Wednesday, November 26, 2008

This Thanksgiving, Thank God for Capitalism

first thanksgiving

Happy Thanksgiving! I am thankful for many things this year. I am thankful for a wonderful, loving family, friends that I can count on, new challenging opportunities in my life, turkey, basketball, and the fact that I live in the greatest country that ever existed. And much like the Pilgrims that first celebrated Thanksgiving, I am thankful for the lessons of capitalism. Jennifer James of the Kid's Reading Room at the L.A. Times inspired me with her great story on this topic.

When the Pilgrims landed at Plymouth Rock in December 1620, in addition to seeking religious freedom, they intended to create a communist paradise. They had initially landed north, but after skirmishes with Indians they moved down the coast. When they got to Plymouth, they were greeted by friendly, English-speaking members of the Wampanoag tribe who had friendly relations with the English fisherman that fished off of that coast. (They might have kept going south, but they were out of beer.) The Wampanoag taught them how to farm corn, and when Spring arrived, they went right to it. They set up a system where each family would grow what they could, it would be put into a common storage, and then they would be rationed enough food to survive. Unfortunately, it didn't work very well. Despite the famous Puritan work ethic (roughly half of the Pilgrims were Puritan), many didn't work very hard, and they had a poor harvest. Some people starved, some resorted to theft from each other, and no one had enough. The following year, they used the same system with the same result. Sharing was going to kill them.

Finally in 1623, after much prayer and deliberation, the governor, William Bradford, decided to implement a capitalist system. Each family was given their own plot of land and told that they could keep whatever they grew and profit from it. It was a resounding success. Here are Governor Bradford's observations:
This had very good success; for it made all hands very industrious, so as much more corn was planted than otherwise would have been by any means the Gov. or any other could use, and saved him a great deal of trouble, and gave far better content.

The women now went willingly into the field, and took their little ones with them to set corn, which before would allege weakness, and inability; whom to have compelled would have been thought great tyranny and oppression.

By this time harvest was come, and instead of famine, now God gave them plenty, and the face of things was changed, to the rejoicing of the hearts of many, for which they blessed God. And the effect of their particular [private] planting was well seen, for all had, one way and other, pretty well to bring the year about, and some of the abler sort and more industrious had to spare, and sell to others, so as any general want or famine has not been among them since to this day.
The Pilgrims were incredibly thankful for their prosperity, and were able to share with their Wampanoag friends for the first time. They had a great feast to celebrate and give thanks, and the Wampanoag were amazed by the production. They had enough to make it through the winter with plenty, and prosperity in the English settlements in America had begun. It is a lesson for which we can all be thankful.

Thursday, November 20, 2008

Peter Schiff is Brilliant

I'm not sure how great it is for setting policy, but Peter Schiff proves once again that the Austrian School predicts economic conditions better than anything. The three stock experts picking Merrill Lynch, Bear Stearns, and Goldman Sachs is brilliant comedy after the fact.

Tuesday, November 18, 2008

More on Cuban and the SEC

So Mark Cuban dares to challenge the smartest men in the room (Paulson, Bernanke, Frank, et al.), about the bailout. First he offers an alternative, privately-financed bailout plan that many think would work better, and he offers to put up the first $50 Million. His little company,, which does the SEC's job for them, sets up another watchdog site, to provide private oversight to the treasury and how they use the bailout money.


Already the site has lots of goodies. A contract between the Treasury Department and PricewaterhouseCoopers is blacked out over portions discussing the firm's bid as well as the name of the partner who signed the deal. Also blacked out is the executive compensation in the first contract handed out in the $700 billion bailout, to Bank of NY Mellon Corp.

On his blog, Cuban promised to try to roll out reports and exposes every day. "Without complete transparency, we will get from our government what we always get when it comes to finances, confusion."

Now, out of the blue, Cuban is facing insider trading charges from a stock sell he made 3 years ago, and wrote about on his blog:

I wanted to reference I had purchased stock in in hope that it could be an up and coming search engine. I thought I had done some level of due diligence. Talked to the company management. Talked to some employees who worked in sales. Read the SEC Filings. I knew that they had a checkered past and had been linked to stock promoter Irving Kott, and that their law firm still handled some of Kotts business, but the CEO, Chairman, lawyers all said that things were reformed and the company was focused on its business.

Then the company did a PIPE financing. Im not going to discuss the good or bad of PIPE financing other than to say that to me its a huge red flag and I dont want to own stock in companies that use this method of financing. Why? Because I dont like the idea of selling in a private placement, stock for less than the market price, and then to make matters worse, pushing the price lower with the issuance of warrants. So I sold the stock.

If the PIPE financing hadn't been announced when he made the sale, it meets the requirements for insider trading, and it's illegal. He should probably repay the $750,000 that he would have lost had he waited until after the PIPE financing was completed. That doesn't change my opinion that Cuban isbeing targeted for daring to challenge the almighty Treasury. The SEC looked the other way while hundreds of bank executives, with no disernable entrepreneurial skills looted the public for billions, and then the Treasury gives them a reward of trillions in taxpayer money when they blow it all. But if an upstart billionaire dare challenge their authority and ask for a little sunlight, they'll attack him for the most minor infraction. It's like the Puritans and stocks all over again. Maybe we should subject him to a public beating.

As a matter of preference, Mark Cuban annoys me. I think he's a whiner, and I blame his complaining about referees for the Mavericks stealing game 5 from the Rockets in the first round of the playoffs in 2005. (Michael Finley was out of bounds.) Still, I cannot deny the fact that he is a great entrepreneur and savvy investor, and brave for standing up

Monday, November 17, 2008

New Dealing

Since the Progressives have somewhat successfully pinned the blame for the recession on "deregulation" of banking, the popular sentiment is that the only thing that can get us out of this mess is a "New New Deal". Roosevelt worship is still prevalent in the modern Democratic Party and especially public schools. Heck, I'm even writing this post from my house on Roosevelt Avenue. The most common quote from public school history books is that New Deal programs "got us out" of the Great Depression. This is despite Milton Friedman changing the economic discussions in this country for 40 years. The fact is, as initially stated by Friedman, and recently confirmed by UCLA economists Howard Cole and Lee Ohanian, the New Deal not only didn't help the economy, but also turned a depression into The Great Depression. Wage fixing sent unemployment from the teens into the twenties, corporate favoritism killed entrepreneurship, and Social Security paid our most productive workers to quit working. The Great Depression lasted until Europe began ordering large amounts of military supplies from American manufacturers. Among economists, this is universally accepted, except by the few for whom ideology trumps facts.

Despite all of the historical evidence against the New Deal, many in and around government are pushing for another New Deal for this. Obama's pick for Chief of Staff, Rahm Emanuel has long been talking about his plan for a "New New Deal". Barney Frank has called for "a new dose of Keynesianism". Paul Krugman has called for a New Deal but bigger. Almost all of these proposals entail a huge investment in infrastructure and alternative energy production. Now there is a bit of logic to this. If there are roads and bridges that need to be built for commerce, they can be built more cheaply during an economic downturn when there is less competition for labor and resources. But Keynesianism is built on the theory that deficit spending increases the economy by some multiplier. That theory is technically correct, but that multiplier is 0.7-0.8. Every $1 Million in government deficit spending increases the GDP by $700,000-$800,000. And at some point in the future, the government will have to tax (and reduce the GDP) to pay for that bridge or road. So while it is a good idea to build necessary infrastructure during a downturn, using public works to provide economic stimulus is based on junk science, dangerously short-sighted, and unlikely to work.

Bailout Madness

The smartest men in the room all told us that if we didn't bail out the banks/mortgage companies/insurance companies, the credit system was going to collapse. I thought that the question that no one was asking was if we do bail out the banks, what would happen? Well the answer to that came sooner rather than later. Some examples:

Newly nationalized AIG burns through $50 Billion of the $80 Billion in taxpayer money in just a couple of months, asks for, and receives $70 Billion more. To me, this is emblematic of the difference between private corporations and socialist entities. Governments tend to give money to those who "need" it most. Private investors tend to give money to those who are likely to make the most money with that investment. At times, the companies who need it most are in that position because of poor management, and are likely to lose more.

The Federal Reserve refuses to identify recipients of $2,000,000,000,000.00 in emergency loans. This was a bailout that wasn't voted on, and since the Fed is a government sponsored entity and not really a part of the Federal Government, it is exempt from Freedom of Information Act requirements. God bless him, Mark Cuban has funded a website called that attempts to track where the bailout money is going. (I still hope his team loses, but this makes me really respect the man. Edit: I just found out he has been sued for insider trading. I hope justice, whatever that is, is served. I tend to think that the Treasury has contacts within the SEC.)

Now every other struggling industry is lining up to receive their bailout. GM and Ford are first in line, and moreso thant the banks, they have a plausible claim that if they aren't bailed out, their failure will make a bad economy worse. The question that must be asked is: "If they are bailed out, will they survive?" The same issues that make GM and Ford uncompetitive will remain. I wonder if bankruptcy or bargain basement buyout wouldn't be a step toward sustainability.

What industry is next? I know that state and local governments have lined up for their share. Then what? Steel? If automakers can't sell cars, that kills the market for steel. Chemicals? Huntsman is up to its neck in debt. Retailers? Sears could say it's too big to fail. Restaurants? If wages start falling or unemployment goes up, people will start eating at home more.

Tuesday, November 11, 2008

John Sununu for RNC Chairman

The biggest talk on conservative news and in the conservative blogosphere is who will be the next RNC chairman. The chairmanship seemed to be Newt Gingrich's to lose until he decided not to run. All of the current talk seems to be centered around former Maryland Lieutenant Governor Michael Steele. He seems to meet all of the requirements: smart, well-spoken, from outside the South, and not a white protestant. He is very well-liked, performed well as Lieutenant Governor, and worked well with politicians on both sides. He presents a good face for the party. He represents the best of the "beltway" Republicans. He would do a decent job.

But I think that the RNC has a lot better choice available. Normally, being called the smartest Senator is faint praise, but for John Sununu, it's well-deserved. John Sununu is an engineer with degrees from MIT and Harvard, and considered by all who have worked with him to be a genius. He is also a consistent conservative record and has been brave enough to take dangerous stands. He went against his party and filibustered the PATRIOT Act, and he even touched the third rail of American politics by suggesting that we totally overhaul our Department of Agriculture and eliminate most farming subsidies. It is a shame that New Hampshire removed him for DNC candidate Shaheen, but New Hampshire's loss might be America's gain.

Sunday, November 9, 2008

Would Chris Bell Please Go Away?

I'm tired of seeing Chris Bell's face. I was tired of him during his no-hope run for governor. (Yes, I know he came in second, but he lost despite the Republican vote being split 3 ways.) Now he's in a run-off for Texas Senate District 17 with Republican Joan Huffman. Even though I'm not in SD-17 and don't get to vote, I'm watching the race closely because the district starts 2 miles from my front door. Today, they had a short debate on Gary Polland's show on Houston PBS-8. An independent analysis would probably say that he won the debate with smooth talk, but what he said was ridiculous. When they talked about taxes, Bell suggested that we needed to raise property taxes, expand the franchise tax to get the few small business owners that are able to avoid it right now, and add a state income tax. It angered me most when he was asked about income tax. He said that he doesn't support it right now because of political realities, but "eventually, we have to start having mature conversations about funding government". All of this despite the fact that Texas has created the best business climate in the country by holding taxes down, and has funded the government just fine without an income tax. Apparently, in Chris Bell's little mind, ignoring reality and promoting oppressive Progressive policies is a sign of maturity.

I hope he does two things next month. I hope he loses, and he's good at that. Then, I hope he goes away and stays away, which he hasn't been very good at so far. I'd be happy if I never had to see Chris Bell's face after December. If we have to have Democrats representing Texas, they should be good, honest representatives like Al Green, instead of slick-talking partisan hacks like Chris Bell.

Edit: After reading what I wrote last night, I realized how petty it sounds. Although Chris Bell annoys me, and I would like for him to go away, he shouldn't feel like it's necessary. Conservatives can always win the battle of ideas with Progressive ideologues. As long as he can keep accepting defeat, let him keep running.

The Most Important Victory in 2008, From California?

Believe it or not, the most important conservative victory of this election cycle came from California. The media and Republicans concentrated on Proposition 8, which banned gay marriage, but a much, much more important proposition also passed, and it got little support from Republicans and little media attention. That is Proposition 11, which removes redistricting power from the legislature and gives it to an independent panel. The 14-member panel will consist of 5 Republicans, 5 Democrats, and 4 consistent voters who are members of neither party. There are other rules to ensure that the panel has regular citizens instead of political insiders.

One of the things that they are charged with is making districts more competitive. In California, in 2002, 2004, and 2006, no senate or assembly districts changed parties, and 99% of incumbents have won this decade. State Senators and Assemblymen have gerrymandered their districts to make sure that their re-election is ensured, and when they are term-limited, they get to pick their replacement. The idea that communities should be represented by the same person, or that minority political opinions should have a voice haven't even been considerations. This has destroyed any accountability legislators should have had to their constituents.

Now with Prop. 11, a panel will draw the lines every decade, with the following considerations (from the San Francisco Chronicle):

Commission members would not be allowed to consider incumbent residences or impact on political parties when drawing the lines. Instead, they would be required to follow these criteria, in this order: Adherence with the U.S. Constitution, including equal population requirements; compliance with the Voting Rights Act, to protect the interest of minority voters; geographic contiguity of districts; respect for the need to keep cities, counties and "communities of interest" in the same district; compactness of districts; "nesting" of districts so that the 80 Assembly districts are aligned with the 40 Senate districts to the extent possible.
Prop. 11 passed 50.6% to 49.4%, with support by many interest groups and the Governator (and oddly, Michael Bloomberg), despite strong opposition by Nancy Pelosi and the state Democratic Party. Although it's unlikely that California will elect a lot more Republicans in the next few years, it will create more legislative turnover, and accountability. Texas and other states would do well to follow California's lead in enacting similar measures and make the democratic process distinctly more democratic. A healthy turnover in power tends to restrain politicians and preserve liberty.

Wednesday, November 5, 2008

The Truth and Myths of the Great Republican Defeat of 2008

So Republicans got whipped like the team in Little League that lets every kid play. They got beat in the House, they got beat in the Senate, they got beat in the White House, and they got beat in many states, counties, and cities. Over the next couple of months, many conservatives and liberals will propose reasons why they "permanent Republican majority" lost. Here are some truths and myths:

Myth #1: This represents a rejection of conservatism
To be fair to the country, no one to the right of Arianna Huffington will assert this, but you will hear it from time to time. This is absolutely, 100% incorrect. The United States, which just elected a real Progressive for President, is overwhelmingly Conservative. According to the Battleground Poll, conservatives outnumber liberals 60%-36%. People who consider themselves very conservative outnumber those who consider themselves way left of center 20%-9%. Ronald Reagan was in the middle of America. Bill Clinton and George Bush were left of center. Obama is on the fringe.

Myth #2: Sarah Palin cost McCain the election
This will be brought out by many of the moderates in the Republican Party, and the vestigial Nixon-Rockefeller wing. They slam it as a rejection of Western, Conservative, individual liberty Republicans, when McCain should have picked a Northeastern middle-of-the-road, business-first, not so mean Republican (or independent). Sarah Palin motivated Republicans and was worth between 8 and 10 points to the John McCain campaign. Had he made a boring pick or a liberal pick, Obama would have a mandate, and many Southern states with large black populations would have went blue. If Tom Ridge won McCain Pennsylvania and lost him Georgia and Mississippi, I don't know if anyone would have thought it was worth it.

Myth #3: This represents a fundamental change in the election map
See 1992, 1996 for how wrong this is. Virginia might have too many bureaucrats to go Red again, but the rest of the switched states switched because of the historical nature of the Obama campaign and the distaste for Republicans. It won't last. If Obama pushes all of his economic plans through, in 4 years, New York might be a swing state.

Truth #1: This represents a failure of Rove-ian politics
This couldn't be more true. Personal attacks don't work. Nothing personal McCain tried to pin Obama with stuck, and they made McCain look desperate. They didn't even work for Bush. I know he won, but the strategy almost cost him both elections. As a popular campaigner who connected well, he almost lost to an unpopular Bill Clinton's Vice President. Any idiot could have beaten the empty suit John Kerry. He really was the Democrats' Bob Dole. And I couldn't be happier. It's time for a higher level of political conversation in this country.

Truth #2: This represents a rejection of Bush policies
Were I an outsider, I'd think that it's a little funny, because everything the public hates about Bush, Obama promises more. After the miserable failure of No Child Left Behind, Obama's promising more government involvement in schools. After the miserable failure of Medicare Part D, Obama is promising more government healthcare. After the long and difficult Iraq War, Obama is promising more interventionism, in Darfur and Waziristan. The neoconservatives and modern Progressives are both Troskyites. In fact, the first neoconservatives were just progressives who recognized the unpopular nature of their policies in practice and became slightly more Fabian on social issues.
I'm not an outsider, and I worry for my country.

Unknown: This represents a rejection of Social Conservatism
This is probably not true, but it's worth talking about. Really, since Bush took office, the conservatives haven't had a seat at the table. Republican policies were a mixture of mostly neoconservativism with a little bit of the Moral Majority's issues thrown in. What is now called social conservatism was especially offensive to the old Rockefeller Republicans, and Goldwater was also against it. However, I don't think it's gone. California and several other states outlawed gay marriage, and Republicans in the Bible Belt generally did well. It is possible that the social conservatives that lost did so because they were too closely attached to the neoconservatives. This remains to be seen.

Republicans will do well to re-evaluate themselves. There needs to be a self-evaluation. They have to offer policies that distinguish themselves. Big government Republicanism is not only destructive to the country, it is also a losing formula. The fact is that when Democrats try to run the country through Washington, they can do it more efficiently and more fairly than Republicans. They're just better at big government. Republicans must relearn conservatism. It won't be easy, but it is necessary. A quote from Barry Goldwater could help: "I have little interest in streamlining government or in making it more efficient, for I mean to reduce its size. I do not undertake to promote welfare, for I propose to extend freedom. My aim is not to pass laws, but to repeal them. It is not to inaugurate new programs, but to cancel old ones that do violence to the Constitution or that have failed their purpose, or that impose on the people an unwarranted financial burden. I will not attempt to discover whether legislation is 'needed' before I have first determined whether it is constitutionally permissible. And if I should later be attacked for neglecting my constituents 'interests,' I shall reply that I was informed that their main interest is liberty and that in that cause I am doing the very best I can."

God Save the Republic!

Update: Interesting article from Scott Rasmussen.