lesser political interventions. Yet if society opts to distribute resources ‘equally’ via the political means then market influences will diminish.

The $231 trillion question is which of these two means will function as the more efficient way to arrive at social prosperity.

Thus such tradeoffs suggests that there will either be market inequality or political inequality. The reality is that there will be no equality in whatever sense.

In the real world operating on scarce resources, then equality is no more than a utopian fantasy or mental self-abuse.

To give you an idea how some of the world’s wealth have been politically derived, the following excerpt is from the New Scientist (bold emphasis mine)

The Zurich team can. From Orbis 2007, a database listing 37 million companies and investors worldwide, they pulled out all 43,060 TNCs and the share ownerships linking them. Then they constructed a model of which companies controlled others through shareholding networks, coupled with each company's operating revenues, to map the structure of economic power.

The work, to be published in PloS One, revealed a core of 1318 companies with interlocking ownerships. Each of the 1318 had ties to two or more other companies, and on average they were connected to 20. What's more, although they represented 20 per cent of global operating revenues, the 1318 appeared to collectively own through their shares the majority of the world's large blue chip and manufacturing firms - the "real" economy - representing a further 60 per cent of global revenues.

When the team further untangled the web of ownership, it found much of it tracked back to a "super-entity" of 147 even more tightly knit companies - all of their ownership was held by other members of the super-entity - that controlled 40 per cent of the total wealth in the network. "In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network," says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.

The list of the biggest interlocking companies

Focusing on the financial behemoths, the above serves as example of crony capitalism or corporatism, where politically privileged private companies benefit from political concessions, regulations, monopolies, subsidies, private-public partnerships or other anti-market policies premised on “privatizing profits and socializing losses” that SHOULD BE differentiated from wealth derived from entrepreneurial or capitalist functions, whose gains are derived from pleasing consumers.

Political wealth (pelf) is mainly extracted from the looting of the taxpayer.

In fact the above only underscores the Austrian economic school’s thesis of a central-bank-cartel based [banking-and-financial sector cronyism] whom has lately been living off tremendous amounts of government subsides, bailouts, central bank QEs and massive interventions in the marketplace all of which has been designed to preserve the current cartel based welfare-warfare state.

Of course not all of the abovestated interlocking companies represent cronyism or politically generated wealth.

Cato’s Dr. Tom Palmer explains the differences of wealth in the video below

Cato’s Dan Mitchell also expounds on differences of entrepreneurship from political privileges in this Fox interview

Finally a good reminder comes from this classic video interview of the illustrious Milton Friedman on Greed, as I earlier posted

The magnificent Milton Friedman quote:

Well, first of all, tell me is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? What is greed? Of course none of us are greedy; its only the other fellow who’s greedy.

The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history are where they have had capitalism and largely free trade. If you want to know where the masses are worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear: that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.

As said above, greed is a human trait that plagues politicians too.

Here is the list of the richest politicians of the world

Again to re-quote Milton Friedman above

none of us are greedy; its only the other fellow who’s greedy

Quote of the Day: Class Warfare

From Walter E Williams

For politicians, it's another story: Demonize people whose power you want to usurp. That's the typical way totalitarians gain power. They give the masses someone to hate. In 18th-century France, it was Maximilien Robespierre's promoting hatred of the aristocracy that was the key to his acquiring more dictatorial power than the aristocracy had ever had. In the 20th century, the communists gained power by promoting public hatred of the czars and capitalists. In Germany, Adolf Hitler gained power by promoting hatred of Jews and Bolsheviks. In each case, the power gained led to greater misery and bloodshed than anything the old regime could have done.

That’s why politics is a zero sum game.

Chart of the Day: America’s Fast Expanding Welfare State

From the Wall Street Journal Blog,

Families were more dependent on government programs than ever last year.

Nearly half, 48.5%, of the population lived in a household that received some type of government benefit in the first quarter of 2010, according to Census data. Those numbers have risen since the middle of the recession when 44.4% lived households receiving benefits in the third quarter of 2008.

The share of people relying on government benefits has reached a historic high, in large part from the deep recession and meager recovery, but also because of the expansion of government programs over the years. (See a timeline on the history of government benefits programs here.)

Means-tested programs, designed to help the needy, accounted for the largest share of recipients last year. Some 34.2% of Americans lived in a household that received benefits such as food stamps, subsidized housing, cash welfare or Medicaid (the federal-state health care program for the poor).

Another 14.5% lived in homes where someone was on Medicare (the health care program for the elderly). Nearly 16% lived in households receiving Social Security.

Aside from the bailout policies, this serves as one significant reason why prospective US economic growth, as manifested by the current elevated rate of unemployment and low output, will progressively become lethargic as scarce resources are diverted towards more non-productive, capital consuming activities.

Importantly, US politics will increasingly be sensitive to the maintenance and the advancement of the unsustainable system of the welfare state.

To wean away dependants from this system, which has become more entrenched, will be considerably difficult and destabilizing.

Perhaps it may come to a point where the markets will force a tragic resolution, partly similar to what’s been happening to Greece.

Moreover, the US political spectrum will likely be dominated by class divisions, where welfare beneficiaries and their political patrons will call for more taxation in support of the pocket picking welfare policies.

The result of a recent poll exudes this political climate

From another Wall Street Blog,

Poll after poll shows that a majority of Americans support higher taxes on the wealthy, even when “wealthy” is defined as those making more than $250,000 a year.

Presumably, most of those polled don’t make the income cut-off, so it’s easy for them to demand that someone else pay for the nation’s debt.

Political divisions, from such class warfare, would only encourage instability and abet on violence.

In addition, the welfare state will continually be funded by debt that will ultimately lead to an outright default or will be inflated upon.

Ludwig Wilhelm Erhard, former economic minister and Chancellor, architect of Germany’s postwar economic reform and economic recovery popularly known as "Wirtschaftswunder" or "economic miracle", in his book Prosperity through Competition wrote a very apropos admonition on the dangers of the welfare state (p.187) [emphasis added]

if this mania increases we shall slide into a social order under which everyone has one hand in the pocket of another. The principle would then be: I provide for someone else and someone else provides for me.

The blindness and the intellectual inertia which are pushing us towards a Welfare State can only bring disaster. This, more than any other tendency, will serve slowly but surely to kill the real human virtues—joy in assuming responsibility, love for one’s fellow being, an urge to prove oneself, a readiness for oneself—and in the end there will probably ensue not a classless but a soulless mechanical society.

US Budget Debate: The Path Towards “Running Out of People’s Money”

It is tax deadline day today, which makes a good day to deal with some du jour tax related issues.

In the US, there has been ‘fierce’ ongoing budget- budget deficit cutting debate which has apparently been used as a staging point for the 2012 Presidential elections.

The Wall Street Journal has this budget cutting table showing the Ryan-Obama square-off.

Given these, Professor Walter E. Williams, has a timely and apropos article, where he makes an assumption that considering President Obama’s “class warfare-soak the rich” rhetoric, the US government appropriates

ALL earnings of the “rich” income group $250K and above ($1.4 trillion) +

Fortune 500 corporate profits ($400 billion) +

the assets of US Forbes 400 billionaires ($1.3 trillion) =

The $3.1 trillion won’t be enough to pay for the President proposed $3.7 trillion budget for 2012.

The Business Insider has a breakdown of these proposed budget

Professor Williams writes, (bold highlights mine)

Politicians, news media people and leftists in general entertain what economists call a zero elasticity view of the world. That's just fancy economic jargon for a view that government can impose a tax and people will behave after the tax just as they behaved before the tax, and the only change is more government revenue. One example of that vision, at the state and local levels of government, is the disappointing results of confiscatory tobacco taxes. Confiscatory tobacco taxes have often led to less state and local revenue because those taxes encouraged smuggling.

Similarly, when government taxes profits, corporations report fewer profits and greater costs. When individuals face higher income taxes, they report less income, buy tax shelters and hide their money. It's not just rich people who try to avoid taxes, but all of us – liberals, conservatives and libertarians.

What's the evidence? Federal tax collections have been between 15 and 20 percent of the nation's Gross Domestic Product every year since 1960. However, between 1960 and today, the top marginal tax rate has varied between 91 percent and 35 percent. That means whether taxes are high or low, people make adjustments in their economic behavior so as to keep the government tax take at 15 to 20 percent of the GDP. Differences in tax rates have a far greater impact on economic growth than federal revenues.

So far as Congress' ability to prey on the rich, we must keep in mind that rich people didn't become rich by being stupid.

That’s why former UK Prime Minister Margaret Thatcher once said in a TV interview (which became a famous quote-bold highlights mine)

Socialist governments traditionally do make a financial mess. They always run out of other people's money. It's quite a characteristic of them. They then start to nationalise everything, and people just do not like more and more nationalisation, and they're now trying to control everything by other means. They're progressively reducing the choice available to ordinary people.

Political interests and ambitions masquerading as noble intentions eventually will get unraveled. In short, it’s all about economics—what is unsustainable economically won’t last.

So the next step will be for US politicians to go for budget plugging actions. All accrued these actions will impact financial markets and the US and global economy.