The other day Mitt Romney took a respite from blasting Newt Gingrich (although Newt did no such thing) and concentrated on Obama in a speech in the Villages. Romney actually said that he would work to repeal everything done by Obama. He attacked Obama for cutting military spending, trying to emulate Europe, for health care, Dodd-Frank and all the rest. He promised to rein in the EPA. What he left out was the Federal Reserve. In 2010 he supported the reappointment of Ben Bernanke to be Fed Chairman. In 2011 he had changed his mind. Lets hope that if he becomes president he remembers that and does not reappoint Bernanke - perhaps Bush's most disastrous appointment. Like the sainted Anna Jacobson Schwartz said (Friedman's coauthor of the Monetary History of the United States), Bernanke is not up to the task. The Fed's recent vote in the Open Market Committee to hold the fed funds rate near zero is instructive. Demonstrating that the Fed is stubborn and has not learned its lesson the vote was 9-1. I would have thought that by now there would be more dissent on the FOMC but apparently not. The fed needs to be shaken up but not blown up (sorry Ron Paul). Romney has stated in 2011 about whether he would now reappoint Bernanke and he said "No, I'd be looking for somebody new. I'm -- I think Ben Bernanke has -- has over-inflated the amount of currency that he's created." Amen to that. Since Bernanke seems intent to keep destroying the US currency by financing Obama's policies and the FOMC has yet to go a set and just say no, then it is time for Bernanke to go back to Princeton. Lastly. although Ron Paul wants to blow up the Fed and I have often written that he is mistaken because the management of the money supply is too important to be managed by either the president or certainly the congress. At least Romney recognizes this when he says that he would not agree with ending the Federal Reserve and he did not trust Congress with managing the responsibilities of the Fed. The fed structure is intended to isolate it from politics. The only thing wrong with this fed is who is leading it. Maybe next time the next president will give us a secretary of the Treasury not from Wall Street and a fed chairman who is not from the ivy league.
All those pleased with the survivors in the republican field raise their hands. Personally I think the scenario is akin to what happened last time: no matter who the republicans nominated would lose to whomever the democrats nominated. Because Bush was so vilified, it would have been hard to think otherwise. In this case, Obama has so screwed things up that it is difficult to see him re-elected regardless of who the republicans nominate (save Ron Paul). However, the process is bringing us a flawed candidate. Newt has global warming, ethanol, Fannie Mae, Nancy Pelosi, personal ethics and professional ethics to deal with. He has also only worked for the government - state run universities and the congress - or lived off his government past. He is scatter-brained yet awfully smart. The only thing he has going for him is that he is not Mitt Romney. As to Mitt, a venture capitalist is not a hands on manager of a firm and does not know the nuts and bolts of responding to consumer demand and meeting a payroll. He is obviously not comfortable with being a rich guy but should be selling himself as an embodiment of the American dream. He also has Romney-care hanging around his neck. His recently crafted answer is that it is a state specific program works for me. But he is not comfortable with admitting that much of the criticism of the program have merit and it is a budget buster for Massachusetts. He should say that it ended up being poorly crafted by the democrats who insisted on its final structure. Santorum could not win re-election to his senate seat and lost by 30 points. He whines that it was because of the assault of the pro-democratic press in his state. Well what does he think the national press is - bipartisan? If he thought the attacks in Pennsylvania were bad, he hasn't seen anything yet if he became the nominee. And Ron Paul? What do you like about him other than he named his son Rand? He claims to be a libertarian but is an isolationist in libertarian's clothing. I am an Adam Smith libertarian. Ron Paul is the antithesis of that - a mercantilist.
In Greek mythology, the sirens lived on an island, Sirenum Scopuli, and lured sailors to shipwreck on its rocks with their enchanting songs. Socialism is the Sirenum Scopuli of civilization. Its incredible to me that socialism remains so appealing to so many people. It has always failed miserably to increase the well-being of the people subjected to it no matter where it has been tried. It failed the Pilgrims and almost led them to starvation. It failed the Soviets who were unbelievably wasteful in energy and food production. It has never succeeded and will ultimately rend apart China. Yet it continues to hold favor mainly with those who are among the taking class and those who seek to impose their own personal beliefs upon others. Lets consider the two. The first is the taking class. These are the persons in the society who are dependent upon the largesse of others in the society. They are either non-productive through no fault of their own or non-productive through choice. Either way rather than depend upon their own resources, they depend upon family, friends or the state to provide for their welfare. Note that all members of the taking class do not necessarily favor socialism. However, it is likely that most do. The second group is what some call facetiously “the elites.” These are “elite” in their own minds. They have the attitude of superiority in that they feel they can make decisions for others better than the others can make decisions for themselves. They tend to have ivy league educations. Do you know any elites from Ohio State? They are the ultimate snobs. Their tastes in music are superior. Their tastes in food are superior. Their tastes in fashion, arts, culture, diet, health and most importantly economics are superior. They know what is best for others and seek to impose themselves upon the masses. Milton Friedman once said that the reason why the intellectual tends to the left is not the desire to discuss the merits of their arguments with others but rather to impose them upon others. These snobs cannot accept the simple fact is that people in the main regardless of background know what is best for themselves and act accordingly. Moreover those acts led to market demand which directs resources to be used in their most efficient manner resulting in greatest consumer satisfaction and the least waste of resources. The irony is that the imposition of the will of the few on the many results in just the opposite, less consumer satisfaction and more waste. The government is inherently inefficient because it does not operate under the profit motive. By taking resources from the productive and allocating them to the non-productive creates disincentives on both ends. And this is precisely why in the end socialism fails: it is wasteful and breeds sloth. Despite the obvious, in the final analysis it is not surprising why socialism is still appealing. The takers think they will be better off, event though they will end up being worse off as the economy gets less productive. The “elites” are our modern day sirens. They favor it regardless even though they know that the economy will shipwreck. They will have more individual resources in their control and most importantly to them, they will have more power.
Two of the remaining republican candidates have lashed out at Mitt Romney for his role in managing a hedge fund, Bain Capital. I find it somewhat interesting that these republicans have any prominence whatsoever given their glaring ignorance. If they are not ignorant but are trying to use their attacks to political advantage is even more disgraceful. Either they know nothing about hedge funds and venture capitalists or they think that republican voters know nothing about them either. I presume that Gingrich is attacking Bain because of his loathing for Mitt Romney and that Rick Perry joined in because he is trying to paint himself as a populist. I have a problem with Romney for another reason. He keeps painting himself as a businessman. However, his brand of businessman is different from Herman Cain's. Romney was not a businessman from the standpoint of manufacturing a product for consumers, being constrained by the forces of supply, demand and competition. He did not have to primarily concern himself with labor contracts, meeting payrolls and the fickleness of consumer demand. Rather he ran a hedge fund among whose purposes is to find inefficient businesses that may be worth more broken up than as presently constituted. Make no mistake, this watchdog role is an important one. However, there is a point that has to date been overlooked. It has often been said that the problem with Mitt Romney is that he is not a rock the boat type of guy when what this country really needs is to blow stuff up. Agencies need to be eliminated. There needs to be a systematic cutback in federal employment and federal benefits and compensation. Why? It is because since it has no profit motive, the federal government is inherently inefficient and wasteful. Of the candidates still in the race, only Perry has ventured forth a bold plan to rein in the federal government. Nevertheless, the most qualified person to effect change is Mitt Romney due to his experience at Bain Capital. If Romney at Bain Capital saw a multibillion bloated, inefficient, wasteful fortune 500 firm worth more if pared down in size, it would a prime candidate for a takeover. So lets hope that if Romney wins the nomination and then the election, he applies his hedge fund background to the federal government.
This from my January 1 Knoxville News-Sentinel article
Happy New Year. Generally when politicians and the media all latch on to a topic, you can be assured that it is trivial. That is certainly true of the topic du jour, income inequality.
First of all, the president in a speech said that we have reached the point "when middle-class families can no longer buy the goods and services that businesses are selling." Excuse me?
Certainly the president cannot be this out of touch with the truth. Surely there is an argument to be made that his policies have made us worse off. But to conclude that the middle class is suddenly impoverished is hyperbole at best.
What has prompted all of this are reports of rising income inequality in the United States over the past 20 years. However, when the top 1 percent of earners is excluded, income inequality has remained the same. What also is true is over that same period the real income of all income cohorts — save the bottom 20 percent — has risen.
There are reasons for these trends.
First, as pointed out by the Heritage Foundation, the top tier increased because a change in tax laws caused a shifting of business income to individual tax returns as individual rates fell below corporate rates.
Second, the bottom tier has been adversely affected by illegal immigration. We keep hearing that the middle class is shrinking.
However, economist Stephan Rose notes that since 1979 although those households earning between $30,000 and $100,000 shrank, there was no increase in the percentage of households earning below $30,000.
The households above $100,000 doubled. So the shrinkage of the middle class was caused by upward mobility. Not a bad thing.
The catalyst for all the income inequality hand-wringing was a study released by the United Nation's Office for Economic Cooperation and Development that showed the measures of income inequality increasing. However, income inequality statistics tell you nothing about the well-being of a population.
The same report cited India as being one the worst performers, with its income inequality doubling over the past 20 years. This is because of the dramatic growth in India's middle class during that period.
Also the emergence of middle classes in Russia and China have worsened income inequality.
Yet who would argue that the Indians, the Chinese and the Russians are worse off because of increasing income inequality? Quite the contrary.
Now consider that the countries with the most equal incomes are in this order: Slovenia, Slovakia, Czech Republic, Sweden and the Ukraine. Four former Soviet bloc countries plus a western welfare state. All have median incomes significantly below that of the United States.
It should not be surprising that socialist countries striving for wage equalization create disincentives on both ends. Those with lower incomes have little incentive to work harder and those on the upper end have no incentive to keep earning more and innovating either.
However, those who would rather be poor but equal in income are all welcome to emigrate.
Harold A. Black is professor emeritus in the Department of Finance, University of Tennessee, Knoxville having retired after 24 years of service. He has served on the faculties of American University, Howard University, the University of North Carolina - Chapel Hill and the University of Florida. His government service includes the Office of the Comptroller of the Currency and as a Board Member of the National Credit Union Administration. He also has served on the boards of directors Home Savings of America and its parent company, H. F. Ahmanson & Co., Irwindale, California prior to its merger with Washington Mutual Savings Bank, on the board of New Century Financial Corporation, Irvine, California, then the nation’s largest real estate investment trust and as director and later chairman of the Nashville Branch of the Federal Reserve Bank of Atlanta. He writes an occasional article for the Knoxville News-Sentinel at http://www.knoxnews.com/staff/dr-harold-black/. His web page is haroldablackphd.com