Monthly Archives: March 2014

Crimea Much Ado About Nothing

Crimea is still in the news. So far only a single death. Baby strollers are more deadly than Putin.

The left is so anxious for things to get worse so that the stock market falls that they are front-running events that have not even happened yet, or so show no signs of happening. Like the coverage over the Malaysia 370 flight, speculation has become the news instead of stuff that has Ever since Putin put troops on the border, it has been pretty much a standstill yet the media would have you think it’s the German invasion of Poland all over again.

The big headline is Why You Shouldn’t Believe Vladimir Putin When He Says He Doesn’t Want To Invade Eastern Ukraine

Is he bluffing, or is he not? Does it matter? Not so much to me. Not so much on Wall St. or Silicon Valley. That’s why stocks have brushed it off and keep going up. If I had to put money on this, I would wager there will no further escalation, as has been the case for the past month. If the other shoes drops, I will not sell my stocks; instead; I’ll be buying oil and gasoline futures because those will go up the most. If the media only stuck to writing about stuff it knows instead of speculation it would have very little to write regarding Crimea. Maybe Putin wanted Crimea for the Russian naval bases. Or maybe this is revenge for the U.S Bombing of Kosovo. Who knows.

Are Obama and Putin friends? Hardly. Obama is an avowed wealth spreader while Putin is a rapacious capitalist and nationalist. Unlike Obama, Putin isn’t too tolerant of homosexuality or liberal cultural deviancy. Here’s a little gem from 2009 of Putin excoriating Obama for adopting socialist policies.

“Any fourth grade history student knows socialism has failed in every country, at every time in history,” said Putin. “President Obama and his fellow Democrats are either idiots or deliberately trying to destroy their own economy.”

Obama risks making the situation worse by overreacting. Putin isn’t scared of sanctions because he will raise energy prices and it will backfire on Obama after Europe gets pushed into a recession. Obama, not Putin will look like the bad guy. Europe depends on Russia for 40 percent of its imported fuel. Oil and natural gas prices will surge. Gas prices in America may reach $5 a gallon. This will make Obama look worse than he already his, not just in America, but abroad and could cost the democratic party the presidential election in 2016. Republicans and libertarians need to stand up for Russia’s sovereignty rather than let the left drug us into an economic standoff.

From the Financial Times

Paolo Scaroni, chief executive of Eni, the Italian oil and gas group, said Italy, Austria and the south of Germany would be particularly at risk since they were principal markets for Russian gas piped through Ukraine. About 16 per cent of Europe’s gas consumption provided by Russia through Ukraine.

Putin has the leverage, not Obama.

The left would want nothing more than to see Russia fail so that Putin and his oligarchs lose a lot of money. They want Putin to overplay his hand; instead, he’s meticulously waiting for Obama to finish painting himself into a corner.

Bush at least commanded mutual respect among global leaders for his duration of office, even though his poll numbers sagged during his final term. Obama conveys weakness, not just in America, but abroad. He’s emboldening our foes and making our allies uneasy. Doing nothing would have been more effective than sanctions that could backfire economically.

Henry Blodget Wrong Again

It’s the weekend and that means another ‘time to spread the wealth’ diatribe from Business Insider click baiter in chief and disgraced analyst, Henry Blodget:

Business Insider More: America Inequality Sorry, But There’s No ‘Law Of Capitalism’ That You Have To Pay Employees As Little As Possible

One reason the U.S. economy is still weak is that big American companies are “maximizing profits” instead of investing in their people and future projects.

Weak compared to what? The U.S. recovery has been faster than the E.U., as well as record high S&P 500 profits & earnings, consumer spending, productivity, and exports. GDP growth has returned to pre-crisis levels, which compared to the rest of the world is pretty good.

This is an example of moving the goalposts – the economy is weak not because of the actual economic data, but because of it failed to meet some arbitrary conditions stipulated by Henry Blodget. “Unless we have full employment and equality, there’s no recovery!” Secondly, companies are serving the best interest of their shareholders by maximizing profits. It’s not greed; it’s their duty. That’s why CEOs sometimes pay themselves $1 salaries.

moving on..

This behavior is contributing to record income inequality in the country and starving the primary engine of U.S. economic growth — the vast American middle class — of purchasing power. (See charts below).

If average Americans don’t get paid living wages, they can’t spend much money buying products and services. And when average Americans can’t buy products and services, companies that sell products and services can’t grow. So the profit obsession of America’s big companies is, ironically, hurting their ability to grow.

This is a Marxist fallacy that keeps resurfacing on the blogs. We debunk it in further detail. As you can see below, consumer spending and disposable income shows no signs of slowing despite rising inequality:

And we debunk it again here

The push towards lower wages isn’t motivated by greed. It’s looking after the best interest of shareholders and consumers to keep costs as low as possible. The benefits of cheap labor outweigh the potential externalities. Apple can hire overseas labor because those people will never have enough money to buy an iPhone anyway. The Americans that could have hypothetically been hired by Apple will look elsewhere for work. The savings from outsourcing far exceeds what Apple could earn from the increased purchasing power from US Apple employees if some of those employees had slightly more money in their pocket to buy Apple products. Boeing, for example, knows that average Americans won’t be buying its planes, so they can outsource with impunity knowing that it won’t hurt demand for their planes. The added profit means Boeing can sell its planes for less money and this eventually translates into cheaper airline tickets or lower freight shipping costs, etc.

Does rising wages make everyone better off? It could make individuals better off in terms of more purchasing power (assuming they don’t get fired), but from a game theory standpoint no individual company stands to benefit. Since consumption is spread out, the odds that a specific company company will reap the benefits is very small, depending on the business. Mass consumer companies McDonalds, Starbucks, and Walmart may benefit, but others like Boeing won’t. Let’s assume the Burger King employee is paid $10 instead of $8. Even if he takes that $2 and buys a Burger King menu item it will still cost Burger King more money than if they kept the cash. The only way Burger King can recoup the costs of higher wages without raising prices or cutting back is to hope the purchasing power from other people is enough to offset the costs. Unless other companies give a wage hike this is impossible, but even if others increase wages it may not be enough. This is why efforts to raise wages are fraught with so much resistance and why the ‘increased purchasing power’ argument doesn’t sway businesses.

Small Business Still For Suckers

No shit, Sherlock:

United States’ new business formation rate continues dropping steadily

More and more people are waking up to reality that small business is for suckers and that there are far easier ways to make money such as real estate, a traditional job, or buying and holding stocks. We wrote about this as far back as 2011 and it’s yet another example of one of our predictions coming true.

Think about it like this: you can start a business for $100k which has an 80% chance of failing or you can buy the S&P 500 which has an 80% chance of doubling in that same period. $200k versus $0. Even if the market crashes you may still have at least half of your money and if you wait awhile the market will recover while, on the other hand, your business losses are irreparable if you go out of business. A small business is like a lottery ticket- albeit a really expensive one with a lot more work and a lower expected value. If this is an economic boom lead by large caps like Google and Facebook, why not just take the low hanging fruit? Why create unnecessary risk and struggle?

If you do want to start a small business, take Mark Cuban’s advice and use as little money as possible and, most importantly, without using a loan. Start with just $1k and get the rest through a VC. Failure is fine if you’re using other people’s money and or you can keep the costs very low. If you keep costs low you can afford to fail. Hell, even I became a self-made millionaire and probably never spent more than $3,000 in a three-year period – my major expenses being coding, dedicated web hosting, and an accountant. There’s many other examples such as the creator of Angry Birds, What’s App, and Snapchat of people making vast fortunes in business with very little investment.

Bay Area Home Prices Keep Going Up

Case-Shiller index finds San Francisco home prices jump 23 percent from year ago

San Francisco home prices enjoyed an annual gain of 23.1 percent, second only to Las Vegas’ 24.9 percent rise, according to S&P/Case-Shiller home-price indexes released Tuesday. The composite 20-city home-price index was up 13.2 percent in January from a year earlier, with all 20 cities posting year-over-year gains after factoring in seasonal adjustments.

But aren’t we supposed to be a bubble, says the left? Why does it refuse to pop?

The left is obsessed with bubbles, yet their track record for predicting them is really poor, with predictions of a second housing bubble continuing in this tradition of being wrong all the time. But this time it’s really different. Unlike in the early 2000′s, we have permanently low interest rates and massive influx of private equity and foreign buyers. We’re in global liquidity boom and money is flowing everywhere – expensive real estate, jewelry, art, cars, stocks, and even treasuries. 20-30 year olds rich off the web 2.0 boom are buying homes like ordinary people buy groceries.

Foreign Investment in U.S. Hits New Record:

Talking with a friend/realtor in the Bay Area. He says the Bay Area is out of control. The example he gave is bidding over a home’s asking price. He referenced LinkedIn employees, flush with cash, bidding over by large amounts just because they want the house and have cash in their hands – as if it was play money. Against his advice of the home not being worth it, they pay it because they have it, and they want it.

The economy and real estate market is not isotropic. It’s varied with parts that will do well and parts that won’t. When the left says prices are too high or that the economy is weak, that all depends on location. Where I live things are going great; for others it isn’t. But that doesn’t mean the whole economy is weak or that the whole real estate market is a bubble. But generally speaking, regions that do well keep doing well.

Many on the left and right wants to restrict technology worker immigration, which will hurt home prices in the most innovative regions of the economy, such as the Bay Area and New York. The left, in their war on success, want rent control, higher interest rates, higher taxes, regulation, and to see home prices fall. Gentrification, like drones, Google buses, Facebook, high frequency trading, and the NSA is the newest boogeyman of the left. The creative class is rewarded with higher home prices for the economic value these individuals bring to society. It is an inevitable consequence of social evolution that those who create more value should and will displace those who don’t.

It Pays to Be Smart

From The Atlantic; A new study finds that nine of the 10 most lucrative degrees in America are in computer science programs at elite colleges.

And no degree in America is more valuable than a computer-science major at Stanford, Columbia, or Berkeley. Notably, the most valuable non-computer-science major in the country is also at Stanford: economics.


Why are so many people up in arms over reality: that STEM majors from prestigious, elite schools earn more money. Yes, if you cannot find work an Ivy League STEM degree does you no good, but this applies to every major and school. But elite graduates in STEM fields have better career prospects than everyone else. There wouldn’t be so much competition for these schools if there weren’t any benefits over, say, a no-name state college. I guess the left interprets their own personal frustrations and employment struggles as indicative of the entire system being broken. The left wants crisis because it will level the playing field by making everyone equally worse off, which will especially hurt the wealthy. The rational optimist in me says the system, for all it’s flaws, does a pretty good job rewarding merit & intelligence and creating wealth.

Someone replied:

It pays to be lucky in the type of degree that you get. Good timing is important. Supply and Demand is important.

Future Nobel Prize winner Einstein couldn’t find a job. Through a friend he got a job at the Swiss Patent Office. Even after his famous 1905 papers it took until 1909 before he could quit.

Future Nobel Prize winner Paul Dirac was unemployed as an Electrical Engineering graduate of Bristol University. Fortunately, Bristol gave him free additional Math education and eventually he got enough scholarship money to go to Cambridge.

Location can also be helpful. Columbia Computer Science majors may benefit from being a subway ride away from Wall Street and Corporate HQs which might mean easier interviewing, more corporate recruiting, part-time jobs and summer jobs.

My response: all else being equal, a physics PHD from a top school has more income potential than someone without such degree. Einstein initially could not find a job, but nowadays someone as smart as Einstein could be picked up by a hedge fund, among many other high paying, intellect-demanding careers. Even if there is initially a skill mismatch, having a PHD in a hard science indicates a ability to learn and synthesize information quickly, and efficiency- a skill sought by virtually all employers. He could be brought up to speed very quickly to meet the demands of the employer. There is a much greater premium on smarts than 100 years ago.

Basic people skills and knowing how to market yourself to find a job is also important, irrespective of the degree.

Furthermore, the unemployment rate for those with even a college degree is under 4 percent, and in 2008, science and engineering doctorate holders up to three years out of school had just 1.5 percent unemployment.

The left has been fanning the flames of crisis about student loans for years. The average debt per student is only $23k, not the $200k+ figure commonly quoted by the doom and gloomers. It’s funny how the left, originally champions of higher education , have now turned against it; always blaming the student loan companies, the colleges, employers, the govt., etc. instead of the student for making poor career choices. But why the hostility against elite schools, and STEM majors in particular? Due to the limited number of spots, these schools screen for high IQ applicants, and the idea that some people are innately intellectually better than others challenges their sacrosanct blank slate view of human biology. Secondly, they earn more money, which goes against their belief in equal outcomes.

Wealth Inequality is Here to Stay But Won’t Lead to Crisis

Unlike most new releases, there is a considerable hype surrounding Thomas Piketty’s, new book Capital in the Twenty-First Century.

Because the empirical evidence doesn’t lend itself to the Marxist’s capitalism being self-limiting prophecy, Piketty’s conclusion is the most likely outcome: growing inequality is permanent. We argue that inequality is optimal to economic growth, or a byproduct of an economy running optimally. Where we disagree is that policy makers should try to reverse inequality or that inequality causes crisis. There are studies such as by Jonathan D. Ostry, Andrew Berg that tries to show how inequality is possibly undesirable, but correlation between more economic growth and more inequality is a weak one. The conclude:

This implies that, rather than a trade-off, the average result across the sample is a win-win situation, in which redistribution has an overall pro-growth effect, counting both negative direct effects and positive effects of the resulting lower inequality

However, a generalization doesn’t necessarily prove that the US economy would be better off with less inequality.

Widening inequality is an inevitable consequence of neoclassical economic assumptions. Every and any advanced economy will have widening inequality over time.

Inequality is the result of the disproportionate amount of economic value the Creative Class bring through their creations. Is it wrong, for example, for Bill Gates or Carlos Slim to have million times the wealth of an average person if their companies and inventions create a million times the value – both directly and indirectly- as an ordinary person?

One explanation that has been proposed for rising inequality is that technical change allows highly talented individuals, or “superstars” to manage or perform on a larger scale, applying their talent to greater pools of resources and reaching larger numbers of people, thus becoming more productive and higher paid.

Kaplan, Steven N., and Joshua Rauh.

Some economists like Thomas Piketty argue that over the long run, rising inequality is unsustainable and will eventually terminate in a financial crisis or societal upheaval. They also ascribe past crisis like the Great Depression or Great Recession to inequality. Crisis can occur for many reasons, mainly due to high interest rates, external shock, overvaluation, over-leverage, and reckless lending standards – none of which are present today. Rising inequality can be concomitant with these factors, but not in and of itself, the cause of crisis. Societal upheaval occurs when the state cannot enforce the rule of law and individuals cannot enforce their property – or simply anarchy. Judging by the growing prison population and the proliferation of the national security complex, that isn’t a concern. The ownership society that Bush spoke about is thriving. Economic indicators don’t portend to a financial crisis either, or at least not for a long time. For policy makers to actively try to reduce inequality would be like trying interfere with evolution.

The part about “patrimonial capitalism,” is dubious

Paul Krugman:

the magnum opus of the French economist Thomas Piketty, will be the most important economics book of the year…. He… makes a powerful case that we’re on the way back to “patrimonial capitalism,” in which the commanding heights of the economy are dominated not just by wealth, but also by inherited wealth, in which birth matters more than effort and talent…. Six of the 10 wealthiest Americans are already heirs rather than self-made entrepreneurs…. America’s nascent oligarchy may not yet be fully formed — but one of our two main political parties already seems committed to defending the oligarchy’s interests….

That’s because the Walton family skew the list. most of the Forbes 500 consist of self-made billionaires. Mathematically, the wealth will still even out. If a billionaire has a kid he will inherit a billion. This can continue indefinitely, but there is still only one billionaire on the roster provided there are no costly divorces or multiple progeny per generation. If parents have multiple kids and divorces, the wealth will be diluted, which is the most likely outcome. Iterated over a couple centuries and there probably won’t be much left.

From Kaplan, Steven N., and Joshua Rauh. 2013. “It’s the Market: The Broad-Based Rise in the Return to Top Talent.”

we find that those in the Forbes 400 are less likely to have inherited their wealth or to have grown up wealthy.

Is partisanship holding back good policy in the abortion debate?

IN 2001, Steven Levitt of the University of Chicago proposed an explanation for why the crime in the U.S. declined so dramatically since the 1990s. Understandably, the kneejerk reaction of the left overshadowed the merits of the study. Unfortunately, the right’s fixation on ‘pro life’ is preventing potentially good policy. The category of abortions for genetic defects will probably keep rising as the technology to detect in utero defects improves. If technology becomes sufficiently advanced to screen for all phenotypes, will more utilitarians and libertarians and even mainstream conservatives condone abortions or genetic engineering, if it would save money or improve society as whole?

Imagine if in the future we can isolate the genes for low IQ or criminality, would it be moral to abort as early as possibly since they would be a drag on society? Billions are spent on long term incarceration with no slowdown in sight as the US population keeps growing. An IQ of around 85, or about two standard derivations below average, is correlated with criminal violence, long term unemployment, and welfare, as shown below:

UT Dallas criminologist Dr. J.C. Barnes has researched connections between genes and an individual’s propensity for crime. He found genetic factors that influenced whether people became “life course persistent” offenders, “adolescent-limited” offenders, or those who never engaged in deviant behaviors, called “abstainers.”

If we can definitively isolate these defective genes there would be great financial incentive to prevent such individuals from existing, whether by early stage abortions or, preferably, screening. Couples harboring such genes could be offered money to forgo pregnancy. If the allele is recessive and only one is a carrier this wouldn’t be necessary. For a single person, prophylaxis would pale in comparison to the cost of a lifetime behind bars or on welfare. Should we find the biological markers for defective, fiscally draining traits and genetic screening become as cheap and readily available as, say, urine or blood testing, it’s only matter of time before it will be used for eugenic purposes and, furthermore, we predict many republicans would support this plan, with the most vocal opposition, ironically, from pro-choice liberals. The cost of sequencing has plunged in recent years, making such a plan potentially viable, assuming genetic markers exist and it can be shown beyond a reasonable doubt they produce the expected phenotypes.

This is not a radical idea. Screening is common in cases of family history of lethal genetic disorders, like Tay Sachs disease and Gaucher’s disease; it only seems inevitable it will be extended to broader applications.

In Praise of Low Wages

The boom of the freelancer economy, temp economy, and service sector is part of a growing trend where people are being paid for the value they truly create, instead of the inflated wages of the pre-2008 economy. This helps restore the equilibrium between labor and capital, which until recently was too skewed in favor of labor. Lower wages translates into lower prices and a higher standard of living. The growth of temp work has far exceeded total payrolls:

While this should be a cause for celebration, the first liberal rule of discourse is to get people emotionally worked up over something, and all logic goes out the window.

The CEO of McDonald’s makes $13.8 million per year up from $4.1 million. That’s a difference of $9.1 million. McDonald’s employs 400,000 workers at a median wage of $7.73 an hour. Although it’s not accurate let us assume they work 40 hours per week. If McDonald’s were to raise their employees pay to $15 an hour, the yearly cost of that raise would be over $6 billion. Although the real number they say closer to $4.5 billion. $9.1 million doesn’t make a big difference. $4.5 billion sure does, and this would be reflected in the price of all the menu items.

This comment below from lion’s blog is especially prescient and echos what we’ve written about earlier about how IQ and success closely linked, and how restricting STEM worker immigration is economically counterproductive.

The average prole doesn’t have the IQ to be a computer programmer, so it’s not easy at all. I scoured a message board of programmers and they all self-reported their IQs being 130 to 150s. Then many would simultaneously deny that IQ is meaningful, ha! 120 is probably the minimum just to qualify as a code monkey.

Lion is right about programming being a difficult profession. It’s a great lifestyle for someone independent and in the top 1% of intelligence, but anyone with an IQ below 130 will not survive. Some Indian will eventually be able to replace them with an internet connection from the other side of the world. Programming is a cutthroat meritocracy. Become a doctor.

There’s a reason why silicon valley is desperate for foreign Jews, Indians and east Asians. You and I have as good a chance of playing wide receiver or point guard as proles have of meeting the nation’s demand for STEM workers.

In the smartist era not everyone can have a good paying, self-actualizing job. Lower income workers should feel good knowing they are helping the economy by not getting paid too much.

The Success of Reaganomics

A few days ago one of the architects of Reaganomics, Murray Weidenbaum, passed away.

Looking back, Reaganomics was a success.


When President Reagan entered office in 1981, he faced actually much worse economic problems than Obama faced in 2009:

  • Three worsening recessions starting in 1969 were about to culminate in the worst of all in 1981-1982.
  • Unemployment soaring into double digits at a peak of 10.8%.
  • Roaring double-digit inflation, with the CPI at 11.3% in 1979 and 13.5% in 1980 (25% in two years).
  • Double digit interest rates, with the prime rate peaking at 21.5% in 1980.
  • The poverty rate started increasing in 1978, eventually climbing by 33%, from 11.4% to 15.2%.
  • A fall in real median family income that began in 1978 snowballed to a decline of almost 10% by 1982.
  • From 1968 to 1982, the Dow Jones industrial average lost 70% of its real value, reflecting an overall collapse of stocks.


    Reagan conservative policies amounted to the most successful economic experiment in world history:

  • 20 million new jobs were created.
  • Unemployment fell to 5.3% by 1989.
  • The top income tax rate was cut from 70% to 28%.
  • The Reagan Recovery took off once the tax rate cuts were fully phased in. Total federal spending declined to 21.2% of GDP in 1989 (even with the Reagan defense buildup, which won the Cold War.)
  • Eliminated price controls on oil and natural gas. Production soared, and aided by a strong dollar the price of oil declined by more than 50%.
  • Real per-capita disposable income increased by 18% from 1982 to 1989 (meaning the American standard of living increased by almost 20% in just 7 years.)
  • The poverty rate declined every year from 1984 to 1989, dropping by one-sixth from its peak.
  • The stock market more than tripled in value from 1980 to 1990 (a larger increase than in any previous decade.)
  • The Reagan recovery started in official records in November 1982, and lasted 92 months without a recession until July 1990 (when the tax increases of the 1990 budget deal killed it.)
  • During this 7-year recovery, the economy grew by almost one-third (equivalent of adding the entire economy of West Germany to the U.S. economy.)
  • In 1984 alone real economic growth boomed by 6.8%, the highest in 50 years.
  • The inflation from 1980 (in the Carter era) was reduced from 13.5% to 3.2% by 1983.
    (The contractionary, tight-money policies needed to kill this inflation inexorably created the steep recession of 1981 to 1982, which is why Reagan did not suffer politically catastrophic blame for that recession.)
  • The Reagan Recovery kicked off a historic 25-year economic boom (with short recessions in 1990 and 2001.)
  • The period from 1982 to 2007 is the greatest period of wealth creation in the history of the planet. In 1980, the net worth–assets minus liabilities–of all U.S. households and business was $25 trillion in today’s dollars. By 2007, net worth was just shy of $57 trillion. Adjusting for inflation, more wealth was created in America in the 25-year boom than in the previous two hundred years.
  • Economic growth averaged 7.1% over the first 7 quarters.
  • The Bush tax cuts helped end the 2001 recession and softened the blow of the 2008 crisis. Trickle down economics may have its flaws but no one has proposed a better alternative. On a related note, ending the gold standard lifted the constraints that had been holding the economy back. The world has never seen this much cash, profits, innovation, wealth creation, and liquidity. Everything is awesome, and no one (especially the left) is happy. While the left still insist the economy is weak, corporate profits are smashing records every quarter. The largest six banks alone earned $76 billion in profits last year. Compared to the cyclical low of $55.71 trillion of household net worth in Q1 2009, US households have gained almost $25 trillion in wealth over the last four years. It’s better to help the rich get ahead because that can help everyone else, even if it takes time the benefits to trickle down. Supply side economics works because instead of appropriating the poor a bigger slice of the pie from the successful, you make the pie higher instead.

    The economic impact of the weak labor market isn’t as significant as all the headline hype would suggest. Even if the Luddite fallacy is no longer a fallacy that doesn’t mean it’s time to abandon technological process. It’s a bifurcated recovery. Nominal hourly earnings, labor market & GDP only give a small piece of the picture. Other parts of the economy such as profits & earnings, exports, consumer spending, web 2.0, and real estate are thriving. The left has unrealistic expectations for job creation and GDP. The recovery may seem slow but it’s still faster than all of Europe and no slower than before the recession. The low labor force participation is a social problem more than an economic one. It’s time to choose profits and growth over class warfare. We’re becoming a nation of crybabies, blaming the economy, Washington, the fed, the rich, and technology for falling between the cracks, instead of ourselves.

    Someone replied:

    Ending the Gold Standard may have worked in the short run. It remains to be seen if it will work in the long run. All fiat currencies have failed in the end.

    Admittedly in the end we are all dead, but fiat currencies don’t seem to have done all that well to me since the end of the gold standard. They may be about to do a lot worse.

    This is an example of the fallacy of the hasty generalization. Just because other fiat currencies have failed doesn’t prove the US dollar will share their fate. The overwhelming evidence suggests this wont happen. For example, long & short term yields are still at historic lows. As shown below, the US is paying less interest on its debt relative to GDP than in the 80′s. The US dollar has out-performed over 95% of currencies since 2011.

    The only criticism of Reaganomics lies with Paul Volcker – the overrated, liberal octogenarian hero of the left. Volcker didn’t need to ‘break the back’ of inflation, creating a bad recession in the process. Considering the persistence of the decline of long term rates, it’s reasonable to assume double digit inflation would have resolved itself, without his heavy-handedness. Tax cuts and cheaper energy (80′s oil glut) ended the recession and contributed to the decline of interest rates, neither of which Volcker played a role in. It came as little surprise Volcker was one of the leading proponents of regulation post 2008 since destroying wealth is one of his expertises.

    No, it’s not time for a basic income

    The concept of a basic income has gotten a lot of traction among liberals and libertarians as a solution for placating the millions of unemployed in the wake of rising structural unemployment and obsolescence of old industries. A basic income would allow individuals to become self-sufficient without the bureaucracy and inefficiencies of traditional welfare, or so the theory goes. From Hawkins Venture:

    It is the most efficient possible form of wealth redistribution because there is no bureaucratic overhead needed. More money reaches the poor directly.

    It is more equitable than retirement plans, which transfer wealth from young to old.

    It enables people to work on only what they want to.

    It improves opportunities for individuals to use their Basic Income to get an education, start businesses, or make investments.

    The amount of Basic Income could rise over time with productivity & automation growth.

    It would enable resources spent on the current bureaucracy to work on other tasks beneficial to society.

    It reduces the marginal tax rate for the poor, creating better incentives. Currently, the poorest receive a combination of unemployment, food stamps, and other government subsidies, which often go away if they take a job. Each of these issues create in effect high marginal tax rates. In extreme situations, it means people can go back to work and make less money than before. With basic income, there is more incentive to work, as everything you make is additive.

    It should replace unemployment, which is pay to not work, which creates a perverse incentive.

    It should replace minimum wages, which incentive employers to reduce jobs.

    It reduces political corruption. There are fewer government bureaucrats and fewer spending levers to grant political favored groups favorable treatment.

    What are probable benefits of Basic Income?

    It would provide a more stable consumer purchasing base, stabilizing the economy.

    It would reduce crime as a result of lower levels of desperation, particularly among the youth.

    Nevertheless, the basic income isn’t viable for a couple reasons: it’s still wealth redistribution and it will only compound spending. There is no guarantee recipients would use their income for necessities like food, healthcare, and shelter, so if they blow it on drugs and alcohol, for example, it means tax payers would still be on the hook for everything else. As Mitt Romney said, there are 47% of Americans that don’t pay taxes. Why should working, hard-working people have to redistribute their wealth to the least productive so that they can be paid to do nothing, on top of existing entitlement programs?

    Charles Murray has advocated a universal basic income of $10,000 for every person, and paying for it by ending Social Security, Medicare, Medicaid, virtually all transfer programs and certain tax breaks. This would be a good compromise, but is even less likely of ever being ratified than a basic income that would coexist with existing welfare programs, because as stated earlier, individuals would squander the money on frivolous things. The income would not be sufficient to launch most of the poor into the lower middle class. Even if the income could bring a family of four above the $23,550 poverty line—a figure that would cost trillions—it would still leave many Americans in effective destitution, particularly those living in expensive urban centres like New York City or San Francisco where the average monthly rent is now $3,000. Furthermore, under what statute does the government have to guarantee a middle class income; the only role of the government should be to help create economic conditions optimal for wealth creation, so that individuals can “pursue happiness”, but otherwise the government should intercede as little as possible.

    Another option we have explored is paying individuals to engage in passive consumption, such uploading pictures to Facebook, clicking Google ads, tweeting, or streaming Netflix. Each verified social media action would be reimbursed with small monetary reward ranging from a few cents to a dollar, e.g., creating a Facebook profile would be worth $1, 5 cents per uploaded picture, 2 cents a tweet, etc. According to experts, these activities could be more economically valuable than overpaid and redundant traditional jobs, while boosting self-confidence and keeping the masses content. This would cost much less than a basic income and be less vulnerable to abuse. The program would be partially paid for by Facebook and Twitter in a partnership with the government, similar to product placement in TV shows, fast food restaurants, and movies; the rest of the money would, unfortunately, have to come from taxpayers, unless the partnership companies deem it worthwhile to front the entire cost. However, we believe our approach to the basic income is superior to existing proposals.