Monthly Archives: May 2016

Thought Police?

The dynamic between liberals and conservatives is more like sibling rivalry than anything remotely resembling adult discourse. It seems they are simply not happy unless they are fighting over some new outrage du jour. And as with most childhood spats it’s never really clear who started it. Such is the case with the whole brouhaha over these “bathroom laws”. It is unclear if the Charlotte, NC ordinance permitting transgender individuals to use the bathroom of the gender for which they “identify” was in response to some specific case or was merely part of the liberal agenda of memorializing into “law” a panoply of perceived “rights”. The liberal worldview: anyone who disagrees with us is a bigot and should be thrown in a cage for not sharing our enlightened views. Of course conservatives are no better; they are well known to adopt new “laws” to prevent things they find distasteful even if they have never happened. The rich irony, or perhaps it is hypocrisy, is that the normal narrative is that we of course need a strong central authority to ensure small little enclaves of people won’t do bad things. Of course the states must submit to the Feds, we’re one country after all! But when the only way to push a progressive goal is from the bottom up at the small local (city) level, such as these pro-transgender statutes, suddenly they will triumphantly tout the important role of decentralized authority. And now what a crime it is if the central authority overrides the smaller group. But if the small group were doing something “bad” then we of course need the large group to overrule them. So basically the approach to governance is that we should rely on the wisdom of whichever authority happens to be doing the thing I agree with. Here’s a novel idea – why don’t people just be allowed to live their lives as they see fit without some outside “authority” forcing them to conform to some standard.

Now, on the subject of this whole notion of transgender rights: it is all utter nonsense – in the same way that gay, women’s, worker’s and every other adjectival “rights” are nonsense. There is only one set of rights: human rights. And those rights do not necessitate the initiation of violence or the threat of violence to be upheld. If you want to “identify” as something other than what your chromosomes say you are, more power to you, I really couldn’t care less how you or anybody else lives their lives. That’s what freedom means, living your life as you see fit and leaving me to do the same. And leaving me to do the same means you do not have the right to make me “accept” you as whatever gender you think you are, you do not have the right to make me call you “zie” or “zim” or whatever silly neologism that was concocted to satisfy tender sensibilities. The possibility that someone somewhere might experience hurt feelings is insufficient cause to initiate violence in order to prevent such hurt feelings. If a business wants to permit non-gendered bathroom access that is their right and no one should force them to not permit it. And if another business wants to maintain more “traditional” bathrooms that is their right as well. If you don’t like either, then go somewhere else otherwise comply with their rules. That’s what private property means; your house, your rules and my house, my rules. Just because a business has a so-called “public” face does not change the nature of private property. “Public” is merely that adjective government apples to an activity in order that they may justify their intrusion into said activity, nothing more.

This whole trans-gender rights thing is not vey well thought out though. It is quite unlike “traditional” anti-discrimination laws which related to objective outward appearance. Transgenderism is a function of thought, not biology. So if gender exists only in one’s mind, how is one to distinguish between authentic transgenderism vs someone merely pretending in order to gain some advantage they wouldn’t normally have, like in sports perhaps? If you set the precedent that one’s gender is defined by thought then upon what basis will you keep men off of women’s’ teams or vice versa? So if Bruce Jenner decided he’s really a women I guess he could compete against other women runners, right? Oh, wait a minute…

In the end both sides will “win” as these pro or con laws will be about as effective as “Gun free zone” signs.

The Rise or Fall of Socialism

Is socialism on the rise (Bernie Sanders)? Or is it on the decline (Venezuela’s economic implosion, Brazil’s impeachment of their socialist President, Cuba and North Korea’s decades of abject poverty)? To be fair, one could likewise cite the relative success of China, Denmark, Norway, or Canada as proof of socialism’s success. Why the difference? Why are some putatively socialist countries not total economic basket cases whereas others clearly are? To uncover the answer we must understand why some groups of people come together and achieve their goals while others fail. In any endeavor there is a group of individuals who have tight control over the means of goal achievement. This allows them to direct those means so as to ensure an efficient operation that will achieve the desired ends. Does that not remind you of something else? Like say a business perhaps? The reality is that the modern nation-state is simply a really big company, with shareholders (citizens), a board of directors (congress/parliaments) and a president running the show. Unfortunately this is one corporate stock you can’t sell if you disagree with how the company is being run.

So if states are structured as a business, why do some fail and some thrive? For the same reasons any business might fail or thrive. Success entails the optimization of three factors: consent, control, and resources. All factors play a role, however any one of them can overwhelm the others. This is the reason we see very different outcomes in a variety of nominally socialist countries, e.g. Venezuela vs. Denmark. It is not enough to cite Cuba (excessive level of state control) as a failure and therefore close the case on socialism. Were that the case then one would be susceptible to charges that capitalism can’t “work” because sometimes a business goes bankrupt. However it is just as disingenuous for those on the left to cite oil-rich Norway (abundant resources) as proof of socialism’s success. If Cuba had Norway’s oil resources it would be faring far better. Or maybe not, as in the case of oil rich Venezuela which too suffers from excessive state control of the economy and is presently circling the drain.

Countries that exert a high degree of control (totalitarian) over their citizens will always experience less “success” than those that exert little control. Less control means greater freedom to innovate and solve problems from the bottom up rather than the top down. Formerly socialist/communist countries (China, Vietnam) that have embraced the benefits of freedom (that is, free vs. state managed markets) within their borders have seen improved standards of living relative to those that have not (Cuba, North Korea, Venezuela). As a country or business grows in size, efficient control becomes exponentially more difficult. This is due to the Hayekian knowledge problem. Stated simply it is the reason that a family farm runs smoothly but a state run collective not so much. Unfortunately, those in charge don’t realize they lack the appropriate knowledge and thus make sledgehammer style choices that only serves to undermine the endeavor. The solution to the size-control problem is to move toward less control and smaller size through decentralization. Large businesses with autonomous subsidiaries have mastered this problem well.

A critical and often overlooked factor in the success of a state is consent. Without consent the process will be crippled if participants undermine or refuse it. This is a key difference between business endeavors and state endeavors; states always compel those who do not consent to participate. Businesses cannot force people to work for them or for customers to buy their products. Apathy was not an option when it came to the rise of 20th century socialism. The motto of Russia, China, Vietnam, and Cambodia: join us or die. Democracies maintain an illusion of consent that mollifies a credulous citizenry into the quiet acceptance of being ruled. They are better than dictatorships, but not by much, and fall far short of the benefits one would see with true pluralism.

To make America great again we must recognize that while our resources are substantial our size puts us at a disadvantage. The only way to overcome that disadvantage is to loosen, not tighten, the reigns of economic control and to foster true consensual pluralism by permitting those who wish to not participate in the dominant system to work toward building alternatives that will expand, not constrain, choice.

Crocodile Tears

We often hear that that manufacturing is dying in the US because of unfair overseas competition. US manufacturers are either going out of business or shifting operations overseas. However global competition plays a role across all industries, not just manufacturing. Something else is at play. US tax policy singles out manufacturing (actually nearly any business dealing in tangible goods) with unfair rules designed to extract more tax relative to a service-oriented business with the same income albeit while claiming the same tax rate. As the owner of a small US manufacturing firm, I have sadly gained firsthand knowledge of the severe disadvantage one must contend with if they have the audacity to try and make or sell goods in the United States.

The signs of this are not immediately apparent since the nominal tax rate for all corporations (non-pass through) is 35%. The trick though is in the sleight of hand where the focus is on the tax rate while it is the definition of profit that is critical. The common definition of profit is any money remaining after subtracting all expenses from revenue. And we all know what an expenses is, right? Anything you spend in furtherance of the goal of obtaining said revenue. Well unfortunately it’s not that simple, at least as far as the IRS is concerned. In business there are both overhead expenses and capital expenses. Capital expenses are not immediately deducted against revenue but rather depreciated over many years. So if you buy a $100k piece of equipment you don’t deduct the $100k, you deduct maybe $10k that year and for the next 9 years. There may be legitimate business reasons to view the numbers that way for accounting purposes however beyond a certain minimal size a business may not use the cash method (which does not employ depreciation) for tax computation but instead must employ the accrual method which invariably yields a higher figure by shifting more future income into the present. This puts such businesses (primarily manufacturing which is a equipment intensive industry) at a severe disadvantage insofar as the part spent but not deducted accrues tax. But it gets worse. Manufacturing maintains inventory and the inventory is treated as a capital expenses as well therefore none of it can be deducted until sold. And even when sold it is not taxed at lower capital gain rates but at higher regular income rates. The IRS knows the game of “heads I win, tails you lose” quite well.

Ironically it is a rapidly growing business that is most susceptible to such tax harm as most if not all the profits are invested back into the company in order to grow the inventory to keep up with increasing sales. So if you make a $1 million but use it to buy $1 million in inventory you owe $350k in taxes even though you don’t have $350k on hand. Oops. So you either have to borrow it, incurring even greater costs, deliberately slow your rate of growth, or just go out of business. But wait, it gets even worse. If you do so well that your sales exceeds $1 million the IRS redefines expense once again (Section 263a) and says a certain percentage of your payroll, rent, utilities, insurance, etc that is indirectly associated with producing the inventory must also now be capitalized into the value of the inventory. This shifts even more money from the expense column to the profit column. So based on pure available cash flow you may have made $350k but based on IRS capitalization requirements they say you made $1million. So the entire $350k you made is sent to the IRS on your phantom $1 million income and you end the year with nothing.

Only manufacturing is subject to these absurd redefinitions of expense and profit. Service industries have no inventory and nearly no equipment so their profit more or less equals their cash flow. Farming gets a million loopholes to avoid these issues. The rules governing profit/income are far more germane to ones tax bill then the tax rate itself. If we want manufacturing to flourish in this country again perhaps we should stop punishing those who try to engage in it while crying crocodile tears about how US manufacturers are fleeing this country.

Earning Freedom

With each election cycle the people grow wearier of politicians who can’t get anything “done” – perennial gridlock maintains a perpetual status quo that breeds disdain for all things political. History teaches that as a community grows into a nation, then a country and finally an empire, the ensuing proliferation of voices brings action to a standstill. This sets the stage for a strong leader with a message of salvation. Finally! Someone who will do something! People get so frustrated they almost don’t care what is done as long as someone is changing things. At least with change there is at a chance their lot might improve. Witness the broad popularity of Donald Trump and Bernie Sanders; they both tell the people exactly what they want to hear, namely that their problems are not their fault and that if you only give either one the power he’ll make their lives great again.

However, there is an alternative to resigned acceptance of a dictator in chief. To uncover the alternative we must first be brave enough to ask: why is nothing getting done? Is it because a handful is maliciously plotting to undermine good ideas? Quite the contrary. It is our greatest strength, our ideas, our freedom of thought, that is the “downfall” here. Too many ideas all competing brings about not gridlock but equilibrium. No one idea can dominate because so many are equally appealing. But this will not stand! How can one rule without dominance? Perhaps dominance is not needed because human societies require no rulers to maintain order. Witness the “anarchy” among Protestant denominations. There are over 30,000 of them and without a single Protestant “ruler” somehow it all works just fine. Is this religious anarchy a thing to be feared? Quite the contrary, we universally welcome it as part of fundamental human liberty. Odd then that political free association is not likewise permitted and is instead smeared with fear-tinged epithets such as “anarchy”.

The real enemy is the notion that government can only “work” as long as unwilling people are forced to participate. It is like if a hundred people went into a McDonalds to order but food could not be served until at least 51 of them agreed on what to eat, and then all 100 would have to have the same meal. Let’s instead go to Burger King where everyone can have it their way. If I can order a hamburger while you order chicken nuggets then why is it so hard to let me opt out of Social Security even while you voluntarily choose to opt in? Life insurance doesn’t require participation of the entire country to “work”, so then why should a simple income insurance policy need it.

What if we just let each group implement their ideas as they desired, holding only those who voluntarily consent to such rules to be subject to them. If the progressive democrats want to have a single payer, massive minimum wage, cradle-to-grave-social security system then let them. Likewise if the social conservative republicans want to have drug, alcohol, gay-marriage, abortion-rejecting set of standards then let them. Nothing is stopping them from forming voluntary associations where all like-minded people agree to abide by such rules. If either side does not want to live among those who disagree with them then each is free to form private communities (á la the Amish) where no outside ideas will intrude upon their peace. If your ideas can only work if others are forced to participate in them then it’s time to examine the morality of your ideas.

A carriage goes nowhere if some horses refuse to move, some wish to go left, and some right. Better to release those with their own ideas and move forward rather than employing brutal force to bring all in line. In order to receive freedom, you must first be willing to give it.