Category Archives: Economics

Death Spirals

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Go, go, go, said the bird: human kind

Cannot bear very much reality.

So said Eliot and he was certainly correct. Much of what we take for human culture is an elaborate defense mechanism allowing us to avoid facing the reality of our existence. I suppose there’s nothing wrong with it. Our species has carried on a good while now so there must be something of value to the trait. Still, it is not without its downside.

An example is in this story on US health care.

The Supreme Court decision in King v. Burwell, the case challenging the Obama administration’s decision to award tax credits for health insurance sold through federally established exchanges, could turn on the question of whether a ruling that ends the tax credits on federal exchanges might cause something known as a “death spiral” in health insurance markets.

The good news is the answer is probably no, but the bad news is that’s only because the death spiral has probably already started.

A death spiral generally occurs when insurers are forced to raise premiums sharply to pay promised benefits. Higher premiums cause many of the healthiest policyholders, who already pay far more in premiums than they receive in benefits, to drop coverage.

When healthy policyholders drop coverage, it leaves the insurer with little choice but to raise premiums again because they now have a risk pool that is less healthy than before. But another premium increase means many of the healthy people who remained now drop their policies, too, and this continues until the only people willing to pay the now-very-high premiums are those with serious medical conditions.

Europeans, to their credit, have accepted the fact that the laws of supply and demand apply to health care, just as they do every other product and service. That means there must be a rationing mechanism. Europeans prefer their authoritarianism straight so they turn the rationing over the to the state. Americans can’t accept that supply and demand applies to health care so we keep inventing new crackpot schemes that promise to suspend the laws of nature.

Health care reached the point of diminishing returns about fifty years ago. 100 years ago America spent 3% of GDP on health care and people lived to about 60. Today we spend about 15% on health care and people live to about 80. A good portion of that increase in life expectancy is due to better food and less violence. It is axiomatic that as things like health care improve, the cost of further improvement escalates. The marginal return on investment declines.

This is true in all areas of human endeavor. The initial burst of productivity from the Internet was cheap. The phone lines existed and most Americans could read and write. As we have gone on, the cost of further productivity gains have escalated as new infrastructure has to be built out and new skills mastered. Again, this is phenomenon that social science has documented for a long time. Marx, while not framing it the same way, was talking about it in the surplus value of labor theory.

The fact is, we have about as much health care as we need. Until genetics begins to offer up solutions that reset the baselines, spending more on current health care is a negative investment. That’s the defect of the central planning model of Europe. There’s no hope for new technologies to reset the baselines and spur new high return investments. It’s why all the heavy lifting is done in the US these days.

This brings me back to the supply and demand aspect. Rationing is best done by price. People want BMW’s more than they want Dodge Darts and that is reflected in the price. No everyone can have a BMW so the clearing price determines who gets a BMW. In the American health care system, this process is retarded by government intervention. The result is rising prices and diminishing services. That’s the real death spiral, the death spiral of the monopolist.

America has the greatest health care system on earth. It is super cheap, with lots of options and a high degree of customer satisfaction. It is called veterinary medicine. American pets get better health care that 95% of the world population for pennies. The reason is there are few barriers to suppliers so there are many options along the price curve. There’s also incentives to innovate. My Vet has world class lab equipment because it helps attract business.

But, we would rather pamper our pets and starve out children than accept the reality of the human condition.

Corinthian 15

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Shay’s Rebellion, The Whiskey Rebellion, Nat Turner’s Rebellion, The Know-Nothing Riot of 1856, The Boston Police Strike, Bonus Army March, Zoot Suit Riots, The Watts Riots. There’s a long tradition of men (and women!) taking matters into their own hands and striking out at the state or society over grievances.

Now, we have the Corinthian 15.

Mallory Heiney, a 21-year-old former student of the now-defunct Everest College, is part of a group of students refusing to pay back their student loans.

Heiney wrote an op-ed article in The Washington Post in which she described the lies Everest allegedly told her as well as the insufficient education she says she received.

Heiney called Everest a “debt trap.” When she explained to her adviser that she couldn’t afford student-loan payments while in school, she was assured she could defer the payments on her $24,000 in student loans until post-graduation, according to her article.

That ended up being untrue, she said. Heiney said she was on the hook to start paying interest payments on her loans two months into her program.

The program also allegedly failed to provide her with a quality education. She said her teachers did little more than read aloud from textbooks, and she was unaware of basic concepts required to pass her nursing licensing exam. She said she was able to pass only by “spending hours researching the test questions online and watching YouTube videos.”

Heiney and 15 other students who attended the Corinthian College system have banded together to fight what they describe as predatory student-loan tactics by the financial aid offices and a failure to provide quality education.

The members of the group, referred to as the Corinthian 15, feel justified in their refusal to pay back their loans. They believe they are fighting for students everywhere who are manipulated by unfair university practices and are riddled with student loan debt as a result.

“In 1955, Rosa Parks refused to give up her seat on a bus,” Heiney wrote in her article. “This soon led to the revolutionary Montgomery bus boycott. If those who came before us can take a stand in the face of persecution, harassment, beatings, imprisonment and even death, I will certainly stand in the face of wage garnishment and a tarnished credit report.”

Ah yes, Rosa Parks. That’s who comes to mind whenever I think of former students not paying their school debts. At least she did not compare herself to Jesus. I guess that’s something to celebrate.

Other former students are joining in, at least publicly, so maybe it is a thing. Then again, default rates are through the roof, over 15% according to various sources. It seems to be a tough figure to pin down because of the blend of private and federal lending. This report is the best I could find in five minutes of searching. Banks look to keep default rates below 2% as a rule. Anything higher is considered a problem.

Howling lunatic Elizabeth Warren is back again with another scheme to hand tax payer money to students who are in debt. That’s really not quite right as her scheme is about transferring tax payer money to her pals in the academy. No one ever seems to ask why college has become so wildly expensive. It’s just assumed to be an unalloyed good. No price is too high for the laying on of hands at the academy.

The sad reality of American higher education is that it has become a workfare program for the lesser lights of the managerial elite. If you have something on the ball you head off to the law of finance. If you are not terribly bright you end up in the economics department at local college. Most of what goes on at our colleges has nothing to do with training young people for productive work. That’s why tuition rates have skyrocketed.

But, that’s a subject we’re not permitted to discuss.

Now, whatever sympathy I may have for young people and their families facing modern college costs, I’m having a tough time mustering empathy for Ms. Heiney. The outsized sense of self-importance displayed by this young woman, the ring leader of this micro-protest, is a bit much. She is an adult and she foolishly entered into a bad contract. That’s not the fault of the taxpayers or the people who lent her the money.

That’s the trouble with the moaning about college debt. The people doing the moaning seem to be in a perpetual state of adolescence. Generation Onesie, raised by helicopter parents, expects the rest of us to pick up after them, tend to their boo-boos and organize our lives around them. The vibe that comes through in these stories about school debt is an overweening sense of entitlement.

Ironically, the institution inculcating this solipsism in the young is the source of their troubles, the colleges and universities. Go onto a modern college campus and it is a weird Potemkin village that operates nothing like the world around it. I always get the same feel as I get when I’m at a resort. It’s West World for young adults.

Elite universities are the worst. Just look at the graduation rates of these places and it is clear that failure is not an option. No one ever bothers to notice that schools allegedly offering the most challenging and rigorous education, have a near zero attrition rate. BUD/S training prides itself on its 65% failure rate. Ranger school is similar. Duke, in contrast, takes pride in its 99% graduation rate.

Ms. Heiney, who no one would mistake for an Ivy League graduate, nevertheless assumed that all that was required of her was to sign some forms, show up as requested, repeat what was was told to her and the world would be her oyster. This is the thread that runs through all of the complaints about school debt. No one takes responsibility for anything. Instead, strangers are expected to pick up the bill for the mistakes of these people.

One of the best lines Penn Jillette ever uttered was that government makes weasels of us all. You see it with college. The massive government loan system has turned the colleges into dependency rackets. Everyone involved is looking to separate the suckers from their money. The process produces waves of young adults expecting a good life at the expense of others.

The simplest and quickest way to end the problem is to end the government role in financing college. In short order, colleges will get cheap again, so that young people from modest backgrounds can work their way through school. Of course, we’ll need to find something for the Womyn’s Studies gals to do, which is why this will never happen. The ruling class needs a place to dump its misfits and that’s the college campus.

College Blues

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I think the only reason to read the NYTimes (or any other agit-prop daily) is to get a heads up about what the Left plans to do to us next. It’s like the scene from Men in Black where Agent K reads the supermarket tabloids for the real news. In the case of the NYTimes, there’s no news, just warnings.

This is from a few weeks back and I saved it figuring there would be other warnings from other places. It could make for blog post material. The other day I saw this on ZeroHedge. My bet is the Liberal Democrats are going to be testing a bunch of these ideas for the 2016 election. The idea is to promise the young free money so they will be vote for the Left. Inevitably, the other side will offer up their own basket of goodies to the millennials.

The NYTimes idea has been kicking around for years. I recall “new” Democrats yammering about this back in the 80’s. Their big idea back then was a thing called Teacher Corp. The students who went into teaching would get their loans forgiven. I forget the name of the other plan for non-teachers, but it was basically a lifetime tax. The graduate would pay a special tax for the rest of their working life to pay back the tuition.

These ideas all sound great if you are an economic illiterate. When you subsidize demand, prices rise. When you throttle the growth of supply, then prices rise even faster than the subsidy. That has been the policy in the US for decades. Free money from the state is given to student to use for college. Colleges wisely raised their prices to account for the free money. The state keeps upping the free money and the colleges keep raising prices.

Maybe there’s a connection?

If the government created a BMW purchase plan where everyone is eligible for a $5000 subsidy if they buy a BMW, the price of BMW’s will go up by $5,000. The reason is BMW is not stupid. They know that demand will suddenly spike so they can sell all of their cars at the former price plus the new premium. They may even cut supply to reduce costs.

That’s what has happened in America. At the end of WW2, we had eight Ivy League schools and 139 million people. Today we have eight Ivy League colleges and 339 million people. The student bodies of these schools are the same size as they were 70 years ago.

At the bottom end, we have many more state schools and many more seats in state schools, but the price is vastly greater, even accounting for inflation. The California system used to be free for California residents. That’s not longer the case. Amazingly and I’m sure it is a coincidence, most state colleges charge what students are able to borrow under Federal programs.

The trouble is the central planners are in a trap. The delinquency rates on the trillion in student debt are going up. Tuition rates are unsustainable as new students cannot borrow enough to cover the costs. Even if they could, the delinquency rates would just climb faster. Universities, for the most part, are trapped in a cost model that requires raising tuition rates at multiples of the inflation rate.

The doomsday crowd is way over the top on most things, but they may be right about student loans and the whole college racket. The little guys will be the first to go as they often have no reason to exist in the first place. The Sweet Briar closure is a typical example.

The fact is, no amount of clever policy can change reality. People with debts they cannot pay, don’t pay them. When costs rise to the point where prices are unsustainable, people stop buying the product. As the old saying goes, things that cannot last eventually end.

How To Fix The Money

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I read ZeroHedge on a regular basis. I think I would be very rich if I could bet against their predictions. As the old joke goes, they have predicted five of the last three recessions. They are not entirely off base, but the world has not collapsed and its not going to collapse, most likely. What they get right is that most of our troubles are linked to the currency arrangements. Floating fiat currency has unleashed all sorts of new forces that policy makers cannot comprehend.

Money is a store of value. Going to the market with my goats to trade for shoes is a big hassle. I have to find someone who wants goats, but also has shoes. The ability to store the value of those goats into coin makes the whole thing easier. Giving central banks the right to arbitrarily alter the value of the coin is, in effect, the right to arbitrarily alter the value of my goats and by extension, my labor. That’s another way of saying the Feds get to alter the value of me. That’s a terrible weapon with unknown unknowns. Sorting through all of these unknown results has befuddled our rulers for several decades now.

Even so, the world has not changed all that much. The currency manipulation is due, in large part, to the need for governments to raise money. The corporatist state needs a lot of money to buy off interest groups, satisfy grievance groups, pay for cradle to grave custody of the citizens and empire maintenance. Normal taxing is limited by economic growth, which is about 5% per year after inflation. US debt has grown ten percent a year since 1980, so it is not hard to see what has been happening.

Instead of exponential credit growth, how about the government sell ads on our money? They could offer Walmart, for example, the chance to sponsor the twenty. Instead of Jackson on the front, it could the Walmart logo with “Brought to You By Walmart!” Singles could be festooned with ads from small companies. Since each run could have different sponsors, your handful of singles would have a bunch of different ads. Given the booming strip club culture in America, these ads would sell like crazy. “This pole dance brought to by the Federal Reserve and the good folks at Budweiser!”

Of course, another way to do this would be to let big companies offer their own currency. A big reason central banks are forever fiddling with currency values is to satisfy the demands of global corporations. Europeans have always preferred authoritarian government, but Americans would rather have global corporations to the shoving around of the citizens. That way we can pretend to be a self-governing republic. That means the state has to “do a lot of favors” for the global operators.

The truth is, we are breaking up into corporate camps anyway. The MacCult calls themselves “Apple families”so letting them have their own currency is not a great leap. Look at how irritating they are with ApplePay and that has been out for just a few months. That would make it easy for the MacCult to spot “haters” because those would be the people using GoogleBucks or MSMoney. It would have to be backed by stock or other assets, but it worked in the 19th century during the free banking era.

The Doctor Shortage

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Imagine you are presented a few career options early in your life. The first option is one that will require years of study and a high IQ. You possess a high IQ, but there is some risk that yours is not high enough. You cannot know until you get far along in the process. The eventual end point of the process is a career that may be spiritually fulfilling, but has decreasing social status and only an above average salary. In other words, by mid-life you can have a big house, the sports car and the trophy wife, but you’re going to spend more than a decade slaving away in poverty.

That’s option #1.

The next option is one that requires about half the study time as the first option and far less of an apprenticeship. You have to be smart, but not genius level smart. Standard test scores will tell you if you have what it takes to make it in this path. By the time you have established yourself, you will surely make an upper-middle class income and could easily be making much more. It’s a high status job and a lot of fun, but not spiritually fulfilling. It just lets you live a 2% lifestyle and get going at it by the time you’re in your middle twenties..

That’s option #2.

Now, we have the final choice. This is path that does not necessarily require a high IQ, but it helps. There’s really no way to wash out so you go as far as your skills will take you. It is never going to be high paying or high status, but you can have a nice middle class income. There will be times when you have to scrimp and save. You will have to do without some things. But, the spiritual and psychic rewards are limitless. This career will be your sanctuary from the world and bring you a lifetime of happiness.

This is option #3.

In medieval times, these options would have been the choice between a high ranking clergyman, an aristocratic soldier and a monk. That’s if you were born with magic blood. Nobles had these choices, but even then the choices were often made for you by the patriarch or by circumstance. If you were born a commoner, then you spent your life harvesting filth and complaining about the violence inherent in the system. But, we live in an era in which there is still some effort to try and scoop up the talented from the lower orders.

That means young men and women take standardized tests so colleges and universities can begin to sort out who is and who is not managerial class potential. We’ve not yet reached the point where career paths are assigned and that may never happen as it is contradicts the interests of the managerial class, who pride themselves on being a self-selected meritocracy. Choosing your own path is a big part of their class identity so that is something that will likely remain a feature of their ideology.

The question then, getting back to where we started, is which of the three choices would most people choose. In modern times, physician is clearly option #1. Advancing far in the medical rackets requires a high IQ, a long time in school and a very long and unpleasant apprenticeship. The reward at the end is pretty good, but no better than option #2. In fact, bankers and banker’s lawyers usually make vastly more than comparable doctors. It is only at the low-end do we see doctors and nurse practitioners compete economically with lawyers and brokers. At the high end, no doctor can compete with a VP at Goldman.

The final option is the lifestyle option. You’re a smart guy from a good family, but you like smoking weed and surfing so you open a surf shop. Alternatively, you have what it takes for the first two options, but have a passion for some new business that is many years from taking off, but you’re going to be on the cutting edge, even if it means a long struggle. Think Ben & Jerry’s Ice Cream or custom bike frame makers. There are, of course, trust fund types who have the money to be as weird as they like. John Heinz IV is a blacksmith and Buddhist.

That brings us back to those first two options. We have made becoming a doctor impossibly difficult. Worse yet, we have made it unrewarding. Socialized medicine has this habit. The result is the native talent opts for the second option. Being a hotshot lawyer is just an all-around better  life than being a doctor. It’s why share holder meetings are packed with attorneys now. In the fifties, they were packed with doctors. In Britain, a quarter of physicians are foreigners. Not foreign born, but foreigners.

The same is happening in the US.

The United States faces a shortage of as many as 90,000 physicians by 2025, including a critical need for specialists to treat an aging population that will increasingly live with chronic disease, the association that represents medical schools and teaching hospitals reported Tuesday.

The nation’s shortage of primary care physicians has received considerable attention in recent years, but the Association of American Medical Colleges report predicts that the greatest shortfall, on a percentage basis, will be in the demand for surgeons — especially those who treat diseases more common to older people, such as cancer.

In addition to the growing and aging population, full implementation of the Affordable Care Act in all 50 states would increase demand for doctors as more people are covered by insurance. But Obamacare’s impact will be small — just 2 percent of the projected growth in demand, the organization said. The supply of doctors also will grow but not nearly as quickly as the need, officials said.

“An increasingly older, sicker population, as well as people living longer with chronic diseases, such as cancer, is the reason for the increased demand,” Darrell G. Kirch, the AAMC’s president and chief executive, told reporters during a telephone news briefing.

In the study of collapse, there are few fixed rules. The one thing on which everyone seems to agree is the ruling classes are no longer able to cope and adjust to changing circumstances. Why this happens is tough to fathom, but simply being wrong is a good starting point. The Athenians were wildly wrong about the Syracuse campaign, despite warnings from respectable members of society. Wrongness has inertia.

With regard to health care the majority of the managerial class is locked into 19th century ideas about how to micromanage an economy. No one in charge can imagine anything other than a micromanaged system so they deploy all available resources in the effort to perfect their system. The more they try to fix the system, the worse it gets. We’ve reached a point where the inputs result in unexpected outputs. A few more cycles and the inputs have no result. The system seizes up and then it collapses.

 

The Fallacy of Free Trade

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Way back in the 80’s, I used to tell people we would rue the day we let Congress give up its power to manage trade. Tariffs and restrictions have well know costs and they don’t always serve the interest of the people. I read Smith’s analysis of English corn laws and I fully agree that tariffs rarely accomplish their stated goal. The world is richer when countries allow the free flow of goods between them – generally speaking. There are exceptions and they are big exceptions.

That’s the trade-off. Congress gets to play games with trade in exchange for addressing those exceptions. Free trade with Canada, for example, is a no-brainer. The free flow of goods and people between our two countries is good for both of us. Free trade with Mexico, on the other hand, is fraught with problems. Mexico is a failed state run by narcotics traffickers. Here we are all these years later and maybe it is starting to dawn on our rulers that trade is not a set it and forget it thing.

President Barack Obama has called on Congress to grant him fast-track trade authority for his Trans-Pacific Partnership free-trade agreement. The administration insists the authority, which would give Congress only an up-or-down vote on the agreement, is needed to get the best possible terms from its trade partners along the Pacific Rim.

During his 2008 presidential campaign, Obama promised to renegotiate and improve the North American Free Trade Agreement (NAFTA). But it now looks like what he really meant is to expand on that flawed trade model and extend it to other countries.

Twenty-one years after NAFTA and four years after Obama’s 2011 U.S.-South Korea Free Trade Agreement, there is abundant data documenting how this trade model has been disastrous for most U.S. businesses, farmers and workers.

Since the pacts were implemented, U.S. trade deficits, which drag down economic growth, have soared more than 430 percent with our free-trade partners. In the same period, they’ve declined 11 percent with countries that are not free-trade partners. Since fast-track trade authority was used to pass NAFTA and the U.S. entrance into the World Trade Organization, the overall annual U.S. trade deficit in goods has more than quadrupled, from $218 billion to $912 billion.

The United States now has an annual $177-billion trade deficit in goods with its 20 free-trade partners. Over the past decade, however, U.S. export growth to countries that are not free-trade partners exceeded the growth of free-trade partners by 24 percent.

The trouble has always been cultural. Canada can be relied upon to follow the rules. The Canadian government will police itself and respond to requests from our government when something is amiss. China, on the other hand, is a bandit culture and the Chinese government sees America as an adversary. Naturally, they cheat on every deal. Mexico is a failed state and lacks the ability to police themselves, even if they wanted. Free trade with these countries sets us up to be patsies, which has been the case for decades now.

The thing with tariffs is we knew the costs up front. The cost of protecting a domestic industry could be calculated. As a matter of public policy, the people decide if the price is warranted. It’s not always logical, but the costs are at least predictable. Unfettered trade brought unknown unknowns that are just starting to be understood. Those unknown unknowns have costs. The new global elite, for example, is unconstrained by national governments. The result is a class of global pirates seemingly beyond the reach of the state.

Public policy is always about trade-offs. Life may not be a zero sum game, but it is close enough to think of it that way. That means a policy that benefits one group will do so at the expense of another. Limiting trade with Mexico may drive up the cost of lawn care, but it also means you can go into an emergency room that does not look like a bus station in Tijuana. Regulated trade with China may jack up the cost of your iPad, but it also means keeping poisoned pet food from China off US shelves.

These are trade-offs to be debated by the people’s representatives. Turning them over to technocrats at the WTO is to make a mockery of self-government and open us up to predation.

iStupid

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If you look at the comments section of this NRO post, you will see my unbridled enthusiasm for mocking the Cult of Apple. You will also see why I enjoy mocking the weirdos who populate the MacCult. That’s not to say that all Apple users are weirdos or in a cult. My guess is the Apple user base is divided into three groups. One group simply got used to using Apple stuff and never saw a need to change. Another group buys the Apple display items because that is what cool people do. The final group are people who have turned an electronics maker into a religious movement.

My guess is the majority of Apple customers are just people who follow trends. The first group, people who got used to using Apple gear is probably the smallest. The most vocal by far are the MacCultists who are convinced Apple is ushering in the utopian future. They are the idiots who line up at midnight to trade in their iPhone 6 for the iPhone 6.1 that does nothing new or different. They are the ones who will tell you that their $900 iPad is changing the world, even though they only use it to play games and surf the web.

These people have been with us for a long time. My first encounter with them was in the early 90’s, I guess. A woman described herself as a “Mac-snob” while we were discussing something to do with computers. At the time most people figured Apple was going to follow Wang into the abyss. But, the true believers kept the company alive, despite the fact Apple products were comically bad for a long time.

These were the people Jobs identified as his way out of the technology trap. If his company could become a social statement, they could move a lot of product. Apple went from competing with Microsoft to focusing on clever designs and marketing to the growing hipster community. I don’t think it is an accident that Apple took off with the Great Progressive Awakening. The iPod became an ID badge for every liberal hipster in the 90’s.

Here we are at the denouement of this Great Progressive Awakening and I suspect Apple follows the trend. This story in America’s Paper of Record suggest that’s the case.

Detroit had a good year in 2014, selling 16.5 million autos — up 1 million from 2013. The stock of Ford and GM has revved on the good news, jumping 5.7 and 7.8 percent, respectively, in 2015.

That’s better than the S&P 500, which has risen 2.5 percent.

Motorists responded well, not only to low-interest-rate loans but to all the technology in cars today — everything from touch screens, Wi-Fi hotspots, hybrid technology and back-up cameras.

But in just one week, Detroit’s vibe has gone from hip to has-been.

With reports last week that Apple hopes to bring a car to market in five years, every motorist who remembers the pre-iPhone era of smartphones must be feeling like their new car will go the way of BlackBerry, Nokia or Palm Pilot.

I’m continually amazed by the social amnesia. I remember life before the iPhone. I had a Palm and it was a nice phone. Apple took the idea and applied what they learned from the iPod to it. That is, make it look cool and let the army of iDrones in hipsterville market it. The touch screen was a nice upgrade, but hardly revolutionary.

Currently, at a secret location near its Cupertino, Calif., headquarters, Apple is said to be working on a car design — code-named “Project Titan” — at breakneck speed. While auto companies can take as long as seven years to develop a car, Apple is said to be hoping to start shipping its vehicles in five years — or as early as 2020.

Elon Musk’s Tesla is currently the No. 1 electric car maker — with vehicles ranging from $70,000 to $100,000 — and Google is working on George Jetson-like driverless cars. But neither is close to cornering the market on mass-affordable electric cars.

My sense is this is where Apple will attack — just as it had with smartphones, laptops and tablets.

Elon Musk is the biggest parasite in the world. Tesla does not exist without tax payer money. The driverless car is a solution in search of a problem and it is far from being practical. I’ll note that Apple’s “success” with laptops was quickly cannibalized by the iPad, a cheaper display item than a $4,000 Powerbook.

Former Ford Engineer Steve Zadesky is heading up Titan.

Efforts to fast-track the car project got Apple in a little jam last week when a car-battery maker, A123 Systems, sued it over alleged poaching of its executives.

How badly does Apple CEO Tim Cook want to get this car out the garage?

Well, Apple has been offering the best and the brightest in the car-battery field $250,000 signing bonuses plus salaries 60 percent higher than what they currently earn, Musk told Bloomberg Businessweek this month.

Take Marc Newson, who just so happens to be close friends with Apple’s design guru Jony Ive. Newson, hired last September by Apple, is considered one of the more elegant engineers in the world.

The guy has works archived by MoMA — not something you hear about a lot in Detroit.

Zadesky, the boss, besides holding 90-some patents, was the sole signatory on a 2010 business contract with an organization called Liquidmetal. It is known for Moldable Metal — “Nanophosphate metal” — which can be shaped like plastic.
Detroit still welds.

This is another weird thing with the MacCult and the fake nerd crowd. They carry on like they are cutting edge technologists when most of them can’t count their balls twice and come up with the same number. Detroit is not the hub of the car building universe and it hasn’t been for generations now. Toyota is one of the best run companies on earth and they have been pushing the envelope in automotive engineering for a long time. Mercedes is another example of leading edge technology in the car building business. Frankly, Apple has nothing on these guys.

Building cars is hard. The reason Tesla remains a welfare queen for rich people is it takes more than mock turtlenecks and clever marketing plans to make a car company. Apple’s habit over the years has been to steal someone else idea and then dress it up in their minimalist stylings and peddle it to their followers as innovative. Silicon Valley looks more like the boxing business these days than an industry. It’s all about the pump and dump. That’s unlikely to work in the car business, which is very mature with highly complex supply chains.

This all has the feel of a company and an era jumping the shark.

 

Hi-Tech Colonialism

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At the start of the industrial revolution, lots of people got rich by getting around existing rules that governed other the world. That’s the nature of technology. The guy who invented the first plow found a way to get around the limitations of the hoe. The next guy who added a draft animal to the mix got around the limits of the human body. The Industrial Revolution, at the simplest level, was the application of science to the physical limits of the human being.

That’s the romantic view. The more realistic view is that great technological leaps are accompanied by, and maybe spurred by, a desire to get around laws, customs and moral codes. Web development in the 1990’s, for instance, was driven by the pornography business. The technology to display images and video on-line was primarily due to pornographers. Jeff Bezos became a billionaire avoiding sales taxes by selling on-line and gaming local tax laws. Uber right now is gaming the laws to undermine taxi cartels.

The push for open borders by Silicon Valley, for example, is about getting around labor laws and nothing more. Mark Zuckerburglar loves the idea of paying the rates they pay in Tamil Nadu India for technical work. He just hates the idea of having to go to Tamil Nadu India to get them. Instead, he would like to import those people to live in camps here and work at rates otherwise against the law here. He’s even willing to let them use indoor toilets, thus showing he is a warm and generous man!

The Robber Barons can’t put it that way so they lie about shortages of labor in their industry. Here’s a good example.

President Obama’s legislation on immigration has been one of the most hotly contested political reforms for a generation. The Immigration Order, along with Ron Paul’s subsequent bill attempting to overturn the reform, put immigration firmly at the forefront of the political agenda.

The outcry in the US reflects a similar sentiment sweeping across Europe. The rise of numerous right wing parties of varying extremes across European countries has led to immigration being actively curtailed. Anti-EU sentiment also is fueling a desire for homegrown talent in business in this highly charged atmosphere.

You see what’s happening? Those who oppose mass immigration are Nazis. They are bad people that can be dismissed, or worse, because they are not really human. They are extremists!

However, as arguments on both sides escalate, the technology sector has emerged as one of the few voices of reason. Digital companies are used to operating globally, and innovation is driven by attracting and retaining the best talent from around the world.

In San Francisco, the battle for talent has seen tech companies doing everything they can to win the best recruits. Hairdressers, free food and doctors are all expected as competition continues to soar. The distance between this environment and the national debate around restricting immigration is extraordinary.

The “everything they can” also includes colluding with one another to depress wages and prevent employees from jumping companies. For people allegedly trying everything to attract talent, they seem oddly willing to engage in what should result in lengthy prison terms in order to not attract talent.

The fact is there’s no shortage of technology workers in America or Europe. There’s a shortage of owners willing to abide by the laws and pay market rates. Instead they seek to game the system to enrich themselves at the expense of their countrymen. It’s a form of colonialism, except this time the colonists are exploiting their own ethnic group. I’d call it feudalism, except feudal lords provided a service in exchange for food rents.

The argument from libertarians in these matters is that the market will sort it all out. Tyler Cowen’s flunky always says it is unfair to punish people because of the accident of birth. National borders are immoral. That’s insane, but let’s think it through. No borders means no country. No country means no citizens and that means no government, at least no legitimate government. Order will simply be imposed by those with force to do so.

In such a world, the entire economics department of George Mason would be on a chain gang somewhere as chattel labor in a few weeks after the new system is in place.

The hard cold truth is that much of the tech sector is just another ruling class scam these days. Credentialed grifters get a license from the state to rip-off the public. The costs are socialized so they are not as obvious, while the profits are privatized. Flooding the country with cheap labor from abroad, living here as indentured servants, has a cost. Silicon Valley thinks you should bear that cost so they can enjoy the profits.

Good News is Bad News

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It seems to me that the doom and gloom crowd is increasingly unhinged. I wish I had a nickel for every “death cross” posted on Zero Hedge in the last year. They post negative economic reports like we are about to succumb to the zombie apocalypse. Don’t get me wrong, I like ZH and I get a kick out of their posts, but there’s a line between pessimism and lunacy and they seem to cross it a lot lately. Karl Denninger is following the same path. He posted this the other day.

Ok, now this is a pretty nasty report...

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for January, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $439.8 billion, a decrease of 0.8 percent (±0.5%) from the previous month, but up 3.3 percent (±0.9%) above January 2014. Total sales for the November 2014 through January 2015 period were up 3.8 percent (±0.7%) from the same period a year ago. The November to December 2014 percent change was unrevised from -0.9 percent (±0.3%).

Yuck.

What’s worse is the unadjusted numbers.  Keep in mind that there’s this holiday called Christmas in December, but….

Retail, total, was down about 21% unadjusted.  But what’s worse is the lie in the above caption — previous-year comparisons.  The unadjusted January figures were up only 2.85% from January 2014, and if you exclude cars it was only up 1.41%.  Incidentally, ex-autos sales were down 24% sequentially.

You don’t need a seasonal adjustment for the same month in different years!

There was one bright light — gasoline, which was down big (24%).  But the claim that this drop in gas price would translate inexorably to other purchases appears to be flat-out wrong.  Instead, consumers are paying down debt and reducing their leverage — except on cars.

One final interesting point — non-store retailers were only up 2.57% from last January.  It appears that the “internet shopping craze” has finished its large growth numbers; this has an interesting set of implications for everyone selling and marketing on the Internet, particularly Spamazon.

PS: People are getting drunk more — to the tune of 13.1% more over last January.  Gee, I wonder if the lies are finally getting to ordinary folks……

Month to month changes in retail sales may be of importance to a retailer trying to pay his rent. In macro economics, no one really cares about it since holidays and seasonality play such a big part in retail. Restaurants and flower shops do better in February than January for obvious reasons. What matters is year over year. January 2015 was better than January 2014. But, Karl and his cult can have none of that so they focus on the month to month figure, which is meaningless.

As far as his comment about adjusted numbers, that’s nonsense. Lots of retail is done on weekends. If you gain a weekend day or lose a weekend day, it can make a big difference. The government plays games with the numbers so a certain amount of skepticism is warranted with regard to adjusted numbers. that does not mean all normalization of data is a fraud.

Reconsidering the Death Tax

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I took some grief for my position on death taxes. I am not surprised. The tax debate in America has been so cluttered with group-think there’s simply no way to stake out a position on taxes that does not get someone fired up. Liberals are supposed to be for high rates, progressivity, social engineering and fairness, whatever the hell that means. Conservatives are supposed to be for lower taxes, business incentives and different types of social engineering. Libertarians are supposed to be for no taxes and free weed.

The trouble here is none of those positions make any sense. The point of taxation is to fund government. The point of government is to address “common burdens”. In the Anglo-Saxon tradition, that meant military service, fortress work, and bridge repair. As human societies have become more complex and interdependent, the number of things considered “common burdens” has increased. Roads, schools, hospitals, parks and other things have all be put in that basket, requiring greater government and greater taxation.

The point here is there can be but one position on this aspect of taxation. That is, the tax rates must be sufficient to pay for the cost of government. Once you uncouple taxes from government services, taxes become theft. They may be lawful and commonly accepted theft, but they are theft nonetheless. That means the amount of tax is irrelevant. All that matters is what to tax in order to fund government.

How I come at it this is to ask which taxes have the least impact on the natural functioning of society? Road taxes, for example, are an attempt to peg taxes to usage. The more you use, the more you pay. That links the value of the road to the cost of the road. Ideally, taxes will have zero impact on the economic decisions of the people. That’s not always possible, but it should be the goal of tax policy. Otherwise, the impact of the tax could very well exceed the value of the tax.

An example of the latter is George Bush’s luxury tax on expensive toys. Rich people are not infinitely rich. The guy that could swing a yacht before the tax was priced out of it after the tax so he bought something else that was not subject to the tax, like stocks or real estate. Thus the tax was never paid, all the yacht workers lost their jobs and stopped paying income taxes.

That brings me back to the death tax. No matter how high the tax, there will never be a change in the mortality rate. It has been stubbornly fixed at 100% for years now. Experts predict it will remain 100% long into the future. That means confiscating all of the goods from the dead will not do much to change human behavior, at least in regard to dying.

Now, Joseph K makes what I think is the best argument against death taxes:

The estate tax is the single biggest cause of the rise and dominance of Progressivism in the 20th century. The formation by business magnates of massive charitable foundations in order to save their fortunes from government depredation created a massive slush fund for the financial support and promulgation of every lunatic Progressive idea in existence. Without the Ford, Rockefeller, MacArthur and other foundations, Progressive lunacy as we know it would not exist. Heck, PBS and Sesame Street, which poisoned the minds of innocent children with liberal dreck for generations, would not exist.

Taxation, particularly the estate tax, wrecked the landed aristocracy that ruled England for centuries, and which ruled half the earth for the better at its height, leaving a battered welfare state carcass currently being picked clean by the feral children of former colonial lands. One cannot call this progress.

There are a few things here. The first being that the rich will do crazy things with their money in order to avoid the tax. I’ll concede that point, even though I doubt that’s really what’s going on with these foundations. These are monuments to their own lives, in the same vein as monuments or great public buildings in antiquity. The royalty returning with booty from France in The 100 Years War built castles in honor of themselves, not to avoid taxes.

That said, the death tax could cause all sorts of behavior in an attempt to keep the fortune alive after the death of the plutocrat. That’s why I specifically avoided any discussion of exemptions. If you’re going to have a death tax, it must be 100% and universal – no exceptions. The use of insurance to mitigate the tax for businesses and family farms is not an exemption; it is private mitigation. Setting up foundations and trusts would not be exempt either. The money would have to be given away in life.

The other piece of his argument is that destroying the wealth of the rich has unintended downstream consequences. Toppling over the landed aristocracy, for example, opened the door for socialist lunatics to seize power. I’m not entirely sure about that timeline, but I’ll concede the greater point. Wiping out the rich through taxes is not consequence free and those consequences are not always known.

That’s why I specifically said the rich can give away their wealth before death. To quote myself,

“There’s nothing to prevent Bill Gates from giving his fortune away. He would just have to do it while he is alive. If he wants to set his kid up with a billion dollar gift, that’s his choice. That option exists now. Whatever is left upon his death will go to the government.”

The trouble with everything I’m saying here is summed up by juice.qr.

“what gets me is you make several points about how ‘if it such and such was implemented’ , ‘if it was done this way’ … problem is none of your brilliant fixes have been implemented, or are likely to be.”

That, I think, bookends Joseph K’s argument very well. Even if the defects of the death tax can be addressed, the people doing the addressing have insurmountable defects, primarily the fact that they are crooks, liars and lunatics. The death tax gives them the tools to inflict much wickedness on the people.

To sum up, I’m convinced that the death tax can never be done well and I’m open to the argument that a not done well death tax is way worse than other taxes not done well.